regional morning notes · 2020. 10. 27. · bank mandiri (bmri ij/buy/rp5,775/target: rp7,500) page...

Tuesday , 27 Octobe r 2020

1 Refer to last page for important disclosures.

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

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GREATER CHINA Sector Banking Page 3 NIM to narrow but expect less “national service” efforts in 2021. Maintain MARKET WEIGHT.

Results China Resources Cement Holdings Page 5(1313 HK/BUY/HK$10.02/Target: HK$13.40) 3Q20: Positive surprise on favourable tax treatment.

Great Wall Motor (2333 HK/SELL/HK$13.10/Target: HK$10.00) Page 8 3Q20: Core earnings tumble 20.7% yoy; missing estimates.

Kweichow Moutai (600519 CH/BUY/Rmb1,643/Target: Rmb1,938) 1 3Q20: No concerns about the modest results.

Sany Heavy Equipment Int'l (631 HK/BUY/HK$4.73/Target: HK$5.50) Page 14 3Q20: Slightly below expectations on higher R&D cost.

Sinopharm Group (1099 HK/HOLD/HK$17.82/Target: HK$19.95) Page 17 9M20: Earnings up by 7.90% yoy; stronger than expected. Upgrade to HOLD.

Update Ping An Good Doctor (1833 HK/BUY/HK$100.00/Target: HK$148.00) Page 20 Actively upgraded service capacity and capabilities; we believe its efforts will eventually lead to increasing market share in the next few years.

INDONESIA Results Astra Agro Lestari (AALI IJ/HOLD/Rp10,550/Target: Rp9,470) Page 23 3Q20: Results within expectations; mainly buoyed by higher realised ASPs.

Bank Mandiri (BMRI IJ/BUY/Rp5,775/Target: Rp7,500) Page 26 3Q20: Net profit jumps 57% qoq on a 20% qoq drop in provision.

Nippon Indosari Corpindo (ROTI IJ/BUY/Rp1,235/Target: Rp1,370) Page 29 9M20: Underperforms expectations, but could post a sharp rebound in 2021.

MALAYSIA Strategy Bound to rebound Page 32 While political caution lingers, Malaysia equities are expected to rebound as investors’ focus shift to the upcoming results season and optimism towards vaccine discovery.

Sector Plantation Page 34 2021’s CPO price outlook will depend on the impact of La Nina on South America’s soybean complex and full implementation of the B30 biodiesel mandate in Indonesia.

Results IGB REIT (IGBREIT MK/BUY/RM1.65/Target: RM1.90) Page 36 3Q20: Earnings recover, but 4Q20 may see weakness as footfall at malls is disrupted due to a resurgence of COVID-19 cases.

KEY INDICES Prev Close 1D % 1W % 1M % YTD %

DJIA 27685.4 (2.3) (1.8) 1.9 (3.0)S&P 500 3401.0 (1.9) (0.8) 3.1 5.3 FTSE 100 5792.0 (1.2) (1.6) (0.9) (23.2)AS30 6357.3 (0.3) (1.2) 3.5 (6.5)CSI 300 4691.2 (0.6) (1.4) 2.7 14.5 FSSTI 2523.3 (0.6) (0.8) 2.1 (21.7)HSCEI 10125.6 0.4 2.1 8.8 (9.3)HSI 24918.8 0.5 2.2 7.2 (11.6)JCI 5144.0 0.6 0.3 4.0 (18.3)KLCI 1494.6 (0.0) (1.5) (1.0) (5.9)KOSPI 2343.9 (0.7) (0.1) 2.9 6.7 Nikkei 225 23494.3 (0.1) (0.7) 1.2 (0.7)SET 1208.0 (0.5) (2.1) (3.0) (23.5)TWSE 12909.0 0.1 0.0 5.5 7.6

BDI 1402 (0.9) 3.9 (15.9) 28.6 CPO (RM/mt) 3053 0.1 1.7 4.1 0.9 Brent Crude (US$/bbl)

40 (3.1) (5.1) (3.5) (38.7)

Source: Bloomberg

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

BUY Anhui Conch 914 HK 50.50 72.18 42.9 AKR Corporindo AKRA IJ 2,640.00 3,740.00 41.7 Bank Mandiri BMRI IJ 5,775.00 7,500.00 29.9 Bank Negara Indonesia BBNI IJ 4,850.00 5,500.00 13.4 Bumi Serpong BSDE IJ 890.00 1,150.00 29.2 Top Glove TOPG MK 8.70 12.30 41.4 CapitaMall Trust CT SP 1.82 2.35 29.1 DBS DBS SP 21.30 23.50 10.3 Advanced Info ADVANC TB 172.50 227.00 31.6

CP ALL CPALL TB 55.50 80.00 44.1

KEY ASSUMPTIONS GDP (% yoy) 2019 2020F 2021FUS 2.2 (4.5) 2.8Euro Zone 1.3 (8.0) 5.2Japan 0.7 (6.0) 3.0Singapore 0.7 (5.0) 4.5Malaysia 4.3 (3.5) 5.5Thailand 2.4 (7.5) 6.0Indonesia 5.0 (1.1) 3.8Hong Kong (1.2) (7.0) 4.2China 6.1 1.2 6.6 CPO (RM/mt) 2,079 2,400 2,350Brent (Average) (US$/bbl) 64.4 42.0 47.0Source: Bloomberg, UOB ETR, UOB Kay Hian

CORPORATE EVENTS Venue Begin Close

Conference Call with Kuala Lumpur 27 Oct 27 OctSerba Dinamik Holdings Bhd (SDH MK)

Tuesday , 27 Oc tobe r 2020



SINGAPORE Sector Offshore & Marine Page 39 3Q20 results preview: We are not expecting anything eye-catching.

Initiate Coverage JEP Holdings (JEP SP/BUY/S$0.175/Target:S$0.20) Page 41 Riding on UMS’ coat-tails.

Results Ascendas REIT (AREIT SP/BUY/S$3.03/Target: S$3.65) Page 44 3Q20: Resiliency from geographical and tenant diversification.

Update PropNex (PROP SP/BUY/S$0.635/Target: S$0.86) Page 47 Continued strength and resiliency.

THAILAND Results Delta Electronics (DELTA TB/BUY/Bt179.50/Target: Bt224.00) Page 51 3Q20: Share price could outperform in the near term. Upgrade to BUY.

Update Bangkok Bank (BBL TB/BUY/Bt93.75/Target: Bt125.00) Page 54 The path to recovery remains intact.




SECTOR UPDATE

Banking – China NIM To Narrow But Expect Less “National Service” Efforts In 2021 While the PBOC has not given any “window guidance” on profit transfer in 2021, our analysis suggests the economic obligation to only be at 25% of that in 2020. Meanwhile, with declining market lending rate and increasing deposit cost, we foresee another 5bp NIM compression in 1H21. The central government’s efforts to cool down the property sector would have more of an adverse impact on banks with larger property-related loan exposure (mostly SOEs). Maintain MARKET WEIGHT.

WHAT’S NEW • Drawing on past experiences, loose monetary policy expected to sustain till

mid-21. Loan growth accelerated to 13% yoy in 9M20 as the People’s Bank of China (PBOC) injected liquidity to support the economy amid the COVID-19 pandemic. Since 2013, loan growth has experienced a downtrend, in tandem with moderating GDP growth, and hit a seven-year low of 12.1% yoy in Feb 20. Since the pandemic, the PBOC started to inject liquidity to increase borrowers’ cash flow, which drove the rebound in loan growth. We see similarities between the current phenomenon to that in 2015. The PBOC also injected liquidity to help borrowers tide through the economic downturn in early-15. Following 15 months of liquidity injection leading to firm signs of an economic recovery, the PBOC then started to withdraw liquidity from the market in 2Q16. This explains the drop in loan growth since Apr 16 (see RHS chart). Based on experience over the past five years, we only expect the PBOC to start tightening liquidity in 3Q21 or 4Q21. The exact timing for monetary policy tightening would depend on the recovery in domestic macro indicators and international trade data, we opine. In addition, the outcome of the US presidential election, an extended trade deal and developments in Sino-US tensions would be key factors affecting the PBOC’s monetary policy direction in 2021.

