Regional Morning Notes Tuesday, 21 October...

Tuesday , 21 Octobe r 2014

1 Refer to last page for important disclosures.

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

PLEASE CLICK ON THE PAGE NUMBER TO MOVE TO THE RELEVANT PAGE.

CHINA Strategy

P/B, ROE For Upside And Trough P/B For Downside Page 2We use P/B to capitalise the upside offered by the mean to reversion. On the other hand, we use trough P/B as a reference for downside protection.

INDONESIA Sector

Oilfield Services Page 4Muted impact from lower oil prices; policy and contract award remain key.

MALAYSIA Strategy

Rebound Page 6Beyond the anticipated year-end uptrend, the market will gradually de-rate to mean valuations in 2015. Meanwhile, focus on rebound plays before adopting a more defensive stance for 2015.

Results

Bursa Malaysia (BURSA MK/HOLD/RM7.90/Target: RM8.25) Page 93Q14: Despite record 50% yoy equity trading volume growth in 3Q14, value traded comes in at a much more muted 5% growth.

DiGi.Com (DIGI MK/BUY/RM5.93/Target: RM6.15) 23Q14: A consumer staple with strong balance sheet potential; a good set of 3Q14 results.

SINGAPORE Sector

Energy Page 15Lower oil prices but pockets of opportunities available. Re-iterate MARKET WEIGHT on the sector.

Results

Keppel Land (KPLD SP/BUY/S$3.18/Target: S4.30) Page 173Q14: Watch out for special dividend.

Mapletree Logistics Trust (MLT SP/HOLD/S$1.20/Target: S$1.32) Page 202QFY15: Outlook weakens as supply overhang looms; downgrade to HOLD.

THAILAND Sector

Oil & Gas Page 23Dampened oil prices create another obstacle for the sector; maintain UNDERWEIGHT. Our top picks in the O&G space are PTTGC and BCP on cheap valuations.

Update

Supalai (SPALI TB/BUY/Bt24.80/Target: Bt31.75) Page 263Q14 results preview.

KEY INDICES Prev Close 1D % 1W % 1M % YTD % DJIA 16399.7 0.1 0.5 (5.1) (1.1) S&P 500 1904.0 0.9 1.6 (5.3) 3.0 FTSE 100 6267.1 (0.7) (1.6) (8.3) (7.1) AS30 5307.3 0.9 3.0 (2.4) (0.9) CSI 300 2454.7 0.5 (0.0) 1.2 5.4 FSSTI 3181.1 0.4 (0.7) (3.8) 0.4 HSCEI 10295.5 0.6 0.1 (4.5) (4.8) HSI 23070.3 0.2 (0.3) (5.1) (1.0) JCI 5040.5 0.2 2.6 (3.6) 17.9 KLCI 1803.1 0.8 0.3 (2.5) (3.4) KOSPI 1930.1 1.5 0.1 (6.0) (4.0) Nikkei 225 15111.2 4.0 (1.2) (7.4) (7.2) SET 1526.7 (0.1) (1.0) (3.7) 17.6 TWSE 8663.1 1.8 (0.6) (6.2) 0.6 BDI 973 3.1 2.0 (9.5) (57.3) CPO (RM/mt) 2155 1.2 (1.4) 1.3 (16.2) Nymex Crude (US$/bbl)

83 (0.0) (3.5) (10.5) (16.0)

Source: Bloomberg

TOP PICKS Ticker CP (lcy) TP (lcy) Pot. +/-

( )BUY Sunac China 1918 HK 6.57 8.45 28.6 ICBC 1398 HK 4.94 6.15 24.5 Bank Mandiri BMRI IJ 10,125.00 12,500.00 23.5 Gamuda GAM MK 4.93 5.50 11.6 DBS DBS SP 18.00 22.68 26.0 Pacific Radiance PACRA SP 1.06 1.76 66.8 Bangkok Bank BBL TB 194.50 276.00 41.9 Advanced Info ADVANC 226.00 270.00 19.5

SELL UMWH Holdings UMWH MK 11.74 10.00 (14.8)

KEY ASSUMPTIONS GDP (% yoy) 2013 2014 2015F US 1.9 2.7 3.2 Euro Zone -0.4 0.9 1.4 Japan 1.5 1.5 2.0 Singapore 3.9 3.5 3.9 Malaysia 4.7 5.9 5.2 Thailand 2.9 1.5 3.9 Indonesia 5.8 5.2 5.8 Hong Kong 2.9 2.5 3.0 China 7.7 7.4 7.5 2013 2014F 2015F Brent (US$/bbl) 110 100 85 CPO (US$/mt) 736 788 848 BDI 1,219 1,200 1,300 Source: Bloomberg, UOB ETR, UOB Kay Hian

CORPORATE EVENTS Venue Begin Close

ASEAN Plantation Sector Taipei 20 Oct 21 Oct Analyst Presentation

ENN Energy Holdings Luncheon Hong Kong 29 Oct 29 Oct

Raffles Medical Group Luncheon Singapore 30 Oct 30 Oct

Alam Sutera Realty Taipei 10 Nov 11 Nov Corporate Roadshow

股票报告网整理http://www.nxny.com




STRATEGY – CHINA

P/B, ROE For Upside And Trough P/B For Downside With no immediate positive market triggers (such as the confirmation of the launch of the long-awaited Shanghai-Hong Kong Stock Connect programme), chances are that the Hong Kong stock market will remain choppy in the near term. Besides, “Occupy Central” to certain extent should continue to weigh on the Hong Kong market sentiment. The market may even see a worse scenario if the Ebola outbreak becomes a global epidemic, in addition to the crises in Ukraine and Iraq.

USE P/B AND ROE FOR UPSIDE

In a choppy market such as Hong Kong, investors will incorporate the element of net assets in order to limit the downside risk of the stock. This is where the P/B ratio comes into play.

P/B ratio measures what the market is willing to pay for those net assets. This is an important valuation gauge when the market is volatile or downside risk is increasing. As the book value is less volatile than profits or dividends, P/B ratio emerges as the more reliable ratio in markets with uncertainties.

Although P/B offers an easy-to-use tool to screen undervalued firms in a weak and volatile market, it may not carry much meaning for service firms which do not have significant fixed assets.

To offset the limitation of applying P/B ratio to different industries, the stocks are often analysed alongside the return on equity (ROE) to find out whether a stock is underpriced or overpriced in a lacklustre market.

We add the element of ROE because in the scenario where two companies that are otherwise equal, the one with a higher ROE will have a higher P/B ratio. The reason is clear – the firm that can compound book equity at a much higher rate is worth far more because book value will increase more quickly.

Thus, with the stock market facing the current headwinds, we will use the P/B ratio and ROE to assess the winners and losers, in light of investors’ more cautious view.

Therefore, we also consider ROE when we are looking at P/B. A firm with low P/B and a high ROE might be a potential bargain.

On the other hand, a sign that the stock is overvalued if it has low ROE but high P/B ratio.

Generally speaking, a P/B ratio smaller than the long-term P/B mean is an indication of good value for the stock.

Long-term P/B mean plays the role of a target price benchmark. Assuming that the current P/B ratio of a stock will revert to the long-term mean over time, we will prefer stocks with large upside to the long-term mean P/B (Figure 1).

USE TROUGH P/B FOR DOWNSIDE PROTECTION

Assuming the market sentiment turns sour, maximum drawdown could extend from the current P/B to the base-case scenario trough P/B, which acts as a key support level most of the time. Our base-case scenario trough P/B is derived from the lowest P/B from 1 Jul 09 to 20 Oct 14.

If we are heading towards a global decline in growth and a crisis in investors’ confidence, trough P/Bs during the periods of the Asian Financial crisis in 1998, SARS in 2003 and the global financial crisis in 2008 could be relevant. Figure 2 shows which stocks have the lowest premiums to trough valuations taking into consideration the base-case scenario and the three crisis periods mentioned above.

CONCLUSIONS:

Regarding the upside, Figure 1 indicates that the banking sector enjoys a large upside to the long-term P/B mean.

For the downside, we prefer stocks with the least premium to the trough P/B, in view of limited downside beyond the trough P/B.

ANALYST

Barole Shiu, CMT +852 22366716 [email protected]





FIGURE 1: UPSIDE BASE ON LONG-TERM P/B MEAN LT Upside to

Name P/B ROE FY14 PB Mean LT P/B Mean1728 HK Equity CHINA ZHENGTONG AUTO SERVICE 0.98 12.78 1.86 90.2%1828 HK Equity DAH CHONG HONG 0.89 11.14 1.66 87.5%883 HK Equity CNOOC LTD 1.21 15.88 2.24 85.4%3328 HK Equity BANK OF COMMUNICATIONS CO-H 0.73 14.68 1.34 84.0%489 HK Equity DONGFENG MOTOR GRP CO LTD-H 1.18 18.81 2.10 78.6%1800 HK Equity CHINA COMMUNICATIONS CONST-H 0.73 13.50 1.31 78.2%939 HK Equity CHINA CONSTRUCTION BANK-H 0.96 20.12 1.64 71.5%1398 HK Equity IND & COMM BK OF CHINA-H 1.01 20.13 1.72 70.1%1368 HK Equity XTEP INTERNATIONAL HOLDINGS 1.25 12.39 2.11 69.2%1186 HK Equity CHINA RAILWAY CONSTRUCTION-H 0.84 13.09 1.33 57.6%552 HK Equity CHINA COMMUNICATIONS SERVI-H 0.88 10.83 1.35 53.8%3988 HK Equity BANK OF CHINA LTD-H 0.80 16.93 1.20 49.6%1288 HK Equity AGRICULTURAL BANK OF CHINA-H 0.98 20.23 1.44 46.8%1988 HK Equity CHINA MINSHENG BANKING-H 0.90 20.93 1.29 42.7%1813 HK Equity KWG PROPERTY HOLDING LTD 0.67 15.45 0.95 40.3%390 HK Equity CHINA RAILWAY GROUP LTD-H 0.80 11.33 1.13 40.1%1109 HK Equity CHINA RESOURCES LAND LTD 1.20 12.63 1.67 38.8%1638 HK Equity KAISA GROUP HOLDINGS LTD 0.61 17.79 0.81 32.5%857 HK Equity PETROCHINA CO LTD-H 1.16 11.16 1.51 30.5%2238 HK Equity GUANGZHOU AUTOMOBILE GROUP-H 1.09 11.57 1.43 30.4%813 HK Equity SHIMAO PROPERTY HOLDINGS LTD 1.01 19.17 1.29 28.1%995 HK Equity ANHUI EXPRESSWAY CO LTD-H 0.87 11.07 1.08 24.2%884 HK Equity CIFI HOLDINGS GROUP CO LTD 0.74 20.79 0.91 23.3%386 HK Equity CHINA PETROLEUM & CHEMICAL-H 1.03 11.32 1.21 17.6%

Source: Bloomberg, UOB Kay Hian

FIGURE 2: DOWNSIDE BASE ON TROUGH P/B IN DIFFERENT CRISIS PERIOD

Current Premium to Name P/B Trough P/B

101 HK Equity HANG LUNG PROPERTIES LTD 0.82 0.2%3383 HK Equity AGILE PROPERTY HOLDINGS LTD 0.34 0.6%991 HK Equity DATANG INTL POWER GEN CO-H 0.92 0.6%3968 HK Equity CHINA MERCHANTS BANK-H 0.93 0.8%2318 HK Equity PING AN INSURANCE GROUP CO-H 1.79 0.8%144 HK Equity CHINA MERCHANTS HLDGS INTL 0.94 1.9%293 HK Equity CATHAY PACIFIC AIRWAYS 0.89 2.3%762 HK Equity CHINA UNICOM HONG KONG LTD 0.96 3.0%3368 HK Equity PARKSON RETAIL GROUP LTD 0.83 3.4%2777 HK Equity GUANGZHOU R&F PROPERTIES - H 0.65 3.6%939 HK Equity CHINA CONSTRUCTION BANK-H 0.96 3.6%123 HK Equity YUEXIU PROPERTY CO LTD 0.42 3.9%883 HK Equity CNOOC LTD 1.21 4.5%119 HK Equity POLY PROPERTY GROUP CO LTD 0.37 4.5%552 HK Equity CHINA COMMUNICATIONS SERVI-H 0.88 4.9%1288 HK Equity AGRICULTURAL BANK OF CHINA-H 0.98 5.2%887 HK Equity EMPEROR WATCH & JEWELLERY 0.58 5.6%1398 HK Equity IND & COMM BK OF CHINA-H 1.01 5.7%1899 HK Equity XINGDA INT'L HOLDINGS 0.61 5.7%2601 HK Equity CHINA PACIFIC INSURANCE GR-H 1.85 6.2%3308 HK Equity GOLDEN EAGLE RETAIL GROUP 2.71 6.3%1066 HK Equity SHANDONG WEIGAO GP MEDICAL-H 2.78 6.3%2202 HK Equity CHINA VANKE CO LTD-H 1.63 6.4%12 HK Equity HENDERSON LAND DEVELOPMENT 0.61 6.9%11 HK Equity HANG SENG BANK LTD 2.23 6.9%1088 HK Equity CHINA SHENHUA ENERGY CO-H 1.17 7.1%548 HK Equity SHENZHEN EXPRESSWAY CO-H 0.80 7.2%151 HK Equity WANT WANT CHINA HOLDINGS LTD 8.54 7.5%322 HK Equity TINGYI (CAYMAN ISLN) HLDG CO 5.05 7.9%753 HK Equity AIR CHINA LTD-H 0.90 7.9%






SECTOR UPDATE

Oilfield Services – Indonesia Limited Impact From Lower Oil Prices; Political Resolve Remains Key

We see limited impact on the Indonesian OSV sector from the recent fall in oil prices as Indonesia remains a big net importer of oil with surging demand outstripping supply. The key catalyst to the sector is the political resolve to press ahead in terms of fulfilling its energy requirements and the expected revamp of its governing body (SKK Migas) post recent corruption scandals. Overall, we expect contract awards to remain sluggish in the near term and expect a pick-up in 2H15. Logindo remains our preferred stock pick. Maintain OVERWEIGHT.

WHAT’S NEW

Lower oil prices. We have revised Brent oil price forecasts for 2014 and 2015 to US$100/bbl and US$85/bbl respectively from US$105/bbl previously. Since Jan 14, the WTI has averaged US$8 below the Brent.

We spoke to the management teams of Wintermar Offshore Marine (Wintermar) and Logindo Samudramakmur (Logindo) on sector prospects and outlook post recent elections.

ESSENTIALS

Limited impact from falling oil prices to OSV sector as Indonesia still imports nearly half of its oil requirements. Indonesia’s oil production has experienced a steady decline since 2000 due to the maturing of old oil-producing fields and slow reserve replacement rate. Conversely, oil consumption has increased and made Indonesia a net importer of refined petroleum by the year 2000. Indonesia’s oil and condensate output is currently about 800,000bpd (2013) against a demand of 1.45m bpd, resulting in a monthly import bill of US$1.3b, according to Upstream. We do not see a bigger impact from falling oil prices as the primary objective remains meeting its domestic consumption requirements.

Recent contract awards are shorter term in nature. Contract awards have slowed down in 9M14 due to the overhang surrounding presidential elections and corruption scandal involving the top officials of SKK Migas. This has resulted in the delay of many planned E&P activities and oil majors have resorted to awarding more shorter-term contracts to avoid the delay in exploration activities. The slowdown in contract awards and larger number of shorter tenure contracts are expected to impact short-term performance of OSV companies.

