twn: semiconductor equity research reports…

Equity research│August 24, 2016

Asia Pacific Daily - 24 August 2016

Equity Research Reports…

▌IDEA OF THE DAY | China/Hong Kong Financial Services (OVERWEIGHT) - Life beyond the Post | P2 We are not concerned PSBC’s potential IPO could adversely impact China banks. We list ten areas that PSBC differs from commercial banks in China. ABC case study: hard to narrow profitability gap of large banks vs. China peers. Our study of the performance of rural vs. urban divisions of ABC leads us to conclude that rural segment does not have an advantage, especially in these times. Little evidence that postal banks globally have narrowed profitability gap vs. peers. Maintain sector Overweight. Top picks remain CCB, ICBC. ——————————————————————————————————————————————————————————————————————————————————————— ▌Australia APN Outdoor (HOLD, tp:A$5.44▼) - Soft trends ahead | P3 Asia Pacific Data Centre Group (HOLD, tp:A$1.54▲) - Solid data | P4 Aust Securities Exchange (REDUCE▼, tp:A$43.77▲) - Stable performance but expensive | P5 GBST Holdings (ADD, tp:A$4.95▼) - Increasing UK presence | P6 Healthscope (ADD, tp:A$3.40▼) - Prognosis remains favourable | P7 Lovisa (HOLD, tp:A$3.07▲) - UK gets the green light | P8 Monadelphous Group (HOLD▲, tp:A$7.93▲) - Still feeling the construction downturn | P9 NEXTDC (HOLD▼, tp:A$4.22▲) - A maiden profit and outlook for 75% growth | P10 Santos (HOLD, tp:A$4.72▲) - Focus on de-leveraging | P11 Senex Energy (ADD, tp:A$0.31) - A solid foundation for growth | P12 Tox Free Solutions (REDUCE▼, tp:A$2.14▼) - Cyclical headwinds remain | P13 Virtus Health (HOLD, tp:A$7.50▲) - Overseas delivers | P14 Vocus Communications (HOLD, tp:A$8.84▼) - Backing up another big year | P15 ——————————————————————————————————————————————————————————————————————————————————————— ▌China/Hong Kong China Modern Dairy Holdings Ltd (HOLD, tp:HK$1.30▲) - Awaiting signals for raw… | P16 Want Want China (HOLD, tp:HK$5.30▲) - Benefiting from margin expansion | P17 ——————————————————————————————————————————————————————————————————————————————————————— ▌Indonesia Astra International (ADD, tp:Rp9,100.00▲) - The return of Astra and LCGC | P18 XL Axiata (HOLD, tp:Rp3,300.00▼) - 2Q16: A trying quarter | P19 Banks (OVERWEIGHT) - Jun 16 statistics: early signs of improvement | P20 ——————————————————————————————————————————————————————————————————————————————————————— ▌Malaysia AWC Berhad (ADD, tp:RM1.19) - Smashing end to the year | P21 Carlsberg Brewery (M) (ADD▲, tp:RM16.30▲) - Nothing but more cheers! | P22 HeveaBoard Bhd (ADD, tp:RM2.02) - Plant shutdown a drag on 2Q | P23 IFCA MSC (HOLD▼, tp:RM0.55▼) - 2Q16 still in the red | P24 Kossan Rubber Industries (HOLD, tp:RM6.50▼) - Looking forward to 2H16 | P25 Media Chinese Int'l (REDUCE, tp:RM0.65▼) - A weak start to FY17 | P26 MSM Malaysia Holdings (HOLD, tp:RM5.04) - 2Q hurt by higher raw sugar costs and taxes | P27 Sime Darby Bhd (HOLD, tp:RM8.20▲) - Potential overhang from share placement | P28 SP Setia (HOLD, tp:RM3.30▲) - Cuts sales target to RM3.5bn | P29 WCT Holdings (ADD, tp:RM1.88▼) - Infra earnings lagged in 1H16 | P30 ——————————————————————————————————————————————————————————————————————————————————————— ▌Philippines Universal Robina Corporation (ADD▲, tp:PHP221.20▲) - A bitter to sweet story | P31 ——————————————————————————————————————————————————————————————————————————————————————— ▌Singapore Sembcorp Marine (REDUCE, tp:S$0.90) - Long awaited full control, at a price | P32 ——————————————————————————————————————————————————————————————————————————————————————— ▌Taiwan Cathay Financial (HOLD, tp:NT$39.75) - No reason to be re-rated | P33 ——————————————————————————————————————————————————————————————————————————————————————— ▌Thailand VGI Global Media PCL (HOLD▼, tp:THB6.29▲) - When offline meets online | P34 ———————————————————————————————————————————————————————————————————————————————————————

▌Vietnam Vietinbank (REDUCE, tp:VND16,900.00) - Rapid loan growth stresses balance sheet | P35

Showcasing CIMB Research Ideas

TWN: Semiconductor 21/08 Market Pulse – August 2016 >PDF

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SIN: SingTel 18/08 Raising bets on Thailand and India >PDF

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THB: Intouch Holdings 18/08 From passive to active shareholder >PDF

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IND: Strategy Note 17/08 A realistic 2017 state budget >PDF

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CHN: Strategy Note 16/08 SZ-HK Connect – salvage for HK small caps? >PDF

Regional Equity Research Contacts

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

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CIMB Conference / Events |

CIMB Malaysia Healthcare & Fitness Corporate Day 05 September 2016 Theme: Kuala Lumpur Location: Malaysia

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CIMB Smartphone Corporate Day 26-27 September 2016 Theme: HKG/China, Taiwan, South Korea Location: Hong Kong

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

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Financial Services│China, Hong Kong│Equity research│August 23, 2016

Sector Note │ Alpha series



Banks Life beyond the Post

We are not concerned PSBC’s potential IPO could adversely impact China banks. ■ We list ten areas that PSBC differs from commercial banks in China. ■ ABC case study: hard to narrow profitability gap of large banks vs. China peers. ■ Our study of the performance of rural vs. urban divisions of ABC leads us to ■conclude that rural segment does not have an advantage, especially in these times.

Little evidence that postal banks globally have narrowed profitability gap vs. peers. ■Maintain sector Overweight. Top picks remain CCB, ICBC.

Postal banks versus commercial banks We explore the implications for commercial banks under our coverage from the upcoming potential listing of Postal Savings Bank of China (PSBC). In our report, we also track the post-listing operational performance of the last large China bank that listed in 2010 (i.e. ABC), as well as contrast the financial performance of its rural and urban banking divisions in China. Thereafter, we look at selected postal banks globally and compare their operational performance to the commercial banks within their countries.

The differences between PSBC and the commercial banks in China There are ten areas, including (i) lower LDR, (ii) larger distribution network, (iii) lower-than-peer NPL ratios, (iv) a more concentrated loan mix towards SMEs and rural loans, (v) a higher mix of receivable assets, (vi) a less profitable distribution model, (vii) much stronger loan growth, (viii) a larger mix of mass market customers, (ix) weaker profitability ratios and (x) worse-than-peer capital and regulatory leverage ratios.

How easy is it to turnaround an underperforming China bank? Using the case study of ABC post listing, it appears to be difficult to narrow the profitability gap of a bank whose profitability metrics lag that of peers. With the other big four banks as a control group, we do not find any evidence that ABC’s trends in LDR, its fee income generation, or its efficiency ratios have noticeably performed better than peers over the last five years, despite its worse-than-peer starting point. Neither do we see its rural exposure to be an advantage, especially given current economic weakness.

Postal banks versus commercial banks compared globally We also compare the operational performances of postal banks to commercial banks globally, including New Zealand, Japan and Germany, and conclude that there is also little evidence that postal banks globally narrow the profitability gap across time.

Not concerned that PSBC is a threat to the commercial banks We conclude that one should not be concerned that PSBC after its potential listing could pose a threat to the listed commercial banks. It is even arguable that a better capitalised PSBC is advantageous to the listed commercial banks, as it enables PSBC to continue to perform its national service duties to lend more to the rural and SME segment. These are two segments that the commercial banks have in recent years been less willing to lend to, in part due to these segments’ higher credit risk.

[ X ]

Figure 1: Broad credit growth by bank grouping

SOURCES: CIMB RESEARCH, COMPANY

▎China, Hong Kong

Overweight (no change)

Highlighted companies

China Construction Bank ADD, TP HK$6.30, HK$5.79 close

CCB is one of our top picks. We believe its

best-in-class capital position (core tier-1 ratio

of 13.5% at end-1Q16) will be increasingly

valued at a premium by investors as industry

asset quality continues to deteriorate.

ICBC ADD, TP HK$5.20, HK$4.96 close

ICBC is also a top pick. Its key strengths are a

strong capital position, low-risk strategy and

good management, with above-peer

profitability ratios.

Summary valuation metrics

Analyst(s)

Michael CHANG

T (852) 2539 1323 E [email protected]

Scott HONG T (852) 2539 1329 E [email protected]

8%

Mar-16, 30%

Jul-16, 27%

22%

0%

5%

10%

15%

20%

25%

30%

35%

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

Big four banks BoCom, CDB, PSBC Small & mid-size banks

Jun-16 's figures were:Big four banks = 9%BoCom, CDB, PSBC = 28%Small & mid-size banks = 23%

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

China Construction Bank 5.95 5.84 5.32

ICBC 6.01 5.94 5.63

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

China Construction Bank 0.80 0.73 0.66

ICBC 0.81 0.74 0.67

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

China Construction Bank 5.05% 5.14% 5.64%

ICBC 4.99% 5.05% 5.33%

2

Media - Overall│Australia│Equity research│August 23, 2016

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

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APN Outdoor

Soft trends ahead

APN Outdoor reported a weaker-than-expected first half, with revenue and NPAT ■well below analyst forecasts.

Weakness in New Zealand, a pull-back in installation revenues, a collapse in low-■margin point-of-sale print revenues and weakness in demand for static billboards all contributed to the downside surprise.

APO warned that conditions in the second half were looking soft and downgraded ■full-year revenue and EBITDA guidance.

We have reduced our forecasts to reflect guidance. Our DCF valuation drops to ■A$5.63 per share (from A$7.13/share). Our price target – set as an average of DCF valuation, PE multiple and EV/EBITDA multiple – falls to A$5.44 per share from A$7.38 per share.

Result outcome APN Outdoor reported first half 10% revenue growth to A$150.6m and 31% EBITDA growth to A$34.8m (a record). APO’s revenue growth was well below the reported outdoor media industry growth rate of 18% due to: 1) a poor result in New Zealand; 2) a drop in production and installation revenues; 3) a steep drop in low-margin point-of-sale contract printing revenues; and 4) a steep 12% drop in static billboard revenues caused by a mix of volume (4%) and rate (8%). As most of the lost revenues were derived from low-margin business, the impact on EBITDA was muted, with the EBITDA margin expanding 3.6 percentage points.

Change to forecasts APO warned that the second half outlook is soft and downgraded full-year EBITDA guidance to a range between A$79m and A$84m. We have downgraded our forecasts to reflect guidance. Due to steep downgrades to earnings forecasts, our DCF valuation falls to A$5.63/share (from A$7.13). Our price target falls to A$5.44/share (from A$7.38).

Risks and catalysts Potential near-term risks to APN Outdoor include: 1) further declines in demand for static billboards media product; 2) irrational competitor behaviour; 3) loss of a major contract; and 4) tighter regulatory controls affecting the rollout of new digital signs. Potential positive catalysts include: 1) continuing strong growth in demand for digital outdoor media product; and 2) faster implementation of the digital sign construction program.

Investment view While the first half result and revised guidance have disappointed the market, the APO business remains sound and well-positioned to benefit from improvements in advertiser sentiment. APO shares trade in line with our valuation and price target and therefore we retain a HOLD recommendation.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

HOLD (no change) Current price: A$5.33

Target price: A$5.44

Previous target: A$7.38

Up/downside: 2.1%

Reuters: APO.AX

Bloomberg: APO AU

Market cap: US$676.9m

A$888.1m

Average daily turnover: US$5.29m

A$7.07m

Current shares o/s 166.6m

Free float: 81.3%

Key changes in this note

FY16F EPS decreased by 17.6%.



Price performance 1M 3M 12M

Absolute (%) -31.3 -25.7 77.7

Relative (%) -31.6 -28.8 71.9

Ivor RIES

T (61) 3 9947 4182

E [email protected]

Simon DUMARESQ

T (61) 3 9947 4124

E [email protected]

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

Revenue (A$m) 300.8 321.8 354.3 379.6 405.9

Operating EBITDA (A$m) 73.3 82.4 96.7 106.7 117.0

Net Profit (A$m) 40.95 47.67 55.67 62.43 69.52

Normalised EPS (A$) 0.26 0.30 0.35 0.39 0.43

Normalised EPS Growth 76.3% 15.3% 16.4% 11.6% 10.9%

FD Normalised P/E (x) 20.53 17.81 15.29 13.70 12.35

DPS (A$) 0.16 0.17 0.20 0.22 0.24

Dividend Yield 2.91% 3.12% 3.76% 4.22% 4.45%

EV/EBITDA (x) 12.94 11.75 9.82 8.70 7.71

P/FCFE (x) 91.85 86.91 20.66 17.61 15.28

Net Gearing 24.4% 29.5% 20.5% 12.0% 3.9%

P/BV (x) 3.58 3.25 2.94 2.67 2.42

ROE 18.6% 19.1% 20.2% 20.4% 20.5%

% Change In Normalised EPS Estimates (17.6%) (20.3%) (20.7%) (21.1%)

Normalised EPS/consensus EPS (x) 0.91 0.91 0.91

85

112

138

165

192

218

245

2.80

3.80

4.80

5.80

6.80

7.80

8.80

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

Source: Bloomberg

5

10

15

20

25

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

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REIT│Australia│Equity research│August 23, 2016


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Asia Pacific Data Centre Group

Solid data

AJD delivered no surprises with the result with revaluations recently announced ■boosting the portfolio value to A$187m (6.95% WACR). NTA stands at A$1.43.

1H17 distribution guidance of 4.86c has been provided which is in line with our ■expectations.

Market reviews are held every five years with the first market review due in ■December 2016 (M1 asset) followed by S1 and P1 in December 2017.

We retain our Hold rating with a revised A$1.54 price target. ■

FY16 result overview AJD reported statutory profit of A$31.7m (versus A$26.2m in the pcp) which included A$20.7m in revaluation gains. A 9.48c distribution was paid during the period (in line with guidance and +4.2% on the pcp) funded by distributable earnings of A$10.96m. Leases are on a triple-net basis, and therefore no operating or outgoing expenses are payable. Operating and compliance expenses of A$1.1m were flat on the pcp. Gearing (debt/assets) stands at 13.6% with A$4m of debt capacity available. NTA is A$1.43 (up from A$1.24 in June 2015).

Next rent review in December 2016 AJD had already announced independent valuations on its portfolio (as at June 2016) resulting in a 12.4% increase to A$187.0m (up from A$166.3m in June 2015). AJD earned A$13.2m in rental income in FY16 from its three leases which were subject to a CPI review in December 2015 (+1.5% increase versus +2.3% in the pcp). Market reviews are held every five years with the first market review due in December 2016 (M1 asset) followed by S1 and P1 in December 2017. We note the valuers determined that M1 rent as at June 2016 was at market. Management has indicated that if no market review is undertaken then a CPI review will apply. Currently, we assume an average 2% rental increase in FY17 and FY18 so make no changes to our forecasts at this point.

1H17 distribution guidance provided The Board notes it will pay a distribution of 2.43c for the September and December 2016 quarters which aligns with our FY17 distribution forecast of 9.72c (98% payout ratio).

Investment view AJD is a niche REIT offering investors exposure to the data centre asset space which in our view continues to have high barriers to entry. AJD’s FY17 distribution yield is attractive at around 6% (paid quarterly) with income underpinned by long-term, triple net leases with fixed CPI and market reviews. Catalysts include further asset re-ratings, corporate activity and accretive acquisitions. Post result, our blended DCF/NAV valuation (6.7% cap rate) is A$1.54 (from A$1.49). We maintain our Hold recommendation with the stock expected to deliver TSR of <10% over the coming 12 months. Key risks to our forecasts include lower inflation and higher interest rates.


▎Australia




Up/downside: -4.4%

Reuters: AJD.AX

Bloomberg: AJD AU


A$185.7m


A$0.32m


Free float: 100.0%


Absolute (%) 2.2 15.4 27.2

Relative (%) 1.2 11 20.7

Fiona BUCHANAN

T (61) 7 3334 4879

E [email protected]

Key metrics

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

Rev enue (A$m) 13.1 13.3 13.6 13.9 14.2

EBITDA (A$m) 11.9 12.1 12.3 12.6 12.9

EBIT (A$m) 11.9 12.1 12.3 12.6 12.9

NPAT (A$m) 10.6 11.0 11.4 11.7 11.9

EPS Norm. (cps) 0.09 0.10 0.10 0.10 0.10

EPS growth 9.0% 3.8% 4.0% 2.4% 2.2%

Normalised P/E (X) 17.6 16.9 16.3 15.9 15.6

DPS (cps) 9.1 9.5 9.7 9.9 10.2

Yield 5.6% 5.9% 6.0% 6.2% 6.3%

Pay out ratio 99% 99% 98% 98% 98%

Gearing (ND/A) 11.2% 9.9% 9.4% 9.0% 8.5%

NTA (A$) 1.24 1.43

87.0

92.8

98.7

104.5

110.3

116.2

122.0

1.100

1.200

1.300

1.400

1.500

1.600

1.700


Source: Bloomberg

2

4

6

8

10


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Stockbroking & Exchanges│Australia│Equity research│August 23, 2016


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Aust Securities Exchange

Stable performance but expensive

ASX’s FY16 NPAT of A$426m was 1% above Bloomberg consensus and up ~6% ■on the pcp.

ASX continues to work towards a final investment decision on whether to replace ■CHESS with Distributed Ledger Technology by the end of FY17.

We lift our ASX FY17/FY18 forecast EPS by ~1%. ■

We view ASX as expensive trading at 22x FY17F PE and at a 37% premium to the ■All Ordinaries Index.

Move to Reduce recommendation (from Hold) and a A$43.77 price target (from ■A$40.23).

Result summary ASX’s FY16 NPAT of A$426m was 1% above Bloomberg consensus and up ~6% on the pcp. Group revenue growth of 6.5% was offset by a similar level of expense growth leading to 6.5% FY16 EBITDA growth. Revenue growth was delivered across all key businesses with listings (+9%) and cash equities activity (+14%) the standout areas. The FY16 dividend of 198cps equated to a full-year payout ratio of ~90%. FY16 guidance commentary is for expense growth of 6% (FY16: 6.5%) and capital expenditure of A$50m in-line with FY16.

Technology transformation program Management noted that the new derivatives trading platform remains on track to go live in February 2017. Management indicated they have deprioritised moving equities trading onto the derivatives trading platform to focus on higher priority items including Distributed Ledger Technology (DLT). On this front, ASX now has a working DLT prototype and are still targeting a final investment decision on whether to replace CHESS with DLT by the end of FY17. This timeline is unchanged from previous guidance.

Changes to forecasts We lift our FY17/FY18 forecast EPS by ~1%. Earnings changes reflect mainly a slight lift in revenue growth assumptions in all years. We currently forecast 3% EBITDA growth in FY17. Our price target rises 8% to A$43.77 due to our earnings changes and a roll forward of our DCF-based valuation.

Move to Reduce recommendation ASX continues to deliver a stable earnings stream with EPS growth of 4-5% over the last few years. We also feel management has done a solid job in adapting the business to a rapidly changing environment. However, we expect slower earnings growth in FY17 and there remains risk in the build out/adoption of new technologies like DLT. We also see ASX’s current 22x FY17F PE as expensive with the stock trading at a 37% premium to the All Ordinaries Index. We therefore move ASX to a Reduce recommendation and A$43.77 price target.