• “Profit transfer” mandate will not be major concern in 2021. Recall that in early- 20, the central government and PBOC mentioned that “banks should sacrifice Rmb1.5t in benefits to support the economy”. Among these, a) Rmb930b would be accounted for by means of lowering the market lending rate; b) Rmb230b would come from interest-free loan extensions for individuals and SME borrowers; and c) Rmb320b would constitute cuts in fees and commission, which will benefit banks’ corporate clients. PBOC governor Mr Yi Gang indicated that banks have already completed Rmb1.1t in “profit transfer” as at end-Sep 20, and believes the full-year target of Rmb1.5t can be fulfilled by end-20. This means banks will “sacrifice” Rmb400b in 4Q20 (vs the average of Rmb367b per quarter transferred in 9M20).

• While the PBOC has not yet given a similar “window guidance” for 2021, we believe banks will continue to concede revenue, but only in the form of a lower market lending rate. Assuming the lending rate declines by 50bp in 1H21, with loan growth maintained at 13% yoy and 30% of total loans being re-priced in 1H21 (based on average loan tenure of 3 years), total revenue lost by the banking sector due to lower lending rate would be approximately Rmb365b. This is only equivalent to 25% of total income “sacrificed” in 2020.

MARKET WEIGHT (Maintained) SECTOR PICKS

Source: Bloomberg, UOB Kay Hian

LOAN GROWTH REBOUNDED OFF A SEVEN-YEAR LOW IN FEB 20; EXPECTED TO REMAIN ROBUST TILL 2H21

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2013 2014 2015 2016 2017 2018 2019 2020

Loan balance (Rmbb) % chg yoy (RHS)

Source: PBOC, Wind, UOB Kay Hian

ANALYST(S) Eric Wang Zhen +8621 5404 7225 ext.820 [email protected]

Jayson Kong +603 2147 1912 [email protected]

Company Ticker Rec

Share Price (HK$)

Target Price (HK$)

CMB 3968 HK BUY 43.85 51.60

PEER COMPARISON

Price @ Target Market Upside/

(Downside) ---------- PE --------- --------- P/B -------- ----- P/PPOP ----- -------- Yield ------- -------- ROE --------Company Ticker Rec 26 Oct 20 Price Cap to TP 2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021F (HK$) (HK$) (HK$ b) (%) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) CCB 0939 HK BUY 5.80 6.46 1466.4 11.4 5.2 4.7 0.55 0.51 2.5 2.4 5.7 6.4 10.5 10.9 ICBC 1398 HK BUY 4.77 5.30 1995.2 11.1 5.2 4.5 0.55 0.51 2.5 2.4 5.8 6.6 10.7 11.2 CMB 3968 HK BUY 43.85 51.60 1186.8 17.7 10.7 8.9 1.56 1.34 4.9 4.5 2.8 3.4 14.5 15.1 CQRCB 3618 HK HOLD 3.26 3.20 60.1 (1.8) 3.8 2.9 0.36 0.33 1.6 1.5 5.9 7.5 9.5 11.1 Source: Bloomberg, Wind, UOB Kay Hian




ESSENTIALS • With declining market lending rate and increasing deposit costs, we foresee another

5bp NIM compression in 1H21. While we do not expect lending rate to rebound in 1H21, downside is also limited. As mentioned above, the declining lending rate in 2020 was caused by a lower interest rate as well as the central governments’ “window guidance” efforts. As seen in RHS chart, China’s market lending rate has been on a declining trend since 2Q19 due to the low interest rate environment. Overall lending rate declined by 20bp in 2019, and fell by a larger 38bp in 1H20 due to a combination of a low interest environment and the PBOC’s window guidance. The declining lending rate on ordinary loans was the main drag. In 1H20, ordinary loan rate declined 48bp while mortgage rate decreased by only 20bp.

• In the bond market, after the 10-year government bond yield hit a historical low on 26 Apr 20 (2.58%), it swiftly rebounded to 3.21% on 23 Oct 20. Current yield remains slightly below the 5-year average (3.27%). We think the yield can be maintained at 3.2-3.3% in 2021, which implies that NIM would bottom out next year. Unlike interest rate (which is cyclical), the increasing costs on acquiring deposits is expected to persist. This would put pressure on banks’ liability management and would be a long term negative for banks. Specifically, banks which are deposit-funded will have more pressure than wholesale-funded banks in the long term.

• Chinese banks remain largely on track in achieving regulators’ “window guidance”. As at end-Sep 20, inclusive SME loans growth reached 30.5% yoy, with newly-issued inclusive SME loan rate declining by 82bp in 9M20. We are confident that SOE banks will be able to achieve the target of at least 40% growth in inclusive SME loans in 2020. In terms of asset quality, NPL disposal grew 25% yoy to Rmb1.73t in 9M20, but remains far off the China Banking and Insurance Regulatory Commission’s full-year target of Rmb3.4t.

ACTION • Maintain MARKET WEIGHT. We advocate sticking to large banks with strong capital buffer

as SOEs and joint-stock banks (JSB) have historically showed stronger ability in managing NPLs amid the economic downturn, which is expected to persist till 1H21. Among large banks, we think JSBs will outperform SOEs on NIM. Due to lower dependence on deposit funding, JSBs should show stronger ability in managing NIM under the low interest rate environment in 2021. Declining financing cost via the interbank market (due to ample liquidity) will also ease JSBs’ pressure on NIM compression.

• Prefer CMB (3968 HK) over CCB (939 HK) as we opine that central government’s efforts to cool down property sector would hurt SOEs more than JSBs. Among measures to curb speculation in the property market, banks have been told to tighten financing to property developers as well as mortgage loans to property buyers. Of the newly-issued loans in 9M20, the proportion of property loans declined 3.7ppt as compared with 2019. China Merchants Bank’s (CMB) property-related loan exposure is lower at 33.24% vs China Construction Bank’s (CCB) 39.03%, which suggests a greater negative impact on the latter. This is especially so as the availability of collaterals make mortgage loans relatively risk-free (yet high yielding).

• China Merchants Bank (3968 HK/BUY/Target: HK$51.60) is our top pick. Upgrade CMB to BUY with a higher target price of HK$51.60 as we roll over valuation base to 2021F BVPS. Based on the Gordon Growth model (GGM), our target price of HK$51.60 implies 1.50x 2021F P/B (3-year historical average). CMB is the only bank under our coverage that has managed to deliver an all-round improvement in asset quality in 1H20 with only a mild compromise on profit growth, which suggests superior risk management. With CAR of 14.90% as at end-1H20, CMB will be able to increase NPL disposal in late-20 and early 2021. Besides this, we do not foresee much “national service” (China has been calling up banks into “national service”, putting banks at the forefront of the nation’s effort to help shore up the economy and) being undertaken as it is a JSB instead of an SOE bank. These advantages (faster-than-peers’ growth, solid asset quality, less pressure on NIM compression and dominant wealth management business) should support CMB’s valuation.

• Among SOEs, we prefer CCB (939 HK/BUY/Target: HK$6.46). Based on the GGM methodology, our target price of HK$6.46 implies 0.60x 2020F P/B and 0.55x 2021F P/B. We like CCB among the six SOE banks due to: a) solid asset quality (1H20 NPL ratio of 1.49% and provision coverage ratio of 222.5%); b) strictest NPL recognition policy - CCB has recognised all overdue loans as NPL with overdue loan/NPL ratio of 76%. Furthermore, CCB’s CAR of 17.01% is also the highest in the sector.

MARKET LENDING RATE HAS BEEN ON A DOWNTREND SINCE 2Q19

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

2013 2014 2015 2016 2017 2018 2019 2020

Overall Ordinary Bill discount Mortgage


10-YEAR CHINESE GOVERNMENT BOND YIELD REBOUNDED ABOVE PRE-COVID-19 LEVEL

2.50%

2.70%

2.90%

3.10%

3.30%

3.50%

3.70%

3.90%

4.10%

4.30%

2015 2016 2017 2018 2019 2020

Source: Wind, UOB Kay Hian

LPR STAYED UNCHANGED SINCE APR 20

3.60

3.80

4.00

4.20

4.40

4.60

4.80

Aug

19

Sep

19

Oct

19

Nov

19

Dec

19

Jan

20

Feb

20

Mar

20

Apr 2

0

May

20

Jun

20

Jul 2

0

Aug

20

Sep

20

Oct

20

1-year LPR 5-year LPR

(%)





COMPANY RESULTS BUY

(Maintained) Share Price HK$10.02 Target Price HK$13.40 Upside +33.7% (Previous TP HK$12.80)

COMPANY DESCRIPTION CR Cement, through its subsidiaries, produces, distributes and sells cement, clinker and concrete.