Contract wins to pick up in 1H15 with new government settling in. The recent Indonesia elect president Jokowi is set to revamp the O&G sector with the government studying the possibilities of disbanding SKK Migas and merging its functions with the Energy and Mineral Resources Ministry to expedite and bring about transparency. The proposed reforms are likely to boost foreign investors’ confidence in the sector. We expect the contract wins to pick up in early-1H15 once the new government settles in.

STOCK IMPACT

Logindo (BUY/Target: Rp.5,800) 3Q14 performance to be impacted by lower utilisation. Gross margins for 3Q14 are

expected to be impacted due to lower utilisation of its vessels on the back of: a) dry-docking of its two accommodation work boats, and b) transitioning of the vessels between charters. In terms of contract wins, Logindo has secured a long-term (3-year) contract worth US$27m for a 12,000bhp AHTS with new customer ENI but has not been able to secure the AHTS (16,000 bhp) and PSV contract with the same client.

Orderbook of US$153m. About 80% of Logindo’s orderbook is longer-term contracts (2-3 years) and the remaining is shorter terms (6-12 months). Logindo’s overall average vessel charter-tenure remains comfortable at around two years. Management however noted that some of its recently secured contracts are shorter term due to the uncertainties in the market which is likely to bring down the average tenure. It is currently bidding for about US$150m worth of contracts.

Maintain BUY with a lower target price of Rp5,800. Our target price revision is due

OVERWEIGHT (Maintained) STOCK PICKS Company Rec Target Share Price Price

(Rp) (Rp)

Logindo BUY 5,800 4,350 Wintermar HOLD 1,240 1,210 Source: UOB Kay Hian INDONESIA OIL SUPPLY VS. CONSUMPTION

Source: Wintermar PRICE CHART - LOGINDO

70

90

110

130

150

170

190

2000

2500

3000

3500

4000

4500

5000

5500

(%)(lcy)LOGINDO SAMUDRAMAKMUR TBK PT

LOGINDO SAMUDRAMAKMUR TBK PT/JCI INDEX

0

2

4

6

8

Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14

Volume (m)

Source: UOB Kay Hian PRICE CHART - WINTERMAR

70

100

130

160

190

220

250

400

600

800

1000

1200

1400

1600

(%)(lcy)WINTERMAR OFFSHORE MARINE

WINTERMAR OFFSHORE MARINE/JCI INDEX

0

5

10

15

Oct 13 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14

Volume (m)

Source: UOB Kay Hian

ANALYST

Vijay Natarajan +65 6590 6626 [email protected]

Nancy Wei +65 6590 6626 [email protected]





to the delay in expected pick-up in contract awards resulting in lower earnings forecast for 2015. The stock is trading relatively cheaply at 8x 2015F PE, vs Wintermar’s 11x offering better value. Our target price is pegged at 11.5x 2015F PE, a 20% premium to 1-year forward mean average PE of Singapore OSV owners.

Wintermar (HOLD/Target: Rp.1,240) Lower utilisation and shorter-term contracts to impact near-term performance.

Wintermar’s performance in 2H is likely to be impacted by lower vessel utilisation levels of about 70% (73% in 1H) on the back of the slowdown in contract awards. The delay in approvals means that vessels exposed exploration activities received shorter-term contracts and there was more idle vessel time in between charters.

Deferment of 2014 capex to mitigate near-term slowdown. Wintermar plans to slightly defer its purchase of 1xASB and 1x AHTS (6,000bhp) to the beginning of next year after taking into consideration weak market conditions in the near term. For 2014, we expect the total capex to be at US$50m, which is lower than the initially-guided US$65m.

Diversifying risk through overseas expansion. Wintermar has diversified its chartering business in the region to mitigate the impact of contract slowdown. Recently, it has signed a 5-year charter contract for a utility with Brunei Shell. Besides Brunei, management also sees good opportunity in Myanmar, Vietnam and the Philippines.

Maintain HOLD with a lower target price of Rp1,240. Our target price is pegged at 11.5x PE, a 20% premium to 1-year forward mean average PE of Singapore OSV owners. While we continue to remain optimistic on Indonesia’s OSV sector and like Wintermar’s positioning in the cabotage protected market, we believe that at current valuations, most of the near-term positives have been priced in. We would advise investors to wait for better entry levels. Entry price is Rp1,075.

ASSUMPTION CHANGES

Logindo. We revise down 2014-15 net profit forecasts to US$22.6m (-6%) and US$28.2m (-10%) due to slower-than-expected contract awards and lower utilisation levels.

Wintermar. We revise down 2014-15 net profit forecasts to US$26.6m (-8%) and US$35.8m (-6%), factoring in lower utilisation levels on the back of a larger number of shorter-term contracts.

SECTOR CATALYSTS

Stricter and timely implementation of cabotage deadline.

Higher-than planned-investments in O&G sector.

RISKS

Political and regulatory risk.

Relaxation of cabotage regulation.

OFFSHORE-OILFIELD BREAKEVEN BRENT OIL PRICES

Arctic Region

Ultra-Deepwater (West Africa)

Ultra-Deepwater (US Gulf) Medium (North Sea)

Ultra-Deepwater (Brazil Pre-Salt)

Shallow-Medium Water (Southeast Asia)

Shallow-Medium Water (Caspian Sea)

80

70

60

50

40

30

20

Long-term sustainable Oil Price: $90-S$100/bbl)

Source: Infield Systems

REGIONAL SECTOR 1-YEAR FWD PE

Source: Bloomberg, UOB Kay Hian INDONESIA OSV SECTOR 1-YEAR FWD P/B

Source: Bloomberg, UOB Kay Hian.

PEER COMPARISON TABLE Company Ticker Rec Price @ Target Mkt Cap PE (x) P/B (x) 2014F 2014F Net Gearing

20 Oct 14 Price (US$m) 2014F 2015F 2014F 2015F ROE (%) Yield (%) (%) (Rp) (Rp)

Indonesia OSV Owners BBR BBRM IJ NR 189 n.a. 59 n.a. n.a. n.a. n.a. n.a. n.a. 96.2 Logindo LEAD IJ BUY 4350 5800 233 10.3 8.3 1.7 1.4 18.3 0.0 110.4 Rig Tenders RIGS IJ NR 342 n.a. 17 n.a. n.a. n.a. n.a. n.a. n.a. (10.6) Wintermar WINS IJ HOLD 1210 1240 405 15.1 11.2 2.0 1.7 13.9 1.4 48.2 Average 12.7 9.7 1.9 1.6 16.1






STRATEGY – MALAYSIA

Back To The Old Normal Beyond the anticipated year-end uptrend, the market will gradually de-rate to mean valuations in 2015 as various challenges crystalise on both the economic and capital market fronts. Although we advocate being defensive over time, there are trading opportunities as the market recovers from the last two weeks of fall-off. We remain positive that ample domestic liquidity will still reward selective mid caps with good absolute returns through 2015.

WHAT’S NEW

Further market recovery anticipated following last week’s capitulation. We believe the market has capitulated last week, betting that in the interim, there would not be any major sell-off in crude oil prices. The FBMKLCI, FBM70 and FBMSC have recovered by 2%, 3% and 6% from their respective lows.

However, valuations are going back to the ‘old normal’ as market dynamics weaken. Beyond our anticipated domestic liquidity-driven year-end uptrend, we expect the FBMKLCI to trade mostly at its mean PE in 2015 as the following economic challenges impact investor sentiment – softer crude oil prices in 2015, domestic inflation in particularly 1H15 and rising interest rate expectations in 2H15 (end of QE programmes could reduce foreign ownership of Malaysian bonds). Softer crude oil prices, which moderately worsen government deficit, coupled with domestic inflation (going against a global deflationary environment) suggest the ringgit would remain weak.

Market liquidity still supportive of mid caps with good fundamentals. While we would avoid concept stocks, still ample market liquidity and the lack of cheap large caps should allow selected mid caps to deliver good capital gains through 2015, although the pool of such companies with decent earnings growth visibility would be smaller.

Meanwhile, our financial screen reveals trading opportunities. While our valuation review shows that most sectors are still not compelling relative to their mean PEs, some investment-worthy mid caps have retraced significantly.

ACTION

Focus on rebound plays. Our top rebound plays include MPHB Capital, various O&G companies (Bumi Armada and Barakah, refer to table overleaf for worst hit companies) and MRCB.

Our top picks are Bumi Armada, Gamuda, Genting Bhd, Maybank and Tenaga for large caps, and Barakah and MRCB for small-mid caps. We have added Genting Bhd (replacing Sapura Kencana) for large caps, and Barakah and Deleum (replacing Uzma and Hong Leong Industry post its value-enhancing exercise).

Emphasis on defensive stocks in 2015, which favour the utility, telecommunications, gaming, media (Astro), consumer and REITs sectors. Topping our list are Tenaga and high yielders such as Magnum (refer to RHS table).

STOCK PICKS

Company Ticker Rec Price

20 Oct 14 Target Price Mkt Cap PE (x) P/B (x) ROE

(RM) (RM) (US$m) 2013 2014F 2015F 2014F 2014F Small/Mid Caps SKP Resources SKP MK BUY 0.64 0.83 175 3.1 2.9 2.1 14.6 20.4 Deleum DLUM MK BUY 1.88 2.40 230 3.1 2.7 2.4 13.2 22.1 Barakah ARAKAH MK BUY 1.24 1.95 238 3.1 2.3 1.8 9.3 28.5 MPHB Capital MPHB MK BUY 2.29 2.80 512 25.5 20.8 24.0 1.3 6.0 MRCB MRC MK BUY 1.45 2.05 780 1.4 1.4 1.3 37.4 3.9 Large Caps Bumi Armada BAB MK BUY 1.46 1.95 2,617 1.0 1.3 1.3 19.5 8.2 Gamuda GAM MK BUY 4.93 5.50 3,502 2.1 2.0 1.8 15.6 13.1 Genting Berhad GENT MK BUY 9.12 11.39 10,362 1.3 1.3 1.2 17.6 6.0 Tenaga TNB MK BUY 12.56 14.55 21,662 1.8 1.6 1.5 12.6 13.4 Maybank MAY MK BUY 9.69 10.80 27,101 13.1 12.7 11.9 1.7 14.3 Source: UOB Kay Hian

MARKET PE TO NORMALISE IN 2015

600

800

1,000

1,200

1,400

1,600

1,800

08 09 10 11 12 13 14

10

12

14

16

18

20

22

mean = 14.7x

(Index ) (x )

FBMKLCI (LHS)1-y ear PE (RHS)

Dec 09 : 14.1x

(-0.3SD)

Dec 10 : 15.5x

(+0.5SD) Dec 11 : 13.5x

(-0.6SD)

Dec 12: 14.5x

(-0.1SD)

Dec 13: 16.2x

(+0.9SD)

Source: UOB Kay Hian REBOUND PLAYS

Company Tickers Price 20 Oct 14

(RM) % chg Bumi Armada BAB MK 1.46 (23.2) Perisai Petroleum PPT MK 1.02 (19.7) Deleum DLUM MK 1.88 (16.8) Uzma UZMA MK 3.33 (12.8) SapuraKencana SAKP MK 3.60 (12.6) MPHB Capital MPHP MK 2.29 (12.6) Barakah BARAKAH MK 1.24 (12.1) MRCB MRC MK 1.45 (11.6) SKP Resources SKP MK 0.635 (10.6)

Source: UOB Kay Hian DEFENSIVE PICKS - HIGH YIELDERS

Company

Tickers Fwd PE (x)

Div Yield (%)

Magnum MAG MK 13.0 6.8 Maybank MAY MK 11.1 6.8 Btoto BST MK 13.4 6.7 CapitaMalls Malaysia Trust

CMMT MK 13.4 6.7

Sunway REIT SREIT MK 16.2 6.5 Carlsberg CAB MK 16.1 5.9 Axis REIT AXRB MK 17.9 5.6 IGB REIT IGBREIT MK 20.3 5.5 Guinness Anchor GUIN MK 17.4 5.5 SKP Resources SKP MK 10.7 5.4 Pavilion REIT PREIT MK 19.5 5.4 KLCC Property KLCCSS MK 15.9 5.3 Maxis Berhad MAXIS MK 21.7 5.3

Source: Bloomberg, UOB Kay Hian ANALYSTS

Vincent Khoo, CFA +603 2147 1998 [email protected]

Malaysia Research Team +603 2147 1988 [email protected]





ESSENTIALS

Falling back to mean valuations. Beyond 2014, we expect the FBMKLCI to lose some of the lustre regionally of being a highly defensive bourse, and to mostly trade at around its 10-year mean PE of 10.7x throughout most of 2015 (currently +0.6SD). Admittedly, there could be downside to our 2014 target of 1,885 given there could still be earnings downgrade to our 2015 forecasts. Note that our recently downgraded crude oil price assumption of US$85/bbl (previously US$105) should not materially affect our current market growth forecasts of 6.8% and 10.8% for 2014 and 2015.

Challenges anticipated in 1H15 include weak crude oil prices and a peculiar period of high inflation (after GST implementation) amid a global deflationary period – which implies weaker domestic consumption trend and a weaker ringgit. We note there has been empirical evidence of a weak RM/US$ during periods of rising inflation spread (see RHS chart). Note that weaker crude oil prices may weaken the federal government’s ability to provide fiscal stimulus since the federal government derives more crude oil-related revenues than savings from energy subsidies. By 2H15, the equity market will brace for the side effects of rising global interest rates that could prompt some foreign investors to exit from the heavily-foreign owned Malaysian Government Securities. This implies above-average risk aversion in the domestic equity market.

Such all-year round issues dilutes the FBMKLCI’s status of being a regional safe haven, and suggest that foreign ownership would not improve in 2015. Fortunately, we do note foresee much foreign portfolio outflows given the already modest foreign ownership of around 23%. In fact, we reckon the recent market sell-down has probably been ‘internally inflicted’, ie although we reckon that the net buying by retailers and domestic institutions (se RHS chart) belies the on-the-ground feel that the downside was accentuated by initial selling by both parties which precipitated margin calls when the FBMKLCI pulled below 1,800.

No compelling values emerging yet. Our valuation overview reveals that most major sectors continue to trade well above their 2009 troughs as well as above their historical mean PEs, except for the gaming (casino) sector (refer to RHS table). Meanwhile, while the O&G heavy engineering segment seemingly trading at well below its “long-term” P/B, we caution this indicator is not reliable due to a short history and an even weaker forthcoming earnings cycle.

Nevertheless, ample liquidity to support outperformance of fundamentally sound mid caps. We still expect mid caps to trade largely in line with the FBMKLCI despite the recent spike in risk aversion, as mid caps reasonably trade close to its historical average 4.8x PE discount to the FBMKLCI, and still feature better earnings growth prospects in 2015-16. The lack of compelling large caps should ensure good re-rating for the fundamentally sound mid caps. Apart from O&G companies with resilient earnings (Deleum, Uzma), we also like companies with event catalysts, such as MPHB Capital and SKP Resources.

Defensive plays to gain prominence over time. As we expect defensive plays to be given increasing emphasis over time, the defensive stocks on our BUY list worth considering are Tenaga, Genting Bhd, Astro, as well as high-yielding HOLD-rated companies – brewers Carlsberg and GAB, Magnum, Maxis, Axis REIT and KLCC Property.