▎Australia

REDUCE (previously HOLD) Current price: A$50.66



Up/downside: -13.6%

Reuters: ASX.AX

Bloomberg: ASX AU

Market cap: US$7,475m

A$9,808m


A$25.84m


Free float: 100.0%


Absolute (%) 3.6 15 24

Relative (%) 3.3 11.9 18.2

Richard COLES

T (61) 2 9043 7911

E [email protected]

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

Net Interest Income (A$m) 26.90 22.30 20.67 22.70 24.80

Total Non-Interest Income (A$m) 700.7 746.2 776.5 817.2 857.4

Net Profit (A$m) 397.8 426.1 438.6 461.0 484.9

Normalised EPS (A$) 2.08 2.20 2.27 2.38 2.50

Normalised EPS Growth 4.91% 5.68% 2.92% 5.11% 5.19%


DPS (A$) 1.84 1.98 2.04 2.14 2.25

Dividend Yield 3.63% 3.91% 4.02% 4.23% 4.45%

BVPS (A$) 19.42 19.75 19.98 20.22 20.47

P/BV (x) 2.61 2.56 2.54 2.51 2.48

ROE 10.9% 11.2% 11.4% 11.8% 12.3%

% Change In Normalised EPS Estimates 0.95% 0.89% 0.64%

Normalised EPS/consensus EPS (x) 1.01 1.01

91.0

100.7

110.4

120.2

35.0

40.0

45.0

50.0


Source: Bloomberg

1

1

2

2


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IT Services│Australia│Equity research│August 23, 2016


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GBST Holdings

Increasing UK presence

GBST has reported a full year result slightly below management’s guidance (pre-■Brexit), but above our forecast.

Operational EBITDA was 18% lower to $20m. This implies $11.5m for the second ■half, slightly below guidance of A$12-14m but above our forecast of A$9.5m. After restructuring and other non-operating costs of $2.8m, reported EBITDA was A$17.2m.

Adjusted NPAT (plus investment amortization) of $13.4m, was above our forecast of ■$13.1m. Revenue declined 5% to $108.1m from $114.3m, reflecting later than anticipated project starts, reduced services revenue and adverse fx impacts.

After slight changes post the FY16 result our DCF valuation has increased from ■$5.22 to $5.40. Our Price target of $4.95 (previously $4.96) is based on an average of our FY17 EV/EBITDA valuation and the DCF. We maintain our ADD recommendation.

Divisional Performance The first half was difficult due to the leadership transition, and company restructure. Then the second half recovered strongly despite Brexit and the depreciation of the GBP. On a divisional level Wealth management revenue was down 11% to A$61.7m, and operating EBITDA was down 29% to A$13.3m. Capital markets was the stronger division with a 3% increase in revenue to $45.9m and a 19% increase in operating EBITDA to $6.7m – The international component of Capital markets was particularly improved, with a second half loss of $0.9m compared to $3.6m in the first half.

Aegon / CoFunds As previously discussed, GBST’s largest client Aegon, has acquired one of Britain’s largest wrap account platform operators, CoFunds, for £140m. The merged entity will manage more than 1.5 million investor accounts (£100m funds under administration), and Aegon has estimated that it will achieve £60m a year in operating efficiencies, mostly by using GBST’s Composer wealth management system. The deal will provide a significant boost to the UK license and service fees from H2 FY17 onwards.

Short term pain, long term gain The first half FY17 result will include implementation costs for the new CoFunds accounts, and the Pershing contract will also finish at the end of the first quarter. Capex will increase, due to the prioritization of developing the platforms over the next 2-3 years. Additionally with 45% of revenues from the UK, currency will remain a key earnings driver (we have assumed AUD/GBP of 0.59)

Add recommendation Favorable regulatory changes in the UK such as the Retail Distribution Review in 2012 and pension Freedoms Reforms Act are expected to drive continued growth for GBST from the increased demand in the UK WRAP and Platforms market. The increased presence in the UK market from the CoFunds deal may also fast track further contract wins, with industry consolidation also a positive driver. We maintain an ADD recommendation with a $4.95 price target.

.


▎Australia

ADD (no change) Current price: A$4.06



Up/downside: 21.8%

Reuters: GBT.AX

Bloomberg: GBT AU


A$273.7m


A$1.55m


Free float: 75.0%


Absolute (%) -3.8 -19.6 -13.4

Relative (%) -4.8 -24 -19.9

Ivor RIES

T (61) 3 9947 4182

E [email protected]

Simon DUMARESQ

T (61) 3 9947 4124

E [email protected]


Revenue (A$m) 113.8 108.1 108.3 116.1 121.2


Net Profit (A$m) 15.32 9.30 10.36 13.39 18.68

Normalised EPS (A$) 0.30 0.20 0.21 0.26 0.28

Normalised EPS Growth 39.0% (32.6%) 5.7% 20.5% 8.1%


DPS (A$) 0.11 0.11 0.12 0.14 0.15

Dividend Yield 2.59% 2.71% 2.83% 3.45% 3.69%

EV/EBITDA (x) 10.75 15.20 12.43 10.32 8.86

P/FCFE (x) 25.47 19.45 21.18 17.30 15.49

Net Gearing (10.5%) (13.4%) (19.6%) (28.8%) (36.0%)

P/BV (x) 4.14 4.11 4.40 4.22 3.84

ROE 33.5% 20.4% 22.3% 27.2% 27.4%

% Change In Normalised EPS Estimates (1.16%) 2.58% 2.43%


71.0

80.0

89.0

98.0

107.0

116.0

3.40

3.90

4.40

4.90

5.40

5.90


Source: Bloomberg

1

2

3

4


Vo

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6

Hospitals│Australia│Equity research│August 23, 2016


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Healthscope

Prognosis remains favourable

FY16 underlying result was solid and broadly in-line, underpinned by strong ■performances in the core Hospital and New Zealand Pathology divisions.

Encouragingly, operating efficiencies via case mix, labour and procurement ■initiatives continue to deliver hospital margin uplift, while capacity expansion programs remain on track and on budget.

While leery of cost pressures and ongoing government reviews, we continue to ■view underlying growth drivers as intact, with a strong focus on quality and clinical outcomes and brownfield pipeline supporting continued momentum.

We have adjusted our FY17-19 earnings estimates, with our DCF/SOTP target ■price declining modestly to A$3.40. We maintain our Add rating.

Solid and broadly in-line result on an underlying basis

FY16 results were solid and broadly in-line, with adjusted NPAT (ex A$11.8m in non-recurring items) increasing 25% to A$194.6m (Morgans A$191m; Bloomberg consensus A$192m) on revenue of A$2,291m (+6.2%). Underlying EBITDA grew 7.1% to A$407.9m and margins expanded 10bp to 17.8%. While OCF A$391.7m (+3.7%) growth was impacted by higher accrued revenue in coding and billing, it is only temporary, cash

conversion was still strong (c96%), supporting 5% dividend growth (payout ratio 70%).

Core biz delivering rev/margin growth; ROW path/med centres soft The result was underpinned by strength across the core Hospital division (EBITDA A$354.9m,+8.3%; margin +50bp to 18.2%), with seven expansion projects completed (three in 2H; 163 beds, 9 theatres), and New Zealand Pathology (EBITDA A$50.7m, +21.8%; EBIT margin +90bp to 18%), offsetting softness in Other (ie Malaysia, Singapore pathology; Australia medical centres; EBITDA A$28.8m, -13.7%; margins -350bp to 23.9%) on market softness and higher costs. The B/S is strong (ND/EBITDA 2.61x (ex-Northern Beaches Hospital debt as it is refunded upon project completion

YE18) with ample capacity to support future growth.

The best is yet to come We believe FY16 results demonstrate strong execution as they were driven mainly via organic growth and ongoing cost savings. While FY17 outlook was merely qualitative, we concur with management that it remains “well-positioned to meet future demand” as on-time/budget brownfields (ten projects underway, 762 beds, 43 theatres end of FY19; capex higher, but ROIC >20%) “continue to lay the foundation for strong growth over the medium term” in catchments with strong fundamentals (ie growing/ageing populations) despite industry growth moderating “slightly” and ongoing political/regulatory “noise”.

Investment view- a core holding We make only modest changes to our FY17-19 estimates. With an earnings trajectory ticking higher and shares trading at a discount to RHC and global peers, we continue to view HSO as a core portfolio holding and maintain our Add rating.


▎Australia




Up/downside: 15.2%

Reuters: HSO.AX

Bloomberg: HSO AU


A$5,119m


A$18.37m

Current shares o/s 1,734m

Free float: 62.0%


Absolute (%) -0.3 2.8 13.5

Relative (%) -1.3 -1.6 7

Dr Derek JELLINEK

T (61) 2 9043 7904

E [email protected]

Scott POWER

T (61) 7 3334 4884

E [email protected]


Revenue (A$m) 2,157 2,291 2,435 2,653 2,951


Net Profit (A$m) 153.7 182.8 212.4 240.8 277.7

Normalised EPS (A$) 0.09 0.12 0.12 0.14 0.16

Normalised EPS Growth (36.0%) 25.0% 6.4% 13.4% 15.3%


DPS (A$) 0.07 0.07 0.09 0.10 0.11

Dividend Yield 2.37% 2.51% 2.92% 3.29% 3.59%

EV/EBITDA (x) 15.60 15.37 14.51 13.04 11.37

P/FCFE (x) NA 32.11 51.47 40.13 23.23

Net Gearing 41.6% 54.1% 56.3% 56.2% 52.2%

P/BV (x) 2.11 2.16 2.10 2.04 1.97

ROE 11.3% 8.3% 8.8% 9.7% 10.9%

% Change In Normalised EPS Estimates (7.61%) (6.43%) (1.37%)


83.0

88.0

93.0

98.0

103.0

108.0

113.0

2.00

2.20

2.40

2.60

2.80

3.00

3.20


Source: Bloomberg

1

1

2


Vol b

7

Retail│Australia│Equity research│August 23, 2016


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Lovisa

UK gets the green light

LOV’s FY16 result met our expectations and guidance. FY16 saw a divergent P&L ■performance with revenue +14.3% while EBITDA and NPAT fell by 1.7% and 6%, respectively.

The Gross Margin appears to have stabilized and while further UK and ■management investment is required into FY17, the FX loss absorbed in FY16 should not reoccur.

Despite a short pilot phase, the LOV Board has enough confidence to push ■forward with a meaningful store rollout in this region. The UK continues to pose the greatest growth and valuation driver looking forward.

We await further evidence of successful UK trading over the course of the next 3-6 ■months. In the meantime, we believe a 16.1x FY17F PE represents fair value.

FY16 result in line with expectations LOV reported FY16 NPAT of A$16.6m, down 6% on the pcp. Revenue growth of 14.3% was above our forecast, while an in line GP margin (74%) and higher operating costs saw EBITDA and EBIT broadly in line with our forecasts. Higher than expected operating costs (CODB as a % of sales flat at 54%) were largely due to investment in both the UK and LOV’s Board and Senior Management team and a A$1.1m FX loss. With further investment necessary in the UK and management, LOV cut its final dividend to 2cps (vs Morgans forecast of 4.9c).

UK rollout gets the green light From its base of one store (opened in November 2015), LOV opened two new stores (Bromley and Brighton) in June 2016 and one (Manchester) in July 2016. Management noted that all stores are trading in line with internal KPI’s. The Board has decided to push forward with its UK rollout, despite limited trading from the pilot program (around two months of trading). Of the 20-30 new stores to be rolled out across all LOV’s operations in FY17, around half of these are expected to be in the UK (12-15). Management expects 2-4 of these will be opened by Christmas and the remainder in the 2H. A further update on LOV’s progress in the UK will be provided at the AGM.

Mapping out FY17….returning to double digit NPAT growth LOV has started FY17 well with lfl sales growth above the target range of 3-5% in the first seven weeks. In FY17 management has guided to: 3-5% lfl sales growth; 20-30 new stores (half in the UK); a 75% GP margin; an additional A$2.5m of investment in UK infrastructure, the Board and Senior Management. We factor all the above into our forecasts, culminating in 14.8% NPAT growth in FY17. We now assume 15 new stores pa in the UK (not previously forecast) from FY18.

Hold on….waiting on more evidence from the UK Our EPS forecasts change by -1.0%/+3.1% in FY17/FY18. Our DCF, PE, EV/EBIT valuation increases to A$3.07 (from A$2.79). We believe LOV is well placed to deliver solid growth over the next three years, largely underpinned by the UK store rollout. Given how significant this region is to our earnings forecasts and valuation, we would prefer to see further evidence of successful trading before becoming more positive (PE of 16.1x FY17F). The AGM will provide the next data point in this regard. Hold rating maintained. Key risks: adverse FX movements, adverse fashion/trend movements and a lack of traction in the UK market/failure of the pilot program.


▎Australia




Up/downside: 5.4%

Reuters: LOV.AX

Bloomberg: LOV AU


A$305.5m


A$0.43m


Free float: 59.0%


Absolute (%) 10.6 44.1 -15.9

Relative (%) 9.6 39.7 -22.4

Josephine LITTLE

T (61) 7 3334 4505

E [email protected]


Revenue (A$m) 134.3 153.5 172.4 202.1 227.9


Net Profit (A$m) 16.97 16.25 19.00 22.53 25.91

Normalised EPS (A$) 0.16 0.15 0.18 0.21 0.25

Normalised EPS Growth 139% (4%) 17% 19% 15%


DPS (A$) 0.11 0.09 0.10 0.12 0.14

Dividend Yield 3.83% 2.98% 3.42% 4.06% 4.66%

EV/EBITDA (x) 10.23 10.34 9.05 7.58 6.55

P/FCFE (x) 12.36 23.75 24.23 19.38 14.94

Net Gearing 142% 65% 24% 3% (13%)

P/BV (x) 44.87 27.35 15.25 9.98 7.15

ROE 1122% 181% 122% 89% 71%

% Change In Normalised EPS Estimates


45

61

77

93

109

125

1.70

2.20

2.70

3.20

3.70

4.20


Source: Bloomberg

1

2

3

4

5


Vol m

8

Construction│Australia│Equity research│August 23, 2016


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Monadelphous Group

Still feeling the construction downturn

MND’s FY16 result was broadly in line with our expectations. The result showed ■market conditions continue to be difficult with pressure on revenue and margins.

MND has not provided formal FY17 earnings guidance. However, the company ■expects resources and energy markets to remain challenging with the outlook for maintenance and industrial services more positive.

Changes to earnings forecasts see FY17F EBITDA fall 13% to A$87.7m and ■FY17F underlying NPAT decrease 15% to A$48.1m.

While we do not see an improvement in the operating environment over the next ■12 months, in our view we are getting closer to the bottom of the resources cycle. As such we move our recommendation back to a Hold (from Reduce). Despite earnings downgrades, our price target (DCF, EV/EBIT) lifts to A$7.93 (from A$5.56) on the back of appreciating peer multiples.

FY16 result was weak but broadly in line with our expectations MND's FY16 result was broadly in line with our (slightly below consensus) expectations with both heavy revenue, margin and DPS decline on the pcp. FY16 EBITDA fell 32.4% to A$113.6m (Morgans A$112.7m) while underlying NPAT slid 36.7% to A$67.0m (Morgans A$66.0m). EBITDA margin dropped 70bps to 8.3% (Morgans 8.2%), reflecting reduced levels of construction activity, surplus capacity of service providers and continued focus by customers on cost savings. MND’s balance sheet remains robust (net cash of A$186.0m) and we do believe longer term if the group's Engineering Construction division continues to weaken, then working capital requirements for the group should diminish, releasing further cash to the balance sheet. Operating cashflow fell 33.8% to A$78.0m, which was largely in line with the 32.4% drop in EBITDA. Cash conversion was slightly weaker at 83.2% (FY15: 87.7%) and MND declared a full year 60cps dividend (Morgans 56.5cps).

Outlook remains challenging Unlike previous years, MND has not provided specific guidance for FY17. However, management expects resource and energy market conditions to remain challenging in the medium term with customers continuing to focus on reducing capex, improving productivity and minimising operating costs. The outlook for maintenance and industrials services is a bit brighter with management expecting higher levels of production and an increasing number of ageing assets in the resources sector to drive higher volumes.

Downgrades to earnings forecasts While the FY16 result was largely as expected, outlook commentary suggests conditions are likely to remain tough over the next 12 months. We subsequently reduce FY17F EBITDA by 13% to A$87.7m and underlying NPAT drops 15% to A$48.1m.

Upgrade to Hold rating We continue to believe MND's management are some of the best in the sector and will continue to pursue options to grow outside of waiting for the cycle to improve. While we do not see an improvement in the tough operating environment over the next 12 months, we believe we are getting closer to the bottom of the resources cycle. We therefore upgrade our rating to Hold on an increased A$7.93 target price (from A$5.56).


▎Australia

HOLD (previously REDUCE) Current price: A$8.99



Up/downside: -11.8%

Reuters: MND.AX

Bloomberg: MND AU


A$842.4m


A$5.52m


Free float: 94.0%


FY17F revenue decreased by 11%.

FY17F EBITDA decreased by 13%.

FY17F NPAT decreased by 15%.


Absolute (%) -2.9 27.9 34

Relative (%) -3.9 23.5 27.5

Alexandra CLARKE

T (61) 2 9043 7905

E [email protected]


Revenue (A$m) 1,865 1,365 1,110 1,083 1,110


Net Profit (A$m) 106.6 67.0 48.1 43.9 45.2

Normalised EPS (A$) 1.15 0.72 0.51 0.47 0.48

Normalised EPS Growth (28.1%) (37.5%) (28.4%) (8.8%) 3.0%


DPS (A$) 0.92 0.60 0.42 0.38 0.39

Dividend Yield 10.2% 6.7% 4.6% 4.2% 4.3%

EV/EBITDA (x) 3.86 5.75 6.95 6.88 6.64

P/FCFE (x) 8.11 11.31 8.88 9.52 15.97

Net Gearing (50.7%) (50.4%) (61.7%) (71.3%) (65.3%)

P/BV (x) 2.28 2.28 2.23 2.18 1.95

ROE 29.2% 18.2% 12.9% 11.5% 11.0%



74

99

124

149

174

4.7

6.7

8.7

10.7

12.7


Source: Bloomberg

5

10

15

20


Vo

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9

http://www.efa.biz/

Telco - Fixed Line│Australia│Equity research│August 23, 2016


Powered by EFA

NEXTDC

A maiden profit and outlook for 75% growth

FY16 EBITDA was up 246% yoy and NXT reported NPAT of A$1.8m. ■

NXT’s FY16 result was at the upper end of guidance and guidance for FY17 ■EBITDA of A$46-50m (up 75% on FY16) was ~3% ahead of market expectations.

Our valuation increases slightly from A$4.12 to A$4.22 and the outlook for NXT is ■bright, in our view. However, following a strong share price run we move to a Hold recommendation, for now.

Result snapshot Revenue was up 58% yoy to A$92.8m, EBITDA was up 246% to A$27.7m and NPAT jumped from a A$10.2m loss in FY15 to a A$1.8m profit in FY16. NXT also reported strong cashflow conversion with A$22.3m in operating cashflow. A$87m of capex was invested in FY16 and after cash generation plus additional debt and equity, NXT ended the period with A$191.4m of total cash (including bonds held in cash). We expect NXT to deploy most of this cash in FY17 as they expand the existing footprint and build new Brisbane and Melbourne Data Centres which should be operational towards the end of FY17. NXT has guided to FY17 Revenue of A$115-112m; EBITDA of A$46-50m and capex of A$200-250m ($150m of which is likely to be spent on B2 and M2).

