· pdf fileon 22 mar, msci launched the 2017 market classification consultation process,...

Equity research│March 24, 2017

Asia Pacific Daily - 24 March 2017

Equity Research Reports…

▌IDEA OF THE DAY | China/Malaysia Strategy Flash Note - Better chance of A-share inclusion in MSCI with Connect-based proposal | P2 MSCI announced that it will kick off the annual consultation on A-share inclusion into MSCI Country index again. The decision will be made in Jun 2017. We believe the chances of inclusion are higher this year as MSCI changed the proposal basis from QFII to Stock Connect. The inclusion, if it materialises, will be a huge catalyst for A-shares.

Oil Equipment & Svs - Overall (NEUTRAL) - Upside for upstream, downside for midstream | P3 Despite the recent weakness in crude oil prices, we believe global inventories will be destocked over the next 12 months if production discipline remains. As such, oil prices are likely to head higher, with positive impact for stocks in the oil and gas space. But shipping freight rates may be hit by lower shipping volumes. We maintain our Neutral sector rating, with an Add on SAKP and Reduce on MISC. ——————————————————————————————————————————————————————————————————————————————————————— ▌Economics MAL - Economic Update - BNM 2017 Annual Report: Brighter prospects ahead | P4 ——————————————————————————————————————————————————————————————————————————————————————— ▌Australia Brickworks (HOLD, tp:A$13.62▼) - Making hay while the sun shines | P5 Catapult Group International (ADD, tp:A$4.43) - Signing up Argentina basketball | P6 Frontier Digital Ventures (ADD, tp:A$0.72▲) - Strong performance from key assets | P7 Nufarm (HOLD▼, tp:A$10.15▲) - Planting the seed for further growth | P8 ——————————————————————————————————————————————————————————————————————————————————————— ▌China/Hong Kong China Overseas Land & Investment Ltd (ADD, tp:HK$30.60▼) - Low valuations price in… | P9 SOHO China (REDUCE, tp:HK$3.30) - Don’t ignore the dividend risk | P10 Yuzhou Properties Co Ltd (ADD, tp:HK$4.50▲) - Solid fundamentals | P11 ——————————————————————————————————————————————————————————————————————————————————————— ▌Indonesia Jaya Real Property (ADD- Initiation, tp:Rp1,200.00) - Steady as a rock | P12 ——————————————————————————————————————————————————————————————————————————————————————— ▌South Korea Banks (NEUTRAL) - DSME: Too big to fail | P13 ——————————————————————————————————————————————————————————————————————————————————————— ▌Malaysia DRB - Hicom (ADD, tp:RM1.69) - Geely pulls out of Proton bid | P14 Gamuda (ADD, tp:RM5.98▲) - Could strike several good deals by mid-2017 | P15 ——————————————————————————————————————————————————————————————————————————————————————— ▌Singapore China Aviation Oil (ADD, tp:S$2.28) - In prime aviation position | P16 ——————————————————————————————————————————————————————————————————————————————————————— ▌Thailand Mc Group (REDUCE▼, tp:THB19.20▲) - Like an expensive pair of jeans | P17 Telco - Mobile (OVERWEIGHT) - Is the 2.3GHz deal a game changer for DTAC? | P18

Showcasing CIMB Research Ideas

KR: Banks 20/03 Earnings downgrades inevitable due to DSME >PDF

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ASEAN: Telco - Overall 17/03 Let’s talk! >PDF

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SIN: Singapore Press Holdings 19/03 Potential sale of M1 stake? >PDF

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SIN: Offshore & Marine 16/03 Small/mid cap round-up: Stick to safe harbours >PDF

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KR: Doosan Bobcat 15/03 Beneficiary of “Make America Great Again” >PDF

Regional Equity Research Contacts

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

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CIMB Conference / Events |

CIMB 11th Annual Indonesia Conference 3 - 5 May 2017 – Indonesia - Bali & Jakarta (Site Tour) CIMB Consumer Corporate Day 25 May 2017 – HK/China – Hong Kong SGX-CIMB Disruptors' Day 2017 26 May 2017 – Technology - Singapore

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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China

Strategy Flash Note



China Strategy Better chance of A-share inclusion in MSCI with Connect-based proposal

MSCI announced that it will kick off the annual consultation on A-share inclusion into ■MSCI Country index again. The decision will be made in Jun 2017.

We believe the chances of inclusion are higher this year as MSCI changed the ■proposal basis from QFII to Stock Connect.

The inclusion, if it materialises, will be a huge catalyst for A-shares. ■

MSCI to review A-share inclusion into country index again this year ● On 22 Mar, MSCI launched the 2017 market classification consultation process,

including a proposal to include China A-shares into the MSCI China and Emerging Market Index. The decision will be announced in Jun 2017.

● It is MSCI’s fourth annual review in a row of this topic. In mid-2016, MSCI delayed including A-shares, citing three issues that needed to be resolved for future inclusion: 1) 20% monthly repatriation limit of qualified foreign institutional investor (QFII), 2) implementation of new trading suspension treatment, and 3) resolution of pre-approval requirements by the local exchanges on launching financial products.

Factors that have changed since last review and remaining hurdles ● We note a few changes since the last review that may facilitate A-share’s inclusion:

1) launched Shenzhen-HK Connect which made the A-share market far more accessible to offshore investors, 2) scrapped aggregate quota of Stock Connect which should significantly alleviate investors’ concern on quota limitation, and 3) frequency of voluntary trading suspensions have dropped to pre-crisis level.

● However, these hurdles need to be addressed: 1) 20% QFII repatriation restriction, 2) pre-approval requirements on new and pre-existing financial products.

New Stock Connect-based proposal raises the chance of inclusion ● MSCI changed its original QFII/RQFII based proposal to Stock Connect based. Key

changes in the new proposal are to 1) include only large caps which are eligible under Stock Connect; 2) exclude dual-listed A-shares with corresponding H-shares in the index; 3) set 50 days as suspension limit for remaining/inclusion in the index; 4) no initial inclusion of IPO; and 5) use CNH (offshore exchange rate) for index calculation.

● We believe these changes should improve the chances of inclusion in Jun as it bypasses lots of restrictions applied to QFII, e.g. the repatriation restriction etc. The only critical issue remaining is the pre-approval requirement of index products which is being discussed between MSCI and China Securities Regulatory Commission (CSRC), according to the consultation paper.

A potential catalyst for A-shares once it materialises ● Although the initial weight of A-shares in Emerging Market Index will decrease from

1.1% in the original proposal to 0.5% in the new proposal (mainly due to exclusion of dual-listed companies and mid caps), the inclusion is still a big positive catalyst to A-shares given the sentiment boost if it materialises.

● We believe the biggest beneficiaries of potential inclusion are those purely A-share listed large caps such as Kweichow Moutai, Gree Electric Appliances, Inner Mongolia Yili Group, Midea Group and China State Construction etc.

Figure 1: New Connect based proposal will increase the chances of inclusion despite lower weight assigned to A-shares at initial stage

SOURCES: MSCI, CIMB RESEARCH

▎ China

March 23, 2017 - 4:39 PM

Analyst(s)

Ben BEI

T (852) 2532 1116 E [email protected] Edith QIAN T (852) 2532 1112 E [email protected]

Korea, 14.2%

Taiwan, 11.9%

India, 8.5%

Brazil, 8.0%

Others, 29.2%

China (B share/H

share/Red Chip/P

Chip/Overseas), 27.6%

China A shares,

0.5%

China, 28.1%

MSCI Emerging Markets - pro-forma country weight

based on new proposal

New proposal based on "Connect" access framework

Universe

- Include only Large Cap accessible through Stock Connect- Exclude A-shares with H-shares included in MSCI China IndexTreatment on suspension

- Remove constituents that have been suspended for more than 50 days- Stocks suspended for more than 50 days in the past 12 months are not eligible for inclusionRebalancing implementation

- Postpone to next day if it falls on a connect market holidayForeign exchange

- Use CNH for index calculation

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Oil Equipment and Services│Malaysia│Equity research│March 23, 2017

Sector Note



Oil Equipment & Svs - Overall Upside for upstream, downside for midstream ■ Despite the recent weakness in crude oil prices, we believe global inventories will

be destocked over the next 12 months if production discipline remains. ■ As such, oil prices are likely to head higher, with positive impact for stocks in the oil

and gas space. But shipping freight rates may be hit by lower shipping volumes. ■ We maintain our Neutral sector rating, with an Add on SAKP and Reduce on MISC.

Crude oil prices headed higher throughout 2017F Crude oil prices have rallied after OPEC clobbered together a production cut late-2016, but prices have since declined on news of higher US crude oil inventories. Despite the latter, findings from our analysis suggest that crude oil prices are likely to head higher across 2017F, even if the OPEC production cuts are not maintained beyond 30 June 2017, due to expected growth in demand for crude oil globally. If OPEC production cuts are extended beyond 30 June, we expect the rise in crude oil prices to be faster.

Oil production cuts set the stage for oil price recovery… On 30 November 2016, OPEC and several non-OPEC nations agreed to cut oil production by 1.8 mbpd. OPEC compliance with the production cut has been high at 98%, with Saudi Arabia delivering about 120% of its promised production cut. Non-OPEC compliance has been lower, at below 40%, as Russia only delivered 40% of its production cut. Overall compliance averaged 78% during 2M17.

…as global oil stocks should decline this year If OPEC maintains its February 2017 rate of production through 2017F, global oil stocks will be reduced by 1.15 mbpd during 2017F, representing a large 43% reduction in the global accumulation of oil stocks since 2014, and may help oil prices recover, in our view. Even if OPEC restores peak 4Q16 production levels during 2H17F, we forecast that the inventory accumulated since 2014 will still fall by 17% during 2H17F, on the expectation that oil demand will pick up in China, India and the Middle East.

Crude tanker freight rates likely headed down in CY17F In contrast to the better outlook for oil prices, crude tanker freight rates are headed lower this year on the back of lower oil production volumes, and stronger pace of newbuilding deliveries. Further, global crude oil inventory destocking will release vessels previously used for storage back into competition for cargoes in freight markets. We believe tanker freight rates will be weak for the next two years.

SapuraKencana: Add, target price RM1.87 While higher oil prices are positive for SAKP, the positive impact is likely to be gradual as SAKP’s orderbook accumulation for the E&C and drilling segments still lags behind our expectations for FY18F. If oil prices move up decisively, we expect the energy division to deliver a higher valuation, and the discount that we have attached to the balance sheet goodwill can be reduced, leading to a potentially higher SOP valuation of up to RM2.14. We will revisit our target price after SAKP’s full-year results next week.