RINGGIT AND MALAYSIA’S INFLATION SPREAD

-6.0

-4.0

-2.0

0.0

2.0

4.0

Mar-06 Mar-08 Mar-10 Mar-12 Mar-14

2.0

2.5

3.0

3.5

4.0

Inflation spread: MY v s WorldInflation spread: MY v s AsiaRM/USD

(ppt) (RM/USD)

Source: CEIC, Bloomberg, UOB Kay Hian EQUITIES: MONTHLY NET TRADE POSITION

-5

-4

-3

-2

-1

0

1

2

3

4

Foreign Domestic

Institutional

Domestic Retail

Jan-14 Feb-14 Mar-14 Apr-14May -14 Jun-14 Jul-14 Aug-14Sep-14 Oct 14 (1H)

(RMb)

Source: CEIC, The Sun, UOB Kay Hian BY SECTOR: CURRENT VS MEAN, TROUGH P/B

Cur P/B LT P/B

Through P/B (excl

2H08-1H09)

Upside to LT P/B Mean (%)

Automobile 2.05 1.91 1.31 (6.7) Aviation 1.47 1.63 0.86 10.9 Banking 1.78 2.03 1.29 13.8 Construction 1.58 1.55 0.84 (1.6) Consumer 14.66 11.16 7.62 (23.8) Exchange 5.25 4.59 3.56 (12.6) Gaming 1.48 1.93 1.32 30.2 Glove manufacturing 3.55 3.04 1.52 (14.4) Media 27.37 n.a n.a n.a Oil & gas – Heavy Engineering 2.04 4.23 2.04 107.4 Oil & gas - Offshore asset owners 1.93 2.14 0.59 10.8 Oil & gas - Offshore Contractors 2.09 1.76 0.94 (15.8) Oil & gas - Shipping 1.19 1.59 0.86 33.4 Plantation 2.46 2.61 1.83 5.9 Power 1.80 1.17 0.78 (34.8) Property 1.23 1.74 1.13 41.0 REITs 1.14 0.87 0.54 (24.1) Telecommunications 5.49 3.49 1.38 (36.5) FBMKLCI 2.35 2.11 1.77 (10.2)

Source: UOB Kay Hian *O&G sector’s LT P/B is not a good indicator given the sector’s relatively brief rerating history





TROUGH VALUATION

Share Price Target % Upside/ Fwd LT Avg Trough Fwd LT Mean Trough Company Ticker Rec 20 Oct 14 Price (Downside) PB P/B P/B PE P/E PE (RM) (RM) to TP (x) (x) (x) (x) (x) (x) Alliance Financial Group AFG MK HOLD 4.84 4.75 (1.9) 1.7 1.5 0.9 12.1 11.3 8.2 AirAsia AIRA MK BUY 2.35 3.20 36.2 1.0 2.2 0.9 8.4 n.a Losses AMMB Holdings AMM MK SELL 6.76 6.70 (0.9) 1.3 1.6 0.7 12.0 11.9 6.0 Astro Malaysia ASTRO MK BUY 3.25 3.65 12.3 21.0 29.0 n.a 23.2 31.0 n.a. Axiata AXIATA MK HOLD 7.04 6.60 (6.3) 2.8 1.9 0.7 19.5 14.5 14.8 Axis REIT AXRB MK HOLD 3.65 3.20 (12.3) 1.5 1.8 0.6 17.9 14.7 6.5 Bumi Armada BAB MK BUY 1.46 2.20 50.7 1.2 2.6 n.a 11.2 19.0 12.3 Barakah Offshore Petroleum BARAKAH MK BUY 1.24 1.95 57.0 1.8 3.3 n.a 9.3 13.7 n.a. Berjaya Sports Toto BST MK HOLD 3.50 3.88 10.9 6.8 7.7 7.5 13.4 13.7 11.3 Bursa Malaysia BURSA MK HOLD 7.90 8.25 4.4 5.8 4.4 2.9 21.1 26.4 13.0 Carlsberg Malaysia CAB MK HOLD 10.86 13.26 22.1 11.3 7.5 2.1 16.1 16.7 11.8 CIMB Group CIMB MK SELL 6.54 6.75 3.2 1.3 1.9 1.1 11.3 13.0 6.9 CapitaMalls Malaysia Trust CMMT MK BUY 1.43 1.61 12.6 1.2 1.1 n.a 13.4 16.5 8.8 DiGi.Com DIGI MK BUY 5.93 6.15 3.7 69.8 40.7 5.1 20.2 15.9 Losses Dialog Group DLG MK BUY 1.64 1.95 19.2 4.2 5.0 2.1 20.8 20.6 6.8 Deleum DLUM MK BUY 1.88 2.40 27.7 2.4 1.7 0.7 11.0 7.4 1.0 Gamuda GAM MK BUY 4.93 5.50 11.6 1.8 1.9 0.8 14.2 15.0 9.8 Genting Malaysia GENM MK HOLD 4.04 4.47 10.6 1.4 1.7 1.2 15.9 13.3 7.5 Genting Plantations GENP MK SELL 10.04 8.45 (15.8) 1.9 1.8 0.8 17.8 18.3 8.1 Genting Berhad GENT MK BUY 9.12 11.39 24.9 1.2 1.4 0.9 16.9 14.6 8.0 Guinness Anchor GUIN MK HOLD 12.42 13.75 10.7 7.9 3.6 2.6 17.4 19.0 9.4 Hartalega Holdings HART MK SELL 6.70 5.11 (23.7) 4.1 3.6 1.4 15.9 9.1 1.8 Hong Leong Bank HLBK MK HOLD 14.20 15.40 8.5 1.6 1.7 1.3 10.8 11.2 9.0 HLFG HLFG MK SELL 17.20 15.80 (8.1) 1.3 1.2 0.8 9.1 8.9 5.8 IGB REIT IGBREIT MK HOLD 1.27 1.17 (7.9) 1.3 n.a n.a 20.3 19.6 17.7 IJM Corporation IJM MK BUY 6.45 7.45 15.4 1.2 1.4 0.4 13.1 14.2 7.0 IJM Plantations IJMP MK SELL 3.23 2.85 (11.8) 1.7 1.7 1.1 16.9 19.3 9.2 IOI Corporation IOI MK SELL 4.67 4.45 (4.7) 3.8 2.6 1.6 16.8 16.1 10.3 KLCC Property Holdings KLCCSS MK HOLD 6.53 6.40 (2.0) 2.7 0.6 0.5 15.9 17.5 3.7 Kuala Lumpur Kepong KLK MK HOLD 20.52 21.40 4.3 2.3 2.6 1.2 15.2 17.3 11.0 Kossan Rubber KRI MK HOLD 4.52 4.36 (3.6) 3.1 2.4 1.2 15.6 7.2 3.2 Magnum Berhad MAG MK BUY 2.88 3.33 15.6 1.6 0.7 0.4 13.0 10.0 4.5 Malaysia Airports Holdings MAHB MK HOLD 6.70 7.80 16.4 1.5 1.0 0.6 31.1 11.4 7.1 Maxis Berhad MAXIS MK HOLD 6.62 6.40 (3.3) 10.5 5.9 n.a 21.7 19.6 15.5 Malayan Banking MAY MK BUY 9.69 10.80 11.5 1.5 1.7 0.9 11.1 11.9 7.1 MISC Berhad MISC MK HOLD 6.79 7.00 3.1 1.1 1.6 0.9 16.6 17.9 16.2 MMHE MMHE MK HOLD 2.45 2.50 2.0 2.1 2.8 n.a 15.4 21.8 16.3 MRCB MRC MK BUY 1.45 2.05 41.4 1.3 1.6 0.7 22.5 28.5 10.0 Mah Sing Group Berhad MSGB MK HOLD 2.36 2.58 9.3 1.4 1.4 1.1 9.1 7.6 7.6 Nestle Malaysia Bhd NESZ MK SELL 67.00 60.84 (9.2) 13.6 11.7 9.6 25.7 20.5 13.0 Public Bank PBK MK HOLD 18.60 18.90 1.6 2.5 2.7 2.2 15.2 13.2 9.3 Perisai Petroleum PPT MK BUY 1.02 1.20 17.6 1.1 3.2 0.9 9.0 7.8 2.0 Pavilion REIT PREIT MK BUY 1.45 1.49 2.8 1.3 1.3 n.a 19.5 19.4 16.6 QL Resources QLG MK HOLD 3.23 3.05 (5.6) 2.5 2.2 1.9 18.5 12.7 5.9 RHB Capital RHBC MK HOLD 8.48 8.00 (5.7) 1.1 1.2 0.7 9.8 9.6 4.7 British American Tobacco ROTH MK HOLD 66.80 66.70 (0.1) 31.7 17.8 17.0 20.0 18.0 11.2 SapuraKencana SAKP MK BUY 3.60 4.50 25.0 1.6 2.7 n.a 12.9 17.6 12.8 Sime Darby SIME MK HOLD 9.16 8.30 (9.4) 1.7 1.9 1.3 16.2 15.6 17.0 SKP Resources SKP MK BUY 0.64 0.830 30.7 2.1 1.1 0.2 10.7 6.3 2.5 SP Setia Berhad SPSB MK HOLD 3.40 3.50 2.9 1.3 1.6 1.1 13.7 17.7 9.5 Sunway REIT SREIT MK BUY 1.52 1.51 (0.7) 1.2 n.a n.a 16.2 n.a 13.2 Sunsuria Bhd SSR MK HOLD 1.29 1.45 12.4 1.6 n.a n.a 10.1 16.5 14.0 Sunway Berhad SWB MK BUY 3.30 3.51 6.4 1.0 1.1 0.3 12.3 10.0 6.9 Telekom Malaysia T MK SELL 6.86 5.70 (16.9) 3.4 2.1 0.5 26.3 23.3 Losses Tenaga Nasional TNB MK BUY 12.56 14.55 15.8 1.5 1.3 0.8 11.9 12.0 8.8 Top Glove * TOPG MK HOLD 5.01 5.08 1.4 1.9 3.4 1.4 13.8 13.6 5.2 Tropicana Corp TRCB MK HOLD 1.23 1.58 28.5 0.7 0.7 0.5 11.4 8.6 6.1 UEM Sunrise Bhd UEMS MK HOLD 1.75 2.14 22.3 1.1 2.5 1.0 14.0 28.3 Losses UMW Holdings Berhad UMWH MK SELL 11.74 10.00 (14.8) 1.9 1.9 1.4 13.9 12.4 11.3 Uzma UZMA MK BUY 3.33 3.85 15.6 2.6 1.3 0.6 13.8 6.9 2.3 WCT Holdings Berhad WCTHG MK HOLD 2.09 2.35 12.4 1.0 1.6 0.6 12.8 9.4 6.5 Yinson YNS MK HOLD 2.65 2.85 7.4 2.0 1.3 0.3 21.5 13.5 7.6






COMPANY RESULTS HOLD

(Maintained)

Share Price RM7.90

Target Price RM8.25

Upside +4.4%

COMPANY DESCRIPTION Bursa is a fully integrated stock exchange offering a wide range of exchange-related services. It also offers information services related to the Malaysian securities market

STOCK DATA GICS sector Financials

Bloomberg ticker: BURSA MK

Shares issued (m): 533.5

Market cap (RMm): 4,214.8

Market cap (US$m): 1,288.1

3-mth avg daily t'over (US$m): 1.4

Price Performance (%) 52-week high/low RM8.32/RM7.40

1mth 3mth 6mth 1yr YTD

(2.3) (1.7) 6.4 1.9 (1.6)

Major Shareholders %

Capital Market Development Fund 18.8

Minister of Finance 16.2

EPF 9.4

FY14 NAV/Share (RM) 1.34

FY14 Net Cash/Share (RM) 0.69

PRICE CHART

80

90

100

110

6.50

7.00

7.50

8.00

8.50

9.00

(%)(lcy)BURSA MALAYSIA BHD

BURSA MALAYSIA BHD/FBMKLCI INDEX

0

1

2

3

4


Volume (m)

Source: Bloomberg

ANALYST Keith Wee Teck Keong +603 2147 1981 [email protected]

Bursa Malaysia (BURSA MK)

3Q14: Pointing To A Slower 4Q14

Bursa’s 3Q14 results were in line with expectations, underpinned by a strong surge in trading volumes in August. However, judging from October’s volume and value trends (-19% and -3% from 3Q14 levels), we expect a moderation in earnings outlook in 4Q14 which also coincides with a seasonally slower period. Maintain HOLD. Target price: RM8.25. Entry price: RM7.25.

3Q14 RESULTS

Year to 31 Dec (RMm) 3Q14 qoq % chg yoy % chg 9M14 yoy %

chg Total Revenue 121.0 4.8 8.0 351.6 4.7 EBITDA 79.9 10.6 8.5 221.4 (1.1) EBITDA margin (%) 66.0% 63.0% Operating profit 73.6 11.9 14.2 202.3 2.6 PBT 73.6 11.9 14.2 202.3 2.6 Net Profit 53.1 13.3 14.9 145.1 4.2 Net Profit ex-EI 53.1 13.3 14.9 145.1 4.2 EPS (sen) 10.0 13.3 14.8 27.2 4.1 Average daily trading value RM2.16b 7.3 7.6 RM2.10b 5.3 Average daily trading volume 2.67b 49.6 61.8 2.14b 47.7

Source: Bursa Malaysia, UOB Kay Hian

RESULTS

9M14 net profit is in line with our and consensus estimates on an annualised basis, with 9MFY14 earnings representing 76.8% of our full-year estimate. 3Q14 net profit of RM53.1m (+13.3% qoq, +14.9% yoy) came in as expected, as record-high equities trading volume in August helped underpin a 10.5% yoy increase in average trading value (for both OMT+DBT) to RM2.30b. 9MFY14 net profit rose by a milder 4.2% yoy, partially due to a high base in 2Q13 where trading values surged about 40% post general elections 2013 (GE13).

Revenue driven by equities trading. Revenue rose 7.2% yoy in 3Q14 but a smaller 3.9% in 9MFY14. Revenue from equities trading, which contributed 49.8% of group revenue, was the key driver of overall revenue growth, expanding 10.8% yoy in 3Q14 and 8.2% yoy in 9MFY14 on the back of 10.5% yoy and 7.2% yoy increase in average daily trading value respectively. Stable equities listing revenue (10% of total revenue) expanded 8.1% yoy, driven by higher listing fees from the higher overall market capitalisation. Meanwhile, derivatives (15% of total revenue) increased by a relatively mild 2% yoy.

KEY FINANCIALS Year to 31 Dec (RMm) 2012 2013 2014F 2015F 2016F

Net turnover 427 475 517 550 574EBITDA 250 282 295 313 328Operating profit 216 247 266 283 297Net profit (rep./act.) 151 173 188 199 209Net profit (adj.) 151 175 188 199 209EPS (sen) 28.4 32.7 35.2 37.4 39.3PE (x) 27.8 24.2 22.4 21.1 20.1P/B (x) 4.8 5.2 5.9 5.8 5.7EV/EBITDA (x) 15.5 13.7 13.1 12.4 11.8Dividend yield (%) 3.4 6.6 6.8 4.5 4.7Net margin (%) 35.5 36.4 36.3 36.3 36.5Net debt/(cash) to equity (%) (53.9) (47.0) (51.8) (61.5) (67.9)Interest cover (x) n.a. n.a. n.a. n.a. n.a.ROE (%) 17.5 20.5 24.6 27.7 28.7Consensus net profit - - 193 210 233UOBKH/Consensus (x) - - 0.97 0.95 0.90Source: Bursa Malaysia, Bloomberg, UOB Kay Hian n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m."