Noteworthy items In FY16 NXT had contracted 26MW of its 42MW base build (62.4%), up from 54% in 1H16 and 50% in 2H16. Billing utilisation (paying customers) increased materially to 54% or 23.2MW in 2H16 from, on our estimates, 33% or 13.9MW in 1H16. The large uplift in billing utilisation over NXT’s largely fixed cost base drove a 246% increase in EBITDA and an even strong operating cash flow improvement. B1, M1 and S1 all reported strong financials. B1 generated annualised EBITDA (pre corporate overheads) of A$10m (a 38% return on asset value), M1 generated annualised EBITDA of A$35m (a 33% return on asset value) and S1 generated annualised EBITDA of A$16m (a 36% return on asset value). It was also pleasing to see Perth generate, for the first time, a small EBITDA profit in 2H16. It generated annualised EBITDA of A$0.5m and C1 remains the only EBITDA drag for the group, losing ~A$3m on an annualised basis.

Investment view – we move to a Hold recommendation, for now We have upgraded our EBITDA per share forecasts by 4% in FY16 and 6% in FY17. We have made material capex changes but this is largely timing related so doesn’t change our overall valuation materially. As a result of these changes our DCF based valuation has increased by 2.4% to A$4.22 (from A$4.12). Following a strong share price run, we downgrade our NXT recommendation to a Hold, from Add as there is now less than 10% upside to our valuation. We continue to rate NXT and the outlook positively but for now move to a Hold recommendation. Key catalysts in our view relate to the potential for NXT to sign large whitespace deals in the near future and the possibility of ASX200 index inclusion. Downside risk relates to the potential for slower-than-expected fill rates. Conversely upside risk relates to the potential for faster customer take-up with the one exception being S1 where faster uptake could necessitate NXT building a S2 quicker than currently expected.


▎Australia

HOLD (previously ADD) Current price: A$3.89



Up/downside: 8.5%

Reuters: NXT.AX

Bloomberg: NXT AU


A$963.9m


A$3.16m


Free float: 99.0%


FY16 EBITDA per share increased by 4.5%.

FY17 EBITDA per share increased by 6.4%.


Absolute (%) 6.9 16.8 47.9

Relative (%) 5.9 12.4 41.4

Nick Harris

T +61 7 3334 4557

E [email protected]


Revenue (A$m) 58.7 89.3 118.0 144.9 176.0


Net Profit (A$m) -10.24 1.76 14.10 14.00 23.13

Normalised EPS (A$) (0.052) 0.008 0.056 0.056 0.092

Normalised EPS Growth (56%) 628% (1%) 65%

FD Normalised P/E (x) NA 485.1 67.9 70.0 42.4

DPS (A$) - - - - -

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

EV/EBITDA (x) 97.15 30.86 22.74 17.90 13.36

P/FCFE (x) 52.0 25.9 NA NA 226.8

Net Gearing 3.3% (9.6%) 32.5% 38.9% 38.0%

P/BV (x) 3.58 2.80 2.82 2.71 2.55

ROE (4.67%) 0.64% 4.14% 3.95% 6.20%

% Change In Normalised EPS Estimates 238% (11%) (19%)


79

95

111

127

143

159

2.00

2.50

3.00

3.50

4.00

4.50


Source: Bloomberg

2

4

6


Vol m

10

Oil & Gas Exp & Prodn│Australia│Equity research│August 23, 2016


Powered by EFA

Santos

Focus on de-leveraging

A better 1H16 result than we expected with an underlying NLAT of –US$5m (vs ■Morgans –US$125m), although free cash flow remained negative for the half.

Depressed profitability has put GLNG’s ramp-up rate at risk with reduced capital ■being invested in CSG field development.

STO suspended its dividend after reporting an underlying loss. ■

With STO’s profitability back on firmer ground, we change our price target basis ■from a blended spot/base case valuation to simply our base case SOTP valuation.

Following the 1H16 result, and a review of our modelled assumptions, we have ■lowered our DCF valuation to A$4.72 (from A$5.79).

A smaller loss than expected STO reported a 1H16 underlying NLAT of –US$5m (vs Morgans –US$125m), although this was overshadowed by a reported loss of US$1.1bn for the half after STO wrote down the carrying value of its stake in GLNG by US$1.05bn (after tax). Similarly EBITDAX was higher than expected at US$491m (vs Morgans US$418m). Given it reported negative earnings, STO suspended its dividend in the first half. Post the result we have revised our forward assumptions for STO resulting in a number of changes highlighted further in this report.

It’s all about de-leveraging While a lot of focus in the result was justifiably given to STO’s sizeable cost-out potential, our focus remains on the capital position the company finds itself in. In our view, any gain from a rising oil/LNG price in the medium term will be directed into further de-leveraging the company’s balance sheet, while the company’s high gearing is also impeding STO’s ability to pursue growth despite potentially having a long-term appetite to add more gas to its reserves.

Internal or external capital? While we expect STO will regain positive earnings and free cash flow from a continuing recovery in oil/LNG prices, we also think there is a reasonably high probability the company will seek to boost its capital resources in order to de-leverage its balance sheet faster through: a) divesting assets, and/or b) an equity raising. From these two scenarios we view divestments as vastly more attractive in value terms, with STO burdened by a large number of small mature assets in geographically diverse locations. Reducing the number of projects and operating regions could also aid STO management in its mandate to drive costs out of its business.

Near-term risks versus oil’s upside potential Our price target on STO has increased to A$4.72 (from A$3.30) after a change in our price target basis to our base case DCF (from a blended spot/base valuation). We view STO as a key beneficiary of any potential (continuing) recovery in oil prices. However we believe this is already factored into the current share price with STO trading close to our SOTP-derived target of A$4.72 (was A$3.30). As a result we maintain our Hold recommendation. Key risks to our call are commodity, financial and dilution risks.


▎Australia




Up/downside: 4.4%

Reuters: STO.AX

Bloomberg: STO AU


A$8,024m


A$45.58m


Free float: 99.8%


Absolute (%) -6.4 4.1 -7.3

Relative (%) -6.7 1 -13.1

Adrian PRENDERGAST

T (61) 3 9947 4134

E [email protected]

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

Revenue (US$m) 3,695 2,479 2,566 3,349 3,736

Operating EBITDA (US$m) 1,574 1,165 983 1,776 2,148

Net Profit (US$m) -630 -1,953 -1,148 529 774

Normalised EPS (US$) 0.32 0.03 -0.03 0.30 0.44

Normalised EPS Growth (91%) (189%) 46%

FD Normalised P/E (x) 10.6 112.3 NA 11.6 7.9

DPS (US$) 0.35 0.30 0.00 0.00 0.07

Dividend Yield 10.2% 8.8% 0.0% 0.0% 2.1%

EV/EBITDA (x) 5.95 7.92 10.87 5.85 4.60

P/FCFE (x) 12.94 NA NA 68.19 12.68

Net Gearing 78.7% 61.4% 73.0% 62.6% 50.9%

P/BV (x) 0.44 0.82 0.96 0.88 0.81

ROE 0.6% (0.7%) 7.9% 10.7%

% Change In Normalised EPS Estimates (113%) (33%) (3%)

Normalised EPS/consensus EPS (x) 0.32 1.48 1.46

54

74

94

114

134

2.10

3.10

4.10

5.10

6.10


Source: Bloomberg

20

40

60

80


Vol m

11

Oil & Gas Exp & Prodn│Australia│Equity research│August 23, 2016


Powered by EFA

Senex Energy

A solid foundation for growth

SXY plans to spend A$60-70m on exploration in FY17 which will be a sharp ■increase on the A$26m spent in FY16.

We believe the market is keenly awaiting the recommencement of oil drilling ■activities in the Cooper Basin.

Further unconventional gas exploration and testing in the Cooper Basin will occur ■with costs being paid by Origin Energy.

Activity at the Western Surat Gas Project will ramp up over the year ahead with a ■phase 1 appraisal program planned.

With plenty of catalysts on the horizon we retain an Add recommendation and ■A$0.31 target price.

FY16 result recap SXY reported sales revenue of A$69.3m which benefitted from a positive contribution of A$13.0m from the company's hedging program. D&A was higher than we had expected while employee costs remained flat on the prior year. SXY ended the year with cash of A$102m and ~A$78m of undrawn debt facilities, resulting in total liquidity of ~A$180m.

A big year ahead for the Western Surat Gas Project Following the analysis of data acquired under the data sharing agreement with GLNG, SXY plans to undertake a phase 1 appraisal program in the Glenora and Eos blocks. The company expects to provide additional data in the form of expected capex, opex and flow rates over the year which will provide the market with a significantly better understanding of the project.

Oil exploration to recommence in the Cooper Basin SXY has confirmed that it plans to drill at least six oil wells in the Cooper Basin in FY17. The focus for the company is on reserve replacement and we believe the market will be keen to see SXY recommence oil exploration.

Cooper Basin gas still bubbling along Given the poorer than expected extended production test results from Hornet/Kingston Rule, SXY has slowed Cooper Basin gas exploration activity. The company is however continuing to progress the exploration campaign with Origin Energy (ASX ORG) along with its plan of bringing Vanessa online once downstream issues have been resolved.

Retain Add recommendation and A$0.31 target price With significant exploration activity to occur over the year ahead we believe SXY will close the gap to our valuation of A$0.31 and consequently we retain an Add recommendation. Key risks to our valuation include exploration failure and changes in currency and commodity prices.


▎Australia




Up/downside: 17.6%

Reuters: SXY.AX

Bloomberg: SXY AU


A$305.5m


A$1.22m


Free float: 80.0%


Absolute (%) -3.6 1.9 82.8

Relative (%) -3.9 -1.2 77

James LAWRENCE

T (61) 7 3334 4547

E [email protected]

Adrian PRENDERGAST

T (61) 3 9947 4134

E [email protected]


Revenue (A$m) 115.7 69.3 69.6 83.2 91.5


Net Profit (A$m) (91.13) (31.20) 5.48 11.32 18.10

Normalised EPS (A$) 0.007 0.001 0.007 0.016 0.018

Normalised EPS Growth (89%) (91%) 995% 110% 16%


DPS (A$) - - - - -


EV/EBITDA (x) 5.72 9.23 8.43 6.36 4.66

P/FCFE (x) NA 8.17 NA NA 8.11

Net Gearing (12.2%) (27.7%) (16.8%) (11.9%) (21.3%)

P/BV (x) 0.76 0.82 0.81 0.79 0.75

ROE 1.94% 0.20% 2.28% 4.68% 5.23%

% Change In Normalised EPS Estimates (34%) (15%) 141%


73

106

140

173

206

240

273

0.090

0.140

0.190

0.240

0.290

0.340

0.390


Source: Bloomberg

10

20

30

40

50


Vol m

12

Environmental│Australia│Equity research│August 23, 2016


Powered by EFA

Tox Free Solutions

Cyclical headwinds remain

As anticipated, trading conditions remain challenging particularly around resources ■and manufacturing sectors. In our view, TOX will continue to be affected by the roll-off of high-volume construction contracts into lower-volume production contracts and east coast industrial work.

Overall, we continue to be concerned about TOX's ability to maintain its Chevron ■contract at a reasonable margin (currently being renegotiated) and believe downside risk remains to FY17.

If we assume the Worth acquisition is contributing its pro forma FY16 EBITDA ■contribution of A$12.9m in FY17, TOX’s guidance implies (at mid-point) that the core business is declining by 10.7% despite a significant improvement in corporate costs.

With EPS decline and downside risk a possibility to FY17, we move our ■recommendation to a Reduce and our price target falls to A$2.14 (from A$2.72).

FY16 result – missed consensus expectations TOX’s revenue of A$393m (-3% pcp/-1% hoh) was in line with market expectations. After stripping out the Worth acquisition (three months), revenue declined by 7% on the pcp. EBITDA (post adjustments) was A$72.9m which was a 4% miss to consensus (Factset) but flat on the pcp despite lower corporate costs and acquisition contributions. Normalised NPAT was A$23.3m (+1% pcp/ -22% hoh) while reported NPAT was A$13.1m impacted by A$10.2m of exclusions including impairments, acquisition costs and asset write-offs to name a few. TOX declared a 4.5cps final dividend bringing the FY dividend to 9cps (Morgans at 9cps). Operating cashflow of A$59m was in line with our expectations. We note gearing has increased to 37% (from 32% in the pcp) following the Worth acquisition.

Trading conditions remain challenging While TOX’s tendering pipeline does remain reasonable (cA$100m) and allows it to capitalise on the growth in e-waste and household hazardous waste, we question whether this will be enough to maintain both top-line growth and margins given the ongoing west coast vs east coast conundrum. TOX has provided normalised EBITDA guidance of 5-10% growth on FY16. This implies an EBITDA range of A$76.5-80.2m. While TOX’s management have taken into account lower volumes from Barrow Island, in our view, guidance may not reflect a renegotiated Chevron contract at a margin level. If TOX were unsuccessful in maintaining the Chevron contract, in our view guidance would be unachievable.

Investment view – downside risk remains, move to a Reduce TOX’s result demonstrated to us that underlying conditions remain challenging. We have to acknowledge management’s continued focus diversifying the business away from resource and oil & gas related contracts (or predominately west coast work) to more east coast work to help support the longer-term order book. However, in the near term we do believe TOX’s earnings will continue to be negatively affected by margin declines. Given that TOX is trading at more than 10% above our blended price target (PE, EV/EBIT), we move our rating to a Reduce.


▎Australia

REDUCE (previously HOLD) Current price: A$2.49



Up/downside: -13.9%

Reuters: TOX.AX

Bloomberg: TOX AU


A$358.4m


A$0.64m


Free float: 80.0%


FY17F revenue decreased by 7%.

FY17F EBITDA decreased by 10%.

F17F EPS decreased by 6%.


Absolute (%) -8.1 -9.1 -7.1

Relative (%) -9.1 -13.5 -13.6

Alexandra CLARKE

T (61) 2 9043 7905

E [email protected]


Revenue (A$m) 407.3 393.4 433.9 440.9 456.0


Net Profit (A$m) 23.64 23.63 25.24 25.83 28.65

Normalised EPS (A$) 0.17 0.17 0.18 0.18 0.20

Normalised EPS Growth 1.4% (1.2%) 4.1% (0.2%) 10.9%


DPS (A$) 0.085 0.090 0.090 0.090 0.100

Dividend Yield 3.41% 3.61% 3.61% 3.61% 4.02%

EV/EBITDA (x) 5.85 6.11 5.77 5.74 5.32

P/FCFE (x) 21.9 688.1 22.6 33.2 23.6

Net Gearing 32.2% 36.9% 30.8% 28.5% 23.6%

P/BV (x) 1.36 1.24 1.21 1.18 1.14

ROE 9.76% 9.07% 9.02% 8.83% 9.36%



77.0

84.5

92.0

99.5

107.0

114.5

122.0

2.10

2.30

2.50

2.70

2.90

3.10

3.30


Source: Bloomberg

1

1

2

2

3


Vo

l m

13

Health Care Providers & Svs│Australia│Equity research│August 23, 2016


Powered by EFA

Virtus Health

Overseas delivers

VRT’s FY16 result was ahead of consensus but slightly behind our forecast. ■

Growth from the operations in Ireland and the NSW full service offerings were the ■highlights.

Weakness came from the low cost operation in Liverpool where a competitor’s ■offering drove margins down.

We have rolled our model forward which has offset some downward revisions to ■forecasts resulting in an increase in our valuation and price target. Hold.

FY16 result saw consistent growth across all regions VRT posted a FY16 NPAT of A$34.9m (pre-minorities) which was below our forecast of A$35.7m (consensus A$33.9m FactSet). NPAT was up 11.9% to A$32.9m. Revenue of A$262.2m was up 11.5% on the pcp and benefited from growth in full service cycles in Australia and growth from its operations in Ireland. Key highlights were: 1) growth in domestic cycles up 6.6% to 16,097, with strength in NSW’s full service business offset by weakness in the lower cost operations at Liverpool, while Victoria remained stable, and Queensland returned to growth; 2) average revenue per cycle decreased marginally by 0.3% to A$13,784; 3) the reported EBITDA margin was slightly lower at 32.0% (was 32.8% in the pcp); a solid performance was returned from the overseas operations where Singapore is now profitable at the EBITDA line on a monthly basis and Ireland saw treatment numbers increase by over 31% and EBITDA grow by 32% (this region represents 8% of EBITDA); and 4) funding capacity of A$70.0m is available to pursue further acquisitions, with current gearing comfortable at 1.9x on adjusted EBITDA. A final fully franked dividend of 15cps was declared (total dividend 29cps).

Changes to forecasts We have reduced our NPAT forecasts by 11.1% to A$36.6m and by 11.6% to A$39.5m for FY17 and FY18, respectively. The changes relate to a revision to EBITDA margins to 27% from 28%.

Valuation upgraded Given the changes to our forecasts, our DCF valuation has increased marginally to A$6.73 (was A$6.70) with the roll forward of our model offsetting the profit revisions. To value VRT we use a combined (DCF/PE/EBITDA) method. We have increased the market PE multiple used to 16x (from 15x) and as a result our PE valuation has increased to A$8.00 (from A$7.10). We have increased our EBITDA multiple to 9.5x (from 9x), which has increased our valuation to A$7.79 (from A$6.80). Our new combined (DCF/PE/EBITDA) valuation is A$7.50 (was $6.87). Our target price is set at the same level of A$7.50 (was A$6.87).

Investment view We retain our Hold recommendation, given the recent strength in the share price. Upside risk relates to improving cycle volumes in Australia and downside risk relates to possible regulatory changes following the outcome of the MBS review.


▎Australia




Up/downside: -5.9%

Reuters: VRT.AX

Bloomberg: VRT AU


A$637.1m


A$3.54m


Free float: 79.8%


FY17F revenue increased by 0.3%.

FY17F EBITDA decreased by 4.0%.

FY17F NPAT decreased by 11.1%.


Absolute (%) 8.1 14.2 66

Relative (%) 7.8 11.1 60.2

Scott POWER

T (61) 7 3334 4884

E [email protected]

Dr Derek JELLINEK

T (61) 2 9043 7904

E [email protected]


Revenue (A$m) 233.7 262.2 278.8 296.6 315.4


Net Profit (A$m) 29.70 32.92 36.63 39.50 45.78

Normalised EPS (A$) 0.37 0.41 0.46 0.50 0.58

Normalised EPS Growth (4.0%) 10.8% 11.3% 7.8% 15.9%


DPS (A$) 0.27 0.29 0.30 0.32 0.37

Dividend Yield 3.39% 3.64% 3.76% 4.03% 4.63%

EV/EBITDA (x) 12.90 11.58 9.99 9.15 8.04

P/FCFE (x) 176.5 30.8 20.6 14.4 12.7

Net Gearing 58.9% 52.5% 46.7% 36.7% 26.4%

P/BV (x) 2.79 2.66 2.50 2.35 2.19

ROE 12.7% 14.1% 14.9% 15.1% 16.4%



93

113

133

153

173

4.20

5.20

6.20

7.20

8.20


Source: Bloomberg

1

2

3

4


Vol m

14

Telco - Others│Australia│Equity research│August 23, 2016


Powered by EFA

Vocus Communications

Backing up another big year

VOC’s FY16 underlying EPS were up strongly yoy and an 8c final dividend was ■declared. VOC had largely pre-released its numbers this so result was inline.

No specific outlook commentary was provided but VOC did, pleasingly provide ■some dividend and capex guidance and noted integrations are tracking well.

We retain our Hold recommendation and our PT declines slightly to A$8.84 ■

Results at a glance VOC reported doubled digit growth in its underlying results. Revenue of A$830.8m, was up 455% yoy; EBITDA of A$215.6m was up 318% yoy and normalised NPAT of A$101.7m was up 461% yoy. Reported EPS declined to 18.8c (from 19.0 in FY15) as VOC cycles a substantially higher share count following its multiple acquisitions. On an underlying basis VOC pointed to a 72% increase in underlying diluted EPS to 29.9c and declared a final dividend of 8.0cps. The all-important operating cashflow nearly trebled yoy to A$135m. Adjusted cashflow conversion in 2H16 was ~70% and should improve, in our view, in 1H17, albeit internal improvements are likely to be somewhat offset by NextGen. VOC had net debt of A$748m at 30 June 2016 which equates to 1.9x annualised EBITDA from Q4 FY16 (A$95-$100m). No specific outlook commentary was provided by VOC but capex and dividend commentary was provided. After a very busy period of M&A (with an 6 fold increase in VOC’s share count if we include the soon to be completed NextGen acquisition) VOC looks likely to focus internally and spend considerable effort on internal staff, system and processes to take VOC to the next level.