MISC: Reduce, target price RM6.36 While a large chunk of MISC’s earnings are in the stable LNG and offshore businesses, these segments are unlikely to offer near-term growth. Hence, the delta in MISC’s earnings will be largely dictated by the volatility in its petroleum tanker earnings, which we expect to come under pressure over the next two years. Meanwhile, MISC may have to provide against receivables on two LNG assets this year. Our target price is set at an unchanged 25% discount to its SOP in view of the downside earnings risks.

Figure 1: Oil stocks likely to decline during 2017 at current production levels (mbpd)

SOURCES: CIMB RESEARCH, IEA

2013 2014 2015 2016 1H17F 2H17F 2017F

Call on OPEC - required to balance the

market (A)

30.86 29.59 30.02 32.22 32.60 33.71 33.16

OPEC crude production (B) 30.46 30.28 31.65 32.63 32.01 32.01 32.01

- Actual OPEC crude production 30.46 30.28 31.65 32.63- Assume OPEC production stays at Feb 2017 levels

32.01 32.01 32.01

Global stock accumulation / (draw) -->

(B) - (A)

(0.50) 0.70 1.60 0.40 (0.59) (1.70) (1.15)

Cumulative change in global stocks

since 2014

0.70 2.30 2.70 2.41 1.55 1.55

▎ Malaysia

Neutral (no change) Highlighted companies

MISC Bhd REDUCE, TP RM6.36, RM7.34 close

MISC’s crude tanker shipping business may see lower profits in FY17F and FY18F. This is due to our expectation of weaker tanker rates on the back of OPEC production cuts and greater newbuilding deliveries.

SapuraKencana Petroleum ADD, TP RM1.87, RM1.87 close

If oil prices recover as we believe they should, SAKP may eventually benefit from higher capex spending from oil majors, as well as more profits from its oil and gas fields.

Summary valuation metrics

Analyst(s)

Raymond YAP, CFA

T (60) 3 2261 9072 E [email protected]

P/E (x) Dec-17F Dec-18F Dec-19F

MISC Bhd 16.64 18.37 19.43 SapuraKencana Petroleum 46.79 74.33 24.70

P/BV (x) Dec-17F Dec-18F Dec-19F

MISC Bhd 0.86 0.83 0.81 SapuraKencana Petroleum 0.85 0.84 0.82

Dividend Yield Dec-17F Dec-18F Dec-19F

MISC Bhd 2.07% 2.07% 2.07%SapuraKencana Petroleum 0.53% 0.53% 0.53%

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Malaysia│March 23, 2017

Economics Note


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Economics Update BNM 2017 Annual Report: Brighter prospects ahead

Bank Negara Malaysia (BNM) expects economic growth to accelerate to 4.3%-■4.8% in 2017, underpinned by domestic demand and a revival in net exports.

Key external risks include US monetary policy normalisation, financial market ■volatility, rising anti-globalisation sentiment and political/geopolitical events.

Headline inflation is set to rise to 3-4% in 2017, though BNM expects broader price ■trends to remain in check.

OPR expected to remain unchanged at 3% in 2017. ■

Improved growth prospects in 2017 In its 2017 Annual Report, Bank Negara Malaysia (BNM) expects GDP growth to accelerate to 4.3%-4.8% (+4.2% in 2016), which is in tune with the Ministry of Finance’s projection of 4.0%-5.0%, and sits just above our forecast of 4.2% in 2017. External threats continue to cloud the outlook in 2017, including the path of US monetary normalisation, the re-emergence of volatility in the financial markets, rising anti-globalisation sentiment, as well as political and geopolitical events. Domestic demand remains the key pillar of growth Household consumption is buttressed by stable wage growth and fiscal support. We have penciled in a consumer spending growth forecast that is slightly more conservative (+5.8% vs. BNM’s +6.0%) in reflection of higher costs of living, weaker consumer sentiment and a softer labour market. Government consumption is expected to moderate due to fiscal consolidation efforts, while growth in private investments remains subdued on the back of uncertainty in the business outlook. Trade performance buoyed by revival in global economic growth BNM expects gross exports to rebound 5.5% in 2017 after a paltry 1.1% gain in 2016, as Malaysia is well-placed to benefit from the resurgent commodity prices and increased appetite for manufactured exports. The spillovers from improved external demand and higher commodity prices are poised to keep the current account in the black in 2017 (RM17.4bn or 1.0–2.0% of GNI), though narrower than last year’s surplus (RM25.2bn or 2.1% of GNI). Cost-push inflation resurfaces The benign inflation environment in 2015 and 2016 is giving way to greater cost pressures this year. BNM expects headline consumer price inflation to accelerate to 3.0%–4.0% in 2017 (+2.1% in 2016), but expects second round effects to remain under control. Risks to the inflation outlook include a continued uptrend in global oil prices, larger-than-anticipated pass-through of imported inflation from a weaker ringgit and the effect of deviations in projected growth trends on domestic inflation. The materialisation of these risks would result in some upside to our inflation forecast of 2.8% in 2017. Monetary policy outlook A challenging policy trade-off confronts BNM as it balances the risks of sustaining economic growth, achieving price stability and managing spillovers from an uncertain external environment. Given a more optimistic growth outlook and higher inflationary pressures, monetary policy settings appear finely balanced for now, and we maintain our end-2017 OPR forecast at 3.00%. However, signs of broadening inflation, beyond energy and food prices, may nudge BNM in a more hawkish policy direction. Lower household debt ratio of 88.4% as at end-2016 Inroads have been made in addressing household indebtedness following the introduction of prudential measures in 2010. Household debt expanded at a moderate pace of 5.4% yoy to RM1.09tr in 2016, compared to an annual growth of 12%-17% yoy in 2010-2013 and 7%-9% yoy in 2014-2015. This was the first time since 2010 that household debt grew at a slower pace than nominal GDP, which resulted in a lower household debt to GDP ratio at 88.4% (89.1% in 2015).

Figure 1: Snapshot of key macro estimates

SOURCES: CIMB, COMPANY REPORTS

▎ Malaysia

Economist(s)

Michelle CHIA

T (60) 3 2261 9097 E [email protected] LIM Yee Ping T (60) 3 2261 9083 E [email protected]

Indicators Unit 2012 2013 2014 2015 2016BNM

2017F

CIMB

2017F

Real GDP % yoy 5.5 4.7 6.0 5.0 4.2 4.3-4.8 4.2Inflation % yoy 1.7 2.1 3.2 2.1 2.1 3.0-4.0 2.8Gross exports % yoy 0.7 2.5 6.3 1.6 1.1 5.5 5.5Current account balance % GNI 5.2 3.5 4.4 3.0 2.0 1.0-2.0 2.2Fiscal deficit % GDP -5.4 -4.8 -4.5 -3.9 -3.5 -3.0 -3.0

4

Cement│Australia│Equity research│March 23, 2017

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


Brickworks

Making hay while the sun shines

BKW delivered a strong 1H17 result that was well ahead of Morgans’ ■expectations.

The Building Products division produced an improved result (EBIT +2%) but the ■key standout was Land and Development (EBIT +48%) and Associates & Investments (EBIT +78%).

Overall we think it was a strong 1H17 result with the short term outlook remaining ■positive. However, the medium term earnings outlook is more uncertain given higher energy costs and potential slowdown in building activity. Hold maintained.

Strong result ahead of our expectations BKW reported underlying EBIT growth that was well ahead of Morgans’ forecasts. 1H17 underlying EBIT rose 44% to A$142.2m (53% above Morgans), while underlying NPAT climbed 48% to A$111.2m (64% above Morgans). The Building Products division produced an improved result (EBIT +2%) but the key standout was Land and Development (EBIT +48%) and Associates & Investments (EBIT +78%). A 17.0cps dividend was declared which was in line with our forecast (17.0cps), continuing BKW’s track record of increasing dividends over the long term. The balance sheet remains in good shape, with gearing (debt/equity) at 17.5% (FY16: 16.3%) and interest cover very healthy at 19.2x. Operating cash flow was weak, down 46% to A$49.8m due to net proceeds from the sale of the Coles CDC facility (A$46.1m) in the prior year. Excluding the sale, operating cash flow was up 8.5%, which was a solid result in our view.

Short term outlook remains positive The short term outlook remains positive with BKW expecting Building Products earnings in FY17 to be underpinned by a full order book and a long pipeline of work at higher margins in major east coast markets. Following the strong 1H17 result, Land and Development earnings are expected to be higher in FY17. The Investments division is expected to deliver steadily increasing earnings and dividends over the long term.

Earnings forecast changes On the back of the better-than-expected result we have increased FY17F underlying EBIT by 38% to A$271m while underlying NPAT rises by 43% to A$208.1m. Given FY17 will benefit from some land sales to the Property Trust, we expect Land and Development earnings to normalise from FY18 onwards. FY18 will also coincide with our expectations of a slowdown in building activity and higher energy costs impacting the Building Products division. However, this should be partially offset by stable earnings expectations from Associates & Investments.

Maintain Hold rating Overall, we think BKW delivered a strong 1H17. However, higher energy costs will impact the Building Products division over the next few years and earnings growth in the medium term will also be more challenging given we are likely past the peak of the building cycle. While this will be mitigated by BKW’s cross holding in SOL and increased land and development activity, trading on 13.9x FY18F PE and 3.8% yield we believe BKW is fully valued at current share price levels. We also change analyst coverage of BKW in this note.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

HOLD (no change) Current price: A$13.76 Target price: A$13.62 Previous target: A$14.33 Up/downside: -1.0% Reuters: BKW.AX Bloomberg: BKW AU Market cap: US$1,574m A$2,052m Average daily turnover: US$1.85m A$2.45m Current shares o/s 148.7m Free float: 100.0%

Key changes in this note

FY17F revenue increased by 5%. FY17F EBIT increased by 38%. FY17F NPAT increased by 43%.

Price performance 1M 3M 12M

Absolute (%) 8.2 2.8 -12.6 Relative (%) 10.3 2.1 -22.6 Alexander LU, CFA


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

Revenue (A$m) 723.6 751.0 835.1 811.9 751.7Operating EBITDA (A$m) 191.1 223.3 300.1 230.0 221.5Net Profit (A$m) 78.1 78.2 201.0 147.1 142.7Normalised EPS (A$) 0.81 0.99 1.40 0.99 0.96Normalised EPS Growth 18.5% 22.0% 41.2% (29.4%) (3.0%)FD Normalised P/E (x) 16.95 13.90 9.85 13.95 14.38DPS (A$) 0.45 0.48 0.50 0.52 0.54Dividend Yield 3.27% 3.49% 3.63% 3.78% 3.92%EV/EBITDA (x) 12.25 10.36 7.84 10.20 10.53P/FCFE (x) 31.06 26.85 29.74 26.98 25.96Net Gearing 16.5% 14.6% 15.7% 15.1% 14.2%P/BV (x) 1.12 1.11 1.07 1.05 1.04ROE 6.6% 8.0% 11.1% 7.6% 7.3%% Change In Normalised EPS Estimates Normalised EPS/consensus EPS (x) 1.32 1.03 0.97

63.070.578.085.593.0100.5108.0

11.0012.0013.0014.0015.0016.0017.00

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

Source: Bloomberg

1

1

2

Mar-16 Jun-16 Sep-16 Dec-16

Vol m

5

Technology - Others│Australia│Equity research│March 23, 2017



Catapult Group International

Signing up Argentina basketball

Catapult Group has signed its first Latin American league-wide deal for elite ■athlete wearable devices, contracting with Argentina’s premier basketball league.