STOCK DATA GICS sector MaterialsBloomberg ticker: 1313 HKShares issued (m): 6,982.9Market cap (HK$m): 69,969.0Market cap (US$m): 9,028.33-mth avg daily t'over (US$m): 13.4

Price Performance (%) 52-week high/low HK$12.42/HK$7.55

1mth 3mth 6mth 1yr YTD(9.7) (2.0) (2.3) 21.3 1.0

Major Shareholders %China Resources National Corporation 68.7

FY20 NAV/Share (HK$) 6.78FY20 Net Cash/Share (HK$) 1.61

PRICE CHART

70

90

110

130

150

170

190

6

8

10

12

14

16(%)(lcy)

CHINA RESOURCES CEMENT

CHINA RESOURCES CEMENT/HSI INDEX

0

20

40

60

Oct 19 Dec 19 Feb 20 Apr 20 Jun 20 Aug 20

Volume (m)

Source: Bloomberg

ANALYST(S) Sandra Huang Jie Qiong +8621 5404 7225 ext 804 [email protected]

Neo Chen, CFA +8621 54047225 ext.810 [email protected]

China Resources Cement Holdings (1313 HK)

3Q20: Positive Surprise On Favourable Tax Treatment CR Cement reported a 3Q20 net profit of HK$3.2b, up 58% yoy, beating our and consensus estimates. The positive surprise was mainly attributed to a favourable tax treatment, which brings down the effective tax to 25-26% starting from 2020. We also observed a recovery in sales volumes and ASPs in September. This recovery should sustain into 4Q20 in the Greater Bay Area. Maintain BUY and raise target price to HK$13.40 on our higher earnings forecasts.

3Q20 RESULTS

yoy qoq yoyYear to 31 Dec (HK$m) 9M19 9M20 % chg 3Q19 2Q20 3Q20 % chg % chgRevenue 26,716 27,201 1.8 9,306 11,290 10,317 (8.6) 10.9Gross profit 10,426 10,968 5.2 3,652 4,670 4,105 (12.1) 12.4SG&A (2,637) (2,457) (6.8) (953) (867) (945) 9.0 (0.8)Operating profit 7,788 8,511 9.3 2,699 3,803 3,160 (16.9) 17.1Net finance cost (335) (203) (39.4) (113) (66) (58) (11.6) (48.4)PBT 8,132 9,476 16.5 2,827 4,272 3,621 (15.2) 28.1Tax (2,254) (2,021) (10.3) (755) (1,163) (380) (67.3) (49.6)Net Profit 5,792 7,393 27.6 2,026 3,078 3,201 4.0 58.0Gross margin (%) 39.0 40.3 1.3 39.2 41.4 39.8 (1.6) 0.6EBIT margin (%) 29.2 31.3 2.1 29.0 33.7 30.6 (3.1) 1.6Net profit margin (%) 21.7 27.2 5.5 21.8 27.3 31.0 3.8 9.3

Source: CR Cement, UOB Kay Hian

RESULTS • 3Q20 results above estimates... China Resources Cement Holdings (CR Cement)

reported a 3Q20 net profit of HK$3.2b, up 58% yoy. 9M20 net profit grew 27.6% yoy to HK$7.4b. The results were above our expectations and Bloomberg consensus estimates.

• …on favourable tax treatment. The company recorded a lower yoy tax amount of HK$474m, as: a) withholding tax is now calculated at 5% (vs 10% previously) on mainland China dividends; and b) deferred tax is now calculated at 5% (vs 10% previously) on the intended distribution of profits from subsidiaries located in mainland China (to a holding company in Hong Kong). Management expects this favourable change to sustain in the future with effective tax rate expected to be reduced to 25-26% (vs 28% currently). Net profit grew 19% yoy, factoring out the tax effect.

KEY FINANCIALS Year to 31 Dec (HK$m) 2018 2019 2020F 2021F 2022FNet turnover 38,791.5 38,955.6 39,667.6 38,740.0 38,963.3EBITDA 13,549.4 14,017.9 14,738.6 13,792.0 13,575.9Operating profit 11,395.8 11,877.1 12,550.4 11,582.3 11,351.6Net profit (rep./act.) 7,975.4 8,617.5 9,863.0 9,041.1 8,986.1Net profit (adj.) 7,975.4 8,617.5 9,863.0 9,041.1 8,986.1EPS (Fen) 114.2 123.4 141.2 129.5 128.7PE (x) 8.8 8.1 7.1 7.7 7.8P/B (x) 1.9 1.7 1.5 1.4 1.2EV/EBITDA (x) 4.4 4.2 4.0 4.3 4.4Dividend yield (%) 5.5 5.9 6.5 5.9 5.9Net margin (%) 20.6 22.1 24.9 23.3 23.1Net debt/(cash) to equity (%) 0.6 (11.7) (23.8) (32.1) (41.0)Interest cover (x) 23.6 36.4 76.2 99.8 165.3ROE (%) 23.5 21.6 22.1 18.2 16.6Consensus net profit - - 9,459 9,692 9,657UOBKH/Consensus (x) - - 1.04 0.93 0.93Source: CR Cement, Bloomberg, UOB Kay Hian




• Cement sales largely in line with expectations. Cement and clinker sales volumes (including 2.7m tonnes of cement from third-parties) grew by 2.6% yoy in 9M20 while concrete sales declined by 8.7% yoy. Meanwhile, ASPs for cement and clinker (blended ASP) edged up by 1.6% yoy to HK$365/tonne.

STOCK IMPACT • 4Q20 outlook promising. As of 23 Oct 20, we noticed cement price increases of

Rmb30/tonne in Guangdong while Guangxi prices were up by Rmb1/tonne from end-September. Management guided on a positive outlook for both sales volumes and ASPs in the peak season, despite a record-high base last year (recall there were more than six rounds of ASP hikes with the cumulative increase having gone up to as much as Rmb100/tonne and 50/tonne in Guangdong and Guangxi respectively). Management foresees strong demand from infrastructure developments and on the stable property market outlook in Guangdong and Guangxi in 4Q20.

EARNINGS REVISION • We raise our 2020-21 net profit forecasts by 11%/2% respectively, to factor in the favourable

tax treatment as well as better-than-expected cost control over distribution and administrative expenses.

EARNINGS FORECAST CHANGES

HK$m ----------------- Old ----------------- ----------------- New ----------------- ---------------- Chg% ----------------2020F 2021F 2022F 2020F 2021F 2022F 2020F 2021F 2022F

Revenue 39,273 39,694 40,055 39,668 38,740 38,963 1% -2% -3% Net income 8,913 8,872 8,843 9,863 9,041 8,986 11% 2% 2% EPS (HK$ cent) 58.7 58.4 58.2 65.0 59.5 59.2 11% 2% 2%

Source: UOB Kay Hian

VALUATION/RECOMMENDATION • Maintain BUY and raise target price to HK$13.40 (from HK$12.80), based on 10x 2020F

PE (PE multiple unchanged). We like CR Cement for its earnings visibility and dividend sustainability amid a relatively stable outlook. The stock is trading at 7.1x 2020F PE and 1.5x 2020F P/B with ROE estimated at 22.1%, which we think is undemanding.

FORWARD PE BAND

0

5

10

15

20

25

30

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(x)

Mean

+1STD

-1STD

Source: Bloomberg

SHARE PRICE CATALYST • Cement ASP hike in traditional peak season in 4Q20.

• Further announcements on the Greater Bay Area Development plan.

• Further updates on the fiscal spending stimulus in 4Q20 by the government.