Noteworthy items From a financial perspective VOC have now released a dividend policy which is to “deliver growing dividends reflective of the profitability, cash positon and investing in growth”. VOC have guided to capital expenditure of 7-8% of revenue in FY17, without providing specific FY17 revenue guidance. Factset consensus and Morgans forecast around A$2bn of revenue for FY17 so we expect A$158m to be invested in capex in FY17. VOC also noted that they increased their corporate and consumer sales staff substantially in FY16 and plan to do so again in FY17. The VOC corporate division added A$2.3m in new monthly recurring revenue in Q4 FY16 (vs A$0.8m in Q4FY15, albeit a very different business then). This clearly shows the increased internal focus is delivering strong results and has led VOC to flag a 35% increase in sales staff in FY17. VOC added a record number of consumer services to end the period with 520k broadband subscribers in Au. VOC’s share of total NBN subscribers jumped from 5.2% in December 2015 to 6.4% in June 2016 (the percentage of new adds was higher still).

Investment view – Hold retained Following VOC’s FY16 result we have made ~1% upgrades to our revenue and normalised EPS forecasts for FY17 and FY18. VOC has guided to capex of 7-8% of revenue which is higher capital intensity than our previous forecast of 6%. This higher capital intensity results in our DCF based valuation declining slightly. Following these changes our equally weighted DCF and EV/EBITDA valuation decreases from A$8.88 per share to A$8.84 and we retain our Hold rating.


▎Australia




Up/downside: 3.1%

Reuters: VOC.AX

Bloomberg: VOC AU


A$5,292m


A$25.25m


Free float: 97.5%


P&L forecasts are largely unchanged but we now forecast higher capex due to capex guidance


Absolute (%) -0.4 -6.8 50.9

Relative (%) -1.4 -11.2 44.4

Nick Harris

T +61 7 3334 4557

E [email protected]


Revenue (A$m) 150 831 2,111 2,361 2,531


Net Profit (A$m) 19.9 86.9 207.9 246.5 285.3

Normalised EPS (A$) 0.21 0.15 0.36 0.43 0.49

Normalised EPS Growth 27% (28%) 141% 17% 14%


DPS (A$) 0.07 0.18 0.19 0.20 0.22

Dividend Yield 0.85% 2.04% 2.16% 2.33% 2.57%

EV/EBITDA (x) 16.07 30.00 12.69 10.65 9.48

P/FCFE (x) NA 15.10 NA 47.49 59.76

Net Gearing 53.3% 23.6% 18.7% 13.6% 9.6%

P/BV (x) 3.71 1.65 1.25 1.22 1.19

ROE 10.9% 6.0% 6.1% 6.2% 6.8%

% Change In Normalised EPS Estimates 1.13% (1.23%)


91

107

123

139

155

171

5.00

6.00

7.00

8.00

9.00

10.00


Source: Bloomberg

10

20

30

40


Vol m

15

Food & Beverages│Hong Kong│Equity research│August 23, 2016

Company Note



China Modern Dairy Holdings Ltd Awaiting signals for raw milk price recovery

1H16 core earnings of Rmb312m (USD47m) were 2.6% below our forecast. ■ Upstream raw milk volume growth was better than we expected in 1H16. We see ■limited downside risks for raw milk price in 2H16.

We forecast downstream sales to recover hoh in 2H16, driven by channel reform. ■

We raised FY16-18F core EPS forecast by -3.0 to 10.1%. ■

Maintain Hold as we would like to see clearer indication of milk price recovery. ■

1H16 results largely in line CMD reported 1H16 core earnings of Rmb312m (US$47m), 2.6% below our forecast. Revenue fell 8.5% yoy due to lower raw milk ASP. Upstream revenue (-4.5% yoy) fall was lower than downstream revenue decline (-17.0% yoy) as lower raw milk price was partially negated by higher upstream sales volume. GPM contraction of 4% pts was due to lower raw milk price and weaker downstream performance. Due to a significant ramp-up in selling and distribution costs, cash EBITDA margin decreased 6.2% pts.

Maintain our view that raw milk prices to recover in FY17 International whole milk powder price has surged 30.7% since Jul, while domestic raw milk price remained flat. The gap between international and domestic prices shrunk to c.20-30% (from c.50-60%). We believe the raw milk prices will not recover until FY17 due to high industrial milk powder inventory. CMD’s raw milk price was Rmb4.04/kg in 1H16 and Rmb3.8-3.9/kg in Jul/Aug. We forecast FY16 raw milk price to drop 12.5% yoy to Rmb3.87/kg.

Upstream segment deliver better sales volumes CMD increased culling rate of low yield cows, boosting milk yield to 9.4t/head annually in 1H16 (1H15: 9.1t). Coupled with further feed mix optimisation, CMD was able to mostly offset the decline in raw milk ASP, and upstream GPM only dipped 0.2% pt in 1H16. The upstream client base expanded in 1H16. We forecast 2H16 and FY17 upstream sales growth to be -3.2% and 9.3% yoy respectively.

Downstream picking up momentum Despite a weak 1Q16 due to high channel inventory, both ASP and volume have seen recovery since 2Q16. The current ASP is above Rmb9,000/t (1H16: Rmb8,598/t). We expect downstream sales to recover 35% hoh in 2H16, driven by strong yoghurt sales and strengthened channel penetration and coverage.

SG&A expenses ratio to remain high With the acquisition of the remaining 45% stake in downstream distributors, CMD will flatten its downstream distribution channel to have better control over lower tier distributors. Given CMD’s downstream business is still in expansion phase, we expect SG&A expenses ratio to remain high at 12.1% in FY16 (FY15: 9.1%) due to continuous promotional activities for market share and geographical coverage expansion.

Maintain Hold; DCF-based TP increased to HK$1.30 (WACC: 9.4%) While we are positive on the downstream recovery in 2H16 and agree that valuation is currently cheap at 0.8x P/B, we believe that stock price re-rating would require clearer indication of raw milk price recovery. Maintain Hold. Upside/downside risks include earlier/later-than-expected recovery in raw milk price.

▎Hong Kong

HOLD (no change) Consensus ratings*: Buy 2 Hold 9 Sell 7

Current price: HK$1.21

Target price: HK$1.30

Previous target: HK$1.10

Up/downside: 7.4%

CIMB / Consensus: -17.7%

Reuters: 1117.HK

Bloomberg: 1117 HK


HK$6,419m


HK$18.40m

Current shares o/s: 5,042m

Free float: 39.4% * Source: Bloomberg


FY16F Revenue increased by 3.6%.

FY16F core EPS increased by 10.1%.

FY16F ROE increased by 1.1%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 17.5 -13.6 -42.4

Relative (%) 12.8 -29.7 -45

Major shareholders % held China Mengniu 25.4

Xinmu 12.7

Yinmu 8.4

Analyst(s)

Lei YANG, CFA

T (86) 21 5047 1771 x108 E [email protected]

ONG Khang Chuen T (852) 2539 1326 E [email protected]

[ X ]

SOURCE: COMPANY DATA, CIMB FORECASTS


Revenue (Rmbm) 5,027 4,826 4,738 5,390 6,210

Operating EBITDA (Rmbm) 1,716 1,476 1,209 1,406 1,622

Net Profit (Rmbm) 735.3 321.3 (543.1) 401.0 582.8

Core EPS (Rmb) 0.21 0.16 0.10 0.11 0.15

Core EPS Growth 80.5% (27.2%) (32.9%) 10.0% 30.0%

FD Core P/E (x) 4.90 6.71 9.93 9.02 6.94

DPS (Rmb) - - - - -


EV/EBITDA (x) 5.63 7.18 9.40 7.76 6.41

P/FCFE (x) 32.31 20.90 2.38 18.68 16.76

Net Gearing 69.4% 65.8% 78.0% 67.8% 56.9%

P/BV (x) 0.77 0.67 0.76 0.72 0.67

ROE 16.9% 11.0% 7.4% 8.2% 10.0%

% Change In Core EPS Estimates 10.1% (0.5%) (3.0%)

CIMB/consensus EPS (x) 1.77 1.13 1.19

38

61

83

106

128

0.80

1.30

1.80

2.30

2.80

Price Close Relative to HSI (RHS)

50

100

150


Vol m

16

Food & Beverages│Hong Kong│Equity research│August 23, 2016

Company Note



Want Want China Benefiting from margin expansion

Want Want reported a net profit growth of 0.4% yoy to Rmb1,756m (US$264m) in ■1H16, 2.7% below our forecast due to weaker Hot Kid milk sales growth.

Want Want introduced new dairy products in 3Q16, which should help sales growth. ■ We cut our FY16F net profit by 1.5% for the weaker topline, but raise our FY17F/ ■18F earnings by 0.8%/2.0% to reflect a stronger GPM.

Maintain Hold with a higher DCF-based TP of HK$5.30. ■

Weak performance of Hot Kid milk in 1H16 Overall revenue fell by 12.8% yoy to Rmb9,710m in 1H16, mainly due to an 18.5% sales reduction in the dairy segment. Want Want did not reduce its retail price nor carry out large promotions in 1H16. Dairy sales volume fell in the mid-teens percentage yoy in 1H16, while ASP dropped by the low single-digit percentage due to higher distributor rebates. The Hot Kid milk channel inventory is well controlled at 28-30 days currently.

New products to help dairy sales in 2H16 Want Want launched a high-end yoghurt drink, peanuts milk and room temperature kids’ yoghurt between Jun-Aug. For room temperature kids’ yoghurt, Want Want offered a 45% discount to distributors, vs competitors’ 35% discount and 30% for Hot Kid milk. Want Want will also launch a low-sugar content Hot Kid milk with 3.6g protein in 4Q16. We believe the new dairy products will help improve milk sales in 2H16. We expect dairy sales to fall 7.4% and 13.3% yoy respectively in 2H16 and FY16.

Rice cracker impacted by earlier CNY Due to the earlier Chinese New Year (CNY) in FY16, the sales period (c.101 days before CNY) for gift pack reduced by 11 days in 1Q16, which resulted in meagre sales growth of 0.8% yoy for rick crackers in 1H16. Given that CNY will be even earlier in the year in 2017, we expect rice cracker sales to improve in 2H16 by growing 4.8% yoy in the period.

Hot weather to boost popsicles sales in 2H16 Due to the cool weather in 2Q16 and negative impact from fake ball cakes, snacks sales fell by 11.1% yoy in 1H16. However, popsicles sales have picked up c.30% in Jul as it got increasingly warmer. Want Want will launch new cake products in 4Q16. We now expect snacks sales to recover to a positive 6.3% yoy growth in 2H16.

Stronger GPM due to reducing milk powder prices The price of international milk powder procured by Want Want fell >30% yoy in 1H16. Want Want has accumulated inventory sufficient for use until end-1H17. We expect further GPM expansion of 2.6% pts yoy to 48.1% in 2H16, (1H16: 47.8%, +5.3% pts yoy). Want Want’s distribution expenses ratio fell 0.4% pt in 1H16 due to a cut of over 3,000 sales people in Sep/Oct 2015. However, we expect this ratio to expand 0.2% pt hoh to 14.3% in 2H16 as c.1,000 sales people will be re-added to boost dairy sales.

Maintain Hold with new DCF-based TP of HK$5.30 (WACC:8.6%) Maintain Hold as we still need to see the recovery of Hot Kid milk. Management expects new products to contribute c. 2% of total sales in 2H16, vs 1% in 1H16. The utilisation rates were 55%, 45% and 44% for rice cracker, dairy and snacks segments in 1H16. We now forecast net profit to grow 7.2% and 1.3% in Rmb and US$ terms in FY16. Upside/downside risks include better/worse than expected recovery in dairy segment.

▎Hong Kong


Current price: HK$4.93

Target price: HK$5.30

Previous target: HK$5.00

Up/downside: 7.5%


Reuters: 0151.HK

Bloomberg: 151 HK


HK$62,565m


HK$92.83m




FY16F Revenue decreased by 9.7%.


FY16F ROE decreased by 1.0%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -3 -8.5 -28.7

Relative (%) -7.7 -24.6 -31.3

Major shareholders % held Tsai Eng Meng 48.0

Wen Hsien Cheng 3.5

Analyst(s)

Lei YANG, CFA

T (86) 21 5047 1771 x108 E [email protected]

ONG Khang Chuen T (852) 2539 1326 E [email protected]

[ X ]



Revenue (US$m) 3,775 3,428 3,010 3,076 3,257

Operating EBITDA (US$m) 895 861 882 945 1,004

Net Profit (US$m) 620.5 542.1 549.2 599.0 646.7

Core EPS (US$) 0.047 0.041 0.043 0.047 0.051

Core EPS Growth (9.6%) (12.0%) 4.1% 9.1% 8.0%

FD Core P/E (x) 13.53 15.37 14.76 13.54 12.54

DPS (US$) 0.024 0.018 0.019 0.020 0.022

Dividend Yield 3.76% 2.84% 2.95% 3.22% 3.48%

EV/EBITDA (x) 9.07 9.39 8.57 7.60 6.74

P/FCFE (x) 346.9 20.9 15.1 13.0 12.1

Net Gearing (11.3%) (9.9%) (22.2%) (34.1%) (43.6%)

P/BV (x) 4.07 4.44 3.71 3.19 2.77

ROE 30.9% 27.5% 27.0% 25.3% 23.6%

% Change In Core EPS Estimates (1.47%) 3.67% 4.71%


60.0

75.0

90.0

105.0

4.30

5.30

6.30

7.30

Price Close Relative to HSI (RHS)

50

100

150


Vol m

17

Autos│Indonesia│Equity research│August 23, 2016

Company Note



Astra International The return of Astra and LCGC

■ Gaikindo auto show’s reported transaction (~5% yoy) suggests flattish industry volume growth, in line with industry expectation

■ Toyota and Daihatsu were the stars of the auto show, showcasing a new 7-seater LCGC model while rivals have limited new launches

■ The positive response for the new product translates to potential for further improvement in ASII’s market share following a strong 2Q16 performance

■ Maintain Add given the attractive growth outlook for auto; upgrade earnings and target price on stronger margin outlook driven by strong product lineups

Decent turnout at the auto show Gaikindo Indonesia International Auto Show (GIIAS) 2016 saw around 5% growth in transaction vs. GIIAS 2015. Taking into consideration industry inflation, the growth in transaction value reflected flattish volume growth from last year, mirroring Gaikindo's (Indonesian Automotive Industry Association) volume expectation for the year. On a more positive note, findings from our checks and media reports indicate above-target sales achievement for the majority of the players, most notably for Toyota and Daihatsu.

Toyota/ Daihatsu: the stars of the show We note that unlike last year, Toyota and Daihatsu were the stars of the show as they launched brand new 7-seater models Toyota Calya and Daihatsu Sigra. ASII’s main rival Honda had no new models in GIIAS, having launched its new Honda Civic model earlier in the first auto show in April 16. The launch of ASII’s new low-cost green car (LCGC) coincided nicely with the pickup in the segment’s growth in recent months (YTD growth of 14% yoy vs. market’s 2%), indicating positive demand momentum.

More legs to support market share recovery The healthy demand for Toyota Calya/Daihatsu Sigra further supports ASII’s volume following the healthy sales growth momentum in 7M16 (+9% yoy). Our checks find sales for ASII’s other new models, namely Toyota Sienta, tracking well too (reported monthly sales 5-10% above target). Findings from our check on the latest pricing for the popular model Toyota Avanza indicated limited cannibalisation from the new models as price discount for the model have thus far been maintained at 9% (Rp18m/unit).

Stronger outlook for auto earnings ASII’s YTD (7M16) sales of 310k units (based on the wholesale sales numbers), up 9% yoy, accounted for 54% of our full-year forecast. We believe the indication of healthy demand for the new models translates to stronger outlook, volume and margin, similar to what happened 2Q16, where the successful launch of new models lifted auto margins. This drives us to upgrade our FY16-18 EPS estimates by 2-3%.

Maintain Add; SOP-based TP raised to Rp9,100 ASII trades at 18.2x forward P/E and 19.4x P/E on its auto business alone based on our revised earnings (reflecting +1.2s.d. premium to the 5-year means). We think the stock is still attractive given its improving growth outlook amid a supportive macro outlook. We upgrade our SOP-based target price to Rp9,100. We maintain our Add rating. Potential catalysts are positive auto sales and 2H16 earnings. Key risks are slower-than-expected economic growth and cut-throat retaliation by auto competitors.

▎Indonesia

ADD (no change) Consensus ratings*: Buy 14 Hold 12 Sell 4

Current price: Rp8,100

Target price: Rp9,100

Previous target: Rp8,650

Up/downside: 12.3%

CIMB / Consensus: 27.9%

Reuters: ASII.JK

Bloomberg: ASII IJ


Rp327,916,768m


Rp268,841m




FY16F EPS increased by 2%.



Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 10.2 27.1 33.9

Relative (%) 6 12.9 9

Major shareholders % held Jardine C&C 51.0

Analyst(s)

Erindra KRISNAWAN, CFA

T (62) 21 3006 1732 E [email protected]

[ X ]



Revenue (Rpb) 201,701 184,196 172,494 188,526 201,997

Operating EBITDA (Rpb) 26,703 23,816 24,503 26,253 27,423

Net Profit (Rpb) 19,191 14,464 16,507 18,972 19,816

Core EPS (Rp) 464.0 400.4 407.8 468.6 489.5

Core EPS Growth 8.5% (13.7%) 1.8% 14.9% 4.5%

FD Core P/E (x) 17.46 20.23 19.86 17.28 16.55

DPS (Rp) 252.1 261.6 196.2 224.0 257.4

Dividend Yield 3.11% 3.23% 2.42% 2.76% 3.18%

EV/EBITDA (x) 14.03 15.39 14.62 13.37 12.62

P/FCFE (x) 28.03 18.66 NA 27.12 24.87

Net Gearing 41.1% 34.6% 26.9% 21.5% 17.3%

P/BV (x) 3.43 3.21 2.96 2.72 2.52

ROE 20.9% 16.4% 15.5% 16.4% 15.8%

% Change In Core EPS Estimates 2.01% 3.06% 1.60%


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18

Telco - Mobile│Indonesia│Equity research│August 24, 2016

Company Note



XL Axiata 2Q16: A trying quarter

2Q16 results below expectations on weak revenue trends. ■

Mobile revenue (ex-IC) fell further by 6.5% qoq (-4.9% yoy). Non-data revenue fell ■sharply, while mobile data revenue was flat on weak monetisation.

EBITDA margin inched higher qoq but should be lower in 2H16 due to additional ■tower leasing costs.

FY16-18F EBITDA cut by 9-10%, mainly due to lower revenue growth assumptions. ■Core EPS for FY16/17/18 cut by a larger 91%/53%/43%.

Maintain Hold. DCF-based target price reduced by 19.5% to Rp3,300. ■

2Q16 result missed expectations XL’s 2Q16 EBITDA fell 5.8% qoq (+3.3% yoy) on its lowest mobile service revenue in two years. 1H16 EBITDA was below expectations, at 46%/47% of our/consensus FY16 forecast. Core net loss narrowed qoq to Rp9bn (1Q16: -Rp159bn, 2Q15: +Rp118bn) on lower a) interest cost, and b) normalised depreciation, but was still disappointing vs. our FY16 profit forecast of Rp446bn. Post the weak 1H16, XL said it would be challenging to meet its previous guidance of revenue growing in line or better than market.