ESSENTIALS

Early indications of a softer equities market in 4Q14. Although average on-market trading (OMT) daily trading value of equities increased 7.3% qoq to RM2.16b in 3Q14, we note this was largely held up by strong trading value in August of an average RM2.39b a day. Average daily trading value of equities has tapered of 3% in October vs 3Q14’s RM2.16b and 12% lower then August peak of RM2.39b. The downtrend was driven largely by a sharp falloff in average daily trading volume which declined 38% from August’s 3.44b shares and 19.8% from 3Q14’s 2.67b shares. Given the high base effect of 3Q14 trading volume coupled with a seasonally slower 4Q for trading activities, we expect Bursa’s earnings to register a sequential downtrend in 4Q14.

Record volume but sharply lower average value per trade The cumulative value of shares traded increased 5.6% qoq and 5.9% yoy to RM133.9b in 3Q14, partially lifted by the record trading volumes for two consecutive days in the month of August 14. However, despite average daily trading volume rising by a staggering 49.6% qoq and 61.8% yoy to 2.67bn shares in 3Q14, average value traded declined from RM1.17 per share in 2Q14 to RM0.82/share in 3Q14.This reflects greater trading activities in smaller cap stocks. As such, 3Q14 cumulative trading value rose by a much milder 5.9% yoy and 5.6% qoq growth vs cumulative trading volume growth of 52% yoy and 50% qoq.

STOCK IMPACT

Not expecting a stellar growth year. 9M14 trading value of RM382b represents a relatively muted 4.4% growth vs 2013’s growth of 21.8%. Recall that the robust growth in trading value in 2013 was underpinned by a surge in trading value in 2Q13 and 3Q13 (+40% yoy) post GE13. Given the relatively high base effect in 2013, driven by GE13 pent-up-driven relief rally, overall trading value would reflect a more muted single-digit growth in 2014. The potential for a more cautious trading sentiment following the recent market sell-off could also impact 4Q14 trading volumes.

EARNINGS REVISION/RISK

No change to our forecasts. We expect 4Q14 to be seasonally softer vs 9M14, especially with the long year-end holiday breaks in 4Q14. Given this scenario coupled with a potentially weaker trading sentiment following the recent market sell-off, we think it will be a challenge for Bursa to meet consensus net profit forecast for 2014. In addition, the final quarter tends to incorporate year-end bonus payments to employees, which may feature a qoq dip in 4Q14 margins.

Risks to our forecasts include worse-than-expected trading volumes and cost escalation (eg higher salaries to attract and retain talent).

VALUATION/RECOMMENDATION

Maintain HOLD and target price of RM8.25, which is based on 22x 2014F PE (historical mean -0.5SD). The share price is supported by 4.6% 2015 net dividend yield (based on a 95% payout ratio). Entry price is RM7.25.

SHARE PRICE CATALYST

Catalysts include: a) additional capital distribution, which will temporarily boost yield, b) stronger-than-expected trading volume, and c) trading of gold futures gaining momentum.

QUARTERLY TREND OF AVERAGE UNIT PRICE OF EQUITIES TRADED

0.0

0.5

1.0

1.5

2.0

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14

(RM )

Source: Bursa, UOB Kay Hian

EQUITIES REMAIN THE MAIN REVENUE DRIVER

0%

10%

20%

30%

40%

50%

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

Equities DerivativesStable revenue Other Oprtg Income

Source: Bursa, UOB Kay Hian 4Q MARGINS TEND TO DIP DUE TO HIGHER STAFF COST FOR YEAR-END BONUSES

0

20

40

60

80

100

120

140

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

RM (m)

45%

50%

55%

60%

65%

Total Revenue Operating margin

Source: Bursa, UOB Kay Hian KEY ASSUMPTIONS

2013 2014F 2015F 2016F

Average Daily Value of Equities (RMm)

2,137 2,127 2,231 2,288

Average Daily Contracts (000)

43.5 48.0 53.0 58.5

Operating margin (%) 55.8 56.8 57.5 58.1

Capex/Revenue (%) 27.3 6.9 6.9 6.9

Source: Bursa, UOB Kay Hian





PROFIT & LOSS Year to 31 Dec (RMm) 2013 2014F 2015F 2016F

Net turnover 475 517 550 574

EBITDA 282 295 313 328

Deprec. & amort. 35 29 30 31

EBIT 247 266 283 297

Net interest income/(expense) 0 0 0 0

Pre-tax profit 246 266 283 297

Tax (66) (72) (76) (80)

Minorities (6) (7) (7) (8)

Net profit 173 188 199 209

Net profit (adj.) 175 188 199 209

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

Fixed assets 268 272 277 283

Other LT assets 215 215 215 215

Cash/ST investment 381 381 445 499

Other current assets 877 880 883 884

Total assets 1,742 1,749 1,820 1,882

ST debt 0 11 0 0

Other current liabilities 865 947 1,010 1,052

LT debt 0 0 0 0

Other LT liabilities 50 53 56 58

Shareholders' equity 811 714 724 734

Minority interest 16 23 30 38

Total liabilities & equity 1,742 1,749 1,820 1,882

CASH FLOW Year to 31 Dec (RMm) 2013 2014F 2015F 2016F

Operating 192 307 300 290

Pre-tax profit 179 194 207 217

Deprec. & amort. 35 29 30 31

Working capital changes 3 80 61 40

Non-cash items (25) 4 3 2

Investing 84 (33) (35) (37)

Capex (maintenance) (120) (33) (35) (37)

Investments 204 0 0 0

Others 0 0 0 0

Financing (367) (273) (201) (199)

Dividend payments (266) (285) (189) (199)

Issue of shares 0 0 0 0

Loan repayment (100) 11 (11) 0

Others/interest paid 0 0 0 0

Net cash inflow (outflow) (90) 0 64 54

Beginning cash & cash equivalent 471 381 381 445

Changes due to forex impact 0 0 0 0

Ending cash & cash equivalent 381 381 445 499

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

Profitability EBITDA margin 59.4 57.1 56.9 57.1

Pre-tax margin 51.7 51.4 51.5 51.7

Net margin 36.4 36.3 36.3 36.5

ROA 8.8 10.7 11.2 11.3

ROE 20.5 24.6 27.7 28.7

Growth Turnover 11.2 8.9 6.3 4.5

EBITDA 13.0 4.7 6.0 4.8

Pre-tax profit 13.7 8.3 6.4 5.0

Net profit 14.3 8.3 6.4 5.0

Net profit (adj.) 15.3 7.4 6.4 5.0

EPS 14.9 7.8 6.4 5.0

Leverage Debt to total capital 0.0 1.5 0.0 0.0

Debt to equity 0.0 1.6 0.0 0.0

Net debt/(cash) to equity (47.0) (51.8) (61.5) (67.9)

Interest cover (x) n.a. 8,029.9 8,511.2 328,027.2





COMPANY RESULTS BUY

(Maintained)

Share Price RM5.93

Target Price RM6.15

Upside +3.7%

(Previous TP RM5.95)

COMPANY DESCRIPTION Mobile operator in Malaysia, providing 2G, 3G and 4G services.

STOCK DATA GICS sector Telecommunication Services

Bloomberg ticker: DIGI MK

Shares issued (m): 7,775.0

Market cap (RMm): 46,105.8



Price Performance (%) 52-week high/low RM5.90/RM4.65


2.8 5.9 13.4 20.0 19.6


Telenor ASA 49.0

Employees Provident Fund 12.7

FY14 NAV/Share (RM) 0.09

FY14 Net Debt/Share (RM) 0.08

PRICE CHART

80

90

100

110

120

130

4.00

4.50

5.00

5.50

6.00

6.50

(%)(lcy) DIGI.COM BHD DIGI.COM BHD/FBMKLCI INDEX

0

10

20

30

40


Volume (m)

Source: Bloomberg

ANALYST Chong Lee Len +603 2147 1992 [email protected]

DiGi.Com (DIGI MK)

3Q14: A Consumer Staple With Strong Balance Sheet Potential

With 11.3m subscribers, Digi grew its 9M14 core net profit by 19% yoy to RM1,471m. The result is within our and the street’s expectations. A third interim net DPS of 6.2 sen has been declared, bringing 9M14 net DPS to 18.9 sen. We project 2014F net DPS of 25.3 sen (net yield of 4.3%). BUY on weakness with a slightly higher DCF-based target price of RM6.15, as we roll over the valuation window to 2015 (implied 21x 2015F PE). Share price is supported by 4-5% net dividend yields for 2014-15.

3Q14 RESULTS Year to 31 3Q14 2Q14 qoq Yoy 9M14 yoy Dec (RMm) % chg % chg % chg Revenues 1,756.1 1,746.2 0.6 3.3 5,219.9 4.4 EBITDA 788.6 795.1 (0.8) 3.0 2,362.2 5.8 EBITDA (%) 44.9 45.5 45.3 Pre-tax profits 656.5 673.9 (2.6) 21.8 1,985.0 36.3 Net profit 486.9 498.9 (2.4) 8.5 1,471.0 27.1 Net profit Ex-EI 486.9 498.9 (2.4) 14.0 1,471.0 18.8 EPS (sen) 6.3 6.4 (2.4) 8.5 18.9 27.1

Source: DiGi.Com, UOB Kay Hian

RESULTS

Within expectations. The group’s 3Q14 core net profit grew 14% yoy to RM486.9m (-2.4% qoq). This brought 9M14 core net profit to RM1,471m (+18.8% yoy) and is in line with both our and streets’ FY14 estimates.

Expect subscriber growth to build momentum going into 4Q14. Thanks to continuous network modernisation (more LTE-powered sites in key populous areas), Digi reached 84% of network coverage in the quarter, up from 76% in 2013. This allowed Digi to actively acquire subscribers (3Q14 prepaid subs: +4.8% yoy; +4.1% qoq) as management guides that the growth trajectory will continue into 4Q. Digi has 11.3m subscribers to date.

3Q14 core earnings driven by prepaid segment. Top-line grew 3.3% yoy, flat qoq driven by a 4.8% yoy and 4.1% qoq growth in prepaid subscriber base (+440,000) to 9.6m in 3Q14. Postpaid subscriber base however, continued to remain flattish, although management alluded to an encouraging 4Q in anticipation of new smartphones to be launched. Digi continues to demonstrate solid cost discipline as 3Q14 core net profit surged to RM486.9m (+14% yoy) as EBITDA margin was held steady at 44.9% (2Q14: 45.5%; 45.1%).

KEY FINANCIALS Year to 31 Dec (RMm) 2012 2013 2014F 2015F 2016F

Net turnover 6,361 6,733 7,093 7,604 7,949EBITDA 2,929 3,043 3,204 3,616 3,850Operating profit 2,174 2,318 2,623 3,045 3,294Net profit (rep./act.) 1,206 1,706 1,967 2,277 2,456Net profit (adj.) 1,642 1,787 1,967 2,277 2,456EPS (sen) 21.1 23.0 25.3 29.3 31.6PE (x) 28.1 25.8 23.4 20.2 18.8P/B (x) 176.4 69.8 69.8 69.8 69.8EV/EBITDA (x) 16.0 15.4 14.6 12.9 12.1Dividend yield (%) 4.4 3.6 4.3 4.9 5.3Net margin (%) 19.0 25.3 27.7 29.9 30.9Net debt/(cash) to equity (%) 142.1 51.2 95.2 140.6 184.6Interest cover (x) 352.5 124.1 91.9 73.9 61.6ROE (%) 144.2 369.9 297.6 344.5 371.5Consensus net profit - - 1,949 2,041 2,160UOBKH/Consensus (x) - - 1.01 1.12 1.14Source: DiGi.Com, Bloomberg, UOB Kay Hian





9M14 results highlights. In 9M14, Digi was able to grow top-line by 4.4% yoy thanks to a 4.7% yoy growth in prepaid revenue. Importantly, Digi was able to acquire subscribers without an uptick in A&P (7.6% of top-line). 9M14 EBITDA margin inched up 0.6 ppts to 45.3%. Together with lower depreciation charges, Digi drove 9M14 core net profit by 18.8% yoy to RM1,471m.

STOCK IMPACT

Key takeaways from conference call include: a) fundamentals of the industry remain strong underpinned by latent demand - especially for data and continuous network modernisation by industry players, b) slide in voice revenue persists but strong data growth (data traffic volume rose 90% yoy in 3Q) will provide the growth platform into 2015, and c) expect competition to intensify in 4Q as most telcos target to finish the year on a higher note.

Stable 3Q14 ARPU held steady at RM48. Robust development in affordable smartphones, continuous uptick in internet penetration and Digi’s leverage on bite-sized internet packages led to a 40% yoy increase in 3Q14 Internet ARPUs to RM14. This helped arrest 3Q14’s voice ARPU decline (-9.7% yoy; -3.4% qoq), which was exposed to price competition.

Rationale operating landscape. In the past year, Maxis and Celcom were seemingly distracted by their respective restructuring exercises. As these cleaning-up initiatives enter their respective final stages, we expect the roll-out of new products and new pricing structure to lead to a more competitive operating landscape in 1H15F. Celcom launched its new prepaid data plan (Internet on Xpax, IOX) last week and is slated to launch new postpaid plans by end-Nov 14. 2015 could see intensifying competition among the Big 3 telcos and the MVNOs, with a 10% market share of industry top-line. That said, we do not expect irrational pricing strategy to arise as this strategy seemed to have failed in the past. Broadly, consumers appear to prioritise quality of service and network reliability over price points.


No change to earnings estimates.

Risks include: a) irrational competition, b) the convergence of fixed and mobile telcos, c) unfavourable spectrum re-farming to new entrants, and d) the depreciation of the Ringgit vs the US dollar, which will increase interconnect costs for IDD calls.


BUY on weakness with a slightly higher DCF-based TP of RM6.15/share as we roll over our valuation window to end-15. At our TP, the stock would trade at 21x 2015F EPS, 13.5x EV/EBITDA and implies a net dividend yield of 4.8%. We project Digi to achieve 10% and 16% net profit growths for 2014 and 2015 respectively. Share price is supported by 4-5% net dividend yields for 2014-15, with potential for another 5% earnings upside from passing through a 6% GST to prepaid subscribers next year.

Safe haven in telcos in the near term. Ytd, Digi has outperformed the KLCI by 21%. We opine that high risk aversion will continue to ensure that telco valuations stay elevated. We believe this is justified as earnings visibility remains strong, implying sustainably attractive yields. At the height of the ‘defensive trading environment’ in 2012, Digi traded at a PER of 24x (+2SD above its mean of 18.5x).


Passing through the 6% service tax to prepaid subscribers in the form of a GST will be a key catalyst because Digi has the largest proportion of prepaid revenue among the Big 3 telcos. This can add a further 5% upside to our net profit forecasts.

Favourable 2G spectrum re-farming. A potential spectrum re-farming of the priced 900 MHz in favour of Digi could see the proliferation of Digi’s network coverage. This could boost the group’s future customer acquisition and expand market share, likely at the expense of the two large 2G spectrum holders, Celcom and Maxis.