The deal is the first of 2017 but the company remains hopeful of more league-wide ■licensing deals prior to the end of this financial year.

There are no changes to our forecasts or valuation – the Argentine deal fits without ■our scenario for growth in subscriber numbers.

We maintain our ADD recommendation and DCF-derived price target of A$4.43. ■

First league-wide deal of 2017 Catapult has signed a league-wide deal with Argentina’s national basketball federation, La Liga Nacional (LNP). The 20-team competition has 240 players who will wear Catapult monitoring devices on commencement of the current season. We estimate that the deal will generate annual recurring license fees of around A$400k. Catapult has previously reported that it is negotiating a number of league-wide deals, which it is hopeful of completing prior to the end of FY17. There are no changes to our forecasts or valuation.

Risks and catalysts Risks to Catapult include: 1) failure to secure more major league-wide deals; 2) a slowing in the rate of new team-based contracts; 3) unexpected cost blow-outs; and 4) irrational competitor behaviour. Potential near-term re-rating catalysts for Catapult include: 1) winning league-wide subscription deals; 2) a lift in the rate of team-based order levels; and 3) better cost outcomes.

Investment view We retain a positive investment view on Catapult. The company is a world leader in elite athletics devices and analytics and continues to invest aggressively in growing its global user base. The market opportunity ahead of Catapult remains large and the company has shown a strong ability to execute. We believe that the large gap between our valuation and the share price has been brought on by temporary matters and the valuation gap will close over time. We retain an ADD recommendation.


▎Australia

ADD (no change) Current price: A$2.15 Target price: A$4.43 Previous target: A$4.43 Up/downside: 106.3% Reuters: CAT.AX Bloomberg: CAT AU Market cap: US$260.9m A$340.1m Average daily turnover: US$0.48m A$0.64m Current shares o/s 124.4m Free float: 38.4%


Absolute (%) -2.7 -15.7 -0.9 Relative (%) -0.6 -16.4 -10.9 Ivor RIES


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

Revenue (A$m) 12.5 17.4 62.4 86.2 110.2Operating EBITDA (A$m) -3.80 -4.43 6.98 12.89 26.07Net Profit (A$m) -3.47 -5.87 -5.64 1.78 12.85Normalised EPS (A$) (0.034) (0.029) (0.011) 0.018 0.088Normalised EPS Growth 46% (15%) (62%) 399%FD Normalised P/E (x) NA NA NA 122.5 24.6DPS (A$) - - - - - Dividend Yield 0% 0% 0% 0% 0%EV/EBITDA (x) NA NA 46.42 24.85 11.71P/FCFE (x) NA NA NA 114.6 22.6Net Gearing (47.6%) (30.5%) (15.0%) (17.5%) (26.7%)P/BV (x) 18.65 22.41 3.20 3.02 2.61ROE (44.5%) (29.9%) (2.9%) 2.5% 11.4%% Change In Normalised EPS Estimates 0% 0% 0%Normalised EPS/consensus EPS (x) 1.84 0.73 1.17

74

98

122

146

170

1.80

2.30

2.80

3.30

3.80

4.30Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

2

4

6


Vol m

6

IT Services│Australia│Equity research│March 23, 2017



Frontier Digital Ventures

Strong performance from key assets

Frontier Digital Ventures (FDV) provided its first annual investor update, which ■revealed strong operating performances from key portfolio companies, particularly Zameen and E24.

FDV is showing the benefits of operating a network – companies within the FDV ■portfolio have been able to outpace competitors by sharing strategies and technology insights.

Following the release of more operating details, and the recent management ■presentation to industry participants in Bangkok, we have upgraded our Zameen valuation range to A$107m to A$147m. This has increased our FDV valuation – set at a mid-point of the range to A$0.72/share, up from A$0.60/share.

Our price target lifts to A$0.72, up from A$0.60, in line with valuation. ■ We maintain an ADD recommendation. ■

First annual update FDV provided its first annual update to investors, reporting strong growth in key performance metrics for most investee companies. By the yardsticks that early-stage online marketplace companies are measured – growth in audience, listings, lead generation and paying subscribers – most FDV companies met or exceeded our expectations.

Zameen triggers upgrade Pakistan real estate portal operator Zameen continues to deliver outstanding performance. After reviewing key operating metrics disclosed in the update, and the recent management presentation to the property portal industry in Bangkok, we have significantly increased our valuation range for Zameen. Zameen is setting new records for what can be achieved by a dominant property marketplace in emerging markets.

Risks and catalysts Risks to FDV price include: 1) failing to grow audience and revenues at the expected rate; 2) operating costs exceeding forecasts; 3) changes to political, economic or regulatory landscapes where FDV operates; and 4) changes in competitor behaviour. Potential re-rating catalysts include: 1) stronger performance from the largest companies in the FDV portfolio; 2) rapid monetisation from early-stage companies in the portfolio; and 3) realisation of value one of the portfolio companies.

Investment view We retain a positive view on the company. FDV offers investors exposure to the growth in online advertising marketplaces in newly emerging economies with large populations, a rapidly growing middle class, and growing smart phone usage. FDV has created significant value since investing in most of its portfolio companies and we expect that it will continue to do so. However, FDV invests in early-stage ventures in high-risk economies and therefore its shares are high risk. Investors with a low risk profile should not invest in FDV shares.


▎Australia

ADD (no change) Current price: A$0.48 Target price: A$0.72 Previous target: A$0.60 Up/downside: 49.2% Reuters: FDV.AX Bloomberg: FDV AU Market cap: US$79.83m A$104.1m Average daily turnover: US$0.01m A$0.02m Current shares o/s 216.0m Free float: 42.2%

Key changes in this note


Absolute (%) 0 5.5 Relative (%) 2.1 4.8 Ivor RIES


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

Revenue (A$m) 0.00 2.14 6.44 10.75 12.39Operating EBITDA (A$m) 0.03 -4.33 -8.68 -6.38 -5.48Net Profit (A$m) -2.54 -3.67 -8.11 -4.42 -3.86Normalised EPS (A$) (0.012) (0.035) (0.038) (0.020) (0.018)Normalised EPS Growth 201% 6% (45%) (13%)FD Normalised P/E (x) NA NA NA NADPS (A$) - - - - - Dividend Yield 0% 0% 0% 0% 0%EV/EBITDA (x) 1,770 NA NA NA NAP/FCFE (x) NA NA NA NANet Gearing (55.2%) (45.5%) (30.6%) (37.2%) (23.4%)P/BV (x) 1.57 1.76 1.96 1.60 1.68ROE (12.3%) (14.5%) (7.5%) (6.1%)% Change In Normalised EPS Estimates 0% 0% 0%Normalised EPS/consensus EPS (x) 0.87 0.64 0.81

78.0

90.5

103.0

115.5

0.400

0.450

0.500

0.550


Source: Bloomberg

2468

10

Aug-16 Oct-16 Dec-16 Feb-17

Vol m

7

Chemicals - Others│Australia│Equity research│March 22, 2017



Nufarm

Planting the seed for further growth

NUF’s 1H17 result was materially stronger than expected, albeit that the first half ■is the less material period for the company. Sales growth of 15%, EBIT up 19% and NPAT growth of 67% was a commendable outcome in light of global industry volumes falling about 2% for the period, implying market share wins.

Despite a stronger than expected 1H17, we have made minor revisions to our ■forecasts to reflect a competitive Australian market place and the company’s more conservative Latin American outlook comments. However, the company appears on track to deliver solid earnings growth in FY17.

After strong share price appreciation, we move to a Hold recommendation. We ■would revisit our view on any material weakness as we believe that accretive M&A is the next catalyst for the stock.

1H17 operating EBIT rises 19% and operating NPAT increases 67% 19% operating EBIT growth was a solid outcome reflecting strong results in North America, Europe and Asia. Seed Technologies also saw a material improvement, albeit it recorded a loss of A$0.2m vs loss of A$4.4m the pcp. For the first time in a long time, it was pleasing to see NUF report a clean result with no material one-off items. Operating NPAT rose 67% due to reduced net interest, although we note NUF incurred a much higher tax rate. Group margin improvement was pleasing as NUF delivered cost savings. It is clear to us that the company is on track to achieve its targeted A$116m of net cost savings by FY18. Cashflow and balance sheet metrics were stronger than expected. ROFE increased to 13.2% from 10.7%. A weaker than expected Australian performance (highly competitive market place) was the only negative with the result.

Forecast implications – we make minimal changes NUF's earnings are highly skewed to the second half in line with Australia's winter crop and the northern hemisphere's key cropping period. Subject to normal seasonal conditions, the company is targeting solid EBIT growth for the full year. Due to a softer than expected result in Australia, weaker than expected outlook comments for Latin America in 2H17 and higher corporate costs, we have made minor downgrades to our underlying EBIT forecasts. The changes to our underlying NPAT forecasts are minimal due to lower than expected net interest expense.

Investment view – Hold and A$10.15 price target With the strength of diversity by product and geography and internal business improvements, NUF has once again demonstrated it can deliver solid results in far from perfect operating conditions. After strong share price appreciation and given there is now only 5% upside to our new price target of A$10.15, we move to a Hold recommendation. However we stress that we continue to rate this global ag chem growth stock highly and would revisit our view on any material share price weakness. The next catalyst for NUF is participating in accretive industry consolidation. With industry players on its register, NUF also warrants corporate appeal in its own right. Over coming years, its Omega-3 canola product could potentially be a game-changer however it is unlikely to be material to group earnings until FY20. Key upside risks are M&A, corporate activity and better than expected trading conditions. Downside are poor execution, integration risk, adverse weather and commodity prices.