Lagging significantly behind peers’ topline growth Following a weak 1Q16, mobile revenue (ex-IC) fell further by 6.5% qoq (-4.9% yoy) in 2Q16, despite it being a seasonally stronger quarter. This also pales in comparison to Telkomsel’s +4.4% and Indosat’s +3.6% qoq growth, and can be attributed to two key factors: a) data revenue was flat qoq (+21.7% yoy) due to weak monetisation (yields: -25% qoq), while non-data revenue declined steeply by 10.4% qoq (-16.8% yoy), and b) poor sales performance from its traditional distribution channels.

EBITDA margins sustained Despite weaker revenue, EBITDA margin inched up 0.4% pts qoq to 39.3% (+3.8% pts yoy) on lower marketing, staff and G&A costs. However, we expect EBITDA margins to ease slightly in 2H16 due to c.120bps margin dilution from additional tower leasing cost after the sale and leaseback of 2.5k towers to Protelindo in Jun 2016.

Earnings cut on lower revenue assumptions We cut our FY16-18 EBITDA forecasts by 8.8-10.1%, mainly after factoring in lower revenues. We now forecast EBITDA to grow by only 0.8% this year, before rising a stronger 5.4%/8.9% in FY17/18 upon seeing a bigger uptick in revenue growth. For core EPS, we cut our forecasts for FY16/17/18 by a large 91%/53%/43%, as our EBITDA revisions are magnified by XL’s high operating and financial leverage.

Maintain Hold; DCF-based target price reduced to Rp3,300 Maintain Hold with a 19.5% lower DCF-based target price of Rp3,300 (WACC: 10.1%). We believe XL’s mobile revenue growth will continue to lag behind Telkomsel’s and Indosat’s in the near-term due to greater data substitution effects, while improving the performance of its traditional distribution channels will take time. XL’s FY17 EV/OpFCF of 20.5x is also at a 46% premium to the ASEAN telco average. Key upside/downside risks: stronger-than-expected revenue growth/more intense competition.

▎Indonesia


Current price: Rp3,370

Target price: Rp3,300

Previous target: Rp4,100

Up/downside: -2.1%


Reuters: EXCL.JK

Bloomberg: EXCL IJ


Rp36,018,428m


Rp40,765m




FY16-18F core EPS decreased by 43-91%

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -8.9 5.3 18.2

Relative (%) -13.1 -8.9 -6.7

Major shareholders % held Axiata Group 66.5

Emirates Telecom (Etisalat) 4.2

Analyst(s)

FOONG Choong Chen, CFA


[ X ]



Revenue (Rpb) 23,569 22,960 21,913 22,382 23,347

Operating EBITDA (Rpb) 8,623 8,393 8,460 8,915 9,708

Operating EBITDA Margin 36.6% 36.6% 38.6% 39.8% 41.6%

Net Profit (Rpb) (804) (25) 41 569 1,057

Core EPS (Rp) 3.43 38.62 4.27 53.24 99.03

Core EPS Growth (98%) 1025% (89%) 1148% 86%

FD Core P/E (x) 982.1 87.3 789.7 63.3 34.0

DPS (Rp) 0.00 0.00 1.26 21.28 49.47

Dividend Yield 0.00% 0.00% 0.04% 0.63% 1.47%

EV/EBITDA (x) 5.97 6.19 5.42 5.54 5.04

P/FCFE (x) 30.72 NA NA NA 68.42

Net Gearing 162% 164% 65% 63% 58%

ROE 0.20% 2.35% 0.23% 2.69% 4.84%

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19

Financial Services│Indonesia│Equity research

Sector Flash Note



Banks Jun 16 statistics: early signs of improvement

System loans accelerated 9% yoy in Jun 16 (2% mom/3% YTD) partly due to Idul ■Fitri seasonality. This was much better than flat YTD loan growth in May.

Deposits grew by 6% yoy (1.5% mom/4% YTD), largely driven by CASA growth. ■CASA ratio rose to 55% in Jun 16 (53% in May 16/54% in Dec 15).

NPL flat mom at 3.1%, special mention loans (SML) fell to 5.3% vs. 5.7% in May 16. ■

Pick-up in loan growth ● System loan growth posted strong momentum, accelerating 2% mom in Jun 16. This

brings overall loan growth to 9% yoy/3% YTD, partly due to Idul Fitri seasonality. Investment loans grew by 12% yoy (1% mom), working capital loans grew by 7% yoy (4% mom) while consumption loans grew by 9% yoy (1% mom).

● In terms of industry contribution, trade sector grew by 8% yoy (3% mom), followed by construction (+18% yoy/+7% mom) and electricity, gas and water sector (+26% yoy/+10% mom). These three sectors accounted for 37% of loans to industry. Loans to the manufacturing sector (second biggest sector after trade sector) grew by 6% yoy/1% mom.

Deposits still sluggish but improving ● Overall deposits grew by 6% yoy (+1.5% mom/4% YTD) in Jun 16 due to strong

CASA growth (+9% yoy/+4% mom). Time deposits were relatively sluggish (+2% yoy/-1% mom). This led to CASA ratio improving to 55% in Jun 16 vs. 53% in May 16 and 54% in Dec 15.

● Overall LDR was 91% in Jun 16, an improvement from 92% in Dec 15 (slightly picked up from 90% in May 16). SOE banks’ LDR also stood at 91% in Jun16 although it improved from May 16 level of 92%.

Deposit yield declined faster than lending yield ● Overall weighted average lending yield fell 47bp YTD to 12.3% in Jun 16 from 12.8%

in Dec 15. Nonetheless, overall 1-month and 3-months TD rate declined 80bp and 99bp YTD to 6.8% and 7% in Jun 16, respectively. Savings rate dropped 17bp YTD to 1.6% in Jun 16 from 1.7% in Dec 15.

Loan quality remained in check ● Overall NPL was stable at 3.1% in Jun 16 (flat mom), nonetheless SML improved to

5.3% in Jun 16 sequentially from 6.2% in Apr 16 and 5.7% in May 16.

● Trade NPL improved to 4% in Jun 16 from 4.4% in May 16. Construction NPL improved to 4.5% in Jun 16 from 4.8% in May 16 while agriculture NPL improved to 1.9% in Jun 16 from 2.1% in May 16. Manufacturing NPL ticked up to 3.8% in Jun 16 from 3.7% in May 16. Mining NPL also deteriorated further to 6.3% in Jun 16 from 5.6% in May 16.

● Maintain sector Overweight. BBRI, BBNI and BBTN remain our top picks. Key risk is the slower than expected economic recovery in 2H16.

Figure 1: Jun 16 system statistics summary

SOURCES: CIMB, FINANCIAL SERVICES AUTHORITY

Rp bn Jun-16 Jun-15 yoy% May-16 mom% Dec-15 YTD

Total Loans 4,168,308 3,828,045 8.9% 4,070,454 2.4% 4,057,904 2.7%

CASA 2,491,235 2,276,497 9.4% 2,407,326 3.5% 2,377,676 4.8%

TD 2,083,436 2,043,253 2.0% 2,101,127 -0.8% 2,024,526 2.9%

Total Deposits 4,574,671 4,319,749 5.9% 4,508,452 1.5% 4,402,202 3.9%

CASA Ratio (%, chg in bps) 54.5% 52.7% 176 53.4% 106 54.0% 45

NPL 127,156 97,959 29.8% 126,616 0.4% 100,933 26.0%

SML 222,836 203,324 9.6% 231,834 -3.9% 197,137 13.0%

NPL (%, chg in bps) 3.1% 2.6% 49 3.1% (6) 2.5% 56

SML (%, chg in bps) 5.3% 5.3% 3 5.7% (35) 4.9% 49

LDR (%, chg in bps) 91.1% 88.6% 250 90.3% 83 92.2% (106)

Weighted Average Lending Yield 12.3% 12.9% (62) 12.4% (11) 12.8% (47)

1 Mo TD Rate 6.8% 7.8% (96) 6.8% 1 7.6% (80)

3 Mo TD Rate 7.0% 8.3% (127) 7.2% (21) 8.0% (99)

Savings Rate 1.6% 1.7% (16) 1.6% (3) 1.7% (17)

▎Indonesia

August 23, 2016 - 2:33 PM

Overweight (no change) Summary valuation metrics

Analyst(s)

Jovent GIOVANNY


Timothy HANDERSON


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

Bank Negara Indonesia 10.44 8.78 7.71

Bank Rakyat Indonesia 10.80 9.25 7.82

Bank Tabungan Negara 8.85 7.45 6.45

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

Bank Negara Indonesia 1.40 1.21 1.04

Bank Rakyat Indonesia 2.20 1.87 1.59

Bank Tabungan Negara 1.08 0.97 0.87

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

Bank Negara Indonesia 2.10% 2.40% 2.85%

Bank Rakyat Indonesia 2.61% 2.78% 3.24%

Bank Tabungan Negara 2.26% 2.82% 3.35%

20

Ind Goods & Services│Malaysia│Equity research│August 23, 2016

Shariah Compliant

Company Note



AWC Berhad Smashing end to the year

AWC’s full-year net profit of RM17.2m smashed our RM15.1m estimate. ■

All divisions contributed to the outperformance, in particular STREAM. ■

Final DPS of 1 sen declared, bringing full-year DPS to 2.5 sen, above our estimate. ■

Contract wins for STREAM and plumbing are potential re-rating catalysts. ■

Maintain Add with an unchanged SOP-based target price. Key risks to the ■achievement of our target price include project execution and delays.

Strong finish in 4Q 4QFY06/16 net profit of RM6.5m (+12% qoq) brought full-year net profit to RM17.2m (US$4.3m), 15% ahead of our estimate. All divisions delivered stellar performances. FY16 revenue came in 13% ahead of our forecast. The star performers were the environmental (STREAM) and facilities. Revenue was quite evenly split in 3Q between Facilities (45%), Engineering (33%) and Environment (30%). At the pretax profit level, Environment contributed 56%, followed by Facilities and Engineering (22% each).

STREAM and facilities outperformed Both divisions saw pre-tax profit more than doubling on a yoy basis. Facilities benefited from the commencement of the Shah Alam hospital in 4Q as well as the commencement of the new concession rates. STREAM’s revenues doubled yoy as progress billing accelerated in Malaysia, Singapore and the Middle East.

Final dividend of 1 sen declared AWC declared a 1 sen final dividend in 4Q, bringing full-year DPS to 2.5 sen, i.e. above our 2 sen estimate. We raise our DPS estimates by 0.5 sen/share in FY17 and FY18. The stock now yields 4.1-4.7% in FY17-18. AWC’s net cash position stood at 18 sen as at end-June 16, with little to no borrowings.

What is the next catalyst? AWC has an estimated outstanding orderbook of c.RM500m up till FY18: 1) Facilities (RM260m), 2) STREAM (RM100m), 3) M&E/HVAC (RM60m) and 4) Plumbing (RM80m). We believe that contract wins in STREAM and Plumbing, given their high-margins, could be re-rating catalysts, as they would sustain earnings visibility in FY17-18. Given the slew of high-rise office buildings coming up in the Klang Valley, we believe that private sector facilities maintenance contracts are also in the pipeline.

Add maintained We maintain our Add rating with an unchanged SOP-based target price of RM1.19, after tweaking our forecasts for housekeeping. The stock is attractively valued at 10.4x FY17F P/E and FY17F ex-cash P/E of 7.7x. Key risks to the achievement of our target price include project execution and delays. Potential re-rating catalysts are more contract wins and special dividends.

▎Malaysia


Current price: RM0.85

Target price: RM1.19

Previous target: RM1.19

Up/downside: 39.8%


Reuters: AWCF.KL

Bloomberg: AWCF MK


RM220.1m


RM6.62m

Current shares o/s: 256.0m



Tweaked FY17-18 EPS forecasts for housekeeping.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -1.7 15.6 161.5

Relative (%) -3.7 11.8 154.1

Major shareholders % held Dato' Ahmad Kabeer 34.0

Analyst(s)

Marcus CHAN, CFA


[ X ]



Revenue (RMm) 128.0 249.3 278.2 294.8 305.8

Operating EBITDA (RMm) 14.15 31.90 37.09 41.20 43.75

Net Profit (RMm) 8.03 17.30 20.84 23.35 24.27

Core EPS (RM) 0.036 0.072 0.081 0.091 0.095

Core EPS Growth 15% 102% 13% 12% 4%

FD Core P/E (x) 23.87 11.83 10.44 9.32 8.96

DPS (RM) - 0.025 0.035 0.040 0.045

Dividend Yield 0.00% 2.94% 4.12% 4.71% 5.29%

EV/EBITDA (x) 11.70 5.84 5.27 4.54 4.02

P/FCFE (x) 12.04 29.62 9.51 8.45 7.47

Net Gearing (43.9%) (32.0%) (34.6%) (39.4%) (44.4%)

P/BV (x) 2.09 1.83 1.66 1.51 1.38

ROE 9.4% 16.4% 16.7% 17.0% 16.1%

% Change In Core EPS Estimates (0.013%) (0.012%)

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21

Brewers│Malaysia│Equity research│August 24, 2016

Company Note



Carlsberg Brewery (M) Nothing but more cheers!

We deem Carlsberg’s 1H16 core net profit of RM114.3m as above expectations, at ■50% of our FY16 forecast and 48% of consensus, due to seasonally stronger 2H.

After adjusting for divestment in Luen Heng in 2015, revenue grew by 6% yoy ■(reported: -2% yoy) while net profit rose to RM52.9m.

Malaysia and Singapore recorded organic revenue growth of 6.9% and 5.1% ■respectively, leading to total profit before tax rising to RM144.67m (19.0% yoy).

We increase our FY16-18F earnings estimates by 8.4-11.8%. ■

Upgrade to Add with higher DDM-based TP of RM16.30. ■

1H16 results above expectations Carlsberg’s 1H16 revenue rose 2.4% yoy while core net profit grew to RM114.3m (29.5% yoy). The stronger overall performance was driven by i) stronger sales volume, ii) growing product mix in the premium segment and iii) better operating efficiencies. This also led to qoq EBIT improvement of 3.4% pts (1H16 EBIT of 17.3%). Overall, we deem 1H16 earnings as above expectations, despite making up 50% of our FY16 forecast and 48% of consensus as 2H is seasonally stronger.

Impressive performance in 2Q16 Overall, 2Q16 performance was impressive. After adjusting for the divestment in Luen Heng in 2015, the group recorded organic revenue growth of 6% yoy (reported: -2% yoy) while net profit rose 14% to RM52.9m (reported: +65% yoy). Both Malaysia and Singapore continued their strong performance, with organic revenue growth of 6.9% and 5.1% respectively; total profit before tax rose by 19.0% yoy to RM144.67 (reported: +35.0% yoy). As expected, an interim dividend of 5 sen/share was announced.

Making inroads in premium products One of the key highlights was the group’s success in marketing its premium segment products. We highlight that the group managed to grow its premium segment volumes by over 15% vs. industry growth of less than 9%. This is positive as premium products generate higher margins (10-15% more than mainstream beers) despite minimal difference in costs. The group’s premium beers such as Kronenbourg Blanc and Asahi Super Dry managed to grow market share in both off-trade and on-trade markets.

Raise estimates by 8.4-11.8% for FY16-18F With results surpassing expectations, we increase our FY16-18F earnings estimates by 8.4-11.8%. This is after taking into account: i) better sales volume in the premium segment, and ii) increasing operating efficiencies. We believe the group will be able to sustain its strong earnings performance with continuous emphasis on improving operating efficiencies and growing market share in the premium market. Also, 2H has always been seasonally stronger due to front-loading for festivities.

Upgrade to Add with higher DDM-based TP of RM16.30 We upgrade the stock to an Add from Hold with a higher DDM-based target price of RM16.30. Along with appealing dividend yields of 5.6-6.3% for FY16-18F, we believe the share price will do well with its positive earnings momentum set to continue from an improving product mix and growing operating efficiencies. Risks to our view are a sudden increase in excise duties for beer and lower-than-expected MLM volumes.

▎Malaysia

ADD (previously HOLD) Consensus ratings*: Buy 7 Hold 2 Sell 0




Up/downside: 8.8%


Reuters: CBMS.KL

Bloomberg: CAB MK


RM4,608m


RM1.50m




FY16-18F EPS increased by 8.4-11.8%.

Source: Bloomberg


Relative (%) 0.1 12.3 19

Major shareholders % held Carlsberg Breweries A/S 50.7

Analyst(s)

Walter AW


[ X ]



Revenue (RMm) 1,635 1,696 1,806 1,854 1,911


Net Profit (RMm) 211.6 228.5 254.6 268.8 286.1

Core EPS (RM) 0.69 0.75 0.83 0.88 0.94

Core EPS Growth 15.0% 8.0% 11.4% 5.6% 6.4%

FD Core P/E (x) 21.65 20.04 17.99 17.04 16.01

DPS (RM) 0.72 0.73 0.83 0.88 0.94

Dividend Yield 4.78% 4.84% 5.56% 5.87% 6.25%

EV/EBITDA (x) 15.36 14.28 13.24 12.79 12.05

P/FCFE (x) 20.69 21.36 17.60 16.62 NA

Net Gearing (10.8%) (2.8%) 0.4% 3.7% 2.2%

P/BV (x) 14.67 13.65 13.65 13.65 13.65

ROE 72.2% 70.6% 75.9% 80.1% 85.3%



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Ind Goods & Services│Malaysia│Equity research│August 23, 2016

Shariah Compliant

Company Note



HeveaBoard Bhd Plant shutdown a drag on 2Q

■ We deem 1H16 core net profit of RM37.3m in line at 41% of our full-year estimate as 2Q saw plant maintenance shutdown; 2H should be stronger.

■ Average US$/RM realised for 2Q was 4.01, lower than 1Q realised rate of 4.19

■ Net cash rises to 25 sen/share;

■ Interim dividend of 1.3 sen declared, slightly ahead of expectations.

■ Maintain Add, with an unchanged SOP-based target price of RM2.02. A potential re-rating catalyst is RM weakness.

Mixed results across divisions 1H16 group revenue rose 18% yoy, while pretax profit rose 29% yoy, driven by the furniture (RTA) division. Particle board (PB) 1H revenue rose 5%, while RTA revenue rose 27%. PB's 1H pretax profit fell 10% yoy due to a plant maintenance shutdown in 2Q while RTA’s pretax profit doubled on the back of a higher realised US$/RM exchange rate (2Q16: 4.01 vs. 1Q16: 4.19 and 2Q15: 3.66) and improved automation.

Weaker qoq performance On a qoq basis, however, revenue fell 17% in 2Q16, while pretax profit fell 24%. 2Q saw a plant maintenance shutdown in the PB division while the RTA sector is seasonally weaker in 2Q, after strong seasonal 1Q demand.

Net cash/share at 21% of market cap Net cash per share rose further from 20 sen/share at end-1Q16 to 25 sen at end-2Q16, or 21 % of its current market capitalisation. As 1Q saw a net repayment of all of Hevea's US$ long-term borrowings of RM45m (US$11m), we believe this paves the way for stronger dividends in 2H16. In 2Q, Hevea stopped seeing more unrealised forex losses that have distorted its operating profit figures in the past.

First interim DPS above expectations Hevea declared a first interim dividend of 1.3 sen, slightly ahead of expectations. We believe that subsequent quarterly DPS should be c.1sen/share. As such, we believe that our 4 sen DPS estimate for FY16 remains conservative.

Maintain Add rating We maintain our Add rating on Hevea, with an unchanged SOP-based target price of RM2.02. A key downside risk to our target price is RM strength. Every 1% strengthening of the RM vs. US$ lowers our FY16 EPS forecast by 7.5%. Potential catalysts for the stock are RM weakness and a higher-than-expected dividend payout ratio.