3Q14 EBITDA MARGIN DIPPED SLIGHTLY

1,000

1,200

1,400

1,600

1,800

3Q13 4Q13 1Q14 2Q14 3Q14

RM (m)

30

33

36

39

42

45

48

(%)Rev enues EBITDA margin (ex -lumpy )

Source: Digi, UOB Kay Hian QUARTERLY PREPAID ARPU AND SUBS

8,000

8,500

9,000

9,500

3Q13 4Q13 1Q14 2Q14 3Q14

40

41

42Subscribers (000s) ARPU (RM)

Source: Digi, UOB Kay Hian QUARERLY POSTPAID ARPU AND SUBS

1,500

1,600

1,700

1,800

3Q13 4Q13 1Q14 2Q14 3Q14

80

81

82

83

84Subscribers (000s) ARPU (RM)

Source: Digi, UOB Kay Hian RISING SMARTPHONE ADOPTION

0

1,000

2,000

3,000

4,000

5,000

6,000

3Q13 4Q13 1Q14 2Q14 3Q14

(000s)

0%

10%

20%

30%

40%

50%

Subscribers Penetration rates

Source: EC, UOB Kay Hian KEY ASSUMPTIONS

2014F 2015F 2016F

Revenue growth % 5.3 7.2 4.5

EBITDA margin % 45.2 47.6 48.4

Capex to revenue % 12.7 11.5 10.9

Small screen Subs (m) 12.0 12.5 13.1

Small screen ARPU (RM) 46.2 46.4 46.6

Source: Digi, UOB Kay Hian





PROFIT & LOSS Year to 31 Dec (RMm) 2013 2014F 2015F 2016F

Net turnover 6,733 7,093 7,604 7,949

EBITDA 3,043 3,204 3,616 3,850

Deprec. & amort. 725 581 571 556

EBIT 2,318 2,623 3,045 3,294

Associate contributions 0 0 0 0

Net interest income/(expense) (25) (35) (49) (62)

Pre-tax profit 2,140 2,588 2,996 3,231

Tax (434) (621) (719) (776)

Net profit 1,706 1,967 2,277 2,456

Net profit (adj.) 1,787 1,967 2,277 2,456

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

Fixed assets 1,947 2,335 2,707 3,085

Other LT assets 526 457 388 319

Cash/ST investment 411 391 371 352

Other current assets 868 908 963 1,000

Total assets 3,752 4,090 4,429 4,756

ST debt 303 574 855 1,127

Other current liabilities 2,131 2,218 2,292 2,363

LT debt 446 446 446 446

Other LT liabilities 211 192 175 160

Shareholders' equity 661 661 661 661

Total liabilities & equity 3,752 4,090 4,429 4,756

CASH FLOW Year to 31 Dec (RMm) 2013 2014F 2015F 2016F

Operating 2,059 2,563 2,838 3,018

Pre-tax profit 2,140 2,588 2,996 3,231

Tax (466) (640) (736) (791)

Deprec. & amort. 878 581 571 556

Associates 0 0 0 0

Working capital changes (577) 47 20 33

Non-cash items 106 0 0 0

Other operating cashflows (23) (14) (13) (12)

Investing (718) (886) (861) (853)

Capex (maintenance) (741) (900) (874) (865)

Investments 0 0 0 0

Proceeds from sale of assets 2 0 0 0

Others 20 14 13 12

Financing (1,638) (1,697) (1,996) (2,184)

Dividend payments (1,306) (1,967) (2,277) (2,456)

Issue of shares 0 0 0 0

Proceeds from borrowings 0 270 281 272

Loan repayment (332) 0 0 0

Others/interest paid 0 0 0 0

Net cash inflow (outflow) (298) (21) (20) (19)

Beginning cash & cash equivalent 709 411 391 371

Ending cash & cash equivalent 411 391 371 352

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

Profitability EBITDA margin 45.2 45.2 47.6 48.4

Pre-tax margin 31.8 36.5 39.4 40.7

Net margin 25.3 27.7 29.9 30.9

ROA 43.9 50.2 53.5 55.5

ROE 369.9 297.6 344.5 371.5

Growth Turnover 5.9 5.3 7.2 4.5

EBITDA 3.9 5.3 12.8 6.5

Pre-tax profit 34.5 20.9 15.8 7.8

Net profit 41.5 15.3 15.8 7.8

Net profit (adj.) 8.9 10.1 15.8 7.8

EPS 8.9 10.1 15.8 7.8

Leverage Debt to total capital 53.1 60.7 66.3 70.4

Debt to equity 113.4 154.2 196.7 237.9

Net debt/(cash) to equity 51.2 95.2 140.6 184.6

Interest cover (x) 124.1 91.9 73.9 61.6





SECTOR UPDATE

Energy – Singapore Lower Oil Prices But Pockets Of Opportunities Available

We do not expect oil prices to collapse and revise our average Brent oil price forecasts to US$100/bbl for 2014 and US$85/bbl for 2015. While lower oil prices are generally negative for independent exploration & production (E&P) companies, the stocks that fall under our coverage offer unique exposures. Our top pick is KrisEnergy (Target: S$1.18). Maintain MARKET WEIGHT.

WHAT’S NEW

Lower oil prices. We have revised Brent oil price forecasts for 2014 and 2015 to US$100/bbl and US$85/bbl respectively from US$105/bbl previously. Since Jan 14, the WTI has averaged US$8 below Brent.

ACTION

MARKET WEIGHT on oil & gas producers... In general, lower oil prices put capex budgets at risk due to further capital efficiency measures. That said, the listed companies that fall under our coverage, especially KrisEnergy and RH Petrogas own oilfields in Southeast Asia, where breakeven costs are merely at US$30-40/bbl. Recent checks with the management teams of both companies suggest it is business as usual.

…but stocks we cover offer unique exposures, such as top pick KrisEnergy. Coincidentally, two out of the three companies under our coverage within the E&P space, which promise fairly imminent upside, start with ‘R’ – RH Petrogas and Rex International. We have a BUY on both companies with a target price of S$1.00 on RH Petrogas and S$0.85 on Rex International. We have a BUY rating on KrisEnergy with a target price of S$1.18. Among the three, we prefer KrisEnergy as a core holding for its solid management team and near-term catalysts but RH Petrogas offers M&A play while Rex International offers a unique proposition via its technology.

Valuation looking good too. Our top pick, which is KrisEnergy, is trading at EV/(2P+2C) of merely 3.1x, below the global median of 4x if we were to include the 103.6mmboe of 2C contingent resources it would own via the transaction of Block A, Aceh in Indonesia. Our investment thesis is further supported by the significant migration of 2C contingent resources into 2P reserves in the near term.

KrisEnergy (BUY/Target: S$1.18): Undervalued gem. The company’s portfolio of 19 assets offers a blended exposure to both oil & gas in five different countries. Among the listed E&P companies in SGX, the company has the highest amount of 2C contingent resources that will be converted into 2P reserves (we estimate 75mmboe) over the next 12-15 months. Moreover, KrisEnergy’s earnings prospects would be relatively more resilient vs its SGX listed peers as more than 80% of its 2C contingent resources are gas-based. Our valuation of S$1.18 implies EV/(2P+2C) of 5.3x and offers 49.4% upside.

MARKET WEIGHT (Maintained) OFFSHORE-OILFIELD BREAKEVEN BRENT OIL PRICES

Arctic Region

Ultra-Deepwater (West Africa)

Ultra-Deepwater (US Gulf) Medium (North Sea)

Ultra-Deepwater (Brazil Pre-Salt)

Shallow-Medium Water (Southeast Asia)

Shallow-Medium Water (Caspian Sea)

80

70

60

50

40

30

20

Long-term sustainable Oil Price: $90-S$100/bbl)

Source: Infield Systems

INDUSTRY RISKING FACTORS


ANALYSTS

Danny Chan Tzu Zhung +603 2147 1986 [email protected]

Loke Chunying +65 6590 6637 [email protected]

PEER COMPARISON

Company Ticker EV Rec Price @ 2P Reserves 2C Resources Prospective Resources

EV/2P EV/(2P+2C) EV/(2P+2C+

Prospective Resources US$m 20 Oct 14 (mmboe) (mmboe) (mmboe) (US$/boe) (US$/boe) (US$boe) KrisEnergy* KRIS SP 521.9 BUY 0.79 32.3 68.5 255.2 16.5 5.3 1.5Rex International REXI SP 443.2 BUY 0.52 - - 1,597.7 - - 0.3RH Petrogas RHP SP 361.4 BUY 0.60 11.9 69.7 829.0 30.4 4.4 0.4Mirach Energy MENR SP 128.3 NOT RATED 0.147 - 2.6 - - 49.3 -Ramba Energy RMBA SP 124.1 NOT RATED 0.435 6.6 - - 18.8 - -Loyz Energy LOYZ SP 90.9 NOT RATED 0.19 - 0.8 - - 113.6 -Interra Resources ITRR SP 49.8 NOT RATED 0.185 2.5 6.5 - 19.9 5.5 -*excludes the acquisition of Block A, Aceh, Indonesia as it is still pending government approval. Source: UOB Kay Hian, Bloomberg, Industry Sources





RH Petrogas (BUY/Target: S$1.00): M&A angle? The company recently announced that it has received the overall development plan (ODP) approval for the phased development of the Yongping Oilfield in Fuyu, China. The approval was a key investment highlight that formed our investment thesis. We believe that management could monetise the oil reserves very quickly and could potentially be a takeover target given that a potential investor has recently visited the major shareholders of the company. Our target price implies 66.7% upside.

Rex International (BUY/Target: S$0.85): Bountiful year ahead. Rex has recently added a new technology called the Rex Gas Indicator to its portfolio, which increases the attractiveness of Rex as a partner (covering both liquid and gaseous hydrocarbons) to other E&P companies. 1H15 oil production in Oman is still on track, which we understand may be 5,000-6,000 bopd. We adjust our target price downwards to S$0.85 to reflect its recent private placement exercise and risk premium for lower oil prices recently. Our valuation suggests 63.5% upside.

ESSENTIALS

Recent M&A transactions in this region further substantiate our valuation. In Aug 14, Fosun International acquired Australia’s Roc Oil for US$441m, implying an EV/(2P+2C) of 6.9x. As at 1 Jan 14, Roc Oil holds assets in China, Australia, Malaysia and the UK, with net 2P reserves of 17.4mmboe and 2C resources of 33.7 mmboe, of which 92% and 8% of the total 2P+2C resources are oil and gas respectively. Also, in Jul 14, Malaysia-listed Sona Petroleum agreed to acquire a 40% effective participating interest in the B8/38 and G4/50 oilfield concessions from Salamander Energy (Bualuang Holdings) Ltd for about RM895.2m (US$281.2m). Of this, US$250m is attributable to B8/38 which consists of net 2P reserves of 12.5 mmboe and 2C resources of 6.9 mmboe, implying an EV/(2P+2C) of US$12.9/bbl. US$30m is attributable to G4/50 which consists of 57.6 mmboe of net mean resources.

ASSUMPTION CHANGES

Lowering our target price on Rex International to S$0.85. We adjust our target price downwards to S$0.85 from S$1.27 to reflect its recent private placement exercise and risk premium for lower oil prices.

SECTOR CATALYSTS

Successful commercial discoveries by E&P companies, boosting investor sentiments on the E&P companies.

Strengthening US dollar, resulting in additional profits for E&P companies who derive their earnings in local currencies.

Recovery in oil prices, resulting in additional revenues for producers.

ASSUMPTION CHANGES

We make no changes to the assumptions of the companies under our coverage.

RISKS

Exploration, development and production risk, where money could be spent with no meaningful return.

Oil price risk, where E&P activities will slow down if oil prices are below a certain threshold as an oilfield is no longer commercially viable.

Regulatory risk, as evidenced by RH Petrogas’inability to secure an approval for its overall development plan in China.

Acquisition risk, where E&P companies overpay for an asset, resulting in lower overall shareholder value.

BREAKDOWN OF OUR VALUATION ON KRISENERGY (S$1.18)


BREAKDOWN OF OUR VALUATION ON REX INTERNATIONAL (S$0.85)

0.04

0.61

0.05

0.27

-0.19

0.06

-0.30

-0.10

0.10

0.30

0.50

0.70

0.90

1.10

SG$cents

Val

ue

per

sh

are

(S$)

(Less Net Debt)/AddCash

20% Discount

Sharjah Central

RAK Offshore North

Oman Block 50

23% Stake in Fram






COMPANY RESULTS BUY (Maintained) Share Price S$3.18

Target Price S$4.30

Upside +35.2%

COMPANY DESCRIPTION Keppel Land is the property arm of Keppel Group.It's portfolio includes office towers, residential properties, hotels,resorts,retail complexes,industrial buildings and townships.


Bloomberg ticker: KPLD:SP


Market cap (S$m): 4,915.7



Price Performance (%) 52-week high/low S$3.73/S$3.10


(8.1) (8.1) (10.9) (13.8) (4.8)


Keppel Corp 54.6

FY14 NAV/Share (S$) 4.77

FY14 Net Debt/Share (S$) 2.20

PRICE CHART

80

90

100

110

2.80

3.00

3.20

3.40

3.60

3.80

4.00

(%)(lcy) KEPPEL LAND LTD KEPPEL LAND LTD/FSSTI INDEX

0

5

10

15

20


Volume (m)

Source: Bloomberg

ANALYST

Vikrant Pandey +65 6590 6623 [email protected]

Keppel Land (KPLD SP)

3Q14: Watch Out For Special Dividend

Management sees signs of improved sentiments in Singapore’s residential segment with good sales at recent new launches, while China’s property measures relaxation are supportive of the property sector. Management is actively recycling capital to scale up its overseas commercial portfolio, targeting a balanced portfolio of 30% recurring income and 70% trading profits, with Singapore, China, Vietnam and Indonesia as focus markets. Watch out for 6-10 cents in special dividend (2.5% yield) post MBFC Tower 3 divestment. Maintain BUY with a target price of S$4.30.

3Q14 RESULTS Year to 31 Dec 3Q14 Yoy 2014 Yoy Remarks (S$m) % chg % chg Turnover 168.7 (59.6) 758.2 (20.6) lower contributions from Singapore and China projects as

well as an absence of tax write-back Gross Profit 70.8 (41.1) 252.4 (11.3) Pre-tax Profit 163.3 4.1 423.6 15.1 Net Profit 113.0 (10.6) 308.0 6.4 Source: Keppel Land, UOB Kay Hian

RESULTS

Results below expectations. Keppel Land reported 3Q14 net profit of S$113m, down 10.6% yoy, bringing 9M14 net profit to S$308m. Excluding divestment gains of S$59.5m from Equity Plaza, results were below our expectations, accounting for 67% of our full-year estimate, mainly due to lower-than-expected contributions from property trading.

Net profit from property trading was down 34.6% yoy to S$135.9m due to lower contributions from Singapore and China projects as well as an absence of tax write-back. Property investment profit was up 1.2% yoy to S$92.5m due to increased contribution from Marina Bay Financial Centre Tower 3 (MBFC Tower 3) and share of Keppel REIT’s gains from the divestment of Prudential Tower.

Earnings from property fund management rose 14.6% yoy to S$42.5m due to higher fee income from Keppel REIT and improved performance from Alpha Investment Partners. Fund management accounted for a larger share of 15.8% of net profit (3Q13: 11.8%).

Geographically, Singapore accounted for 71% of total profit, down 13.6% ytd, mainly due to lower contributions from property trading in Singapore.

Net tangible asset rose to S$4.59/share, up 10.6% from S$4.15 as at end-3Q13.