▎Australia

HOLD (previously ADD) Current price: A$9.67 Target price: A$10.15 Previous target: A$9.65 Up/downside: 5.0% Reuters: NUF.AX Bloomberg: NUF AU Market cap: US$1,995m A$2,580m Average daily turnover: US$4.49m A$6.37m Current shares o/s 266.8m Free float: 77.0%


Absolute (%) 8.3 5.9 19.2 Relative (%) 8.8 3.6 7.4 Belinda MOORE


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

Revenue (A$m) 2,737 2,791 3,077 3,233 3,375Operating EBITDA (A$m) 317.1 371.7 408.4 447.4 480.9Net Profit (A$m) 43.2 27.5 144.1 177.5 205.4Normalised EPS (A$) 0.39 0.37 0.49 0.62 0.72Normalised EPS Growth 41.0% (7.1%) 35.1% 24.9% 16.3%FD Normalised P/E (x) 24.55 26.42 19.55 15.65 13.46DPS (A$) 0.10 0.11 0.13 0.15 0.17Dividend Yield 1.03% 1.14% 1.34% 1.55% 1.76%EV/EBITDA (x) 10.63 9.29 8.37 7.60 7.00P/FCFE (x) 14.95 2.37 27.08 29.41 23.60Net Gearing 33.4% 40.3% 34.6% 30.0% 25.0%P/BV (x) 1.57 1.67 1.53 1.40 1.27ROE 6.48% 6.14% 8.17% 9.36% 9.92%% Change In Normalised EPS Estimates (1.85%) (1.28%) (1.06%)Normalised EPS/consensus EPS (x) 0.97 1.00 1.04

78.083.789.495.1100.9106.6112.3118.0

6.406.907.407.908.408.909.409.90


Source: Bloomberg

12345


Vol m

8

Property Development│Hong Kong│March 23, 2017

Company Note



China Overseas Land & Investment Low valuations price in weaker earnings outlook

COLI’s FY16 earnings missed our estimate by 10% due to losses from CITIC ■projects and slower revenue growth.

Meanwhile, management said CITIC projects’ margin should improve significantly ■and will at least reach 29% in the next few years.

Given lower-than-expected margins, we cut FY17/18F EPS by 9%/6%. ■ COLI’s share price has underperformed peers by 20% YTD and may have priced in ■its weaker earnings outlook. Maintain Add with a lower target price of HK$30.60.

It trades at undemanding valuations of 27% discount (average: 15%) to NAV, 7x ■FY17 P/E and 3.6% yield.

FY16 earnings 10% below our estimate COLI’s FY16 results missed our expectations. It recorded core earnings of HK$28bn (+6% yoy), 10% below our estimate due to 1) recognition of a loss of HK$472m from CITIC projects acquired last year, and 2) lower-than-expected revenue which missed our forecast by 12%. It declared a final dividend of HK$0.42/share, bringing the total full year dividend to HK$0.77/share including HK$0.35/share interim dividend.

One-off losses from CITIC projects COLI completed the acquisition of CITIC projects (Total GFA: 31.6m sqm) in 2016 and recognised property sales of HK$29.7bn in FY16. As most of these project sales happened in 2014/2015 when the property market was weak, the margins of these projects were low and COLI recorded a loss of HK$472m. Management stressed that the losses are one-off and should not occur again in future.

CITIC projects’ margins below our expectations COLI’s FY16 gross margin came in at 28.8%, 2% pts below our estimate of 30.8% on lower-than-expected CITIC projects’ gross margins. Given the strong market rebound since 2016, management said that CITIC’s gross margin would at least be similar to the level achieved in FY16 level – i.e. 28.8% – which is 1-2% pts below our previous expectation. We now forecast COLI’s gross margin to be about 30% over FY17-19F, vs. our previous forecast of 32-33%.

Conservative sales target of HK$210bn, in line with FY16 COLI achieved contracted sales of HK$210bn in FY16, +17% yoy. For FY17F, management guided for a sales target of HK$210bn, in line with FY16, based on a 60% sell-through rate with total sellable resources of HK$350bn. Management expects COLI to achieve 50% of this sales target in 1H17. We believe the target is too conservative and that it could achieve HK$230bn-240bn contracted sales in FY17F.

Will be more proactive in land acquisitions this year COLI was relatively conservative in land banking activities in FY16; it spent about HK$51bn to buy about 11m sqm of land bank. For FY17, management said that it will be more proactive in purchasing land (including in Hong Kong) and has prepared a total war chest of HK$100bn to achieve the goal.

Low valuation may have priced in weak earnings outlook Given the weaker-than-expected margins, we trim our FY17/18F EPS by 9%/6% and cut its NAV by 3% to HK$34. As such, we reduce our NAV-based target price by 3% to HK$30.60. COLI’s share price has underperformed peers by 25% YTD, which we believe may have priced in its weaker earnings outlook. Maintain Add. It is trading at undemanding valuations of 27% discount to NAV, 7x FY17 P/E and 3.6% yield. Key risk to our call is potential tightening measures from the local governments.


Total Net Revenues (HK$m) 160,339 158,717 210,964 253,309 283,534Operating EBITDA (HK$m) 40,170 39,092 57,303 68,756 76,295Net Profit (HK$m) 28,535 28,003 35,572 41,682 46,377Core EPS (HK$) 2.86 2.75 3.25 3.80 4.23Core EPS Growth 4.2% (3.8%) 18.1% 17.2% 11.3%FD Core P/E (x) 7.91 8.30 6.86 5.85 5.26DPS (HK$) 0.61 0.77 0.87 0.98 1.10Dividend Yield 2.55% 3.22% 3.62% 4.09% 4.61%EV/EBITDA (x) 5.95 6.80 5.28 4.32 4.01P/FCFE (x) 5.42 18.36 17.08 9.25 17.15Net Gearing 6.6% 7.3% 13.3% 9.6% 10.7%P/BV (x) 1.23 1.18 1.06 0.94 0.84ROE 16.2% 13.5% 15.1% 15.8% 15.6%% Change In Core EPS Estimates (8.88%) (6.01%)CIMB/consensus EPS (x) 0.99 1.02 1.04

▎ Hong Kong

ADD (no change) Consensus ratings*: Buy 24 Hold 10 Sell 0

Current price: HK$23.95 Target price: HK$30.60 Previous target: HK$31.50

Up/downside: 27.8% CIMB / Consensus: 6.2%

Reuters: 0688.HK Bloomberg: 688 HK Market cap: US$33,780m HK$262,401m Average daily turnover: US$58.43m HK$461.6m Current shares o/s: 10,956m Free float: 34.9% *Source: Bloomberg Key changes in this note

FY17F EPS decreased by 9% FY18F EPS decreased by 6%

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -1.7 17.4 -2.3 Relative (%) -2.6 4.6 -20.3

Major shareholders % held China Overseas Holdings 55.1 CITIC Group 10.0

Analyst(s)

Raymond CHENG, CFA

T (852) 2539 1324 E [email protected] Siu Fung LUNG, CFA T (852) 2539 1327 E [email protected]

74.0

80.7

87.3

94.0

100.7

19.0

21.0

23.0

25.0

27.0

Price Close Relative to HSI (RHS)

50

100


Vol m

9

Property Investment│Hong Kong│March 23, 2017

Company Note



SOHO China Don’t ignore the dividend risk

SOHO’s FY16 loss was wider than our forecast due to higher-than-expected costs. ■ While its yield looks attractive, we believe investors should be concerned about ■SOHO not paying further dividends if it does not have any asset sales in future.

SOHO is trading at expensive valuations of 17% discount to NAV and 102x FY17F ■P/E. Maintain Reduce and target price of HK$3.30.

FY16 loss wider than expected SOHO delivered a set of disappointing results for FY16; it recorded a loss (excluding one-off items) of Rmb418m, more than three times our loss estimate of Rmb136m on higher-than-expected administrative costs and tax provisions. However, it surprised the market by announcing a special dividend of Rmb0.346/share, which translates into a 9.1% yield based on the last closing price.

Slower-than-expected rental income growth SOHO’s FY16 rental income was Rmb1.5bn, 5% below our estimate, dragged by lower-than-expected rental rates for some of its projects. Rental rates for SOHO Fuxing Plaza, Sky SOHO and Hongkou SOHO were Rmb140/month/sqm, Rmb93/month/sqm and Rmb94/month/sqm, respectively, based on our estimates; these rates are c.20-30% below the market average. While we understand that management may want to increase the occupancy rates of these projects, we believe the rents offered are too low.

Rental income is far behind its original target To recall, SOHO aimed to achieve total income of about Rmb4bn by 2019 when it changed its operation model to a landlord from a property developer in 2012. Based on its current projects, we expect SOHO to achieve total income of about Rmb2.7bn in 2019, which is 30% below its original target.

High uncertainty on dividends SOHO paid a total special dividend of Rmb0.54/share from the disposal of non-core assets last year. The dividend looks very generous and attractive. However, management stressed that SOHO will not pay further dividends if there are no asset sales. Asked if SOHO will have another non-core asset sale this year, management said it is still uncertain as the sale is subject to the price offered.

Cut FY17/18F EPS estimates by 5%/8% Given the weak FY16 results, we cut our FY17/18F EPS estimates by 5%/8%. While we expect SOHO to generate a profit of Rmb205m in FY17F, the amount is tiny compared to its peak core earnings of Rmb4.2bn in FY13.

Expensive valuations; maintain Reduce We maintain our Reduce rating on SOHO due to its expensive valuations – it is trading at only a 17% discount to NAV and 102x FY17F P/E. Our target price is based on a 40% discount to our estimated NAV of HK$5.5/share. Key risk to our negative call is that SOHO continues to sell assets and return the money to the shareholders, which will be positive for its share price.

SOURCE: COMPANY DATA, CIMB FORECASTS


Total Net Revenues (Rmbm) 995 1,577 1,914 2,269 2,744Operating EBITDA (Rmbm) 414 916 1,039 1,232 1,490Net Profit (Rmbm) (543.9) (418.6) 205.3 397.3 633.5Core EPS (Rmb) (0.10) (0.34) 0.04 0.08 0.12Core EPS Growth (142%) 221% 93% 59%FD Core P/E (x) NA NA 102.9 53.2 33.4DPS (Rmb) 0.70 0.54 0.00 0.00 0.00Dividend Yield 17.2% 13.4% 0.0% 0.0% 0.0%EV/EBITDA (x) 75.84 36.51 34.74 30.04 25.14P/FCFE (x) NA NA NA NA NANet Gearing 24.5% 31.7% 39.8% 41.6% 41.9%P/BV (x) 0.57 0.61 0.62 0.62 0.60ROE (1.43%) (4.91%) 0.60% 1.17% 1.84%% Change In Core EPS Estimates (5.16%) (7.86%)CIMB/consensus EPS (x) 0.54 0.85

▎ Hong Kong

REDUCE (no change) Consensus ratings*: Buy 4 Hold 8 Sell 2


Up/downside: -27.6% CIMB / Consensus: -21.4%


FY17F EPS decreased by 5%. FY18F EPS decreased by 8%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 10.7 21.9 20.3 Relative (%) 9.8 9.1 2.3

Major shareholders % held Pan Shiyi 64.1

Analyst(s)

Raymond CHENG, CFA

T (852) 2539 1324 E [email protected] Siu Fung LUNG, CFA T (852) 2539 1327 E [email protected]

85.0

94.7

104.4

114.2

3.10

3.60

4.10

4.60


20

40

60


Vol m

10

Property Development│Hong Kong│March 23, 2017

Company Note



Yuzhou Properties Co Ltd Solid fundamentals

Management expects core net profit to grow by 20-30% p.a. and dividend payout to ■stay at 30-35% in the next few years.