KEY OPERATING DATA yoy yoy

3Q19 3Q20 % chg 9M19 9M20 % chg

Sales Volume (m tonne)

Cement 20.6 23.6 14.5 57.1 59.6 4.2

Clinker 1.5 1.0 (30.8) 3.5 2.6 (24.3)

Concrete 3.7 3.7 (0.7) 10.0 9.1 (8.7)

Total 25.9 28.4 9.6 70.7 71.4 1.0

ASP (HKD/tonne)

Cement 341.4 348.0 1.9 361.8 368.4 1.8

Clinker 304.6 279.0 (8.4) 323.8 292.6 (9.6)

Concrete 477.3 480.5 0.7 487.4 487.4 -

Average 359.0 362.9 1.1 377.7 380.8 0.8

Source: CR Cement, UOB Kay Hian




PROFIT & LOSS Year to 31 Dec (HK$m) 2019 2020F 2021F 2022F

Net turnover 38,955.6 39,667.6 38,740.0 38,963.3

EBITDA 14,017.9 14,738.6 13,792.0 13,575.9

Deprec. & amort. 2,140.8 2,188.2 2,209.7 2,224.3

EBIT 11,877.1 12,550.4 11,582.3 11,351.6

Associate contributions 547.7 900.0 700.0 800.0

Net interest income/(expense) (385.0) (193.4) (138.3) (82.1)

Pre-tax profit 12,008.2 13,357.0 12,244.0 12,169.5

Tax (3,313.9) (3,406.0) (3,122.2) (3,103.2)

Minorities (76.9) (88.0) (80.6) (80.1)

Net profit 8,617.5 9,863.0 9,041.1 8,986.1

Net profit (adj.) 8,617.5 9,863.0 9,041.1 8,986.1

BALANCE SHEET Year to 31 Dec (HK$m) 2019 2020F 2021F 2022F

Fixed assets 30,229.8 29,443.6 28,595.1 27,062.0

Other LT assets 12,198.2 12,117.8 12,040.0 11,964.8

Cash/ST investment 12,847.8 19,286.3 24,762.2 31,404.4

Other current assets 5,895.0 5,959.3 5,887.9 5,933.6

Total assets 61,170.9 66,807.0 71,285.2 76,364.8

ST debt 1,298.0 1,398.0 1,498.0 1,598.0

Other current liabilities 10,025.5 10,115.3 9,978.5 10,120.7

LT debt 6,628.2 6,628.2 6,628.2 6,628.2

Other LT liabilities 953.0 953.0 953.0 953.0

Shareholders' equity 41,979.7 47,338.0 51,772.4 56,529.7

Minority interest 286.5 374.5 455.1 535.3

Total liabilities & equity 61,170.9 66,807.0 71,285.2 76,364.8

CASH FLOW Year to 31 Dec (HK$m) 2019 2020F 2021F 2022F

Operating 11,285.0 12,164.7 11,266.2 11,387.0

Pre-tax profit 12,008.2 13,357.0 12,244.0 12,169.5

Tax (2,816.2) (3,356.8) (3,273.9) (3,113.4)

Deprec. & amort. 2,140.8 2,188.2 2,209.7 2,224.3

Associates (17.2) 0.0 0.0 0.0

Working capital changes 343.4 (23.8) 86.3 106.6

Non-cash items 0.0 0.0 0.0 0.0

Other operating cashflows (374.1) 0.0 0.0 0.0

Investing (2,618.0) (1,321.6) (1,283.4) (616.0)

Capex (growth) (3,153.7) (1,321.6) (1,283.4) (616.0)

Investments 0.0 0.0 0.0 0.0

Proceeds from sale of assets 0.0 0.0 0.0 0.0

Others 535.7 0.0 0.0 0.0

Financing (7,837.0) (4,404.6) (4,506.8) (4,128.8)

Dividend payments (3,722.2) (4,504.6) (4,606.8) (4,228.8)

Issue of shares 0.0 0.0 0.0 0.0

Proceeds from borrowings 100.0 100.0 100.0 100.0

Loan repayment 0.0 0.0 0.0 0.0

Others/interest paid (4,214.8) 0.0 0.0 0.0

Net cash inflow (outflow) 830.0 6,438.4 5,475.9 6,642.2

Beginning cash & cash equivalent 12,301.5 12,847.8 19,286.3 24,762.2

Changes due to forex impact (283.7) 0.0 0.0 0.0

Ending cash & cash equivalent 12,847.8 19,286.3 24,762.2 31,404.4

KEY METRICS Year to 31 Dec (%) 2019 2020F 2021F 2022F

Profitability

EBITDA margin 36.0 37.2 35.6 34.8

Pre-tax margin 30.8 33.7 31.6 31.2

Net margin 22.1 24.9 23.3 23.1

ROA 14.2 15.4 13.1 12.2

ROE 21.6 22.1 18.2 16.6

Growth

Turnover 0.4 1.8 (2.3) 0.6

EBITDA 3.5 5.1 (6.4) (1.6)

Pre-tax profit 5.9 11.2 (8.3) (0.6)

Net profit 8.1 14.5 (8.3) (0.6)

Net profit (adj.) 8.1 14.5 (8.3) (0.6)

EPS 8.1 14.5 (8.3) (0.6)

Leverage

Debt to total capital 15.8 14.4 13.5 12.6

Debt to equity 18.9 17.0 15.7 14.6

Net debt/(cash) to equity (11.7) (23.8) (32.1) (41.0)

Interest cover (x) 36.4 76.2 99.8 165.3




COMPANY RESULTS SELL

(Maintained) Share Price HK$13.10 Target Price HK$10.00 Upside/(Downside) -23.7%

COMPANY DESCRIPTION Based in Baoding of Hebei province, Great Wall Motor produces and sells pick-up trucks, SUVs and sedans under its proprietary brand, Great Wall.

STOCK DATA GICS sector AutomobileBloomberg ticker: 2333 HKShares issued (m): 3,100Market cap (HK$m): 40,604Market cap (US$m): 5,2063-mth avg daily t'over (US$m): 54.7


1mth 3mth 6mth 1yr YTD

44.3 60.5 166.8 139.5 127.4 Major Shareholders %Wei Jian Jun 56.04

FY19 NAV/Share (Rmb) 8.10

FY19 Net Debt/Share (Rmb) 1.43

PRICE CHART

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16(%)(lcy)

GREAT WALL MOTOR COMPANY-H

GREAT WALL MOTOR COMPANY-H/HSI INDEX

050

100150200


Volume (m)

Source: Bloomberg

ANALYST(S) Ken Lee +852 2236 6760 [email protected]

Great Wall Motor (2333 HK)

3Q20: Core Earnings Tumble 20.7% yoy, Missing Estimates GWM’s 3Q20 net profit grew 2.9% yoy to Rmb1,441m but core net profit dropped 20.7% yoy to Rmb1,069m, both missing estimates. The weak performance was due to disappointing ASP, and bigger-than-expected sales and marketing expense, hence lower margins. Core net margin dropped 2.3ppt yoy to 4.1%. We keep our 2020-22 net profit forecasts at Rmb4,560m, Rmb7,049m and Rmb7,869m respectively. Maintain SELL on slowing earnings momentum and stretched valuation. Target price: HK$10.00.

3Q20 RESULTS Year to 31 Dec yoy qoq yoy (Rmbm) 3Q20 % chg % chg 9M20 % chg CommentsRevenue 26,214 23.6 11.5 62,143 (0.7) Sales volume grew 24% yoy and 17% qoq in

3Q20. Net profit 1,441 2.9 (19.8) 2,587 (11.3) Margins disappointed due to spike in sales

expenses Net profit (core) 1,069 (20.7) (31.3) 1,877 (27.5)

Source: GWM, UOB Kay Hian

RESULTS • Great Wall Motor’s (GWM) 3Q20 results disappointed. Net profit was Rmb1,441m

(+2.9% yoy, -19.8% qoq) and core net profit was Rmb1,069m (-20.7% yoy, -31.3% qoq), vs our estimated 3Q20 net profit estimate of Rmb1.6b and consensus estimate of Rmb1,564m. This came as a disappointment, especially when sales volume and revenue grew 23.9% yoy and 23.6% yoy in 3Q20 respectively.

• Margin squeezed by ASP dip and spike in sales expense. The earnings miss lies in: a) lower-than-expected ASP of Rmb91,790 (-0.2% yoy, -4.4% qoq); and (b) higher-than-expected sales and marketing expense of Rmb1,050m (+87.5% yoy, +64.2% qoq), which dragged net margin by 2.3ppt yoy and 2.5ppt qoq to 4.1%.

STOCK IMPACT • Consensus earnings downgrade on cards. The disappointing 2Q20 earnings would

trigger consensus earnings downgrade for 2020.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2018 2019 2020F 2021F 2022F

Net turnover 99,230 96,211 92,929 116,194 130,603EBITDA 8,076 6,908 6,941 10,144 11,326Operating profit 4,265 3,178 3,345 6,158 6,987Net profit (rep./act.) 5,207 4,497 4,560 7,049 7,869Net profit (adj.) 3,889 3,982 3,860 6,349 7,169EPS (fen) 57.1 49.3 50.0 77.2 86.2 PE (x) 20.0 24.0 23.2 15.0 13.4 P/B (x) 2.4 2.4 1.6 1.7 1.4 EV/EBITDA (x) 12.5 14.6 14.5 9.9 8.9 Dividend yield (%) 2.2 0.0 1.0 1.6 1.8 Net margin (%) 3.9 4.1 4.2 5.5 5.5 Net debt/(cash) to equity (%) 13.9 (13.5) 14.7 (1.3) 3.1 Interest cover (x) (6.1) (2.0) (2.3) (4.3) (4.8)ROE (%) 7.7 7.4 6.9 10.4 10.8 Consensus net profit - - 4,383 6,113 6,888UOBKH/Consensus (x) - - 1.04 1.15 1.14Source: GWM , Bloomberg, UOB Kay Hian




• New products failed to boost ASP. Despite the launches of higher-priced models such as the all-new Haval H6 (Aug 20), GWM’s ASP dropped 4.4% qoq, probably due to the price cuts for old models. Going forward, ASP will probably be underpinned by the further debuts of new models. We keep our ASP estimates for 2020-22 unchanged at Rmb90,148, Rmb96,007 and Rmb96,007 respectively.