▎Malaysia





Up/downside: 69.3%


Reuters: HEVE.KL

Bloomberg: HAVE MK


RM559.2m


RM1.44m




No change

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -1.7 -2.5 22.1

Relative (%) -3.7 -6.3 14.7

Major shareholders % held Yoong Tein Seng 43.5

Analyst(s)

Marcus CHAN, CFA


[ X ]



Revenue (RMm) 422.4 502.6 553.0 583.2 616.8


Net Profit (RMm) 32.2 79.5 91.6 100.2 111.0

Core EPS (RM) 0.08 0.20 0.23 0.25 0.28

Core EPS Growth 33% 136% 15% 9% 11%

FD Core P/E (x) 20.35 8.51 7.39 6.75 6.10

DPS (RM) 0.009 0.018 0.040 0.060 0.070

Dividend Yield 0.74% 1.47% 3.36% 5.04% 5.88%

EV/EBITDA (x) 7.88 3.47 2.76 1.95 1.17

P/FCFE (x) 39.98 6.40 14.56 7.40 5.54

Net Gearing 17.2% (19.3%) (27.8%) (41.1%) (51.4%)

P/BV (x) 1.75 1.37 1.12 0.95 0.81

ROE 12.8% 25.8% 23.9% 21.8% 20.6%


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23

IT Services│Malaysia│Equity research│August 23, 2016

Company Note



IFCA MSC 2Q16 still in the red

IFCA’s 1H16 net loss of RM5.0m was disappointing against our previous full-year ■net profit forecast of RM12.1m.

The main culprit was domestic revenue which fell 55% yoy to RM20m in 1H16. ■ The company has RM62.5m net cash or 10sen net cash per share, equivalent to ■20% of its share price.

Downgrade to Hold, change target basis from P/E to P/BV until earnings turnaround. ■

1H16 swings into a RM5m net loss 1H16 revenue was down 36% to RM35.7m while net loss was RM5m, vs. RM15.4m net profit in 1H15. The loss was mainly due to the collapse of domestic revenue, down 55% to RM20m. No interim DPS was declared.

Higher depreciation and amortisation charges Another major reason for the company’s losses in 1H16 was the higher-than-expected depreciation and amortisation (D&A) charges. In 1H16, D&A charges were RM3.7m vs. RM3.1m for the whole of 2015. We understand the higher D&A charges were mainly due to the full commercial launch of its mobile platform and P365 starting from 2H15 onwards, after which the company had to fully recognise D&A charges.

Overseas revenue up due to consolidation of Indonesia operations 1H16 overseas revenue rose 40% yoy at RM15.6m (Figure 3). Most of the revenue growth due to the consolidation of its Indonesia distributor acquired at end-2015. We understand 1H16 sales from China was flat on a yoy basis, which is not a positive sign. We had expected China to compensate for the weakness in the domestic market but this was not the case.

Focus now on growing P365 Property365.my(P365) now has around 2,000 negotiators registered with the company. We understand inventory for sale is more than RM3bn and while sales have been slow, P365 has been gaining more interest among property developers and agents over the past few months. Management needs to focus now on its marketing efforts for P365.

Net cash balance sheet IFCA’s balance sheet was a strong RM62.5m net cash or 10sen net cash per share as at end-1H16. The net cash contributes close to 20% of its current share price. As most of the development costs on its mobile platform and P365 have been completed, we believe spending would be focused on marketing activities for P365 over the next few quarters.

Downgrade to Hold from Add We slash our FY16-18 EPS forecasts for the weaker domestic sales outlook. Given the poor results and poor outlook, our target basis is changed from 2017 21x P/E (in-line with the peers) to average sector 2.5x P/BV, resulting in a 54% TP cut. We downgrade the stock to Hold from Add. Downside risks include further weakness in the domestic market, while upside risks are a recovery in China and domestic markets. We prefer MyEG for exposure in the technology sector due to its strong earnings growth outlook.

▎Malaysia

HOLD (previously ADD) Consensus ratings*: Buy 1 Hold 0 Sell 0




Up/downside: 4.8%


Reuters: IFCA.KL

Bloomberg: IFCA MK


RM319.3m


RM3.04m




FY16F EPS cut to negative territory.

FY17F EPS cut by 77%.

FY18F EPS cut by 69%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -4.6 -9.5 -15.3

Relative (%) -6.1 -12.4 -22.2

Major shareholders % held IFCA Software (Asia) S/B 46.5

DP Capital 5.6

Kevin Lim 2.0

Analyst(s)

Nigel FOO


[ X ]



Revenue (RMm) 89.2 101.6 76.0 81.0 85.5

Net Profit (RMm) 21.10 21.80 (0.70) 3.49 7.02

Core EPS (RM) 0.037 0.039 (0.010) 0.013 0.019

Core EPS Growth 530% 7% (125%) 47%

FD Core P/E (x) 13.99 13.05 NA 37.82 26.27

Price To Sales (x) 3.51 3.08 4.12 3.86 3.66

DPS (RM) 0.010 0.010 - - -

Dividend Yield 1.90% 1.90% 0.00% 0.00% 0.00%

EV/EBITDA (x) 9.78 9.64 43.06 23.86 15.84

P/FCFE (x) 19.57 14.51 55.07 54.77 32.58

Net Gearing (69.0%) (74.8%) (81.6%) (84.5%) (88.1%)

P/BV (x) 4.39 3.53 3.55 3.44 3.24

ROE 36.8% 29.3% (6.6%) 8.8% 12.4%

% Change In Core EPS Estimates (140%) (77%) (69%)

CIMB/consensus EPS (x) (0.05) 0.10 0.19

72

112

152

192

0.40

0.60

0.80

1.00


50

100

150


Vol m

24

Rubber Gloves│Malaysia│Equity research│August 23, 2016

Shariah Compliant

Company Note



Kossan Rubber Industries Looking forward to 2H16

We deem 1H16 results in line at 43% of our FY16 estimate; expect better 2H16. ■

Cumulative net profit came in lower at RM41m (-13.6% yoy) as higher sales volume ■(5% yoy) was offset by cost increases and intensified pricing pressure.

On quarterly basis, both 2Q16 revenue and earnings were affected by stiffer pricing ■competition as well as ongoing revamp works that led to lower output.

However, we expect hoh improvement in 2H16 earnings due to stronger seasonality ■and resumption of production from the revamped lines.

Maintain Hold with lower TP of RM6.50. ■

1H16 net profit at 43% of our FY16 estimate; within expectations Kossan’s 1H16 net profit formed 43% of our FY16 estimate, which we deem in line as we expect a stronger 2H16. Despite 1H16 revenue rising by 8.1% yoy, the group’s net profit was lower at RM92.3m (-0.7% yoy). This was due to the impact of cost increases and intensified pricing pressure that offset the stronger sales volume (5% yoy). On the bright side, all three of its divisions recorded consistent earnings growth of 7.4-10.5% yoy, signaling healthy demand for the group’s products.

2QFY16 earnings down 20.1% qoq, mainly on output loss In line with our expectations, 2QFY16 earnings fell 20.1% qoq and 13.6% yoy to RM41.0m while revenue also declined 2.1% qoq. We attribute the sub-par performance mainly to: i) the interruption to output from major revamp works conducted on certain lines, ii) an increase in input and operating costs, and iii) industry-wide pricing pressure, which hurt its ability to fully pass on the cost hikes. Consequently, EBITDA margin fell 3.3% pts qoq to 17.4%.

Expect a better 2H16 on normalised production On a positive note, the revamp works at various production lines were completed by end-2Q16. As such, we believe that 2H16 earnings will improve hoh, boosted by a seasonally stronger period as well as the resumption of full commercial production from its entire capacity of 22bn pieces/annum. We understand that the revamped lines will improve operating efficiencies (increasing output/minute to 175 pcs from 150 pcs), which is essential in a competitive environment.

Limited impact from ongoing pricing competition Although Kossan was not spared from the industry wide pricing pressure, we believe the group will be the least impacted vs. its peers. We expect the group’s wider product offerings, including in the specialised gloves segment to provide a buffer against product concentration risks in the medical space. Furthermore, we highlight that the group has lower dependence on large-scale contracts from key clients, minimising customer concentration risks as none of its customers contribute more than 5% of total revenue.

Maintain Hold with lower TP of RM6.50 We maintain our earnings estimates. Although we like Kossan for its diversified product offerings and emphasis on product innovation, the group’s earnings outlook remains muted given industry-wide pricing pressures and less favourable operating environment. Hence, we lower our CY17 P/E multiple to 17.5x (3-year mean) from 19x (+1SD of 5-year mean) to reflect the lack of near-term catalysts and current environment. Maintain Hold with lower TP of RM6.50. Upside/downside risks: stronger/weaker sales volumes.

▎Malaysia





Up/downside: 4.2%


Reuters: KRIB.KL

Bloomberg: KRI MK


RM3,990m


RM4.25m




No change.

Source: Bloomberg


Relative (%) -8.1 -9.4 -20.1

Major shareholders % held Kossan Holdings Sdn Bhd 51.8

Kumpulan Wang Persaraan 7.6

Asian Small Companies 4.9

Analyst(s)

Walter AW


[ X ]



Revenue (RMm) 1,302 1,636 1,845 1,952 2,276


Net Profit (RMm) 145.6 203.3 213.9 236.8 283.9

Core EPS (RM) 0.23 0.32 0.33 0.37 0.44

Core EPS Growth 6.7% 39.6% 5.2% 10.7% 19.9%

FD Core P/E (x) 27.41 19.63 18.66 16.85 14.06

DPS (RM) 0.08 0.12 0.13 0.17 0.22

Dividend Yield 1.28% 1.92% 2.14% 2.67% 3.56%

EV/EBITDA (x) 16.82 11.79 11.34 10.19 8.73

P/FCFE (x) NA 37.7 106.8 26.5 26.7

Net Gearing 14.9% 3.0% 6.9% 2.7% 1.9%

P/BV (x) 4.94 4.06 3.59 3.22 2.89

ROE 19.3% 22.7% 20.4% 20.1% 21.6%

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


66.0

81.6

97.1

112.7

128.2

5.60

6.60

7.60

8.60

9.60


5

10

15

20


Vol m

25

Media - Integrated│Malaysia│Equity research│August 23, 2016

Shariah Compliant

Company Note



Media Chinese Int'l A weak start to FY17

■ 1QFY3/17 earnings missed expectations at 16% of our full-year estimates and 17% of consensus due to lower adex across key markets and lower travel sales.

■ Core net profit fell 39.3% yoy to RM20.3m (US$5.1m) due to adex decline in Malaysia and Hong Kong, and lower tour packages sold during the quarter.

■ We remain cautious on the adex outlook due to persistent weakness in consumer sentiment given the uncertainties in the domestic economy and forex volatility.

■ We cut our FY17-19F EPS by 5.9-6.9% to account for lower adex and travel sales.

■ Maintain Reduce, with a lower target price of RM0.65. Switch to Astro.

1QFY17 results below expectation Revenue in 1QFY17 fell 11.5% yoy due to the decline in printing and publishing (P&P) contribution from all geographical segments and lower travel sales. For example, P&P in North America, Hong Kong, Taiwan & China cumulatively posted pre-tax loss of US$1.5m vs. pre-tax profit of US$185k in 1QFY16. Overall, group core net profit fell 39.3% yoy to RM20.3m (US$5.1m). As expected, no dividend was declared for the quarter.

Adex outlook remains challenging We expect adex to continue to decline in 2016 due to domestic economic uncertainties, in the wake of forex volatility and lower commodity prices. For 7M16, total Chinese newspaper gross adex in Malaysia fell by 10.9% yoy, slightly better than the 12.4% decline in overall newspaper adex. Moreover, we also expect print to face continued headwinds due to the structural shift in adex towards the digital platform.

Cutting FY17-19F EPS by 6-7% We cut our FY17-19F EPS by 6-7% to account for lower adex in its P&P segment. We expect MCIL’s print adex to contract by 4-8% in FY17-19 due to persistent weakness in consumer and business sentiment in Malaysia, and weak demand for property and luxury high-end products in Hong Kong. We project 3-year EPS CAGR of -2%.

Disposal of 73% stake in One Media Group Wholly-owned subsidiary Comwell Investment has in Jul 16 entered into an agreement with Qingdao West Coast Holding, a Chinese state-owned enterprise, for the disposal of its entire 73.01% stake in One Media Group (OMG) for US$64.2m (RM260.1m) in cash. We expect MCIL to recognise a disposal gain of US$46.8m (RM189.5m) or 27x its total initial investment of US$1.8m.

Plans to invest in digital media Management plans to utilise 50.2% of the proceeds from the OMG disposal to partially repay its borrowings of approx. US$32.2m (RM130.5m), and 45.2% for general working capital expenses that could include expansion of the group's digital media business.

Maintain Reduce, with a lower TP of RM0.65 We maintain our Reduce call, with a lower target price of RM0.65, still based on 9x CY17F P/E, 40% discount to our target market P/E of 15x. We see potential weakness in its share price in the near term given the lack of clarity on potential special dividends following the OMG disposal. Key upside risks to our call are stronger adex recovery and pick-up in travel sales.

▎Malaysia

REDUCE (no change) Consensus ratings*: Buy 0 Hold 5 Sell 3




Up/downside: -13.1%


Reuters: MDCH.KL

Bloomberg: MCIL MK


RM1,257m


RM0.14m






FY19F EPS increased by 6.9%.

Source: Bloomberg


Relative (%) 0.6 -2.2 39.2

Major shareholders % held Tan Sri Datuk Tiong Hiew King 50.0

EPF 4.9

Analyst(s)

Mohd Shanaz NOOR AZAM


[ X ]


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

Revenue (RMm) 1,675 1,362 1,373 1,400 1,421


Net Profit (RMm) 122.6 104.0 117.6 120.8 118.8

Core EPS (RM) 0.090 0.066 0.070 0.072 0.070

Core EPS Growth (15.0%) (26.6%) 5.4% 2.7% (1.7%)

FD Core P/E (x) 8.26 11.26 10.68 10.40 10.58

DPS (RM) 0.029 0.043 0.045 0.047 0.046

Dividend Yield 3.90% 5.79% 6.08% 6.25% 6.14%

EV/EBITDA (x) 4.80 5.76 4.60 4.08 3.94

P/FCFE (x) 7.34 7.38 11.65 23.86 12.04

Net Gearing 5.8% (11.4%) (32.5%) (37.6%) (39.6%)

P/BV (x) 1.54 1.51 1.23 1.13 1.09

ROE 18.7% 13.5% 12.7% 11.3% 10.5%



90.0

105.0

120.0

135.0

150.0

0.400

0.500

0.600

0.700

0.800


1

2

3


Vol m

26

Food & Beverages│Malaysia│Equity research│August 24, 2016

Shariah Compliant

Company Note



MSM Malaysia Holdings 2Q hurt by higher raw sugar costs and taxes

MSM’s 1H16 core net profit was in line with our forecast but below consensus. ■

1H16 net profit fell 45% as profit margin was squeezed by higher raw sugar costs. ■

2Q16 net profit fell 60% qoq due to weaker margins and a higher tax rate ■

We project stronger 2H earnings driven by higher ASP for selected segments. ■

Maintain Hold and target price to RM5.04. We see support from its 4% div yield. ■

Poor 2Q due to weak margin and higher tax rate MSM's 2QFY16 net profit fell 70% yoy and 60% qoq to RM24m as the higher sales value was not sufficient to offset the elevated raw sugar costs and higher tax rate. The 1H16 core net profit accounted for 37% of our full-year forecast but only 33% of the consensus number. We consider the results to be in line with our expectations (but below those of the market) as we expect higher ASPs for selected segments to boost 2H earnings.

Festive demand led to higher sales volumes 2QFY16 revenue grew 7.7% yoy and 14.6% qoq as domestic sugar sales volumes grew 16.7% yoy in 2Q16 due to the Ramadhan festive demand. Industrial sugar sales volumes fell 13.2% as SME was reclassified from the industries sector to the domestic sector. ASP for overall sugar fell 2.1% to RM2,204/tonne due to price discounting in selected segments.

Weaker ringgit and higher raw sugar prices squeeze margins MSM's net profit margins fell by 9.6% pts to 3.8% in 2Q16 and 7% 1H16, respectively. The weaker profit margin was due to higher raw sugar costs as well as higher administrative expenses. Raw sugar costs rose due to the weaker ringgit (+10% to average RM4.01 per US$1 in 2Q16) and higher raw sugar costs (+36% to US$17.5cts/lbs).

Project stronger 2H on the back of higher ASPs We expect the group to deliver better earnings in 2H as sales are projected to improve due to (1) higher ASPs for the industrial and AP sectors, and (2) the removal of APs which could reduce competition from imported sugar and raise sales volumes of refined sugar from industrial players by around 70k per annum. We gather that the government has agreed to raise the profit margin that refiners receive from the industrial sector by RM120/tonne (or 13%), effective 1 May 2016 and selling price of sugar to AP holders.

Maintaining Hold call for 4% yield We are keeping our FY16-18 earnings forecasts which expects net profit to decline 21% in FY16 due to higher raw sugar costs. Also intact is our target price of RM5.04 for end-2017, which is based on the group’s 5-year historical average P/E of 14x. We keep to our Hold call in view of its supportive dividend yield of 5%.

▎Malaysia





Up/downside: 0.8%


Reuters: MSMH.KL

Bloomberg: MSM MK


RM3,515m


RM0.85m




No change

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 2 -0.4 -1

Relative (%) 1.3 -3.4 -7.4

Major shareholders % held Felda Global Ventures 51.0

Koperasi Permodalan Felda 20.0

Analyst(s)

Ivy NG Lee Fang, CFA


[ X ]



Revenue (RMm) 2,281 2,307 2,861 3,142 3,228


Net Profit (RMm) 257.0 280.8 221.6 247.3 253.1

Core EPS (RM) 0.37 0.40 0.32 0.35 0.36

Core EPS Growth 0.9% 9.2% (21.1%) 11.6% 2.4%

FD Core P/E (x) 13.68 12.52 15.86 14.22 13.89

DPS (RM) 0.24 0.26 0.22 0.23 0.23

Dividend Yield 4.80% 5.20% 4.41% 4.57% 4.68%

EV/EBITDA (x) 8.72 9.20 12.57 12.67 12.78

P/FCFE (x) 9.91 NA 8.84 24.86 12.63

Net Gearing (10.8%) 15.1% 23.6% 57.5% 54.3%

P/BV (x) 1.81 1.72 1.67 1.60 1.54

ROE 13.5% 14.1% 10.7% 11.5% 11.3%


82.0

87.0

92.0

97.0

102.0

4.40

4.60

4.80

5.00

5.20


1

1

2

2


Vo

l m

27

Conglomerate│Malaysia│Equity research│August 24, 2016

Shariah Compliant

Company Note



Sime Darby Bhd Potential overhang from share placement

Sime’s final core net profit was below due to weak industrial earnings. ■

Reported net profit was above due to several one-off gains and tax incentives. ■

Its proposed share placement of new shares of up to 5% of its share capital could ■lead to near-term share overhang and potentially dilute EPS by 5%.

We raise our FY17-18 earnings by 4-5% to reflect stronger downstream earnings. ■

Our SOP-target price rises to RM8.20 as we roll over to end-17. We maintain our ■Hold call for its supportive dividend yield and rich assets.

Results below due to lower industrial earnings Final core net profit (excluding one-off gains and tax credit) fell 39% yoy due to weaker performances from all divisions, except motor. Core net profit was below our and market expectations as it accounted for only 85% of our and 84% of consensus numbers. The weaker results were due mainly to lower-than-expected industrial earnings. The consolation is the final dividend of 21 sen was above our forecast of 10 sen dividend.

Several one-offs lifted reported earnings Final reported earnings of RM2.41bn were 24% above our forecast and 21% above Sime’s KPI target of RM2bn due to several one-off gains. Gains included: a RM447m gain from the sale of two subsidiaries in Singapore; RM145m gain from compulsory land acquisition; and RM185m gain from the disposal of land in Semenyih. It also booked a special tax incentive of RM348.5m from fixed assets revaluation in Indonesia.