KEY FINANCIALS Year to 31 Dec (S$m) 2012 2013 2014F 2015F 2016F Net turnover 939 1,461 1,324 1,562 1,910 EBITDA 247 444 299 313 407 Operating profit 236 429 286 300 395 Net profit (rep./act.) 838 886 414 484 544 Net profit (adj.) 838 886 414 484 544 EPS (S$ cent) 55.4 57.2 26.8 31.3 35.1 PE (x) 5.7 5.6 11.9 10.2 9.1 P/B (x) 0.8 0.7 0.7 0.6 0.6 EV/EBITDA (x) 36.9 20.6 30.6 29.2 22.5 Dividend yield (%) 3.8 4.1 3.8 4.1 4.4 Net margin (%) 89.3 60.6 31.3 31.0 28.5 Net debt/(cash) to equity (%) 23.8 41.0 50.4 35.7 34.6 Interest cover (x) n.a. n.a. n.a. n.a. n.a. ROE (%) 14.3 13.5 5.8 6.4 6.8 Consensus net profit - - 415 448 491 UOBKH/Consensus (x) - - 1.00 1.08 1.11 Source: Keppel Land Limited , Bloomberg, UOB Kay Hian n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m."





STOCK IMPACT

Management sees signs of improved sentiment in Singapore’s residential segment with good sales at recent new launches. The group sold about 280 residential units in 9M14 (9M13: 310 units), achieving sales of S$458m (245,500sf sold), mainly from Highline Residences, The Glades and Corals at Keppel Bay. Keppel Land accounted for 25% of total units sold in September, driven by strong sales at Highline Residence (142 units, S$1,848psf).

China’s property measures relaxation to be supportive of the property sector. The group sold 1,420 units in China with sales of Rmb2.3b in 9M14 (9M13: 3,100 units). Sales came mainly from The Springdale in Shanghai (ASP: Rmb15,100psm), Stamford City in Jiangyin (ASP: Rmb9,500psm), Central Park City in Wuxi (ASP: Rmb7,500psm) and Seasons Park (ASP: Rmb10,300psm). The recent relaxation of mortgage rules and credit easing is expected to boost demand from first-time homebuyers and upgraders.

Recycling capital to scale up commercial portfolio overseas. Following the joint divestment of Equity Plaza with Alpha, the group announced in September the proposed divestment of its one-third interest in MBFC. In Indonesia, the group is divesting its entire 80% stake in BG Junction, Surabaya, for S$42.8m and redeveloping the existing International Financial Centre Jakarta Tower 1 into a 49-storey office tower. In Vietnam, the group will develop a 37-storey office tower under Saigon Centre Phase 2 in Ho Chi Minh City. The group will also commence the development of SM-KL Towers Phase 2 in Manila, Philippines. The group also divested its 51% interest in Al Mada Towers, a condominium development in Jeddah, Saudi Arabia. Earlier in July, the group partnered Macklowe Properties, an established New York developer, to acquire a site for a prime residential development with a retail component.

Special dividend from MBFC T3 divestment on the cards. We expect to see the divestment into Keppel REIT in 4Q14 to result in gains of over S$400m, and a potential special dividend of 6-10 cents this year.

Divestment price marginally below expectation of S$2,800psf. The net sale price of S$1,199m, or S$2,680psf, including five-year income support of S$49.2m is marginally below our expectation of S$2,800psf. Factoring this would result in a RNAV reduction of about 4 cents to S$5.33/share.

Gearing to fall to 29%, providing war chest of >S$1b. Post sale, Keppel Land's net gearing will fall to 29.1%, giving a sufficient debt headroom of over S$1b. Keppel Land is on the active lookout for acquisition opportunities, especially in commercial and residential space across Singapore, China, Vietnam and Indonesia.

Office exposure lowered to 25%. The transaction reduces Keppel Land's exposure in the office segment from 30% to 25%, lowering the opportunity to participate in the upturn in Singapore’s office segment.


We have reduced our FY14 earnings by 5%, mainly deferring the earnings to FY15-16 (1-3.5%).


Maintain BUY and target price of S$4.30, pegged at a 20% discount to our RNAV of S$5.37/share. Key catalysts include acquisitions, divestment of its office assets and sustained recovery in China sales.


Acquisition of mixed development sites in Singapore and overseas.

Special dividend from the divestment of MBFC Tower 3.

RNAV

Asset Valuation Cap. Value (S$m) Total Investment Properties 722.1

Book value of investment properties 634.1

Surplus/ (deficit) to book (1) 88.0

NPV of Development Profits (2) 1671.3

Contribution from Fund Management business (4) 318.8

Surplus/ (deficit)from listed investments (5) 70.6

Net Book Value (6) 6169.1

RNAV (1+2+3+4+5+6+7) 8317.8

Fully diluted no. of shares(m) 1547.9

Fully diluted RNAV per share (S$) 5.37 Source: Keppel Land, UOB Kay Hian

KEPPEL LAND ASSET BREAKDOWN (3Q14)

BY GEOGRAPHY

Source: Keppel Land BY SEGMENT

Source: Keppel Land





PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (S$m) 2013 2014F 2015F 2016F Year to 31 Dec (S$m) 2013 2014F 2015F 2016F

Net turnover 1,461.0 1,324.2 1,561.7 1,910.3 Fixed assets 325.8 307.5 316.7 312.1

EBITDA 443.7 298.5 312.9 407.1 Other LT assets 5,370.4 5,813.6 6,362.9 6,862.4

Deprec. & amort. 15.1 12.3 12.7 12.5 Cash/ST investment 1,285.4 501.1 1,477.5 1,438.1

EBIT 428.6 286.2 300.2 394.6 Other current assets 6,840.9 7,625.4 6,656.8 6,822.2

Total other non-operating income 331.1 0.0 0.0 0.0 Total assets 13,822.5 14,247.6 14,813.9 15,434.9

Associate contributions 226.9 233.8 283.8 237.8 ST debt 283.3 283.3 283.3 283.3

Net interest income/(expense) 14.2 13.7 10.6 21.1 Other current liabilities 1,942.8 1,931.2 1,986.3 2,032.1

Pre-tax profit 1,000.8 533.8 594.6 653.5 LT debt 3,869.7 3,919.7 3,969.7 4,019.7

Tax (96.8) (76.8) (85.6) (94.0) Other LT liabilities 241.1 241.1 241.1 241.1

Minorities (18.1) (42.5) (24.9) (15.6) Shareholders' equity 6,989.4 7,350.4 7,781.1 8,271.4

Preferred dividends 0.0 0.0 0.0 0.0 Minority interest 496.2 521.8 552.4 587.2

Net profit 885.9 414.5 484.1 543.8 Total liabilities & equity 13,822.5 14,247.6 14,813.9 15,434.9

Net profit (adj.) 885.9 414.5 484.1 543.8

CASH FLOW KEY METRICS Year to 31 Dec (S$m) 2013 2014F 2015F 2016F Year to 31 Dec (%) 2013 2014F 2015F 2016F

Operating (1,367.2) (585.2) 1,234.8 204.7 Profitability Pre-tax profit 669.7 533.8 594.6 653.5 EBITDA margin 30.4 22.5 20.0 21.3

Tax (96.8) (76.8) (85.6) (94.0) Pre-tax margin 68.5 40.3 38.1 34.2

Deprec. & amort. 15.1 12.3 12.7 12.5 Net margin 60.6 31.3 31.0 28.5

Associates (226.9) (233.8) (283.8) (237.8) ROA 7.0 3.0 3.3 3.6

Working capital changes (1,700.2) (806.9) 1,007.5 (108.3) ROE 13.5 5.8 6.4 6.8

Non-cash items (14.2) (13.7) (10.6) (21.1) Other operating cashflows (13.9) 0.0 0.0 0.0 Growth Investing 116.1 (132.6) (191.2) (176.1) Turnover 55.6 (9.4) 17.9 22.3

Capex (growth) (256.2) (209.3) (265.6) (261.7) EBITDA 79.3 (32.7) 4.8 30.1

Capex (maintenance) 0.0 0.0 0.0 0.0 Pre-tax profit 1.4 (46.7) 11.4 9.9

Investments 155.3 0.0 0.0 0.0 Net profit 5.7 (53.2) 16.8 12.3

Proceeds from sale of assets 0.0 0.0 0.0 0.0 Net profit (adj.) 5.7 (53.2) 16.8 12.3

Others 217.0 76.8 74.4 85.6 EPS 3.3 (53.2) 16.8 12.3

Financing 919.5 (66.5) (67.3) (68.0) Dividend payments (53.5) (53.5) (53.5) (53.5) Leverage Issue of shares 0.0 0.0 0.0 0.0 Debt to total capital 35.7 34.8 33.8 32.7

Proceeds from borrowings 931.0 50.0 50.0 50.0 Debt to equity 59.4 57.2 54.7 52.0

Loan repayment 0.0 0.0 0.0 0.0 Net debt/(cash) to equity 41.0 50.4 35.7 34.6

Others/interest paid 42.0 (63.0) (63.8) (64.5) Interest cover (x) n.a. n.a. n.a. n.a.

Net cash inflow (outflow) (331.6) (784.2) 976.3 (39.4)

Beginning cash & cash equivalent 1,596.5 1,285.4 501.1 1,477.5

Changes due to forex impact 20.4 0.0 0.0 0.0

Ending cash & cash equivalent 1,285.4 501.1 1,477.5 1,438.1





COMPANY RESULTS HOLD (Downgraded) Share Price S$1.20

Target Price S$1.32

Upside +10.5%

(Previous TP S$1.31)

COMPANY DESCRIPTION Asia-focused logistics REIT with a portfolio of over 80 logistics parks and facilities across Singapore, Japan, Hong Kong, China, Malaysia, Vietnam and South Korea.


Bloomberg ticker: MLT SP


Market cap (S$m): 2,942.5



Price Performance (%) 52-week high/low S$1.20/S$0.990


5.8 2.6 10.1 10.1 13.3


Mapletree Investments 40.5

FY15 NAV/Share (S$) 0.80

FY15 Net Debt/Share (S$) 0.59

PRICE CHART

80

90

100

110

120

0.90

1.00

1.10

1.20

1.30

(%)(lcy)MAPLETREE LOGISTICS TRUST

MAPLETREE LOGISTICS TRUST/FSSTI INDEX

0

10

20

30


Volume (m)

Source: Bloomberg

ANALYST

Terence Khi +65 6590 6614 [email protected]

Mapletree Logistics Trust (MLT SP)

2QFY15: Outlook Weakens As Supply Overhang Looms; Downgrade To HOLD

Results in line with expectations but expect a challenging leasing environment in Singapore ahead as occupancy pressures mount. Nonetheless, acquisitions continued to intensify, with S$149m of acquisitions in 1HFY15 in Korea, Malaysia and China. MLT is the best performing industrial REIT (up 13.3% ytd) but outlook is weakening while valuations appear stretched. Downgrade to HOLD with a higher target price of S$1.32 after factoring in the acquisition of Mapletree Yangshan offset against near-term occupancy risks. Entry price: S$1.15.

2QFY15 RESULTS Year to 31 Mar 2QFY15 yoy 1HFY15 yoy Remarks (S$m) % chg % chg Gross Revenue 81.5 5.8 162.5 6.6 New Mapletree Benoi Log Hub (MBLH), positive

reversion in HK and SG, 2 acquisitions in Malaysia and Korea, offset by lower occupancies in Singapore

Net Property Income 68.7 3.1 137.6 4.3 Higher operating costs with conversion to multi-tenanted assets and enlarged portfolio

Distributable Income 46.3 4.0 92.9 5.0 Higher borrowing costs to fund acquisitions and capex DPU (cent) 1.88 3.3 3.78 4.4 Includes divestment gains of 0.025 S cent in 2QFY15

Source: MLT, UOB Kay Hian

RESULTS

Results in line with expectations. Mapletree Logistics Trust (MLT) reported 2QFY15 DPU of 1.88 cents (+3.3% yoy, -1.1% qoq). 1HFY15 DPU is in line with our expectations, accounting for 49.7% of our full-year DPU estimate of 7.60 cents.

Occupancy pressure mounts with Singapore occupancies registering two consecutive quarters of decline and was down 2.9ppt to 95.1% in 1HFY15. Forward leasing momentum has also slowed yoy, with only 40% of the space in Singapore renewed ytd (2QFY14: 59%). Occupancies were also impacted by downtime from conversion to multi-tenancies.

Rent reversions, at 9%, have also slowed, from the 12% in 1QFY15.

STOCK IMPACT

A challenging leasing environment in Singapore as management seeks to manage the transition of Single-User Assets (SUA) conversions into Multi-tenanted Buildings (MTBs). Island-wide vacancy for warehouse space has increased 4.3ppt yoy to 11.5% in 2Q14. Recent regulatory measures to restrict sub-letting of non-anchor tenant space to 30% of GFA (from 50%) has also reduced the available tenant pool.

KEY FINANCIALS Year to 31 Mar (S$m) 2013 2014 2015F 2016F 2017F Net turnover 308 311 328 335 345 EBITDA 231 249 245 247 254 Operating profit 231 249 245 247 254 Net profit (rep./act.) 159 184 182 180 182 Net profit (adj.) 159 184 182 180 182 EPU (cent) 6.6 7.6 7.4 7.3 7.3 DPU (cent) 6.9 7.4 7.6 7.6 7.7 PE (x) 18.2 15.8 16.1 16.5 16.3 P/B (x) 1.5 1.4 1.5 1.5 1.5 DPU Yld (%) 5.7 6.2 6.4 6.4 6.4 Net margin (%) 51.8 59.3 55.7 53.6 52.8 Net debt/(cash) to equity (%) 58.2 56.3 62.7 62.6 65.0 Interest cover (x) 6.1 8.7 7.9 7.0 6.4 ROE (%) 7.2 8.0 7.8 7.7 7.8 Consensus DPU (cent) n.a. n.a. 7.6 7.8 7.9 UOBKH/Consensus (x) - - 1.01 0.98 0.97 Source: MLT, Bloomberg, UOB Kay Hian





Looking overseas for growth with China, Malaysia and South Korea accounting for 20% of portfolio value, up from 16% at the start of FY15.

Acquisitions continued to intensify, with the S$41.1m acquisition of Mapletree Yangshan (7.5% NPI yield) announced after the quarter-end. This brings total acquisitions to S$149m in 1HFY15.

Gearing is expected to remain moderate at 34.6% post the acquisition of Mapletree Zhengzhou and Mapletree Yangshan, up 1.3ppt from 33.3% in 4QFY14 due to the depreciation of the Japanese yen, which has moderated the value of yen-debt on MLT’s books.


We raise our FY17 DPU estimate by 1%, factoring in the acquisition of Mapletree Yangshan, offset against near-term occupancy risks. Key risks include vacancies arising from slower take-up of logistics facilities.


Downgrade to HOLD with a higher target of S$1.32 (from S$1.31), based on DDM (required rate of return: 6.9%, terminal growth: 1.5%). Entry price is S$1.15.


Positive newsflow on rising industrial rentals and capital values, yield-accretive acquisitions, redevelopment or build-to-suit opportunities.

Redevelopment and asset enhancement plans for portfolio properties.