• Margins may rebound in 4Q20. The spike in sales and marketing expense in 3Q20 could be attributed to the initial expenses for the launches of three new models in Sep 20, namely Haval Dagou (off-road SUV), Haval Chulian (small SUV) and Chaopai sedan. Thus sales and marketing expense should drop qoq in 4Q20 and margins may rebound by then. We keep our net margin assumptions for 2020-22 at 4.2%, 5.5% and 5.5% respectively.

• We keep 2020-22 sales volume estimates unchanged at 1.02m units, 1.2m units and 1.35m units respectively, given intact sales ytd. Sep 20 sales volume grew 17.8% yoy and 31.7% qoq to 117,812 units, brining 9M20 sales volume to 680,690 units (-6% (yoy) vs our estimated and the company’s targeted 2020 sales volume of 1.02m units.

EARNINGS REVISION/RISK • We keep 2020-22 net profit forecasts unchanged at Rmb4.56b (+1% yoy), Rmb7.05b

(+55% yoy) and Rmb7.87b (+12% yoy), which are 4%, 15% and 14% above consensus estimates respectively, on our higher ASP and margins assumptions.

• Risks. Upside to our recommendation lies in the potential contribution from the JV with BMW to make the electric MINI from 2022. We have not factored this into our earnings estimates as the JV’s earnings prospects are unclear. Downside risk to our earnings estimates mainly comes from the second wave of the COVID-19 outbreak, which can drag auto sales. Additionally, competition in the mass-market segment could drag ASP and margins.

VALUATION/RECOMMENDATION • Maintain SELL and target price of HK$10.00, pegged to 11x 2021F PE, on a par with the

stock’s historical mean 1-year forward PE. Since we upgraded GWM to BUY on 29 Aug 20, the stock has risen 66% in less than two months, exceeding our target price of HK$10.00. We believe the stock is over-valued, as based on our 2021F EPS (15% above consensus), it is trading at 15x 2021F PE, 2SD above its historical mean 1-year forward PE. The earnings recovery in 2Q20 to 2021 has been fully priced in, and we do not see any earnings upgrade in the foreseeable future, especially after 3Q20 earnings disappointment.




PROFIT & LOSS Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F

Net turnover 96,211 92,929 116,194 130,603

EBITDA 6,908 6,941 10,144 11,326

Depreciation & amortization 3,538 3,404 3,794 4,147

EBIT 3,178 3,345 6,158 6,987

Total other non-operating income 315 330 380 430

Associate contributions 16 - - -

Net interest income/(expense) 1,593 1,474 1,422 1,469

Pre-tax profit 5,101 5,150 7,960 8,886

Tax (570) (566) (876) (977)

Minorities (35) (23) (35) (40)

Net profit 4,497 4,560 7,049 7,869

Net profit (recurrent) 3,982 3,860 6,349 7,169

BALANCE SHEET Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F

Fixed assets 31,991 36,087 39,793 43,146

Other LT assets 12,604 14,775 16,121 14,576

Cash/ST investment 8,777 10,850 12,295 20,286

Other current assets 59,725 85,901 98,753 102,155

Total assets 113,096 147,614 166,961 180,162

ST debt 1,180 19,180 11,180 22,180

Other current liabilities 53,419 45,909 75,222 63,202

LT debt 1,206 1,206 1,206 1,206

Other LT liabilities 2,892 23,060 15,902 24,859

Shareholders' equity 54,399 58,260 63,451 68,715

Minority interest - - - -

Total liabilities & equity 113,096 147,614 166,961 180,162

CASH FLOW Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F

Operating 13,972 (6,801) 19,731 7,926

Pre-tax profit 5,101 5,150 7,960 8,886

Tax (570) (566) (876) (977)

Depreciation/amortization 3,538 3,404 3,794 4,147

Associates (16) - - -

Working capital changes 4,952 (15,176) 8,462 (4,423)

Non-cash items 967 388 390 293

Other operating cashflows - - - -

Investing (15,802) (8,515) (8,217) (8,030)

Capex (growth) (2,500) (7,500) (7,500) (7,500)

Investments - - - -

Proceeds from sale of assets - - - -

Others 1,593 2,085 2,333 2,470

Financing 3,944 17,389 (10,069) 8,094

Dividend payments (2,647) - (1,158) (1,905)

Issue of shares - - - -

Proceeds from borrowings 15,000 25,000 - 18,000

Loan repayment (20,000) (7,000) (8,000) (7,000)

Others/interest paid 11,591 (611) (911) (1,001)

Net cash inflow (outflow) 2,115 2,073 1,445 7,990

Beginning cash & cash equivalent

6,615 8,777 10,850 12,295

Ending cash & cash equivalent 8,777 10,850 12,295 20,286


Profitability EBITDA margin 7.2 7.5 8.7 8.7

Pre-tax margin 5.3 5.5 6.9 6.8

Net margin 4.1 4.2 5.5 5.5

ROA 3.5 3.0 4.0 4.1

ROE 7.4 6.9 10.4 10.8

Growth

Turnover (3.0) (3.4) 25.0 12.4

EBITDA (14.5) 0.5 46.1 11.7

Pre-tax profit (21.3) 1.0 54.6 11.6

Net profit (13.6) 1.4 54.6 11.6

Net profit (adj.) 2.4 (3.1) 64.5 12.9

EPS (13.6) 1.4 54.6 11.6

Leverage


Debt to equity 4.4 35.0 19.5 34.0

Net debt/(cash) to equity (13.5) 14.7 (1.3) 3.1

Interest cover (x) (2.0) (2.3) (4.3) (4.8)




COMPANY RESULTS BUY

(Maintained) Share Price Rmb1,643Target Price Rmb1,938Upside +18.0%

COMPANY DESCRIPTIONMoutai is a leading baijiu company in China known for its super-premium brand, Feitian Moutai. It has the largest market cap among all listed A-share baijiu companies.

STOCK DATA GICS sector Food & BeverageBloomberg ticker: 600519 CHShares issued (m): 1,256.2Market cap (Rmbm): 2,063,933.0Market cap (US$m): 309,421.33-mth avg daily t'over (US$m): 809.0

Price Performance (%) 52-week high/low Rmb1,801.98/Rmb996.00

1mth 3mth 6mth 1yr YTD4.0 2.3 37.0 48.0 45.0

Major Shareholders %Kweichow Moutai Group 58.0Guizhou Province State-owned Capital Operation Co., Ltd.

2.67

FY20 NAV/Share (Rmb) 128.80FY20 Net Cash/Share (Rmb) 119.03

PRICE CHART

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KWEICHOW MOUTAI CO LTD-A

KWEICHOW MOUTAI CO LTD-A/SHASHR Index

05

101520


Volume (m)

Source: Bloomberg

ANALYST(S) Shen Zhifeng +8621 5404 7225 ext.811 [email protected]

Kweichow Moutai (600519 CH)

3Q20: No Concerns About The Modest Results Moutai’s revenue and core net profit growth moderated to 7.2% yoy and 6.9% yoy in 3Q20 respectively. Revenue from direct sales soared 171.8% yoy in 9M20. Operating cash flow achieved a 21.1% qoq increase in 3Q20; advance customer payment balance increased by 11.6% qoq. We believe the modest quarterly results should not be a cause for concern in the long term. Maintain BUY. Target price: Rmb1,938.