Proposed private placement of new shares Sime announced that it plans to place out new shares of up to 5% of its share capital via accelerated book building to be completed by end-2016. The exercise will be subject to shareholders’ approval and could raise up to RM2.38bn, based on the indicative placement price of RM7.51 per share. We estimate the placement could dilute FY17 EPS by 5% and cut the group’s net gearing to 29% from 35% as at end-June.

Status of the group’s deleveraging exercise Sime embarked on a deleveraging exercise in 2015 after its net gearing jumped to 51% after New Britain Palm Oil acquisition. So far, the group has disposed two Singapore subsidiaries for RM601m, issued RM2.2bn perpetual sukuk, and sold land in Semenyih for RM254.4m. It is also planning to inject industrial assets in Australia into Saizen REIT, and place out 5% of its shares which we estimate could raise total proceeds of RM3bn.

Better earnings prospects in FY17 We expect the group to deliver stronger earnings in FY17 due to higher CPO price and contribution from the Battersea project. Industrial division earnings are likely to stabilise after it right-sized its operations while motor could benefit from new models launches. The group also revealed it plans to unlock land value and look for growth opportunities.

Retain Hold due to concerns over share overhang We raise our FY17-18F earnings by 4-5% mainly to reflect stronger downstream and motor earnings. Our SOP-based target price rises to RM8.20 per share as we roll over our target price to end-17. However, we maintain our Hold call for its supportive dividend yield and rich assets.

▎Malaysia





Up/downside: 5.1%


Reuters: SIME.KL

Bloomberg: SIME MK


RM49,351m


RM41.66m






Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 2 3.9 2.5

Relative (%) 0.5 1 -4.4

Major shareholders % held Permodalan Nasional Berhad 52.8

Employees Provident Fund 13.4

Analyst(s)

Ivy NG Lee Fang, CFA


[ X ]



Revenue (RMm) 43,729 43,963 46,174 48,464 49,970

Operating EBITDA (RMm) 4,276 3,901 4,678 5,208 5,565

Net Profit (RMm) 2,313 2,409 2,039 2,428 2,420

Core EPS (RM) 0.32 0.21 0.34 0.40 0.40

Core EPS Growth (39.3%) (34.1%) 59.1% 19.1% (0.3%)

FD Core P/E (x) 23.80 38.17 24.21 20.32 20.39

DPS (RM) 0.25 0.27 0.23 0.27 0.27

Dividend Yield 3.21% 3.46% 2.89% 3.44% 3.43%

EV/EBITDA (x) 14.44 15.69 12.88 11.64 11.24

P/FCFE (x) 71.70 33.36 59.30 41.88 41.69

Net Gearing 44.2% 34.5% 41.1% 41.8% 46.1%

P/BV (x) 1.60 1.52 1.54 1.49 1.45

ROE 6.79% 4.08% 6.31% 7.44% 7.21%

% Change In Core EPS Estimates 5.37% 4.23%


93.0

103.0

113.0

6.80

7.80

8.80


20

40

60

80


Vol m

28

Property Devt & Invt│Malaysia│Equity research│August 23, 2016

Shariah Compliant

Company Note



SP Setia Cuts sales target to RM3.5bn

Setia’s 2Q16 results were below expectations as 1H16 net profit made up only 31% ■of our full-year forecast and 37% of consensus. 1H16 sales were only RM1.1bn.

Setia cut its 2016 sales target from RM4bn to RM3.5bn. This is a negative surprise. ■ We retain our Hold rating but cut FY16-18F EPS by 1-7% to account for slower work ■progress, lower sales and weaker GBP.

Our TP, still based on 30% discount to RNAV, is raised to RM3.30 as we roll forward ■on to end-CY17. We prefer Eco World for exposure to the property sector.

Key highlights Setia changed its financial year-end to Dec from Oct in FY15. As such, its quarterly results in FY16 and FY15 are not strictly comparable. 2Q16 net profit fell 44% yoy to RM126m as revenue fell 38% yoy on slower work progress. Despite lower revenues, EBITDA margin stayed at 22% in 2Q15 and 2Q16 due mainly to higher “other income”. Other income was not derived from property sales but from other operations, such as rental, recovery of liquidated and ascertained damages, and forex gain.

Cuts sales target to RM3.5bn Setia sold RM799m worth of properties in 2Q16, bringing 1H16 sales to RM1.1bn. 78% of 1H16 sales came from the Klang Valley, 10% from Johor and the rest from Penang, Sabah and overseas projects. Setia cut its full-year sales target from RM4bn to RM3.5bn, citing weak demand for its Battersea project in London after the Brexit vote. We are negatively surprised by the move as we had expected Setia to compensate the weaker demand in London with more aggressive launches in the Klang Valley.

Stronger earnings in the coming quarters We continue to expect Setia will report stronger earnings in 2H16 on the back of faster work progress and lumpy profits from the Battersea project in 4Q16. However, we cut our FY16-18F EPS by 1-7% to reflect the lower sales target, slower-than-expected work progress in 1H16 and weak GBP. We assume an exchange rate of RM5.30/£, the spot rate, in our earnings projections. Every 10% decline in the GBP against RM would reduce our FY16-17F EPS by 2-3%.

Maintain Hold Despite the weaker earnings outlook, we raise our TP to RM3.30 as we roll forward to end-2017. Our TP is based on 30% discount to its estimated RNAV. The discount is higher than the 20% discount we attach to the valuations of other top-tier developers due to concerns that Setia’s earnings growth has passed its peak. The cut in sales target vindicates the larger valuation discount. Upside risk to our Hold call is stronger-than-expected sales while downside risk is further cuts in sales target.

Other developers are still confident of meeting sales target Setia is the first developer under our coverage to report Apr-Jun 2016 results. We expect other developers to achieve similar sales performance and report stronger qoq sales. However, we are confident that most other developers that we cover would maintain their sales targets as we believe these targets are achievable. We remain Overweight on the property sector with Eco World, UOA Development, LBS and Mah Sing as our preferred picks.

▎Malaysia





Up/downside: 1.5%


Reuters: SETI.KL

Bloomberg: SPSB MK


RM9,157m


RM3.85m




FY16-18F EPS cut by 1-7%

Source: Bloomberg


Relative (%) 7.9 -0.1 1.4

Major shareholders % held PNB 66.1

KWAP 8.6

EPF 5.1

Analyst(s)

SAW Xiao Jun, CFA


[ X ]



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

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

Net Profit (RMm) 469.3 786.3 781.8 711.4 645.6

Core EPS (RM) 0.19 0.31 0.31 0.28 0.25

Core EPS Growth 6.1% 65.2% (0.6%) (9.0%) (9.3%)

FD Core P/E (x) 17.42 10.55 10.61 11.66 12.85

DPS (RM) 0.11 0.20 0.18 0.17 0.15

Dividend Yield 3.50% 6.06% 5.69% 5.17% 4.70%

EV/EBITDA (x) 12.71 8.03 10.11 16.12 12.56

P/FCFE (x) 18.12 7.44 7.74 22.50 11.32

Net Gearing 26.2% 17.1% 11.4% 12.6% 9.3%

P/BV (x) 1.24 1.07 1.04 1.01 0.99

ROE 7.6% 10.9% 9.6% 8.5% 7.5%



84.0

90.3

96.5

102.8

109.0

2.70

2.90

3.10

3.30

3.50


2

4

6

8


Vo

l m

29

Construction│Malaysia│Equity research│August 23, 2016

Shariah Compliant

Company Note



WCT Holdings Infra earnings lagged in 1H16

Annualised 1H16 core net profit made up 85-89% of our and consensus full-year ■forecasts.

We deem 1H16 results in line, as we expect higher-margin infra earnings to gain ■traction in 2H16.

Job replenishment prospects remain infra focused, with MRT 2, LRT 3, TRX infra ■and WCE subcontract works among the targeted wins.

Asset divestment plans and share placement exercise remain on the cards. ■

Key medium-term catalysts are contract wins. Add retained with lower target price. ■

1H16 results in line Annualised 1H16 core net profit made up 89% of our full-year forecast and 85% of consensus. We deem the results in line as we expect strong construction earnings in 2H16. Although 1H16 revenue hit the RM1bn (US$248m) mark (+38% yoy) largely on the back of construction billings, major outstanding infra-related jobs with higher margins have yet to cross critical milestones at end-1H16. Therefore, the decline in core construction EBIT in 1H16 (adjusted for unrealised forex loss) was not a major concern.

Clinched Pan-Borneo Sarawak package In Jul, the WCT-KKB Engineering JV secured one of the major packages for the Pan-Borneo Highway (Sarawak) worth RM1.2bn (Sg. Arip bridge to Bintulu Airport junction). Based on WCT’s 30% JV stake, the group’s scope is valued at RM387m, raising its outstanding order book to over RM4bn. The works package includes piling works, demolition and site clearance, earthworks, geotechnical, drainage, roads and paving.

Gunning for LRT 3, Rapid infra works, WCE, TRX infra and MRT 2 The recent award of Suke and Dash highway packages largely benefited smaller non-listed players, which was a slight dampener on WCT’s outlook as the group was gunning for the jobs. Nevertheless, medium-term job replenishment outlook remains good, with potential wins from LRT 3 civil works package, Rapid infra works, a subcontract package for West Coast Expressway (WCE), TRX road infra and MRT 2. YTD, the group has secured RM521m domestic jobs versus our forecast of RM1.5bn for the year.

Asset divestment and share placement still on the cards Recall that in May, management introduced two new planned measures to address gearing. We gather that it is finalising talks to divest selected property assets that could raise RM200m-300m in net proceeds. The plans for a 5-10% share placement exercise have yet to be finalised. We expect more clarity to emerge during tomorrow’s briefing.

Keeping 1H17 timeline for REIT and construction IPO At this juncture, there are no changes to the planned REIT and construction IPO. The earlier 1Q17 target for the potential RM1.2bn (US$299m) REIT deal (RM700m-750m proceeds) is unchanged, while the planned listing of the group’s construction arm is still slated for 2Q17.

Infra tender book to support job flows; Retain Add WCT’s tender book over the next few months is largely infra focused. These jobs could emerge as catalysts. We maintain our FY16-18 EPS forecasts but trim target price to RM1.88 (based on unchanged 30% discount to RNAV) as we update balance sheet items. Key downside risk is the lack of job wins.

▎Malaysia





Up/downside: 18.1%


Reuters: WCTE.KL

Bloomberg: WCTHG MK


RM1,986m


RM2.19m




No changes

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 2.6 -6.5 33.6

Relative (%) 1.1 -9.4 26.7

Major shareholders % held WCT Capital 19.5

Lembaga Tabung Haji 10.1

EPF 9.2

Analyst(s)

Sharizan ROSELY




Revenue (RMm) 1,662 1,668 2,124 2,138 2,143


Net Profit (RMm) 120.5 219.1 122.3 136.5 141.6

Core EPS (RM) 0.09 0.23 0.10 0.11 0.12

Core EPS Growth (52%) 149% (56%) 12% 4%

FD Core P/E (x) 18.39 7.38 16.71 14.97 14.44

DPS (RM) 0.039 0.042 0.040 0.044 0.046

Dividend Yield 2.47% 2.63% 2.50% 2.79% 2.90%

EV/EBITDA (x) 35.02 44.08 29.66 27.95 27.49

P/FCFE (x) 12.16 28.77 32.99 24.32 25.48

Net Gearing 64.9% 77.9% 57.0% 58.1% 59.3%

P/BV (x) 0.88 0.75 0.70 0.69 0.68

ROE 5.0% 11.4% 4.5% 4.9% 5.0%

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


87.0

102.0

117.0

132.0

147.0

1.00

1.20

1.40

1.60

1.80


5

10

15


Vol m

30

Food & Beverages│Philippines│Equity research│August 23, 2016

Company Note



Universal Robina Corporation A bitter to sweet story

9MFY16 core net profit was below expectations, growing only by 2.5% versus our ■F16 estimates of 11.9% yoy due to unforeseen weakness in international business.

Management’s FY16 topline growth guidance was reduced from 6-7% last quarter to ■low-to-mid single digit due to the Vietnam regulatory issue.

FY16 operating profit guidance was lowered to Php17bn (US$366.5mn), a ■contraction of 2% yoy instead of initial management guidance of 10% yoy growth.

URC acquired Snack Brands Australia (SBA) for an enterprise value of A$600mn ■(US$457.4mn), equivalent to 11.8x FY16 EBITDA and 10.3x FY17 EBITDA.

We upgrade URC to Add, with higher DCF-based TP of Php221.20 (WACC: 8.7%). ■

Upgrade from Hold to Add URC’s 9MFY16 (Oct 15-Jun 16) core net profit was below expectations, growing only by 2.5% versus our F16 estimates of 11.9% yoy. However, we raise our target price by 8.2% to Php221.20 and upgrade our rating from Hold to Add, as we believe that 1) the

challenges faced by its international business will be sorted out via improvements in distribution and product portfolio, 2) Calbee and Danone JVs will achieve positive equity profit by FY18, and 3) its recent acquisition of SBA will be earnings accretive.

Domestic businesses holding fast URC’s sales performance in the Philippines was sluggish in 9MFY16 but is on track to reach our FY16 revenue growth estimate of 4.7% yoy. While we stay cautious on the timing of value accretion from its initiatives (i.e. high sales growth product rollout and supply chain improvement), we stick to our forecast that double-digit sales growth will start in FY18. In our view, better product placement in the modern retail channel will generate higher sales volume, especially in the Visayas and Mindanao (Vismin) regions.

International businesses on roller coaster ride The topline performance of URC’s BCF International (BCF Int’l) in 9MFY16 missed our expectation of 12.8% yoy growth (versus 39.4% yoy in FY15), slipping by 1% yoy due to the unforeseen regulatory issue in Vietnam. We expect Vietnam sales weakness in 3QFY16 to negatively affect the overall foreign business earnings of URC. However, we believe that earnings improvement in the Indonesian market and the recent acquisition of SBA will offset the drag, at the very least.

Saving grace is SBA acquisition We believe that the recently-announced SBA acquisition will be earnings accretive, as the deal was priced at 10.3x EV/EBITDA, lower than URC’s 15.0x FY17 EV/EBITDA. We estimate that URC’s EPS will increase by 2.7% in FY17 and 5.6% in FY18 due to the SBA acquisition. The deal will be financed via 1) long-term, on-shore debt of A$480mn (US$365.9), and 2) sale of treasury shares to SBA’s previous management. The main rationale for the acquisition was to gain revenue and cost synergies.

Near-term weaknesses and long-term strengths factored-in We updated our forecasts to account for 1) URC’s new FY16 topline and midline guidance on the back of weak performance of BCF Int’l, 2) expected increase in operating expenses in Vietnam and efficiency in Vismin operations by FY17, and 3) interests and synergies related to SBA acquisition. The downside risks to our assumptions include delayed synergy realization and slow Vietnam business recovery.

▎Philippines

ADD (previously HOLD) Consensus ratings*: Buy 7 Hold 9 Sell 2

Current price: PHP191.0

Target price: PHP221.2

Previous target: PHP201.5

Up/downside: 15.8%


Reuters: URC.PS

Bloomberg: URC PM


PHP416,667m


PHP398.6m




FY16F revenue decreased by 2.5%.

FY17F revenue increased by 4.0%.

FY16-18F EPS cut by 6.9-8.7%.

Source: Bloomberg


Relative (%) -2.5 -15 -10.4

Major shareholders % held JG Summit 56.0

Analyst(s)

Joyce Anne RAMOS


[ X ]


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

Revenue (PHPm) 92,376 109,051 113,639 132,878 146,896

Operating EBITDA (PHPm) 18,004 22,083 22,475 25,927 28,997

Net Profit (PHPm) 11,655 12,505 12,766 14,534 16,822

Core EPS (PHP) 5.34 5.73 5.85 6.60 7.63

Core EPS Growth 7.3% 2.1% 12.7% 15.7%

FD Core P/E (x) 35.75 33.32 32.64 28.96 25.02

DPS (PHP) 3.00 3.00 3.21 3.25 3.57

Dividend Yield 1.57% 1.57% 1.68% 1.70% 1.87%

EV/EBITDA (x) 22.80 19.05 18.77 16.63 14.65

P/FCFE (x) 92.57 36.57 65.75 19.38 46.80

Net Gearing (11.1%) 6.1% 7.1% 14.3% 4.8%

P/BV (x) 7.45 6.38 5.88 5.89 5.24

ROE 20.6% 18.8% 20.4% 22.2%



81.0

92.4

103.9

115.3

160.0

180.0

200.0

220.0

Price Close Relative to PCOMP (RHS)

5

10


Vo

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31

Offshore & Marine│Singapore│Equity research

Company Flash Note



Sembcorp Marine

Long awaited full control, at a price

We deem SMM’s acquisition of the remaining 15% stake in PPL Shipyard at ■US$115.06m (1.01x P/BV) as expensive.

Given the dire order outlook and potential for cancellations from existing order book, ■having full control of PPL Shipyard may not bring in incremental investment merits.

Maintain Reduce and target price of S$0.90, still based on 0.7x P/BV. ■

Full control of PPL shipyard, finally ● SMM is increasing its stake in PPL Shipyard from 85% to 100%, at a cost of

US$115.06m or 1.01x of PPL Shipyard’s s net tangible assets (US$113.153m) as at end-Jun 16.

● SMM bought 50% of PPL Shipyard in 2001 for c.US$9m and another 35% for c.US$8m in 2003. PPL Shipyard became the crown jewel of SMM during the rig-building boom, producing proprietary designed rigs including the Baker Marine and Pacific Class series. It generated cumulative profits of S$1.6bn (c US$1.2bn) in 2001-15 and SMM has received S$540m (c.US$400m) cash dividend since its investment.

● The remaining 15% was originally owned by BakerTech Holdings via PPL Holdings and E-Interface. In 2010, BakerTech sold the entire interest for US$116.25m to QD Asia Pacific (45%-owned by Yangzijiang Shipbuilding and 55%-owned by Qatari Diar Real Estate Investment Company).

● The transaction sparked a legal suit between PPL Holdings and SMM on the latter’s first right of refusal for the 15% as well as board representation in PPL Shipyard. The sale went through but the control of the board remained with SMM.

Tough times ahead ● We do not expect any new jack-up order wins to come through anytime soon, and

expect PPL Shipyard to report a loss in 2016 with one jack-up on hand to be completed for Japanese BOT Leasing/Japan Drilling. PPL Shipyard reported a net loss of US$4.48m in FY15.

● In the near-term, PPL Shipyard faces the risk of holding on to a portfolio of undelivered rigs – three for Oreo Negro, two for Perisai Petroleum, one for Marco Polo and three speculative-built units.

● In the event of any sale of the above units to new owners, having 100% control will allow SMM to have full discretion over the selling price and pocket the gain (if any). This is the only possible positive in our view.

Positive for the seller ● The winner of the transaction would be QD Asia Pacific which has received decent

dividends from PPL Shipyard with an IRR of c.8.5%, in addition to getting back its original investment cost. Yangzijiang will use the proceeds to fund its working capital.

Maintain Reduce ● The acquisition will be partially funded by debt, which we see as a stretch to its 1x net

gearing.

● We maintain our EPS and target price, which is still based on 0.7x P/BV in line with declining ROE. De-rating catalysts could come from more cancellations while an oil price surge could be a re-rating catalyst.

Figure 1: Undelivered jack-up rigs in PPL Shipyard

SOURCES: CIMB, COMPANY REPORTS

Customer

Original

Delivery CIMB comments

Profit

reversal

Contract

(US$'m)

Pymt

terms

Risk of

pymt

deferral

/cancel.

Est. %

com.