PIPELINE OF ASSETS FROM MAPLETREE INVESTMENTS (SPONSOR) Source: MLT Source: MLT

SINGAPORE ACCOUNTS FOR 46% OF REVENUES

Source: MLT DEBT DURATION AT 3.3 YEARS

Source: MLT S$41M ACQUISITION OF MAPLETREE YANGSHAN

Source: MLT

PEER COMPARISON Price Target Upside/ Curr Fwd Price/

Rec 20 Oct 14 Price (Downside) Price Performance (%) Yield Yield Book Gearing * (S$) (S$) to TP (%) 5D 1M 3M YTD 1Y (%) (%) (x) (%)

Industrial REITs AIMSAMPIReit AAREIT SP NR 1.43 n.a. n.a. (1.4) (2.7) (2.7) 3.5 (1.3) 7.7 7.9 0.97 31.8 Ascendasreit AREIT SP BUY 2.24 2.73 21.9 (0.4) (5.1) (3.4) 1.8 (3.0) 6.8 7.0 1.11 31.4 CACHE CACHE SP BUY 1.16 1.35 16.4 0.0 (1.7) (4.9) 4.0 (1.7) 7.4 7.5 1.19 28.7 Cambridge CREIT SP NR 0.705 n.a. n.a. (0.7) (1.4) (7.8) 2.2 3.7 7.2 7.8 1.03 31.6 MapletreeInd MINT SP BUY 1.425 1.66 16.5 (1.0) (1.4) 0.0 6.7 6.3 7.1 7.2 1.19 33.6 MapletreeLog MLT SP HOLD 1.195 1.32 10.5 3.0 1.3 3.0 13.3 12.2 6.4 6.4 1.23 33.3 Sabana REIT SSREIT SP SELL 1.01 0.98 (3.0) (0.5) (1.0) (3.8) (6.5) (7.8) 7.6 7.8 0.93 36.3 SoilbuildBizREIT SBREIT SP NR 0.795 n.a. n.a. 0.6 0.6 (1.2) 3.2 7.4 7.5 7.9 0.99 29.7 Viva Ind Tr VIT SP NR 0.805 n.a. n.a. (0.6) (1.2) 1.3 3.9 3.2 8.8 9.3 1.07 37.9 Source: Bloomberg, UOB Kay Hian





PROFIT & LOSS

BALANCE SHEET Year to 31 Mar (S$m) 2014 2015F 2016F 2017F Year to 31 Mar (S$m) 2014 2015F 2016F 2017F

Net turnover 310.7 327.6 335.3 345.1 Fixed assets 4,235.1 4,279.9 4,329.9 4,436.9

EBITDA 249.4 245.2 246.8 254.2 Other LT assets 0.0 0.0 0.0 0.0

Deprec. & amort. 0.0 0.0 0.0 0.0 Cash/ST investment 114.3 77.1 110.4 93.2

EBIT 249.4 245.2 246.8 254.2 Other current assets 47.6 46.9 47.4 47.8

Net interest income/(expense) (28.7) (31.0) (35.4) (40.0) Total assets 4,397.0 4,403.8 4,487.6 4,577.9

Pre-tax profit 220.7 214.2 211.4 214.2 ST debt 148.7 112.6 112.6 112.6

Tax (17.0) (12.1) (12.2) (12.4) Other current liabilities 150.9 164.5 169.0 172.5

Minorities (0.6) (0.8) (0.8) (0.8) LT debt 1,306.7 1,410.5 1,460.5 1,517.5

Preferred dividends (18.8) (18.9) (18.8) (18.8) Other LT liabilities 58.6 58.5 58.3 58.3

Net profit 184.2 182.5 179.6 182.2 Shareholders' equity 2,381.9 2,307.3 2,336.0 2,364.9

Net profit (adj.) 184.2 182.5 179.6 182.2 Minority interest 6.3 6.6 7.4 8.2

Total liabilities & equity 4,397.0 4,403.8 4,487.6 4,577.9

CASH FLOW KEY METRICS Year to 31 Mar (S$m) 2014 2015F 2016F 2017F Year to 31 Mar (%) 2014 2015F 2016F 2017F

Operating 210.2 242.7 237.9 244.2 Profitability

Pre-tax profit 221.4 215.0 212.2 215.0 EBITDA margin 80.3 74.8 73.6 73.7

Working capital changes (24.9) 11.4 4.1 3.1 Pre-tax margin 71.0 65.4 63.1 62.1

Other operating cashflows 13.7 16.3 21.6 26.0 Net margin 59.3 55.7 53.6 52.8

Investing (100.3) (149.4) (50.0) (107.0) ROA 4.3 4.1 4.0 4.0

Investments (101.0) (149.4) (50.0) (107.0) ROE 8.0 7.8 7.7 7.8

Others 0.7 0.0 0.0 0.0

Financing (130.0) (130.5) (154.5) (154.3) Growth

Distribution to unitholders (157.2) (186.1) (188.2) (190.7) Turnover 0.9 5.4 2.4 2.9

Issue of shares 0.0 18.6 18.8 19.1 EBITDA 7.9 (1.7) 0.7 3.0

Proceeds from borrowings 73.7 68.7 51.0 58.0 Pre-tax profit 14.2 (2.9) (1.3) 1.3

Others/interest paid (46.6) (31.7) (36.2) (40.8) Net profit 15.6 (0.9) (1.6) 1.5

Net cash inflow (outflow) (20.1) (37.2) 33.4 (17.2) Net profit (adj.) 15.6 (0.9) (1.6) 1.5

Beginning cash & cash equivalent 134.8 114.3 77.1 110.4 EPU 15.0 (1.8) (2.2) 0.8

Changes due to forex impact (0.4) 0.0 0.0 0.0

Ending cash & cash equivalent 114.3 77.1 110.4 93.2 Leverage

Debt to total capital 34.8 36.4 36.9 37.5

Debt to equity 61.1 66.0 67.3 68.9


Interest cover (x) 8.7 7.9 7.0 6.4





SECTOR UPDATE

Oil & Gas – Thailand Dampened Oil Prices Create Another Obstacle To The Sector

We cut overall earnings forecasts for O&G stocks by 4-74% in 2014 and 3-16% in 2015 to reflect our new oil price assumptions for Brent crude (US$100/bbl for 2014 and US$85/bbl for 2015). Key risks are a continued decline in oil prices and the uncertainty over the impact of the upcoming energy reform. With the sharp decline in oil prices, the government may postpone the plan to raise both LPG and NGV prices. With these risks, we downgrade PTT and PTTEP to HOLD. Our top picks are PTTGC and BCP on cheap valuations. Maintain UNDERWEIGHT.

WHAT’S NEW

Sharp cut in oil price assumptions. Our regional O&G analyst has recently cut the average Brent crude forecasts to US$100/bbl (from US$105/bbl) for 2014 and to US$85/bbl (from US$105/bbl) for 2015 while the average Brent crude forecast for 4Q14 is US$85/bbl. The major reasons for the cut are: a) weak global oil demand given the weaker global economy, and b) the internal conflict among OPEC countries, in which Saudi Arabia has shown no intention to defend oil prices to maintain its market share.

ACTION

Maintain UNDERWEIGHT on the O&G sector. To reflect our new oil price assumptions, earnings for O&G stocks under our coverage have been cut by 4-74% in 2014 and 3-16% in 2015. Key risks are: a) a larger-than-expected decline in oil prices, and b) the uncertainty over the impacts of the upcoming energy reform. Our top picks in O&G space are PTTGC and BCP on the back of their cheap valuation.

ESSENTIALS

PTTGC (PTTGC TB/BUY/Target: Bt73.99) is our top pick for the big O&G space. Thanks to the sustained high olefins prices and spreads and the use of gas as feedstock, PTTGC will be better cushioned than peers against the huge inventory losses. As a result, we slash our net profit estimate for 2014 by 12% mainly to factor in a huge inventory losses from the sharp decline in crude prices. However, we keep our 2015 profit unchanged as we assume average Brent crude at US$85/bbl from 4Q14 through 2015. Our new target price is Bt73.00, based on 9x PE for the O&G sector.

Although there is the uncertainty as to whether PTTGC is required to pay a higher tax to the Oil Fund under the upcoming energy reform, the stock has already been penalised by the market on this issue. The stock is trading at a cheap 7x 2015F PE. Maintain BUY.

BCP (BCP TB/BUY/Target:Bt42.75) is our pick for the mid- to small-cap O&G stocks. We slash our net profit forecasts by 36% for 2014 and 5% for 2015 mainly to reflect the huge inventory losses from the sharp decline in crude prices. Thanks to its 118MW solar farms business which accounts for 30% of its earnings, the full-year operation of its solar farm business could support its earnings growth in 2015. The stock is trading at a cheap 6.6x 2015F PE. Maintain BUY with a target price of Bt42.75, based on 9x PE for O&G sector.

UNDERWEIGHT (Maintained) TARGET PRICE AND RECOMMENDATION

Company 2015 Target Price (Bt) Rec BCP 42.75 BUY ESSO 5.0 SELL IRPC 3.3 HOLD PTT 350.0 HOLD PTTEP 157.0 HOLD PTTGC 73.0 BUY TOP 45.0 HOLD


ANALYSTS

Tanaporn Visaruthaphong +662 659 8305 [email protected]

Arsit Pamaranont +66 2 2659 8317 [email protected]

Chaiwat Arsirawichai +662 659 8032 [email protected]

HDPE SPREAD OVER NAPHTHA

+2 SD : 774

+1 SD : 662

Mean : 551

‐1 SD : 439

‐2 SD : 328

250

350

450

550

650

750

850

950

Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14

HDPE ‐ Naphtha spread (USD/MT)

Source: Data Stream, Bloomberg

PEER COMPARISON

Last Target Upside Market PE EPS PEG P/B Yield ROE Company Rec. Price Price Downside Cap 2013 2014F 2015F CAGR (%) 2015F 2015F 2015F 2015F

(Bt) (Bt) (%) (US$ m) (x) (x) (x) 2013-15

(x) (%) (%)

Bangchak Petroleum BCP TB BUY 32.75 42.75 30.53 1390.51 10.6 7.78 6.62 16.89 0.38 0.96 5.19 15.54 ESSO (Thailand) ESSO TB SELL 5.4 5 -7.41 576.28 n.a. n.a. 12.41 na 0.09 1.08 0.93 8.83 IRPC IRPC TB HOLD 3.36 3.3 -1.79 2117.16 83.1 n.a. 19.66 61.69 0.11 1.03 2.98 5.21 PTT PCL PTT TB HOLD 354 350 -0.89 31178.85 10.7 10.2 9.56 3.76 1.43 0.97 4.44 10.71 PTT Exploration & Production Pcl

PTTEP TB HOLD 145.5 157 7.9 17811.68 10.3 10.28 10.78 -1.47 -2.33 1.4 3.71 13.87

Ptt Global Chemical Pcl PTTGC TB BUY 56.75 73 28.63 7885.35 7.68 8.71 7.02 3.07 0.29 0.93 6.41 13.37 Thai Oil Pcl TOP TB HOLD 44 45 2.28 2767.85 8.64 41.38 8.43 0.81 0.02 0.92 5.36 11.15 Source: UOB Kay Hian





PTTEP (PTTEP TB/HOLD/Target: Bt157.00). We downgrade PTTEP to HOLD. The stock price has a strong correlation (85%) with crude price. A 6% yoy rise in 2015 petroleum sales volume will not be able to absorb the huge decline in crude price. With the new oil price forecasts, we cut our earnings forecasts by 4% in 2014 and 16% in 2015 with a new target price of Bt157 based on DCF valuation (WACC = 9.5%). Entry price is Bt135.00.

PTT (PTT TB/HOLD/Target: Bt350.00). We downgrade PTT to HOLD. PTT’s share price has increased 18% over the past four months as the consensus expects the government to raise both LPG and NGV prices to PTT. The company is requesting that the price of LPG sold at its gas separation plants be increased to US$550 from US$333/tonne currently, and also asking for the price of NGV to be increased to Bt16 from Bt11.5/kg. Thus far, the government has been able to raise NGV price by Bt1 to Bt11.5/kg effectively in this month. We have a contrarian view when compared with the consensus as we do not believe the government will be able to raise both LPG and NGV prices to the level its request. The government may raise some but not all as it will lead to a high cost of living.

Given the current sharp decline in crude, the government is likely to postpone the plan to raise both LPG and NGV prices. We cut our earnings forecasts by 8% in 2014 and 6% in 2015 with a new target price of Bt350 based on SOTP. Our new earnings estimate and target price have already factored the net impact of the rise in NGV price by Bt1/kg effectively this month and poorer performances of its subsidiary and affiliates due to the slump in oil price assumptions. Entry price is Bt300.00.

TOP (TOP TB/HOLD/Target: Bt45.00). TOP will be most affected bye inventory losses as it is the biggest refiner in Thailand with a total refining capacity of 275 kbpd. As a result, we slash our net profit forecast by 74% for 2014. We keep our 2015 profit unchanged as we assume an average Brent crude of US$85/bbl from 4Q14 through 2015. Our new target price is Bt45.00, based on SOTP valuation. Entry price is Bt40.00.

IRPC (IRPC TB/HOLD/Target: Bt3.30). We slash our 2014 earnings forecast from a Bt976m profit to a net loss of Bt4.3b while slightly reducing 2015’s forecast by 2.6% mainly to reflect the change in oil price assumptions. Entry price is Bt3.00.

ESSO (IRPC TB/SELL/Target: Bt5.00). We slash our 2014 earnings forecast from a Bt1.3b profit to a net loss of Bt4.7b. We keep our 2015 profit unchanged as we assume an average Brent crude to be US$85/bbl from 4Q14 through 2015.

EARNINGS REVISION Company New Old % chg

2014 2015 2014 2015 2014 2015 BCP 3,911 6,497 6,080 6,810 -35.7 -4.6 ESSO (4,665) 1,507 1,298 1,507 n.a. 0.0 IRPC (4,264) 3,493 976 3,585 n.a. -2.6 PTT 91,559 100,366 99,934 106,697 -8.4 -5.9 PTTEP 56,254 53,592 58,457 63,621 -3.8 -15.8 PTTGC 29,316 36,661 33,424 36,661 -12.3 0.0 TOP 2,137 10,648 8,081 10,648 -73.6 0.0


TARGET PRICE AND RECOMMENDATION CHANGES Company 2015 Target Price (Bt) Recommendation

New Old % chg New Old BCP 42.75 42.75 0.0 BUY BUY ESSO 5.0 5.5 -9.1 SELL SELL IRPC 3.3 3.5 -6.9 HOLD HOLD PTT 350.0 360.0 -2.8 HOLD BUY PTTEP 157.0 187.0 -16.0 HOLD BUY PTTGC 73.0 80.0 -8.8 BUY BUY TOP 45.0 50.0 -10.0 HOLD HOLD


PTTGC - HISTORICAL PE BAND

Source: Bloomberg

SENSITIVITY ON 2015 EARNINGS

Sensitivity 2015 earnings (US$1/bbl lower in crude assumption)

BCP -4.31% ESSO -12.70% IRPC -6.49% PTT -0.60% PTTEP -0.90% PTTGC -0.40% TOP -2.06%






BCP - HISTORIAL PE BAND ESSO - HISTORICAL PE BAND

Source: Bloomberg, UOB Kay Hian Source: Bloomberg, UOB Kay Hian

IRPC - HISTORICAL PE BAND PTT - HISTORICAL PE BAND


PTTEP - HISTORICAL PE BAND TOP - HISTORICAL PE BAND






COMPANY UPDATE BUY (Maintained) Share Price Bt24.80

Target Price Bt31.75

Upside +28.0%

COMPANY DESCRIPTION SPALI is a property developer, which has operations in Greater Bangkok and other leading provincial markets. It develops all types of housing products, office buildings, and hotels.