3Q20 RESULTS Year to 31 Dec Yoy yoy(Rmbm) 3Q19 3Q20 % chg 9M19 9M20 % chg

Total revenue 22,336 23,941 7.2% 63,509 69,575 9.6%Operating revenue 21,447 23,262 8.5% 60,935 67,215 10.3%Operational gross profit 19,473 21,184 8.8% 55,749 61,384 10.1%Operational gross profit margin 90.8% 91.1% 0.3ppt 91.5% 91.3% -0.2pptEBIT 15,026 15,821 5.3% 43,428 47,887 10.3%EBIT margin 67.3% 66.1% -1.2ppt 68.4% 68.8% 0.4pptAttributable net profit 10,504 11,225 6.9% 30,455 33,827 11.1%Core attributable net profit 10,503 11,229 6.9% 30,534 33,902 11.0%

Source: Moutai, UOB Kay Hian

RESULTS • 3Q20 results moderated. Kweichow Moutai’s (Moutai) core net profit growth moderated to

6.9% yoy in 3Q20 from 13.2% yoy in 1H20. Its revenue growth moderated to 7.2% yoy in 3Q20 from 10.8% yoy in 1H20. The company registered 9.6% yoy and 11.0% yoy growth in revenue and core net profit respectively in 9M20. Revenue from Moutai-branded products achieved 11.7% yoy growth in 9M20, while non-Moutai products saw revenues dip by 0.5% yoy. Operational gross margin dipped by 0.2ppt yoy in 9M20, while EBIT margin edged up 0.4ppt yoy.

• Revenue from direct sales continues to soar. Direct sales revenue soared 171.8% yoy in 9M20. As a result, the direct sales’ revenue contribution hiked to 12.6% in 9M20, higher than the weightings of 11.7%, 7.9% and 8.5% in 1H20, 1Q20 and 2019 respectively.

• Improving cash flow status. Cash received from the sale of goods increased by 7.8% yoy in 9M20 (vs 7.2% yoy in 1H20). Operating cash flow chalked up a 21.1% qoq increase in 3Q20. Adjusted cash balance registered a 9.5% qoq increase.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2018 2019 2020F 2021F 2022F

Net turnover 77,199 88,854 98,421 114,390 134,671 EBITDA 52,409 60,190 68,193 80,151 94,971 Operating profit 51,331 59,050 67,053 79,011 93,831 Net profit (rep./act.) 35,204 41,206 47,179 55,598 66,031 Net profit (adj.) 35,204 41,206 47,179 55,598 66,031 EPS (sen) 2,802.4 3,280.3 3,755.7 4,425.9 5,256.4 PE (x) 61.2 52.3 45.7 38.8 32.6 P/B (x) 19.1 15.8 13.3 11.2 9.4 EV/EBITDA (x) 38.4 33.5 29.5 25.1 21.2 Dividend yield (%) 0.8 1.0 1.1 1.3 1.6 Net margin (%) 45.6 46.4 47.9 48.6 49.0 Net debt/(cash) to equity (%) (87.1) (89.0) (92.4) (94.4) (96.2) Interest cover (x) n.a. n.a. n.a. n.a. n.a. ROE (%) 34.5 33.1 31.7 31.4 31.2 Consensus net profit - - 47,458 57,612 68,230 UOBKH/Consensus (x) - - 0.99 0.97 0.97 Source: Moutai, Bloomberg, UOB Kay Hian




SEGMENT REVENUE 3Q19 3Q20 % chg 9M19 9M20 % chg

Baijiu revenue by products (Rmbm) - Moutai 19,038 20,884 9.7% 53,832 60,145 11.7%- Non-Moutai 2,383 2,350 -1.4% 7,038 7,000 -0.5%Baijiu revenue by channel (Rmbm) - Direct sales channel 1,501 3,280 118.6% 3,103 8,433 171.8%- Dealer channels 19,919 19,954 0.2% 57,767 58,713 1.6%Baijiu revenue by region (Rmbm) - Domestic 20,587 22,313 8.4% 58,956 65,123 10.5%- Overseas 833 921 10.6% 1,914 2,022 5.7%

Source: Moutai, UOB Kay Hian

STOCK IMPACT • Focused on long-term growth; we are not concerned about modest 3Q20 results.

Advance customer payment balance increased by 11.6% qoq, despite recording a 6.2% yoy decline. With support from cash inflow improvements and advance payments from dealers, we believe the company will easily be able to meet its full-year revenue growth target of 10% yoy in 2020. Looking into the next few years, product shipments should be higher than that projected for 2020. This is because the shipment volume of Moutai products is dependent on its base liquor production volume five years prior; Moutai’s base liquor production had been on an uptrend, reaching 39,313/42,829/49,672 tonnes in 2016/17/18 respectively, all higher than the 32,179 tonnes recorded in 2015.

• Little impact from one-off event. Moutai announced its plan to donate <Rmb806m to local infrastructure projects. We believe this one-off event would have little impact on the company as the amount accounts for only 2% of Moutai’s 2019 net profit. We reckon Moutai should see strong growth over the next few years. Moreover, the Guizhou State-Owned Capital Operation reduced its equity interest in Moutai from 4.0% to 2.67%. We think this would have no material impact on Moutai’s operation.

• Wholesale prices remained high. Wholesale prices of Feitian Moutai remained high at >Rmb2,700/bottle since late-Aug 20. Our channel checks indicate that there was almost zero channel inventory for Feitian Moutai (usually ordered in advance). We expect the strong demand would continue into the Spring Festival Holidays in 2021, and the wholesale prices will less likely drop by much.

• Less likely to raise ex-factory price in short term. The central government had earlier warned in Sep 20 that the high baijiu prices may lead to increased spending by government officials. On top of this, the company had increased its shipments via its direct sales channel before the Golden Week holidays to facilitate a reduction to market prices. Moreover, Moutai held a marketing conference in mid-Oct 20, where it emphasised that high retail transaction prices of Moutai products should be restricted. Hence, we expect ex-factory prices of Moutai products might not see any hikes in the short term. If there were to be any ex-factory price hike, it would likely come on the back of continuous expansion of shipment volumes via the direct/group sales channels and key account (KA) supermarkets.

VALUATION/RECOMMENDATION • Maintain BUY and target price of Rmb1,938.00. We maintain BUY as we believe the

modest quarterly results would not materially impact Moutai’s robust long-term growth prospects. We maintain our target price which implies 43.8x/36.9x 2021F/22F PE.





Net turnover 88,854.3 98,420.6 114,390.5 134,670.9

EBITDA 60,190.0 68,193.0 80,151.4 94,971.4

Deprec. & amort. 1,140.5 1,140.5 1,140.5 1,140.5

EBIT 59,049.5 67,052.5 79,010.9 93,830.9

Total other non-operating income (258.9) 0.0 0.0 0.0


Net interest income/(expense) (7.5) 11.1 19.6 29.4

Pre-tax profit 58,782.6 67,063.6 79,030.5 93,860.4

Tax (14,812.6) (16,765.9) (19,757.6) (23,465.1)

Minorities (2,763.5) (3,118.5) (3,674.9) (4,364.5)

Net profit 41,206.5 47,179.2 55,597.9 66,030.8

Net profit (adj.) 41,206.5 47,179.2 55,597.9 66,030.8


Fixed assets 15,144.2 15,038.8 14,933.5 14,828.2

Other LT assets 8,873.7 8,873.7 8,873.7 8,873.7



Total assets 183,042.4 214,516.6 252,137.5 297,573.3

ST debt 0.0 0.0 0.0 0.0


LT debt 0.0 0.0 0.0 0.0

Other LT liabilities 72.7 72.7 72.7 72.7


Minority interest 5,866.0 8,984.5 12,659.4 17,023.9



Operating 45,210.6 49,957.2 57,177.7 67,907.3

Pre-tax profit 58,782.6 67,063.6 79,030.5 93,860.4

Tax (14,812.6) (16,765.9) (19,757.6) (23,465.1)

Deprec. & amort. 1,149.9 1,140.5 1,140.5 1,140.5

Working capital changes 31.7 (1,481.0) (3,235.6) (3,628.5)

Other operating cashflows 59.0 0.0 0.0 0.0

Investing (3,165.7) (708.6) (720.7) (676.2)

Capex (growth) (3,148.9) (1,035.2) (1,035.2) (1,035.2)

Investments (24.2) 0.0 0.0 0.0


Others 7.3 326.6 314.5 359.0

Financing (19,284.4) (20,723.8) (23,830.5) (28,166.1)


Issue of shares 833.0 0.0 0.0 0.0

Proceeds from borrowings 0.0 0.0 0.0 0.0

Others/interest paid 0.0 662.9 702.7 744.9

Net cash inflow (outflow) 22,760.5 28,524.8 32,626.5 39,065.0


Changes due to forex impact 0.0 0.0 0.0 0.0




Pre-tax margin 66.2 68.1 69.1 69.7

Net margin 46.4 47.9 48.6 49.0

ROA 24.0 23.7 23.8 24.0

ROE 33.1 31.7 31.4 31.2

Growth Turnover 15.1 10.8 16.2 17.7

EBITDA 14.8 13.3 17.5 18.5

Pre-tax profit 15.7 14.1 17.8 18.8

Net profit 17.1 14.5 17.8 18.8

Net profit (adj.) 17.1 14.5 17.8 18.8

EPS 17.1 14.5 17.8 18.8

Leverage Debt to total capital 0.0 0.0 0.0 0.0

Debt to equity 0.0 0.0 0.0 0.0


Interest cover (x) 8,070.5 n.a. n.a. n.a.