While investors are concerned about tightening policies, sales were strong in 1Q17, ■supported by strong end-user demand and higher secondary ASP.

More land acquisitions will be done via M&As and structured as JVs. Management ■is keen on expanding into the Pearl River Delta.

We raise our TP to HK$4.50, based on a 50% discount to NAV, on the back of solid ■fundamentals and strong market momentum. Maintain Add.

Strong set of results Yuzhou’s management joined our post-FY16 results non-deal roadshow yesterday. Investors were mostly satisfied with the FY16 results, as core net profit beat our forecast by 6% due to higher margins. Full-year dividend rose 16% to HK$0.22, implying a stable payout of 35% and decent dividend yield of 6.5%. Net gearing improved by 8% pts to 72% as at end-Dec 16, within the comfort level of 80%.

Chairman outlined Yuzhou’s expansion trajectory Chairman expects total contracted sales, including 100% of JV projects, to grow by 20% to Rmb30bn in FY17F, and aims to grow the figure to Rmb100bn by around FY20. He also expects gross margin to remain above 30% in the next few years, given some of the land sites were acquired years ago. The average financing cost is expected to decline further to below 5.8% in FY17F. As a result, he expects core net profit to grow by 20-30% p.a. in the next few years.

Investors concerned about policies Most of the investors are concerned about the impact of tightening policies on property sales. However, Yuzhou saw no significant impact on its sales, with its Jan-Feb contracted sales increasing by 120% yoy to Rmb5bn. Another Rmb5bn could potentially be contracted in Mar, according to the management. Management indicated that primary market is supported by the strong end-user demand and higher secondary ASP.

Land banking strategy: more M&As and JVs According to its land banking strategy, management expects more land sites to be acquired via M&As given the highly competitive land auction market. In addition, management said it will pursue more acquisitions under the JV structure, in order to maintain its net gearing at below 80%. Management is keen on expanding into the Pearl River Delta and some small cities with strong fundamentals.

Maintain Add We raise our FY17-18F EPS by c.8% after updating the property schedule. We also assume higher margins and faster sell-through rates over the next few years. Hence, we raise our NAV from HK$8.6 to HK$9. Given the recent strong market momentum and increasing southbound inflows, we narrow the discount to 50% (from 60%) and derive a new TP of HK$4.50. Key risks: further tightening measures by the Chinese government and margin pressure from intensifying competition in the land market.



Total Net Revenues (Rmbm) 10,376 13,672 17,692 21,869 26,611Operating EBITDA (Rmbm) 3,114 4,118 5,181 5,832 6,070Net Profit (Rmbm) 1,657 2,131 2,663 3,219 3,539Core EPS (Rmb) 0.44 0.56 0.70 0.84 0.93Core EPS Growth 48.5% 26.8% 25.0% 20.9% 9.9%FD Core P/E (x) 6.77 5.40 4.32 3.57 3.25DPS (Rmb) 0.15 0.19 0.24 0.30 0.32Dividend Yield 5.0% 6.2% 8.1% 9.8% 10.8%EV/EBITDA (x) 6.45 5.07 3.88 3.22 2.70P/FCFE (x) 5.01 2.83 3.41 2.68 2.05Net Gearing 79.4% 71.7% 51.1% 33.2% 15.5%P/BV (x) 1.20 1.08 0.85 0.68 0.56ROE 18.2% 21.0% 22.0% 21.2% 18.9%% Change In Core EPS Estimates 8.12% 8.30% CIMB/consensus EPS (x) 1.11 1.12 1.17

▎ Hong Kong





FY17F EPS increased by 8%. FY18F EPS increased by 8%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 25 31.3 78.9 Relative (%) 24.1 18.5 60.9

Major shareholders % held Lam Lung On (chairman) 68.3

Analyst(s)

Siu Fung LUNG, CFA

T (852) 2539 1327 E [email protected] Raymond CHENG, CFA T (852) 2539 1324 E [email protected]

93

115

137

160

1.70

2.20

2.70

3.20


10203040


Vol m

11

Property Devt & Invt│Indonesia│Equity research│March 23, 2017

Company Note │ Alpha series



Jaya Real Property Steady as a rock

Strategic location and sizable land bank shall propel JRPT to be the key beneficiary ■of the pick-up in end-user driven property demand.

Completion of Ulujami-Tanah Abang and Serpong-Kunciran toll roads shall further ■enhance the connectivity and value of its main project – Bintaro Jaya.

JRPT is the only developer able to consistently deliver steady growth in both ■presales and earnings (FY11-16 CAGR of 15% and 25% vs. peers’ 11% and 19%).

It also has the strongest balance sheet among Indonesia's residential developers. ■ We initiate coverage with Add and DCF-based (WACC: 13.6%, LTG: 5%) TP of ■Rp1,200. It currently trades at 77% discount to NAV (highest among peers).

Strategic location, sizable land bank, major infra improvement With over 35 years in property development, JRPT stands out as one of the most highly regarded developers in Greater Jakarta. Its land bank in Greater Jakarta was c.1,600ha at end-FY16, sufficient for over 25 years of development. JRPT's main projects are Bintaro Jaya (southern part of Greater Jakarta, 75% of its total presales), followed by Pasar Kemis and Serpong. We see the development of Ulujami-Tanah Abang and Serpong-Kunciran toll roads as the main medium-term catalyst for Bintaro Jaya’s value.

Key beneficiary of end-user driven demand Relaxation of mortgage regulations, low mortgage interest rate and an increase in bank’s appetite for mortgage lending are boons to end-user demand, benefitting JRPT as Bintaro Jaya has 80-85% end-user buyers. JRPT is also the only developer that does not provide a cash instalment facility to buyers of its landed properties (mortgage accounts for more than 70% of its landed buyers); it only provides cash instalment to apartment buyers (apartment sales accounted for 17% of total FY16 presales).

Consistent value creation through cycles JRPT delivered enviable sales and earnings growth through cycles (FY11-16 CAGR of 15% for presales and 24% for earnings vs. its peers' 11% and 19%). During the downturn in FY14-16, it still outperformed peers on both presales and earnings (FY14-16 presales/earnings CAGR of 8%/16% vs. its peers -9%/-26%). Concurrently, it has also consistently maintained its dividend payout ratio (c.30%) in the past 10 years and delivered an average ROAE of c.23% since 2010 (c.14% for peers).

The best balance sheet among developers JRPT has the healthiest balance sheet among property developers with virtually no debt on its balance sheet (Rp32bn debt vs. Rp169bn cash in 9M16), putting it in a net cash position. Conservative land banking and investment property expansion, coupled with minimal exposure to developers financing (cash instalment buyers only account for 7% of presales in 2016) are the main reasons for its strong balance sheet, in our view.

Initiate with Add and TP of Rp1,200 We initiate coverage on JRPT with an Add rating in view of the pick-up in end-user demand, and its strong balance sheet and professional management (which aligns with the interests of its minority shareholders). Our DCF-based TP (WACC: 13.6%, LTG: 5%) is Rp1,200. It currently trades at a 77% discount to NAV (the highest among developers). Key risks to our call are the stock’s low liquidity, worsening sentiment on property demand and adverse changes on the regulatory front.

▎Indonesia

ADD Consensus ratings*: Buy 1 Hold 0 Sell 0

Current price: Rp820.0 Target price: Rp1,200 Previous target: N/A

Up/downside: 46.3% CIMB / Consensus: -7.7%

Reuters: JRPT.JK Bloomberg: JRPT IJ Market cap: US$845.9m Rp11,275,000m Average daily turnover: US$0.02m Rp209.5m Current shares o/s: 13,469m Free float: 35.0% *Source: Bloomberg Key changes in this note

N/A.

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) -3.5 -3.5 23.3 Relative (%) -6.8 -13.2 9.3 Major shareholders % held PT Pembangunan Jaya 65.0

Analyst(s)

Jovent GIOVANNY

T (62) 21 3006 1727 E [email protected] Timothy HANDERSON T (62) 21 3006 1724 E [email protected]



Total Net Revenues (Rpb) 1,936 2,150 2,363 2,483 2,896Operating EBITDA (Rpb) 796 937 1,051 1,103 1,292Net Profit (Rpb) 736 873 994 1,088 1,271Core EPS (Rp) 54.72 64.78 74.03 80.81 94.36Core EPS Growth 32.6% 18.4% 14.3% 9.2% 16.8%FD Core P/E (x) 14.99 12.66 11.08 10.15 8.69DPS (Rp) 13.09 17.60 21.44 24.40 26.73Dividend Yield 1.60% 2.15% 2.61% 2.98% 3.26%EV/EBITDA (x) 13.83 11.79 10.21 9.93 8.27P/FCFE (x) 10.48 7.11 19.45 12.15 12.26Net Gearing (6.34%) (4.67%) (9.41%) (4.68%) (8.20%)P/BV (x) 3.68 2.77 2.37 2.04 1.74ROE 26.7% 25.0% 23.1% 21.6% 21.6%% Change In Core EPS Estimates CIMB/consensus EPS (x)

97.0

108.7

120.3

132.0

640

740

840

940Price Close Relative to JCI (RHS)

10

20

30


Vol m

12

Financial Services│South Korea

Sector Flash Note



Banks DSME: Too big to fail ■ DSME's bailout plan cuts across all debt classes. ■ Additional provisions inevitable due to debt-to-equity swap but lower than our original

expectation. ■ We expect Hana to be hit the most (FY17F earnings down 16%), but limited impact

for other banks under our coverage (less than 3%).

Pain for all debt holders ● This morning KDB, a main creditor of DSME, proposed capital injection plans to

DSME: W2.9tr worth of new loans from government-owned banks (KDB and KEXIM) and debt-to-equity swaps totaling W2.9tr: government-owned banks (W1.6tr), private banks (W0.56tr), and bondholders (W0.75tr).

● KDB proposed that all affected financial institutions convert 80% of their unsecured DSME loans to DSME shares, and extend the maturities of the remaining 20% by as long as five years, with the interest rate charged cut to 3%. It also proposed that bondholders convert 50% of their corporate bonds to DSME shares.

However, not NPL yet ● Private banks have extended W780bn worth of corporate loans to DSME as at Dec

2016. Under the restructuring, W580bn worth of unsecured loans would be converted to equity. The remaining W200bn debts would see their maturity dates extended by five years and interest rates cut to below 3%. News articles highlighted that KDB suggested that banks rate their loans to DSME as precautionary loans, instead of NPLs.