Bloomberg ticker: SPALI TB


Market cap (Btm): 42,570.5



Price Performance (%) 52-week high/low Bt26.75/Bt13.80


(3.7) 1.2 27.2 40.1 69.9


Mr. Prateep Tangmatitham 22.9

Thai NVDR 19.0

Mrs. Achara Tangmatitham 5.3

FY14 NAV/Share (Bt) 9.76

FY14 Net Debt/Share (Bt) 4.91

PRICE CHART

60

80

100

120

140

160

180

10

15

20

25

30

(%)(lcy)SUPALAI PUBLIC COMPANY LTD

SUPALAI PUBLIC COMPANY LTD/SET INDEX

0

10

20

30


Volume (m)

Source: Bloomberg

ANALYST

Pornthipa Rayabsangduan +662 659 8302 [email protected]

Supalai (SPALI TB)

3Q14 Results Preview

SPALI will release its 3Q14 results on 11 November. We estimate net profit to increase 164.6% qoq and 299.8% yoy to Bt1,402m in 3Q14 thanks to a surge in condo revenue and widened gross margin. Based on its existing backlog, SPALI’s residential revenue is estimated at Bt18,719m in 2014, which is 4.5% above our revenue forecast of Bt17,904m. Maintain BUY on its promising growth outlook and high earnings visibility. Target price: Bt31.75.

WHAT’S NEW

Expect 3Q14 net profit to increase 164.6% qoq and 299.8% yoy. We attended SPALI analyst meeting yesterday. We estimate SPALI to report 3Q14 net profit of Bt1,402m, up 164.6% qoq and 299.8% yoy thanks to a surge in condo revenue and widened gross margin. We expect condo revenue to jump to Bt4,040m (+445.9% qoq and 1573.5% yoy) in 3Q14, driven by the unit transfers at Supalai River Resort (project value: Bt4,010m), Supalai Park Kaerai-Ngamwongwan (project value: Bt1,660m), Supalai Park @ Phuket City (project value: Bt840m), and Supalai Premier @ Asoke (project value: Bt2,818m). Note that condo projects should contribute about 70% of total revenue from residential sales in 3Q14 while the rest should come from low-rise housing. Gross margin from residential sales is likely to widen to 41.3% in 3Q14 from 40.1% in 3Q13 and 40.7% in 2Q14 due to higher contribution from condos (which yields high gross margins). Meanwhile, the SG&A expenses-to-revenue ratio is estimated to drop to 10.1% in 3Q14 vs. 17.1% in 3Q14 and 13.7% in 2Q14 as a result of larger revenue base. SPALI will release its 3Q14 results on 11 November.

3Q14 RESULTS PREVIEW

Year to 31 Dec (Btm) 3Q13 2Q14 3Q14F qoq % chg yoy % chg Sales & Services 1,935.9 2,626.6 5,847.0 122.6% 202.0% Gross Profit 778.4 1,064.8 2,410.7 126.4% 209.7% Interest Expense 16.3 39.5 52.0 31.6% 219.9% Corporate Tax 101.2 128.2 358.5 179.6% 254.2% Net profit (Loss) 350.6 529.9 1,402.0 164.6% 299.8% Reported EPS (Bt) 0.20 0.31 0.82 164.6% 299.8% Gross Margin from residential sales (%) 40.1% 40.7% 41.3% 0.6% 1.2% Net Margin (%) 18.1% 20.2% 24.0% 3.8% 5.9%

Source: SPALI, UOB Kay Hian

KEY FINANCIALS Year to 31 Dec (Btm) 2012 2013 2014F 2015F 2016F

Net turnover 11,513.2 12,615.3 18,243.9 21,110.5 22,229.4 EBITDA 3,724.0 3,729.4 5,324.5 6,214.0 6,556.6 Operating profit 3,646.5 3,635.0 5,280.1 6,168.0 6,508.9 Net profit (rep./act.) 2,743.5 2,882.2 4,030.1 4,661.5 4,923.3 Net profit (adj.) 2,743.5 2,882.2 4,030.1 4,661.5 4,923.3 EPS (Bt) 1.6 1.7 2.3 2.7 2.9 PE (x) 15.5 14.8 10.6 9.1 8.6 P/B (x) 3.4 3.0 2.5 2.2 1.9 EV/EBITDA (x) 13.9 13.8 9.7 8.3 7.9 Dividend yield (%) 2.6 2.8 3.9 4.7 5.2 Net margin (%) 23.8 22.8 22.1 22.1 22.1 Net debt/(cash) to equity (%) 25.5 53.1 50.3 46.9 34.4 Interest cover (x) 28.7 43.7 29.8 22.4 22.4 ROE (%) 23.6 21.6 26.0 25.7 25.1 Consensus net profit - - 4,245 4,920 5,273 UOBKH/Consensus (x) - - 0.95 0.95 0.93 Source: Supalai, Bloomberg, UOB Kay Hian





Presales for 2014 likely to be in line with our expectation. SPALI is planning to launch seven projects including three low-rise housing and four condo projects with a combined value of Bt11,320m in 4Q14. The company will launch Supalai Wellington Phase 2 on 6-9 Nov 14, Supalai Veranda Rattanathibeth on 29-30 Nov 14, Supalai Monte Phase 2 and Supalai Lite at Sathorn-Narathiwas in Dec 14. However, management has guided that the launch of Supalai Lite at Sathorn-Narathiwas may be postponed to early-15 since the company has not completed the transfer of land title deeds. For 9M14, the company’s presales amounted to Bt14,601m (including Bt6,430m presales from low-rise housing and Bt8,171m presales from condos), which represented 66.4% of our full-year forecast. In the case that the launch of the Supalai Lite Sathorn-Narathiwas project is shifted to early-15, SPALI’s presales for 2014 should be in line with our expectations at Bt22b, boosted by new project launches in 4Q14.

NEW PROJECT LAUNCHES IN 4Q14 Type Unit Value (Btm) Launch

1) Supalai Ville Ubonratchathani DH 166 420 4Q14 2) Supalai Ville Phuket TH 133 450 4Q14 3) Supalai Ville Mitrphap-Banchan Udonthani TH 248 650 4Q14

Total - Low-rise housing 547 1,520 4) Supalai Wellington II CD 1,092 3,200 6-9 Nov 2014 5) Supalai Veranda Rattanathibeth CD 1,055 2,400 29-30 Nov 2014 6) Supalai Monte II Chiangmai CD 738 1,700 Dec 14 7) Supalai Lite Ratchada-Sathorn-Narathiwas CD 573 2,500 Dec 14

Total - Condo 3,458 9,800 Source: SPALI

STOCK IMPACT

We maintain our net profit forecast for 2014 despite the delay in transfer of Supalai Wellington Phase 1. Management guided that residential revenue for 2014 may be below the company’s target of Bt20,000m due to the possible delay of unit transfers at Supalai Wellington Phase 1, which will start transferring to its customers in Dec 14. Based on its existing backlog, SPALI’s residential revenue is estimated at Bt18,719m in 2014, which is 4.5% above our revenue forecast of Bt17,904m. We expect residential revenue of Bt7,063m to be recognised in 4Q14, most of which will come from condo backlog at Supalai Park Kaerai-Ngamwongwan, Supalai Park @ Phuket City, Supalai River Resort, Supalai Premier @ Asoke, and Asean City Resort Songkhla projects. The upside risk should come from the better-than-expected transfers at Supalai Wellington Phase 1.


Maintaining our earnings forecasts for 2014-15. Risks to our forecasts include a deterioration of the domestic economy and renewed political instability, which may lead to slower presales and transfers of residential units, as well as a sharp rise in rejection rates, which could affect SPALI’s revenue recognition.


Maintain BUY on its promising growth outlook and high earnings visibility. As at end-Sep 14, SPALI’s total backlog amounted to Bt38,712m, which will be recognised during 2014-17. Its current backlog has secured 103.4% and 78.4% of our revenue forecast for 2014-15, respectively We expect SPALI’s net profit to grow 39.8% yoy to Bt4,030.1m in 2014, which will be the most outstanding earnings growth among property companies under our coverage. Our TP is Bt31.75 based on 11.7x 2015F PE, in line with its historical average PE since 2011. SPALI is currently trading at an undemanding 9.1x 2015F PE with a dividend yield of 4.7%.


Better-than-expected take-up rates for its new projects.

Faster-than-expected transfers at its low-rise housing and condo projects.

QUARTERLY PRESALES

2,074 1,801 1,697 1,473 2,160 1,934

2,336

2,229 2,137 2,728

4,952

1,840 1,939

4,392

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14

(Btm)

SDH & TH Condo Source: SPALI, UOB Kay Hian

PRESALES

9,382

13,567

15,436

18,768

23,456

19,091

22,000

6.0%

44.6%

13.8%

21.6%25.0%

-18.6%

15.2%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012 2013 2014F

(Btm)

SDH & TH Condo % yoy growth


REVENUE AND BACKLOG

10,885 12,466

11,260 12,322 11,451

17,904

20,759 21,863

7,063

16,269

8,236

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013 2014F 2014YtD 2015F 2015YtD 2016F 2016YtD

(Btm)

Revenue recognized Revenue forecast Backlog

103.4% secured

78.4% secured

37.7% secured


PE BAND SINCE 2011

Mean: 11.8x

‐1 SD: 7.1x

‐2 SD: 2.4x

‐ 3 SD: ‐2.4x

+1 SD: 16.6x

+2 SD: 21.3x

+ 3 SD: 26x

‐5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Jan‐11May‐11Sep‐11 Jan‐12May‐12Sep‐12 Jan‐13May‐13Sep‐13 Jan‐14May‐14Sep‐14

PE(x)






PROFIT & LOSS

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

Net turnover 12,615 18,244 21,111 22,229 Fixed assets 386 373 359 343

EBITDA 3,729 5,324 6,214 6,557 Other LT assets 2,210 2,210 2,210 2,210

Deprec. & amort. 94 44 46 48 Cash/ST investment 792 859 807 273

EBIT 3,635 5,280 6,168 6,509 Other current assets 27,289 32,676 37,748 39,669

Total other non-operating income 127 100 116 122 Total assets 30,675 36,118 41,124 42,495

Associate contributions 0.0 0.0 0.0 0.0 ST debt 4,626 2,070 939 970

Net interest income/(expense) (85) (179) (277) (293) Other current liabilities 7,537 9,408 10,754 11,169

Pre-tax profit 3,676 5,202 6,007 6,338 LT debt 3,734 7,224 9,048 7,012

Tax (726) (1,040) (1,201) (1,268) Other LT liabilities 69 69 69 69

Minorities (68) (131) (144) (147) Shareholders' equity 14,252 16,759 19,582 22,395

Net profit 2,882 4,030 4,661 4,923 Minority interest 457 588 732 879

Net profit (adj.) 2,882 4,030 4,661 4,923 Total liabilities & equity 30,675 36,118 41,124 42,495

CASH FLOW KEY METRICS Year to 31 Dec (Btm) 2013 2014F 2015F 2016F Year to 31 Dec (%) 2013 2014F 2015F 2016F

Operating (2,422) 689 1,126 3,612 Profitability

Pre-tax profit 3,676 5,202 6,007 6,338 EBITDA margin 29.6 29.2 29.4 29.5

Tax (726) (1,040) (1,201) (1,268) Pre-tax margin 29.1 28.5 28.5 28.5

Deprec. & amort. 94 44 46 48 Net margin 22.8 22.1 22.1 22.1

Associates 0.0 0.0 0.0 0.0 ROA 10.6 12.1 12.1 12.5

Working capital changes (5,024) (3,516) (3,726) (1,506) ROE 21.6 26.0 25.7 25.1

Non-cash items (444) 0.0 0.0 0.0

Investing (843) (32) (32) (32) Growth

Capex (growth) (843) (32) (32) (32) Turnover 9.6 44.6 15.7 5.3

Financing 1,887 (590) (1,146) (4,114) EBITDA 0.1 42.8 16.7 5.5

Dividend payments (1,149) (1,523) (1,838) (2,110) Pre-tax profit 0.6 41.5 15.5 5.5

Issue of shares 21 0.0 0.0 0.0 Net profit 5.1 39.8 15.7 5.6

Proceeds from borrowings 3,015 933 693 (2,004) Net profit (adj.) 5.1 39.8 15.7 5.6

Others/interest paid 0.0 0.0 0.0 0.0 EPS 5.1 39.8 15.7 5.6

Net cash inflow (outflow) (1,378) 68 (52) (535)

Beginning cash & cash equivalent 2,170 792 859 807 Leverage

Ending cash & cash equivalent 792 859 807 273 Debt to total capital 36.2 34.9 33.0 25.5

Debt to equity 58.7 55.5 51.0 35.6


Interest cover (x) 43.7 29.8 22.4 22.4





Disclosures/Disclaimers This report is prepared and/or distributed by UOB Kay Hian Pte Ltd (“UOBKH”), which is a holder of a capital markets services licence and an exempt financial adviser in Singapore. This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. Advice should be sought from a financial adviser regarding the suitability of the investment product, taking into account the specific investment objectives, financial situation or particular needs of any person in receipt of the recommendation, before the person makes a commitment to purchase the investment product. This report is confidential. This report may not be published, circulated, reproduced or distributed in whole or in part by any recipient of this report to any other person without the prior written consent of UOBKH. This report is not intended for distribution, publication to or use by any person in any jurisdiction outside Singapore or any other jurisdiction as UOBKH may determine in its absolute discretion, where the distribution, publication or use of this report would be contrary to applicable law or would subject UOBKH and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registration, licensing or other requirements within such jurisdiction. The information or views in the report (“Information”) has been obtained or derived from sources believed by UOBKH to be reliable. However, UOBKH makes no representation as to the accuracy or completeness of such sources or the Information and UOBKH accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Information. UOBKH and its connected persons may have issued other reports expressing views different from the Information and all views expressed in all reports of UOBKH and its connected persons are subject to change without notice. UOBKH reserves the right to act upon or use the Information at any time, including before its publication herein. Except as otherwise indicated below, (1) UOBKH, its connected persons and its officers, employees and representatives may, to the extent permitted by law, transact with, perform or provide broking, underwriting, corporate finance-related or other services for or solicit business from, the subject corporation(s) referred to in this report; (2) UOBKH, its connected persons and its officers, employees and representatives may also, to the extent permitted by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securities referred to in this report or other investments related thereto; (3) the officers, employees and representatives of UOBKH may also serve on the board of directors or in trustee positions with the subject corporation(s) referred to in this report. (All of the foregoing is hereafter referred to as the “Subject Business”); and (4) UOBKH may otherwise have an interest (including a proprietary interest) in the subject corporation(s) referred to in this report. As of the date of this report, no analyst responsible for any of the content in this report has any proprietary position or material interest in the securities of the corporation(s) which are referred to in the content they respectively author or are otherwise responsible for. Each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report in any event accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are generated from UOBKH’s business of dealing in securities. IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSES Where the report is distributed in Singapore and contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact UOBKH (and not the relevant foreign research house) in Singapore in respect of any matters arising from, or in connection with, the analysis or report; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, UOBKH accepts legal responsibility for the contents of the analyses or reports IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by UOBKH, a company authorized, as noted above, to engage in securities activities in Singapore. UOBKH is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution by UOBKH (whether directly or through its US registered broker dealer affiliate named below) to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). All US persons that





receive this document by way of distribution from or which they regard as being from UOBKH by their acceptance thereof represent and agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through UOB Kay Hian (U.S.) Inc (“UOBKHUS”), a registered broker-dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through UOBKH. UOBKHUS accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to and intended to be received by a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of UOBKHUS and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Analyst Certification/Regulation AC As noted above, each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are generated from UOBKH’s business of dealing in securities. Copyright 2014, UOB Kay Hian Pte Ltd. All rights reserved. http://research.uobkayhian.com MCI (P) 116/03/2014 RCB Regn. No. 198700235E


Regional Morning Notes Tuesday, 21 October...

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