COMPANY RESULTS BUY

(Maintained) Share Price HK$4.73 Target Price HK$5.50 Upside +16.3%

COMPANY DESCRIPTION Sany Heavy Equipment Int’l is a Chinese leading industrial machinery producer in mining equipment and logistics machinery.

STOCK DATA GICS sector IndustrialsBloomberg ticker: 631 HKShares issued (m): 3,120.4Market cap (HK$m): 14,759.3Market cap (US$m): 1,904.43-mth avg daily t'over (US$m): 2.9


1mth 3mth 6mth 1yr YTD10.0 17.4 15.1 28.2 11.0

Major Shareholders %-Sany HK 67.72-- -- -

FY20 NAV/Share (Rmb) 2.60FY20 Net Cash/Share (Rmb) 0.28

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3.00

3.50

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6.00(%)(lcy)

SANY HEAVY EQUIPMENT INTL

SANY HEAVY EQUIPMENT INTL/HSI INDEX

010203040


Volume (m)

Source: Bloomberg

ANALYST(S) Sandra Huang +8621 5404 7225 ext 804 [email protected]

Neo Chen, CFA +8621 54047225 ext.810 [email protected]

Sany Heavy Equipment Int'l (631 HK)

3Q20: Slightly Below Expectations On Higher R&D Cost Sany posted 3Q20 net profit of Rmb264m, up 11.2% yoy, but slightly below expectations, mainly due to higher R&D and sales expenses. Order backlogs on hand are ample, while Sany’s heavy investment into R&D will allow it to keep launching new products with higher margins. We believe that management’s guidance of no less than 20% revenue/net profit growth in 2020-22 is achievable, backed by the strong pipeline of new products scheduled for launch. Maintain BUY. Target price: HK$5.50.

3Q20 RESULTS

yoy yoy(Rmbm) 3Q19 3Q20 % chg 9M19 9M20 % chgRevenue 1,313 1,689 28.6 4,356 5,504 26.3Gross Profit 388 499 28.6 1,332 1,529 14.8Profit before tax 268 278 3.6 909 1,032 13.6Net Profit 237 264 11.2 790 902 14.3

Gross margin (%) 29.6 29.5 0.0 30.6 27.8 -2.8Net profit margin (%) 18.1 15.6 -2.5 18.1 16.4 -1.7

Source: Sany, UOB Kay Hian

RESULTS • 3Q20 results slightly below expectations… Sany Heavy Equipment Int’l (Sany)

announced 3Q20 net profit of Rmb264m, up 11.2% yoy, slightly below our estimates. Revenue grew 28.6% yoy, mainly driven by strong revenue growth in its mining equipment segment (+31% yoy) as well as its logistics equipment segment (+15% yoy). 9M20 net profit grew 14.3% yoy, representing 79% of our full-year forecasts.

• …on higher R&D and sales expenses in 3Q20. The company’s R&D expenses surged by 69% yoy in 3Q20, as Sany set up research centres in Beijing and carried out recruitment for research employees. On the other hand, its sales expenses grew 30.4% yoy, mainly due to a rise in pay for its sales staff. Gross margin remained resilient at 29.5%, flat yoy, despite the larger contribution from lower-margin products.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2018 2019 2020F 2021F 2022FNet turnover 4,417 5,656 6,615 7,737 8,720EBITDA 686 866 1,100 1,486 1,593Operating profit 476 639 854 1,221 1,359Net profit (rep./act.) 600 920 1,146 1,446 1,567Net profit (adj.) 600 920 1,146 1,446 1,567EPS (Fen) 19.7 30.2 37.7 47.6 51.5PE (x) 20.7 13.5 10.8 8.6 7.9P/B (x) 1.9 1.7 1.6 1.4 1.2EV/EBITDA (x) 17.3 13.7 10.8 8.0 7.5Dividend yield (%) 2.4 3.0 3.2 4.1 4.2Net margin (%) 13.6 16.3 17.3 18.7 18.0Net debt/(cash) to equity (%) 5.1 19.8 (10.7) (14.1) (17.7)Interest cover (x) 37.7 10.1 9.1 11.2 10.9ROE (%) 9.4 13.6 15.2 17.2 16.6Consensus net profit - - 1,137 1,460 1,866UOBKH/Consensus (x) - - 1.01 0.99 0.84Source: Sany, Bloomberg, UOB Kay Hian




STOCK IMPACT • Full-year target intact. Management has reiterated its full-year revenue growth target of no

less than 20% for 2020 and at the same time, expects net profit to grow even faster at around 20-25% yoy even under their conservative estimates. Revenue and net profit growth guidance for 2021-22 are also maintained at no less than 20%.

• Ample order backlog on hand. According to management, as at end-Sep 20, the company had total orders of Rmb3.6b, of which Rmb1.8b is for its mining equipment and Rmb1.8b for logistics equipment. This order backlog accounts for c.47% of our full-year revenue forecast for 2021. Meanwhile, Sany has also guided for a substantial 65% yoy growth in wide-body truck to reach 2,000+ units sales in 2021, with gross margin to increase to above 15%.

• Heavy R&D investment to remain at relatively high level. Management guided for its R&D expenses to remain at a relatively high level (6-7% of revenue) in the future. Its key focus includes larger-tonnage (>70 tonnes) mining trucks to compete with global leaders in the market, electric and smart mining and logistics products to meet growing downstream customers’ upgrade demand as well as government’s requirements. The new products will be rolled out from 2021 onwards.

• Product gross margin to improve. Gross margins of the company’s major products are expected to improve in the next few years, driven by production efficiency improvements from their Lighthouse Factory (灯塔工厂), as well as new products launches with higher margins.

EARNINGS REVISION/RISK • We maintain our earnings forecast unchanged.

• Key risks include: a) weaker-than-expected exports (particularly small-size port machinery) if the COVID-19 pandemic lasts longer than expected; b) slower-than-expected new products ramp-up and expansion; and c) weaker-than-expected coal market which will drag down coal miners’ capex.

VALUATION/RECOMMENDATION • Maintain BUY with target price of HK$5.50 based on DCF valuation. We assume WACC

at 10.7%, cost of equity of 11.68%, post-tax debt cost of 1.7% and terminal growth rate at 3%. Our target price implies 10.4x 2021F PE (vs historical average 12-month forward PE of 15x) and 1.7x 2021F P/B (vs historical average of 12-month forward P/B of 1.5x), with ROE estimated at 17% for 2021.

• We like Sany given that its strong earnings growth prospects remain intact, backed by ample orders backlog, rapid new products ramp-up and steady expansion in market share of core products.

ONE-YEAR FORWARD P/B AND ROE BAND

(15)

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(% )(x)

P/B -1 Std Dev Mean +1 Std Dev Forward ROE Source: Bloomberg, UOB Kay Hian





Net turnover 5,656.1 6,615.3 7,736.9 8,720.0

EBITDA 865.8 1,100.2 1,485.7 1,593.0

Deprec. & amort. 227.3 245.9 265.1 233.9

EBIT 638.5 854.3 1,220.6 1,359.1

Total other non-operating income 516.7 617.1 617.1 617.1


Net interest income/(expense) (85.5) (120.3) (132.3) (145.6)

Pre-tax profit 1,069.7 1,351.2 1,705.5 1,830.7

Tax (147.8) (202.7) (255.8) (260.4)

Minorities (2.2) (2.7) (3.5) (3.5)

Net profit 919.7 1,145.8 1,446.2 1,566.8

Net profit (adj.) 919.7 1,145.8 1,446.2 1,566.8


Fixed assets 2,413.2 2,527.3 2,614.2 2,605.9

Other LT assets 2,795.4 1,797.8 1,829.8 1,864.9



Total assets 15,546.4 17,228.1 19,099.2 21,445.3

ST debt 2,512.3 2,763.6 3,039.9 3,343.9


LT debt 0.0 0.0 0.0 0.0

Other LT liabilities 1,979.6 1,955.7 1,932.2 1,909.3





Operating 801.1 1,264.3 1,172.1 1,236.0

Pre-tax profit 1,069.7 1,351.2 1,705.5 1,736.0

Tax (147.8) (202.7) (255.8) (260.4)