100% debt write-down necessary for debt-to-equity swap ● Banks under our coverage will likely write down 100% of their unsecured loans to be

converted to DSME shares. Hana (W352bn), KB (W116bn), Woori (W80bn) and Shinhan (W15bn), adding to their provisions either in 1Q17 or 2Q17. For instance, KDB has in Dec 2016 completely written down its loans to DSME converted to equity, based on an external evaluation of DSME's share price (W1/share).

● The restructuring of unsecured loans to DSME represent 24% of Hana's FY17F net profit, 5% of KB's, 6% of Woori's and 1% of Shinhan, in our calculation.

Limited provisioning expected for remaining exposure ● For RG (refund guarantees) and other financing, we expect additional provisioning to

be minimal. Assuming that banks keep the asset classification as precautionary loan, the maximum provisioning rate that banks are able to set aside is 19%. As banks under our coverage already have provision rates of 13-14% for their exposure, they will only need to raise their provision burden by 5% pts for the remaining exposure.

● We will revisit our earnings assumptions after DSME's debt restructuring plan is finalised. As KDB has proposed a restructuring across all debt levels, we expect other creditors to decide if they want to accept the terms in the next couple of weeks.

Limited impact except for Hana ● We calculated the impact of DSME's debt restructuring on the banks' FY17F net

profits, assuming that all the banks agree on the proposed restructuring plan. Our analysis concluded that Hana’s earnings will be hit the most, its FY17F net profit cut by 16%, followed by KB (-3%). In contrast, the impact on Shinhan, Woori and IBK will be muted (Fig 1). These statistics are better than our previous estimates, though the earnings impact on Hana remains sizable (See our previous research: Earnings downgrades inevitable due to DSME.)

● We retain KB as our sector top pick given: i) the high chance its provisions for RG would be reversed, when DSME gets to deliver the contracted ships; ii) it has the largest provisioning buffers in the sector; and iii) its loan portfolio is largely concentrated in household loans.

Figure 1: Potential earnings impact from DSME restructuring

NOTE: We assumed 5% additional provisions for remaining exposure except for debt-to-equity swaps; SOURCES: KDB, FSS,

BLOOMBERG, CIMB RESEARCH, COMPANY

Unsecured loans

A (=B+C) B C D E = D*80% F = 5% * (A-E) G H = (E+F-G)/ Net profits

Hana 714 212 503 440 352 18 72 16%KB 513 375 138 145 116 20 58 3%Woori 234 96 138 100 80 8 106 -1%Shinhan 310 286 24 19 15 15 31 0%IBK 55 NA NA NA 0 3 11 -1%Sum 1826 969 802 704 563 63 278 NA

Existing

provisions

(as of 4Q16)

Impact on

net profits (FY17F)

Total

exposure

on DSME

RG

and othersCorp loans

Debt-to-equity

swap

5% additional

provision for

remaining

exposures

▎ South Korea

March 23, 2017 - 7:27 PM

Neutral (no change)

Highlighted companies

Hana Financial Group ADD, TP W45,000, W37,700 close

DSME's restructuring will likely hurt Hana’s earnings the most among banks under our coverage as it has the sector's highest DSME exposure. Excluding the DSME exposure, Hana’s core earnings will continue to rise, in our view.

KB Financial Group ADD, TP W63,000, W49,700 close

We expect marginal rise in KB’s credit cost but the equity value dilution will be very limited given its high RG exposure. Its provisioning for RG can be reversed within the year if DSME gets to deliver the contracted ships.

Shinhan Financial Group HOLD, TP W49,000, W47,750 close

There is limited impact from DSME given Shinhan's relatively smaller-than-sector exposure. However, the underperformance of its non-bank subsidiaries will add downward pressure, in our view.


Analyst(s)

Kathy PARK



Hana Financial Group 7.03 6.99 KB Financial Group 7.81 7.18 6.80 Shinhan Financial Group 9.05 9.14


Hana Financial Group 0.46 0.44 KB Financial Group 0.60 0.57 0.54 Shinhan Financial Group 0.70 0.66


Hana Financial Group 3.45% 3.71%KB Financial Group 3.22% 3.82% 4.23%Shinhan Financial Group 3.66% 3.66%

13

https://brokingrfs.cimb.com/xLB0KL3_1bAxVcekwhaPjzryJ6LeurzpzlY0QJBhlOaADdnHkJvfTFuoyzqI4WWk6Fgk4ltX2VKV9kby0.pdf

https://brokingrfs.cimb.com/xLB0KL3_1bAxVcekwhaPjzryJ6LeurzpzlY0QJBhlOaADdnHkJvfTFuoyzqI4WWk6Fgk4ltX2VKV9kby0.pdf

Conglomerate│Malaysia Shariah Compliant

Company Flash Note



DRB-Hicom Geely pulls out of Proton bid

The South China Morning Post reports that Geely has withdrawn its bid to acquire ■an equity stake in DRB-Hicom’s subsidiary, Proton Holdings Bhd (Proton).

We were negatively surprised by this development as this may reduce the ■likelihood of a bidding war for DRB-Hicom’s stake in Proton.

Maintain Add and target price. New Proton’s FSP remains a key re-rating catalyst ■for DRB-Hicom as it could help reduce the negative impact from Proton’s losses.

Geely withdraws bid for Proton ● Hong Kong-based newspaper South China Morning Post reported Geely’s president,

An Conghui, as confirming that Geely Automobile Holdings (GAH) has pulled out its bid to acquire an equity stake in DRB’s wholly-owned subsidiary, Proton. There was no explanation given as to why GAH decided to withdraw its bid.

● However, GAH’s chairman, Li Shufu, had said in an interview with Bloomberg in early-Mar that Geely was planning to pull out of its bid for Proton as the latter appeared uncertain of its strategy and what it wanted from a foreign partner.

Reduce the likelihood of a bidding war for Proton ● We are negatively surprised by this news given that GAH was earlier reported to be

the leading candidate for Proton’s foreign strategic partner (FSP) by local newswires. Moreover, GAH’s decision to pull out for the bid also reduces the possibility of DRB-Hicom getting maximum value for its stake in Proton.

Paving the way for PSA to be Proton’s FSP ● Nevertheless, all is not lost because the French Group, PSA remains an interested

party to be Proton’s FSP. PSA had earlier proposed to consolidate Proton’s production by transferring the production lines in the Shah Alam plant to the under-utilised Proton City plant in Tanjung Malim in order to gain better economies of scale and increase competitiveness.

● Moreover, in a report last week, news portal, “Automotive News Europe” quoted PSA Group CEO, Carlos Tavares, as saying that the deal to buy a stake in Proton “is all but a done deal and could offer us a great opportunity to expand in Southeast Asia”. This is following PSA’s acquisition of Opel and Vauxall in Europe.

Finding the right FSP for Proton is still DRB’s priority ● We believe that finding the right FSP for Proton is still DRB’s main priority, as it

seeks to move forward with Proton’s recovery plan. DRB’s management has highlighted that there are three key criteria on which Proton’s potential FSP will be evaluated, namely strategic, operational and cultural fit.

Still on track to announce the FSP in 2Q17 ● Proton’s CEO Datuk Ahmad Fuaad Kenali had earlier said the company expects to

name the FSP as early as Apr 2017 and official signing could be completed by end-2Q17. Proton needs to find a strategic foreign technical partner to fulfil conditions set by the government for its approval of its RM1.5bn soft loan to Proton last year.

Maintain Add and target price ● We maintain our Add call with an unchanged SOP-based target price of RM1.69

(10% discount to RNAV). Our Add call is supported by the imminent foreign partner for Proton and better performance in its services division. Key downside risks are no foreign strategic partner for Proton and further deterioration in Proton’s earnings.

Figure 1: DRB-Hicom’s and Proton’s revenue and core net profit in FY3/16 (RM’000)

SOURCES: CIMB, COMPANY REPORTS

12,173

(687)

4,787

(1,095)

(2,000)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Revenue Core net profit

DRB Proton

▎ Malaysia

March 23, 2017 - 1:11 PM


Current price: RM1.39 Target price: RM1.69 Previous target: RM1.69


Reuters: DRBH.KL Bloomberg: DRB MK Market cap: US$606.9m RM2,687m Average daily turnover: US$1.87m RM8.33m Current shares o/s 1,933m Free float: 43.0% *Source: Bloomberg Key financial forecasts


Absolute (%) -3.5 13.9 33.7 Relative (%) -5.9 6.2 32.3

Major shareholders % held Etika Strategi 55.9 LTH 5.2

Analyst(s)

Mohd Shanaz NOOR AZAM


Mar-17F Mar-18F Mar-19F

Net Profit (RMm) (406.7) (108.9) 189.2Core EPS (RM) (0.21) (0.06) 0.10Core EPS Growth (40.8%) (73.2%)FD Core P/E (x) NA NA 14.20Recurring ROE (5.73%) (1.64%) 2.83%P/BV (x) 0.41 0.40 0.40DPS (RM) 0.042 0.011 0.020Dividend Yield 3.03% 0.81% 1.41%

75

93

111

128

146

0.70

0.90

1.10

1.30

1.50

Price Close Relative to FBMKLCI (RHS)

10203040


Vol m

14

Construction│Malaysia│March 23, 2017 Shariah Compliant

Company Note



Gamuda Could strike several good deals by mid-2017 ■ 1HFY7/17 results were broadly in line. No major surprises across all divisions. ■ Construction earnings surged 50% yoy in 1HFY17 as MRT earnings kicked in,

property margins were weak as expected due to market conditions. ■ Positive twist to Splash deal likely; more of a tariff hike issue than valuation. ■ Still a major player in urban and interstate rail jobs. Upside to RM8.3bn order book. ■ Gemas-JB rail and LRT 3 as potential job catalysts. Special dividends a possibility.

1HFY17 broadly in line Annualised 1HFY17 core net profit was broadly in line at 96%/94% of our/Bloomberg consensus full-year forecasts. No major surprises for all divisions which chalked up 9-25% yoy revenue growth in 1H1FY7. Construction pretax profit surged 50% as contributions from MRT 2 PDP and underground works may have overlapped with tail-end profits from MRT 1. The drop in property development margin was in line with the overall domestic market conditions. The 6 sen interim single tier DPS was in line.

Expecting a better 2H We expect overall 2HFY17 financial performance to improve vs. 1HFY17. Though the underground scope of MRT 1 is completed, we expect the construction pretax margin of 8% in 1HFY17 to be sustainable (with more upside) as the underground work for MRT 2 gathers momentum. Outstanding construction order book of RM8.3bn includes a package from Pan Borneo Sarawak. Property unbilled sales were RM2bn at end-2Q17. Property sales in Hanoi and Ho Chi Minh City are looking more robust than expected.