Perisai Petroleum -

PC400 x 1 unit

2Q15 Technically

accepted, new

delivery unsure

Profit

reversed in

3Q15

208 20/80 High 100%

Oro Negro - PC400 x

3 units

1Q15,

3Q15

Technically

accepted, new

delivery unsure

Profit

reversed in

3Q15

634 20/80 High 100%

Perisai Petroleum -

PC400 x 1 unit

3Q16 Not yet accepted,

new delivery in

question

Profit

reversed in

3Q15

212 20/80 HIgh 30%

BOT Lease Co -

PC400 x 1 unit

Oct 16 Pushed back to

2017

No profit

reversal

required

240 20/80 Low 30%

Marco Polo Marine -

PC400 x 1 unit]

4Q15 Commenced

arbitration

proceedings

Revenue

reversed and

profit

reversed in

4Q15

214 20/80 Cancelled 100%

Speculative x 3 units 50%

▎Singapore

August 24, 2016 - 10:06 PM


Current price: S$1.33

Target price: S$0.90

Previous target: S$0.90

Up/downside: -32.1%


Reuters: SCMN.SI

Bloomberg: SMM SP


S$2,769m


S$6.68m



Key financial forecasts

Source: Bloomberg


Absolute (%) -10.5 -15.9 -43.1

Relative (%) -7.3 -18.9 -39

Major shareholders % held SembCorp Industries 61.0

Analyst(s)

LIM Siew Khee

T (65) 6210 8664 E [email protected]

Dec-16F Dec-17F Dec-18F

Net Profit (S$m) 187.6 120.4 164.7

Core EPS (S$) 0.086 0.058 0.079

Core EPS Growth (53.2%) (33.1%) 36.9%

FD Core P/E (x) 15.38 22.99 16.80

Recurring ROE 7.00% 4.51% 5.98%

P/BV (x) 1.05 1.02 0.99

DPS (S$) 0.030 0.020 0.032

Dividend Yield 2.26% 1.52% 2.38%

51.0

70.4

89.9

109.3

1.10

1.60

2.10

2.60

Price Close Relative to FSSTI (RHS)

10

20

30


Vol m

32

Insurance - Life│Taiwan│Equity research│August 24, 2016

Company Note



Cathay Financial No reason to be re-rated

1H16 net profit of NT$14.243bn (-65% yoy) forms 33% of our FY16 forecast. ■

Value-driven product strategy is not necessarily feasible. ■

Sustained overhangs: banking NIM pressure and insurance negative spread. ■

Strong credit cycle to boost credit costs. ■

Maintain Hold and SOP-based target price. ■

2Q16: better investment performance, higher provisions Cathay FHC posted a 2Q16 net profit of NT$5.905bn, down 29% qoq due to additional provisions taken by Cathay United Bank (CUB), which offset improved investment income at Cathay Life. In the absence of one-off realised gains, the parent company’s 1H16 net profit dropped 65% yoy to NT$14.243bn (US$448m), forming 33% of our full-year forecast. The earnings progress is acceptable though as we expect the momentum to strengthen further in 3Q16 on seasonality.

Value-driven product strategy: not necessarily feasible Cathay Life’s 1H16 first-year premiums (FYP) dropped 7% yoy (industry average: +13% yoy) dragged by investment-linked policies (-57% yoy). That said, its FYPE grew 53% yoy driven by traditional products, leading 1H16 VNB to rise by 38% yoy. We however suspect the value-driven product strategy is unsustainable, given the falling FYPE/FYP ratio (72% in 2Q16, 76% in 1Q16) and VNB/FYPE margin (53% in 1H16, 59% in 1H15).

Negative spreads unsolvable in the near term Cathay Life’s average investment return arrived slightly higher at 3.8% in 1H16 (3.6% in 1Q16), driven by 1) investment dividends (NT$7bn), 2) improved overseas fixed-income yield, and 3) real estate revaluation. Accordingly, its (pre-hedge) recurring yield rose to 3.2% in 1H16 (3% in 1H15). On the other hand, despite the lower cost of liability (4.29% in 1H16), the insurer continued to see a negative spread (-49bp).

Sustained NIM pressure Despite a 6% qoq total loan growth in 2Q16 (+13% YTD in 1H16), CUB’s NIM declined further by 2bp qoq in 2Q16 (-15bp in 1H16) due to 1) ample liquidity, and 2) increased government/public agency exposure given the bank’s de-risking strategy, according to management. We also believe reduced SME and FX exposure (9.7% and 12.1%, respectively, of total loans as at 2Q16 vs. 10.6% and 13.3%, respectively, at end-FY15) has capped its yield upside, while further local rate cut adding uncertainties.

Credit costs to move along with credit expansion Annualised credit cost ended higher at 39bp in 2Q16 (32bp in 1H16) upon taking TRF- (target redemption forwards) related provisions of NT$970m (NT$1.4bn in 1H16). CUB also charged general provisions of c.NT$1bn in 1H16 on a robust credit cycle. The bank charged extra TRF provisions of NT$480m in July, but guides for much less in rest of the year. That said, its credit costs should remain high providing loan expansion continues.

Maintain Hold We project Cathay FHC’s EPS falling 26% yoy in FY16 despite sizable dividends to be booked, before rising 8%/3% in FY17/18. The stock has underperformed its peers since this year due to slowing earnings momentum. The recent seasonality-driven share sentiment could be short-lived, in our view. Maintain Hold. Upside/downside risks are persistent rate hike in the US/further deterioration in domestic economy.

▎Taiwan


Current price: NT$37.80

Target price: NT$39.75

Previous target: NT$39.75

Up/downside: 5.2%


Reuters: 2882.TW

Bloomberg: 2882 TT


NT$474,889m


NT$797.5m




No major changes.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 3.0 3.0 -11.1

Relative (%) 2.8 -5.2 -27.1

Major shareholders % held Tsai Family 38.0

Analysts

Nora HOU


Michael CHEN T (886) 2 8729 8379 E [email protected]

[ X ]

SOURCES: COMPANY DATA, CIMB FORECASTS


Net Interest Income (NT$m) 25,779 26,729 26,848 28,415 29,280

Total Gross Premiums (NT$m) 503,867 542,501 595,539 655,409 725,134

Total Net Revenues (NT$m) 715,480 774,501 832,688 891,677 977,211

Total Provision Charges (NT$m) (2,471) (1,922) (1,716) (659) (660)

Net Profit (NT$m) 49,785 57,882 42,859 46,129 47,717

Core EPS (NT$) 4.06 4.61 3.41 3.67 3.80

Core EPS Growth 60.8% 13.5% (26.0%) 7.6% 3.4%

FD Core P/E (x) 9.31 8.20 11.08 10.29 9.95

DPS (NT$) 2.00 2.00 1.48 1.59 1.65

Dividend Yield 5.29% 5.29% 3.92% 4.22% 4.36%

BVPS (NT$) 34.43 36.34 38.73 41.15 43.67

P/BV (x) 1.10 1.04 0.98 0.92 0.87

ROE 12.3% 13.0% 9.1% 9.2% 9.0%



60.0

71.3

82.5

93.8

105.0

32.0

37.0

42.0

47.0

52.0

Price Close Relative to TAIEX (RHS)

50

100


Vol m

33

Media - Integrated│Thailand│Equity research│August 23, 2016

Company Note



VGI Global Media PCL When offline meets online

The acquisitions of BSSH and BSS will transform VGI into an integrated ■online/offline media provider.

This online media platform will integrate well with VGI’s media inventory expansion. ■

We raise FY16/17-18/19 core EPS by 6-17% and FY17/18 TP by 25.8%. ■

Downgrade to Hold from Add following the 78.3% share price gains YTD. ■

From offline to online media platform We are positive on VGI’s business expansion from a conventional media operator (transit, outdoor, office building, etc.) to an integrated online and offline media provider via the latest acquisitions. This will allow VGI to utilise consumers’ big data and repackage it with VGI’s media inventories for media agencies or advertisers.

The deals On 23 Aug 16, VGI’s board approved 1) the acquisition of 90% stakes in BSSH and BSS from parent company, BTS Group and BTSC, at THB1.3bn and THB664m, respectively, and 2) funding for the transactions via a THB2bn loan from either BTSC or financial institutions. Transactions are subject to shareholders’ approval (EGM date on 7 Nov 16), are interdependent and have to close at the same time, not later than 30 Mar 17.

Financial implications Post the transaction, VGI’s interest-bearing debt will rise by THB1.96bn, representing 1.6x FY16/17 net debt to EBITDA and 1x FY16/17 net debt to equity (from 0.3x and 0.2x, respectively). Based on our calculations, the transaction implies 1.4x 1HFY16/17 P/BV and 55.4x annualised FY16/17 net profits.

More M&A deals to come VGI’s management is ambitious and plans to enlarge the company’s media revenue capacity by 87% from THB3.9bn in FY15/16 to THB7.3bn in FY17/18 through both internal media capacity upgrades and M&A activities. The integration of multiple media platforms and footprints will strengthen VGI’s ability to bundle and sell media inventories to media agencies and advertisers. We expect to see more M&As in billboard and activation (product sampling) spaces in the coming months.

Revise up FY16/17-18/19 core net profit by 6-17% We revise up our FY16/17-18/19 core net profit estimates by 6-17% to reflect 1) the acquisition of MACO, and 2) improving domestic consumption outlook in 2H16/17 and FY17/18. We have not factored in potential earnings upsides from the ongoing M&A deals, pending greater clarity on management’s execution.

Raise our target price by 25.8% to THB6.29 We raise our target price by 25.8% from THB5 to THB6.29, which reflects our earnings upgrade and potential value creation from M&A deals under our base case scenario. We apply 27.6x VGI’s 5-year historical average P/E to our FY17/18 adjusted EPS.

Downgrade to Hold; execution is key We downgrade VGI from Add to Hold as we think the recent share price rally already reflect the potential upside from VGI’s recent M&A deals and also upcoming M&A deals. We also think that VGI may need some time to digest the recent acquisitions (also upcoming ones) and translate them into earnings performance.

▎Thailand

HOLD (previously ADD) Consensus ratings*: Buy 1 Hold 6 Sell 8

Current price: THB6.60

Target price: THB6.29

Previous target: THB5.00

Up/downside: -4.6%


Reuters: VGI.BK

Bloomberg: VGI TB


THB45,305m


THB141.5m




FY16/17-18/19 core net profit increased by 6-17%

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 9.1 48 58.7

Relative (%) 7.1 36.5 45.9

Major shareholders % held BTSC and BTS Group 73.8

Thai NVDR 2.1

State Street Bank Europe Limited 2.1

Analyst(s)

Pisut NGAMVIJITVONG


[ X ]


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

Revenue (THBm) 3,009 2,148 2,704 3,485 3,909

Operating EBITDA (THBm) 1,425 1,196 1,502 1,881 2,151

Net Profit (THBm) 836 941 1,052 1,335 1,539

Core EPS (THB) 0.20 0.12 0.15 0.19 0.22

Core EPS Growth (45.1%) (36.7%) 23.8% 26.9% 15.3%

FD Core P/E (x) 33.72 53.30 43.06 33.94 29.43

DPS (THB) 0.14 0.07 0.13 0.16 0.19

Dividend Yield 2.13% 1.14% 2.03% 2.44% 2.84%

EV/EBITDA (x) 24.03 38.00 30.20 24.04 20.95

P/FCFE (x) 52.6 102.9 45.2 34.7 30.0

Net Gearing 18.8% 5.7% 20.1% 13.2% 6.5%

P/BV (x) 24.77 20.21 19.47 17.93 16.63

ROE 53.3% 41.8% 46.1% 55.0% 58.6%

% Change In Core EPS Estimates 8.53% 5.66%


74

99

124

149

174

3.10

4.10

5.10

6.10

7.10

Price Close Relative to SET (RHS)

50

100

150


Vo

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34

Banks│Vietnam│Equity research│August 23, 2016

Company Note

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


Vietinbank Rapid loan growth stresses balance sheet

■ CTG’s net profit grew 13% yoy in 1H16, driven by 18% operating income growth, but the bank’s CAR is approaching the regulatory 9% minimum and LDR is 103%.

■ NII grew 17% in H1, driven by 23% yoy loan growth, but offset by a 6bp NIM contraction; we estimate that retail loans grew by an encouraging 50% yoy.

■ CTG reported a 0.9% NPL ratio, but ‘special mention’ loans surged 85% to ~1% of outstanding loans, and CTG previously transferred 1.7%/loans to the VAMC.

■ We maintain our Reduce rating because CTG’s growth potential will be constrained by its balance sheet, and because we have concerns about asset quality.

Better-than-expected operating income growth in H1 CTG’s operating income grew 17.6% in 1H16, driven 17% yoy NII growth and 22% yoy non-NII growth, which was in turn driven by 19% fee income growth and a 430% increase in forex trading revenues (albeit from a small base). NII growth was driven by a ~50% increase in outstanding retail loans, but NIM’s contracted by 6bp yoy to 289bp, due to modest pressure from the government on SOCB’s to lower lending rates, in order to support economic growth, and due to higher funding costs (deposits grew 17% YTD, vs 10% YTD credit growth, as CTG raised its deposit rates by about 40bp).

Operating expenses rose 23%, provision costs up 19% Opex growth accelerated from 4% CAGR over FY12-15 to 23% yoy in 1H16, driven by CTG’s efforts to expand its retail banking business (salary expenses rose 35% yoy, and administration/marketing expenses rose 19% yoy). However, provision expenses grew 19% yoy, and equated to a 1.1% the credit-cost rate. We believe that a surge in special mention loans, and the risk CTG may suffer ~0.2%/outstanding loans worth of losses related to the Huyen-Nhu scandal (discussed below) prompted higher provisioning.

Surge in special mention loans is evidence of asset quality issues CTG reported a 0.91% NPL ratio at end-1H, but the amount of loans classified as “special mention” loans - that have the potential to become NPL’s - surged 85% YTD during H1. CTG’s weak risk management (particularly in dealing with SOE clients), makes us uncomfortable about the bank’s asset quality, both in terms of the actual amount of its bad loans, and the potential risk for a continued increase in its NPLs.

Balance sheet under stress CTG’s “pure” loan-to-deposit ratio (LDR) improved from 109% at end-FY15 to 103% at end-1H16; the bank’s LDR has been above 100% since 2009. However, we estimate that CTG’s capital adequacy ratio fell by at least 1.4%pts during H1 to about 9.2%, driven by rapid credit growth in H1 (the bank did not disclose its 1H16 CAR). CTG is growing its loan book as quickly as Vietcombank, but CTG needs to raise capital, and/or requires some form of regulatory forbearance to sustain this high level of loan growth.

We maintain our Reduce rating – multiple risks We maintain our Reduce rating on CTG, with a target price based on ~1x FY16 P/B (1sd below CTG’s 3-year average P/B). Key negatives include: 1) recapitalisation pressure, 2) growth will be constrained by CTG’s balance sheet going forward, 3) elevated provisioning, and 4) the possibility that the acquisition of PG Bank will proceed this year – shareholders in PG Bank, which is unlisted would then own nearly ~7% of CTG’s outstanding shares (which they might be tempted to sell on the stock market).

▎Vietnam


Current price: VND17,200

Target price: VND16,900

Previous target: VND16,900

Up/downside: -1.7%


Reuters: CTG.HM

Bloomberg: CTG VN


VND64,042,560m


VND14,927m





FY17F EPS decreased by 5%.

Source: Bloomberg


Relative (%) -4.6 -8.7 -26.7

Major shareholders % held State Bank of Vietnam 64.5

Bank of Tokyo Mitsubishi UFJ 19.7

IFC 8.0

Analyst(s)

QUAN Trong Thanh


[ X ]



Net Interest Income (VNDb) 17,580 18,839 21,376 24,522 28,360

Total Non-Interest Income (VNDb) 3,451 3,905 4,497 4,696 5,135

Operating Revenue (VNDb) 21,031 22,744 25,873 29,218 33,495

Total Provision Charges (VNDb) (3,902) (4,679) (5,811) (7,381) (8,488)

Net Profit (VNDb) 4,712 4,453 5,003 5,436 6,112

Core EPS (VND) 1,266 1,196 1,344 1,460 1,641

Core EPS Growth (17.3%) (5.5%) 12.3% 8.7% 12.4%

FD Core P/E (x) 13.59 14.38 12.80 11.78 10.48

DPS (VND) 1,000 1,000 0 0 0

Dividend Yield 5.81% 5.81% 0.00% 0.00% 0.00%

BVPS (VND) 14,775 15,004 16,348 17,808 19,450

P/BV (x) 1.16 1.15 1.05 0.97 0.88

ROE 8.64% 8.04% 8.57% 8.55% 8.81%

% Change In Core EPS Estimates (0.48%) (5.29%)


68.0

80.9

93.7

106.6

15,000

17,000

19,000

21,000

Price Close Relative to VNINDEX (RHS)

2

4

6


Vo

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35

Asia Pacific Daily│Equity research│August 24, 2016

REGIONAL HEAD

Michael Greenall Regional Head of Research & HOR Malaysia +60 (3) 2261 9088 [email protected]

COUNTRY HEADS OF RESEARCH

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

REGIONAL SECTOR HEADS

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

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DISCLAIMER WJV#05 The content of this report (including the views and opinions expressed therein, and the information comprised therein) has been prepared by and belongs to CIMB save that (i) if it is a report written by the analyst(s) of John Keells Stock Brokers (“John Keells”), it belongs to John Keells; (ii) if it is a report written by the analyst(s) of SB Equities Inc (“SBE”), it belongs to SBE; and (iii) if it is a report written by the analyst(s) of Morgans Financial Limited (“Morgans”), it belongs to Morgans. This report is distributed by CIMB and in respect of sections of the report relating to (i), (ii) and/or (iii) aforesaid, it is distributed pursuant to an arrangement between John Keells, SBE and Morgans respectively and none of the aforesaid parties is an affiliate of CIMB. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. By accepting this report, the recipient hereof represents and warrants that he is entitled to receive such report in accordance with the restrictions set forth below and agrees to be bound by the limitations contained herein (including the “Restrictions on Distributions” set out below). Any failure to comply with these limitations may constitute a violation of law. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB, John Keells, SBE and/or Morgans, as the case may be, may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. None of CIMB, John Keells, SBE or Morgans is under any obligation to update this report in the event of a material change to the information contained in this report. None of CIMB, John Keells, SBE or Morgans has any and none of them will accept any, obligation to (i) check or ensure that the contents of this report remain current, reliable or relevant, (ii) ensure that the content of this report constitutes all the information a prospective investor may require, (iii) ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information, and accordingly, CIMB, John Keells, SBE and Morgans and their respective affiliates and related persons (and their respective directors, associates, connected persons and/or employees) shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. In particular, CIMB, John Keells, SBE and Morgans disclaim all responsibility and liability for the views and opinions set out in this report. Unless otherwise specified, this report is based upon reasonable sources. Such sources will, unless otherwise specified, for market data, be market data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market. Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information disseminated by regulatory information services, other publicly available information and information resulting from our research. Whilst every effort is made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of CIMB, John Keells, SBE or Morgans or their respective affiliates to any person to buy or sell any investments. CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report. CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates may enter into an agreement with the company(ies) covered in this report relating to the production of research reports. CIMB, John Keells, SBE and/or Morgans may disclose the contents of this report to the company(ies) covered by it and may have amended the contents of this report following such disclosure. The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously. No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. The analyst(s) who prepared this research report are prohibited from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. Information barriers and other arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. The term “John Keells Stock Brokers” shall, unless the context otherwise requires, mean each of John Keells Stock Brokers and its affiliates, subsidiaries and related companies. The term “SB Equities Inc.” shall, unless the context otherwise requires, mean each of SB Equities Inc. and its affiliates, subsidiaries and related companies. The term “Morgans Financial Limited” shall, unless the context otherwise requires, mean each of Morgans Financial Limited and its affiliates, subsidiaries and related companies. The term “CIMB” shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case, CIMB Group Holdings Berhad ("CIMBGH") and its affiliates, subsidiaries and related companies.

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

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

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provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required to seek registration with SEBI as an Investment Adviser. The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from equity stock broking and merchant banking of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates.” Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable Indonesian capital market laws and regulations. This research report is not an offer of securities in Indonesia. 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In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”). Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities. CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.

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

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

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

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experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

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

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

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

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

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

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

recommendation.

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

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

benchmark.

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