Positive twist to Splash deal likely in April? There has been no update on the 17 Mar meeting between the federal and Selangor state government relating to the acquisition of Syarikat Pengeluar Air Sungai Selangor (Splash). Findings from our own channel checks seem to suggest a promising outcome provided that the main condition of a water tariff hike in Selangor can be fulfilled. In our view, the politics of the water tariff hike issue, rather than pricing (valuation), would make or break the deal. All eyes are on the April timeline for a new offer for Splash.

Still not discounting a special dividend Pending a potential new offer price for Splash, we stick to our sensitivity analysis of special dividends from the Splash sale. Based on a hypothetical RM1.1bn share of proceeds, the combined dividend yield (including 12 sen normal DPS) could be 7% if at least 50% of the cash is set aside as special dividends. On the lower end, 10-20% of the assumed RM1.1bn cash proceeds would translate to a combined dividend yield of 2-5%.

Large addressable tender book Underground and tunneling jobs continue to be Gamuda’s niche, backed by outstanding urban and interstate rail contracts. We estimate the tunneling/underground works for major rail jobs to be worth a total RM41bn. A substantial portion is likely to come from MRT 3. For LRT 3, the 2km tunnel could cost RM600m, based on an assumed RM300m cost/km. We estimate the widely-reported 40km tunnel for the East Coast Rail Line (ECRL) could cost RM4bn and could feature a major underground scope in Gombak.

Big cap top pick; Add retained with higher TP Gamuda remains our top big cap rail play. Key likely catalysts are job wins from Gemas-JB rail contract, LRT 3, and Pan Borneo Sabah. Our RNAV-based target price rises as we update balance sheet items (10% RNAV discount). We maintain our FY17-19 EPS forecasts. Key downside risks are delays in job rollout and the Splash deal.


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

Revenue (RMm) 2,400 2,122 2,452 2,553 2,753Operating EBITDA (RMm) 599.5 385.2 611.0 638.6 734.2Net Profit (RMm) 682.1 626.1 683.2 740.6 866.0Core EPS (RM) 0.28 0.26 0.28 0.31 0.36Core EPS Growth (12.1%) (8.2%) 9.1% 8.4% 16.9%FD Core P/E (x) 18.52 20.18 20.03 19.89 17.01DPS (RM) 0.12 0.12 0.12 0.12 0.12Dividend Yield 2.20% 2.20% 2.20% 2.20% 2.20%EV/EBITDA (x) 24.00 38.08 23.96 22.77 19.67P/FCFE (x) 28.2 229.0 NA 130.7 89.6Net Gearing 47.2% 49.4% 49.4% 46.9% 44.5%P/BV (x) 1.99 1.83 1.81 1.77 1.73ROE 11.5% 9.5% 9.9% 10.5% 12.0%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 1.02 0.98 1.01

▎ Malaysia


Current price: RM5.25 Target price: RM5.98 Previous target: RM5.88


Reuters: GAMU.KL Bloomberg: GAM MK Market cap: US$2,877m RM12,742m Average daily turnover: US$5.30m RM23.55m Current shares o/s: 2,066m Free float: 75.7% *Source: Bloomberg Key changes in this note

No changes

Source: Bloomberg


Major shareholders % held EPF 10.6 Amanah Raya Trustees 8.2 Generasi Setia 5.5

Analyst(s)

Sharizan ROSELY


95.0

98.0

101.0

104.0

107.0

4.50

4.70

4.90

5.10

5.30Price Close Relative to FBMKLCI (RHS)

10

20

30


Vol m

15

Oil & Gas - Retail│Singapore

Company Flash Note



China Aviation Oil In prime aviation position

We hosted an NDR for CAO on 21 Mar. Discussions centered on: i) the outlook for ■the jet fuel business; ii) associate contributions, and iii) potential M&As.

In our view, CAO’s prime position in two major aviation hubs (China and the US) ■underpins future growth. Net cash position provides financial flexibility for M&As.

Maintain Add and TP based on 13x FY18 P/E (c.16% discount to peer average). ■

Proxy for expansion in China’s outbound aviation market ● CAO’s position as sole imported (bonded) jet fuel supplier in China makes it a proxy

for China’s growing outbound travel segment, which we expect to expand with urbanisation and ‘internationalisation’ policies.

● The company shared that under China’s 13th Five Year Plan, the Civil Aviation Administration of China (CAAC) targets to have 260 airports by 2020, with key aviation hubs to serve over 90% of the Chinese population who live within a radius of 100km of each airport.

Stalwart growth geographically ● In 2014, CAO became a member of the LAXFUEL consortium (the largest jet fuel

consortium in the US), solidifying its position in one of the world’s largest aviation markets, and in one of the world’s busiest airports, Los Angeles International Airport.

● It currently supplies jet fuel to 43 international airports in 17 countries. Aviation marketing volumes have grown significantly to 2.3m tonnes (from 1.8m in 2015 and 0.2m in 2011).

SPIA to remain the linchpin of associate contributions ● Future associate contributions (FY16: US$66m) are promising, underpinned by

income growth of major contributor, Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA), in our view. SPIA is the exclusive refueller for Shanghai Pudong airport.

● SPIA’s outlook is bright as not only is Shanghai Pudong International Airport one of the busiest airports in China, it is undergoing capacity enhancements. A fifth runway is slated for completion by end-FY17 or early-FY18 and a new satellite terminal is expected to be completed in FY19F.

● SPIA’s associate contribution rose by 56% to US$60.6m (vs. US$38.9m in FY15) on the back of volume growth (+7.9%) and inventory gains from the oil price rebound in FY16. As we believe the oil price rebound will narrow in FY17-18F, we have assumed that SPIA’s contribution will rise by 6%/6% in FY17/18F. However, we have assumed a higher growth rate of 15% for FY19F, driven by the completion of the new satellite terminal.

Other oil products are variable growth factors ● Volumes of other oil products grew by 112% to 17.6m tonnes in FY16 (FY15: 8.3m

tonnes), largely due to the kick-starting of crude oil supply to China (c.6m tonnes) in 3Q16. We understand that the growth was driven by demand from China’s teapot refineries, which Bloomberg Intelligence projects will keep rising in 2017, albeit at a slower rate than in 2016 due to China’s tightening supervision of tax compliance that could limit independent refining throughput growth.

● We forecast that the other oil products segment will see narrower volume growth of 15% p.a. in FY17F, as we believe FY16 benefited from a low base effect. Notwithstanding the increase in volumes, we highlight that the other oil products division only accounted for c.5% of CAO’s FY16 gross profit (US$44.1m).

Selective in pursuing M&A opportunities ● We believe that CAO’s cash pile is earmarked for potential M&As. Management

shared that it is always on the lookout but is selective in investments, as CAO’s organic earnings growth has risen steadily. Management’s preference is strategic assets like SPIA or assets that give it access to more aviation hubs.

Maintain Add; prime position in China and the US ● We like CAO for its prime position in two of the largest global aviation markets which

should underpin the continued growth of its core jet fuel business. We forecast jet fuel supply and trading volume growth of 10.6% p.a. in FY17-19F.

● The stock currently trades at a CY18 P/E of 8.8x, at a 43% discount to the global peer average of 15.5x. If we strip out net cash per share of 21.6 UScts, CAO’s CY18 P/E declines to c.6.8x.

● Key risks include weaker jet fuel volume growth and lower contributions from SPIA.

▎ Singapore

March 23, 2017 - 8:31 PM


Current price: S$1.47 Target price: S$2.28 Previous target: S$2.28


Reuters: CNAO.SI Bloomberg: CAO SP Market cap: US$905.8m S$1,267m Average daily turnover: US$1.95m S$2.76m Current shares o/s 866.2m Free float: 28.9% *Source: Bloomberg Key financial forecasts


Absolute (%) -3 6.9 84.3 Relative (%) -2.7 -2 75.8

Major shareholders % held China National Aviation Fuel Grp 51.0 BP PLC 20.1

Analyst(s)

Cezzane SEE

T (65) 6210 8699 E [email protected] LIM Siew Khee T (65) 6210 8664 E [email protected]

Dec-17F Dec-18F Dec-19F

Net Profit (US$m) 98.8 104.8 117.3Normalised EPS (US$) 0.11 0.12 0.14Normalised EPS Growth 10.8% 5.6% 12.0%FD Normalised P/E (x) 9.15 8.66 7.73Recurring ROE 14.4% 13.9% 14.1%P/BV (x) 1.26 1.15 1.04DPS (US$) 0.034 0.036 0.041Dividend Yield 3.27% 3.46% 3.88%

89

139

189

0.60

1.10

1.60

Price Close Relative to FSSTI (RHS)

5

10

15


Vol m

16

Retail│Thailand│March 23, 2017

Company Note



Mc Group Like an expensive pair of jeans

We resume coverage on MC with a Reduce rating and higher target price of ■THB19.20, based on 14.6x FY18F P/E (+0.5 s.d. above its 5-year average).

We have a positive view on its new lifestyle products and strategy but think that the ■current share price already reflects our EPS CAGR forecast of 11% for FY17-19F.

MC is slowing its store expansion target and plans to focus on ramping up same-■store sales growth (SSSG) by improving product mix and operational efficiency.

Decent earnings growth outlook but likely priced in We project EPS growth of 11% in FY17-19F for MC, mainly driven by: 1) positive same-store-sales growth (SSSG) of 8-10% p.a., 2) sales channel expansion via opening of new branches and increasing online sales. We anticipate that MC will register decent earnings growth in FY17-19F but believe that the current share price has already priced in the earnings contribution from its new product lines. We expect the new products to be key catalysts for SSSG over the next few years.

Focus on SSSG and online channel MC targets to open only 20-25 outlets in FY17F, a third of its historical average of 60 new shops. MC is more likely to focus on driving SSSG by: 1) introducing new products and 2) improving operating efficiency through better supply chain management. MC also intends to be more active in the online sales channel, which could provide nationwide access to target consumers at lower cost than opening new outlets. We agree with this strategy, given that its current 897 branches already cover most high-traffic areas.

Introducing new product lines Since late-2016, MC has launched new lifestyle product lines, including skincare and activewear. Its long-term target is for lifestyle products to comprise 12% of total sales by 2019F (1% in 2016). Additionally, the company targets to raise the tops-to-jeans ratio in its clothing sales mix from 1:1 in 2016 to 3:1 by end-2019F, given that tops deliver a higher repurchase rate than jeans. In our view, this would support MC’s customer base expansion by providing greater variety of products.

Still proving itself as a lifestyle retailer The company’s commitment to raise earnings contribution from the lifestyle product segment appears challenging, given that MC has established itself as a denim maker. Therefore, we see downside risk to our earnings forecasts from higher-than-expected SG&A expenses for marketing and promotion campaigns to raise public awareness on its new products. We also believe that the recent rally in stock price of 44% has already reflected this story.

Dividend yield has become less attractive Based on our net profit forecast and current share price, we expect MC to generate FY17F dividend yield of less than 5% (vs. above 6% in the last three years). This would make MC less attractive to investors who focus on yields, in our view.

Resume coverage with Reduce, as positive outlook likely priced in We resume coverage on MC with a Reduce rating and higher target price of THB19.20. We revise up FY17-18F EPS by 18-45% to reflect the better-than-expected FY16 results and higher SSSG assumptions for FY17-19F, thanks to contribution from new lifestyle product lines. Possible de-rating catalysts are sluggish consumption, lower dividend payout and higher-than-expected SG&A expenses. An upside risk to our call is faster-than-expected acceleration in lifestyle product sales.



Revenue (THBm) 3,895 4,442 5,029 5,583 6,068Operating EBITDA (THBm) 889 1,053 1,120 1,211 1,294Net Profit (THBm) 732 843 952 1,050 1,145Core EPS (THB) 0.92 1.05 1.19 1.31 1.43Core EPS Growth 1.9% 15.1% 13.0% 10.3% 9.1%FD Core P/E (x) 23.72 20.60 18.23 16.53 15.16DPS (THB) 0.75 0.90 1.01 1.12 1.22Dividend Yield 3.46% 4.15% 4.66% 5.14% 5.61%EV/EBITDA (x) 18.81 15.49 14.60 13.40 12.40P/FCFE (x) 18.94 27.53 27.16 19.29 16.82Net Gearing (17.6%) (26.4%) (24.8%) (26.6%) (29.5%)P/BV (x) 4.39 4.17 4.03 3.89 3.75ROE 18.8% 20.8% 22.5% 23.9% 25.2%% Change In Core EPS Estimates 17.7% 45.4%CIMB/consensus EPS (x) 1.01 0.99 0.90

▎ Thailand

REDUCE (previously HOLD) Consensus ratings*: Buy 8 Hold 3 Sell 0

Current price: THB21.70 Target price: THB19.20 Previous target: THB14.10

Up/downside: -11.5% CIMB / Consensus: -1.3%

Reuters: MC.BK Bloomberg: MC TB Market cap: US$501.3m THB17,360m Average daily turnover: US$1.72m THB60.55m Current shares o/s: 800.0m Free float: 38.9% *Source: Bloomberg Key changes in this note

FY17-18F revenue increased by 15-24%. FY17-18F EPS increased by 18-45%

Source: Bloomberg


Major shareholders % held Ms.Sunee Seripanu 45.3 Mindo Asia Investment 8.8 Thai NVDR 3.7

Analyst(s)

Tanida JIRAPORNKASEMSUK


87

119

151

11.0

16.0

21.0

Price Close Relative to SET (RHS)

10

20

30


Vol m

17

Telecommunications│Thailand│Equity research│March 23, 2017

Sector Note



Telco - Mobile Is the 2.3GHz deal a game changer for DTAC?

All telcos are likely to submit proposals for TOT’s 2.3GHz deal, our survey found. ■ DTAC needs this deal the most given its brand improvement, regulatory cost saving ■and better position in upcoming auctions, but we cannot rule out a delay risk.

Any positive progress on this deal will lift DTAC’s share price, but we see limited ■financial upside for the company from it. AIS remains our top pick in the sector.

However, all spectrum deals in the past had experienced setbacks due to political ■intervention. As such, we cannot rule out the possibility of this deal being delayed.

All telcos likely to submit proposals for TOT’s 2.3GHz deal We surveyed the three mobile operators on 21 Mar and found that all are likely to submit their proposals on 27 Mar 2017 to be TOT’s partner for the 2.3GHz spectrum. However, none provided any details on the proposal. TOT’s press release on 10 Feb quoted SEVP Mr Rungsun Channarukul as saying that TOT will announce the winner 60 days after receiving all proposals.

TOT’s preliminary criteria for the 2.3GHz partnership deal According to Mr Channarukul, TOT is looking for an operating partner for its 60MHz unpaired band of 2.3GHz spectrum until 2025 and will be using the beauty contest approach to pick the winner. From the press release, TOT’s criteria include an 80% population coverage in two years, 450Mpbs throughput network capability, and a minimum fee at THB1.4bn-1.5bn from the deal. In return, the winning telco can utilise up to 60% of the TOT's network capacity and own any essential facilities.

Previous partnership cases As a guide for this upcoming deal, three previous cases of partnerships are: 1) a True/CAT partnership deal on 850MHz, 2) AIS/TOT partnership deal on 2.1GHz, and 3) the spectrum auctions of 900MHz and 1800MHz in FY15/16. The costs per unpaired MHz per year of these cases were: 1) c.THB117m for the True/CAT deal; 2) THB130m for the AIS/TOT deal; and 3) THB253m for the 900MHz licence and THB74m for the 1800MHz licence. Meanwhile, the minimum fee required by TOT implies only THB25m.

DTAC needs it the most Presently, AIS, DTAC and True have a pair of 50-55MHz bandwidth each to serve fast growing data traffic. However, DTAC is obliged to return its pair (35MHz out of 50MHz) for reauctioning in Sep 2018. Meanwhile, the National Broadcasting and Telecommunications Commission (NBTC) has quite a poor track record of auctioning spectrums on time. Both situations put DTAC’s spectrum situation at risk and it badly needs to secure the 2.3GHz spectrum to relieve such a risk.

DTAC’s room for regulatory cost reduction With this deal, DTAC should be able to move its 4G traffic from the 1800MHz band to 2.3GHz band, resulting in regulatory cost reductions from 16% of service revenue in 4Q16 to 6%. We assume FY18F effective regulatory cost to service revenue of 10%, implying THB2.7bn in possible regulatory cost savings from this deal.

DTAC’s better position in upcoming spectrum auctions The 60MHz additional unpaired bandwidth of 2.3GHz spectrum should allow DTAC to effectively spend its capital on network rollout instead of overpaying for the 850MHz and 1800MHz spectrum licences. As a result, DTAC may be able to save THB30bn-60bn in spectrum acquisition cost for its network rollout and densification.

Figure 1: TOT – 2.3GHz partnership details, timeframe and price reference

SOURCES: CIMB RESEARCH, COMPANY

Item Unit Period Event

Spectrum 2300MHz 15-Feb-17 The deadline for telcos to take the request for proposal documentBand 2310-2370MHz 27-Mar-17 The deadline to submit the proposal to TOTBandwidth 60MHz May-17 The timeline for TOT to choose a potential partnerStandard TD-LTE Aug-17 The timeline for the partnership contract to be effectiveWholesale portion 60% Spectrum Approach Bandwidth Term Unit cost Remark

Term 2025 MHz 1x MHz years THBm/1xMHz/year

Contract Wholesale 850 Wholesale 30 14 117 FDD/3GPop coverage 80% in 2 years 2100 Auction 90 15 30 FDD/3G/4GThroughput 450Mbps 1800 Auction 60 18 74 FDD/2G/4GMin fee per year THB1.4-1.5bn 900 Auction 40 15 253 FDD/2G/3G/4G

2100 Wholesale 30 9 130 FDD/3G/4G2300 Wholesale 60 8 25 TDD/4G

▎ Thailand

Overweight (no change) Highlighted companies

Advanced Info Service ADD, TP THB186.0, THB176.5 close

AIS is the largest mobile operator in Thailand, with a 47% subscriber market share and 52% revenue market share in 2015. It had 39m subscribers, with THB239 ARPU in 2015. The company's major shareholders are Intouch (40.5%) and SingTel (23.5%).

Total Access Communication HOLD, TP THB42.40, THB42.75 close

DTAC is the second-largest mobile operator in Thailand, with a 31% subscriber market share and 28% revenue market share in 2015. It had 25m subscribers, with THB209 ARPU in 2015. The company is 56.9%-owned by Telenor.

True Corporation REDUCE, TP THB5.25, THB6.40 close

True is the third-largest mobile operator in Thailand, with a 22% subscriber market share and 20% revenue market share in 2015. It had 19m subscribers, with THB183 ARPU in 2015. True also operates a fixed broadband business (3m subscribers) and a pay-TV business (2m). Its major shareholders are CP Group (64%) and China Mobile (18%).


Analyst(s)

Pisut NGAMVIJITVONG



Advanced Info Service 18.40 15.77 16.39 Total Access Communication 125.63 37.53 37.28 True Corporation NA NA NA


Advanced Info Service 10.26 8.59 7.42 Total Access Communication 3.67 3.50 3.35 True Corporation 1.86 1.95 2.21


Advanced Info Service 3.81% 4.44% 4.27%Total Access Communication 0.40% 1.33% 1.34%True Corporation 0.00% 0.00% 0.00%

18

Asia Pacific Daily│Equity research│March 24, 2017

REGIONAL HEAD

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

COUNTRY HEADS OF RESEARCH

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

REGIONAL SECTOR HEADS

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

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

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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 2016, Anti-Corruption 2016. AAV – Very Good, n/a, ADVANC – Very Good, Certified, AEONTS – Good, n/a, AMATA – Excellent, Declared, ANAN – Very Good, Declared, AOT – Excellent, Declared, AP – Very Good, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Very Good, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – not available, Declared, BCP - Excellent, Certified, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, Declared, BEC - Good, n/a, BH - Good, Declared, BIGC - Excellent, Declared, BJC – Good, n/a, BLA – Very Good, Certified, BPP – not available, n/a, BTS - Excellent, Certified, CBG – Good, n/a, CCET – not available, n/a, CENTEL – Very Good, Certified, CHG – Very Good, n/a, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, Declared, DEMCO – Excellent, Certified, DTAC – Excellent, Certified, EA – Very Good, Declared, ECL – Good, Certified, EGCO - Excellent, Certified, EPG – Good, n/a, GFPT - Excellent, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Very Good, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Declared, ICHI – Very Good, Declared, INTUCH - Excellent, Certified, ITD – Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Declared, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Declared, M – Very Good, Declared, MAJOR - Good, n/a, MAKRO – Good, Declared, MALEE – Very Good, Declared, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Declared, MEGA – Very Good, Declared, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Very Good, Declared, PSH – not available, n/a, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Declared, RATCH – Excellent, Certified, ROBINS – Very Good, Declared, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI - Good, n/a, SPALI - Excellent, Declared, SPRC – Very Good, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, Declared, TCAP – Excellent, Certified, THAI – Very Good, Declared, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Very Good, Certified, TICON – Very Good, Declared, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Good, n/a, TMB - Excellent, Certified, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Very Good, Declared, TTW – Very Good, Declared, TU – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into: - Companies that have declared their intention to join CAC, and - Companies certified by CAC

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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· pdf fileon 22 mar, msci launched the 2017 market classification consultation process,...

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