Deprec. & amort. 227.3 245.9 265.1 233.9

Working capital changes (1,076.5) (101.0) (510.6) (438.3)

Other operating cashflows 728.4 (29.1) (32.0) (35.2)

Investing (2,310.6) 1,368.4 (352.0) (225.6)

Capex (growth) (300.0) (320.0) (320.0) (200.0)

Capex (maintenance) (50.0) 1,688.4 (32.0) (25.6)

Investments 0.0 0.0 0.0 0.0


Others (1,960.6) 0.0 0.0 0.0

Financing 1,526.5 (122.1) (131.6) (209.2)

Dividend payments (301.0) (367.9) (401.0) (506.2)

Issue of shares (0.0) 0.0 0.0 0.0

Proceeds from borrowings 1,112.4 251.2 276.4 304.0

Others/interest paid 715.1 (5.5) (6.9) (7.0)

Net cash inflow (outflow) 17.0 2,510.6 688.5 801.2





Profitability

EBITDA margin 15.3 16.6 19.2 18.3

Pre-tax margin 18.9 20.4 22.0 21.0

Net margin 16.3 17.3 18.7 18.0

ROA 6.5 7.0 8.0 7.7

ROE 13.6 15.2 17.2 16.6

Growth

Turnover 28.1 17.0 17.0 12.7

EBITDA 26.1 27.1 35.0 7.2

Pre-tax profit 47.3 26.3 26.2 7.3

Net profit 53.2 24.6 26.2 8.3

Net profit (adj.) 53.2 24.6 26.2 8.3

EPS 53.2 24.6 26.2 8.3

Leverage


Debt to equity 35.2 34.9 33.9 33.7

Net debt/(cash) to equity 19.8 (10.7) (14.1) (17.7)

Interest cover (x) 10.1 9.1 11.2 10.9




COMPANY RESULTS HOLD (Upgraded) Share Price HK$17.82 Target Price HK$19.95 Upside +12.0% (Previous TP HK$16.50)

COMPANY DESCRIPTION Sinopharm is the largest pharmaceutical distributor in China.

STOCK DATA GICS sector HealthcareBloomberg ticker: 1099 HKShares issued (m): 1,341.8Market cap (HK$m): 55,610.1Market cap (US$m): 7,175.53-mth avg daily t'over (US$m): 22.4


1mth 3mth 6mth 1yr YTD2.3 (6.8) (10.1) (30.5) (37.4)

Major Shareholders %CNPGC 65.5

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FY20 Net Debt/Share (Rmb) 12.21

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35(%)(lcy) SINOPHARM GROUP CO-H SINOPHARM GROUP CO-H/HSI INDEX

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ANALYST(S) Carol Dou +852 2236 6749 [email protected]

Sinopharm Group (1099 HK)

9M20: Earnings Up By 7.90% yoy, Stronger Than Expected; Upgrade To HOLD Sinopharm’s 9M20 revenue increased 4.8% yoy while net profit expanded 7.9% yoy. The earnings growth is better than our earlier full-year growth estimate of 1.3% yoy. Sinopharm expects its business to continue recovering steadily in 4Q20 and we believe a COVID-19 vaccine distribution should bring new business opportunities in 2021. Meanwhile, GPO programmes could continue to cloud its earnings outlook. Upgrade to HOLD with a higher target price of HK$19.95. Entry price: HK$16.00. 9M20 RESULTS Year end 31 Dec (Rmbm) 9M20 9M19 yoy % chgRevenue 327,610 312,688 4.8

Gross profit 28,760 27,224 5.6

Selling expense (9,851) (8,938) 10.2

G&A expense (4,449) (4,380) 1.6

Operating profit 12,627 12,079 4.5

Finance expense-net (1,899) (2,265) -16.2

Net profit attributable to shareholders 4,958 4,595 7.9

Ratios (%) 4Q17 4Q18 yoy ppt chgGross margin 8.8 8.7 0.07

Selling expense 3.0 2.9 0.15

G&A expense 1.4 1.4 (0.04)

Op margin 3.9 3.9 (0.01)

Financing expense 0.6 0.7 (0.14)

Net margin 1.5 1.5 0.04Source: Sinopharm, UOB Kay Hian

RESULTS • 9M20 revenue inched up 4.8% yoy. Sinopharm Group (Sinopharm) reported a 4.8% yoy

increase in revenue to Rmb327.6b in 9M20. Gross margin came in at 8.8% in 9M20, flat yoy. Selling expenses as a percentage of total revenue increased by 0.15ppt from 2.9% in 9M19 to 3.0% in 9M20, while G&A expense was flat yoy. Financial cost-to-revenue ratio slipped 0.14ppt from 0.7% a year ago to 0.6% in 9M20. Net margin stood at 1.5% in 9M20, stable yoy. Net profit increased 7.9% yoy to Rmb4,958m in 9M20.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2018 2019 2020F 2021F 2022FNet turnover 344,525.8 425,272.7 458,706.8 505,929.4 558,603.3EBITDA 17,148.8 21,617.4 20,717.0 22,353.0 24,119.4Operating profit 15,754.1 18,503.3 19,064.7 20,779.5 22,617.7Net profit (rep./act.) 5,835.8 6,252.5 6,719.0 7,276.5 7,884.6Net profit (adj.) 5,772.8 6,211.5 6,688.1 7,245.5 7,853.7EPS (Fen) 194.3 209.0 214.3 232.2 251.7PE (x) 7.9 7.3 7.2 6.6 6.1P/B (x) 1.1 1.0 0.9 0.8 0.7EV/EBITDA (x) 6.9 5.5 5.7 5.3 4.9Dividend yield (%) 3.8 3.9 4.2 4.6 4.9Net margin (%) 1.7 1.5 1.5 1.4 1.4Net debt/(cash) to equity (%) 34.4 24.6 68.1 75.7 71.9Interest cover (x) 6.2 6.9 7.8 7.6 7.4ROE (%) 14.4 13.9 13.0 12.4 12.4Consensus net profit - - 6,639 7,438 8,311UOBKH/Consensus (x) - - 1.01 0.97 0.95Source: Sinopharm, Bloomberg, UOB Kay Hian




STOCK IMPACT • Medical services segment continued to post recovery in 3Q20. Sinopharm reported

revenue of Rmb327.6b in 9M20, up 4.77% yoy, thanks to the gradual recovery of healthcare service activities in China in 3Q20. According to management, the pharmaceutical drug distribution business still recorded a slight decline in 9M20, given the disruption to hospital operations with patient visits to hospitals yet to normalise in China. The retail pharmacy and medical device distribution businesses continued to see robust expansion, with revenues increasing by 31.4% yoy and 32.4% yoy respectively in 9M20. We believe the robust retail sales data was mainly due to the expansion of its sales network via acquisitions and organic growth.

• Expected to continue outperforming industry’s growth despite GPO-related challenges. With the continued gradual recovery in business activities in 3Q20, the company saw revenue and net earnings return to normalised growth levels in 9M20. Operating profit increased by 4.54% yoy in 9M20. Net profit attributable to shareholders increased by 7.9% yoy in 9M20, mainly supported by a significant 16.2% yoy decrease in financial costs. According to management, we are yet to see a full recovery from the impact of COVID-19. The pharmaceutical industry in China witnessed a revenue contraction of 3.82% yoy in 1H20. Although the Group Purchasing Organization’s (GPO) plans for medical devices may bring about challenges and market expansion opportunities similar to that brought about the drug-focused GPO programmes, the company continues to believe that it will outperform the overall industry over the next few years.

• Margins improved on better revenue structure and financial cost savings. During the reporting period, Sinopharm saw its gross margin improve slightly by 0.07ppt to 8.8%. Management attributed this increase to a continued increase in revenue contributions from the high-margin segments (ie retail pharmacy and medical device distribution businesses). Selling expenses increased by 10.22% yoy in 9M20, which we believe was mainly underpinned by the increase in labour costs. Operating profit increased by 4.54% yoy in 9M20. Lower lending rates led to savings of 16.2% in financial costs in 9M20 compared to the same period last year. As a result, overall net margin improved slightly by 0.44ppt to 1.51% in 9M20, and net profit attributable to shareholders increased by 7.90% yoy to Rmb4,958m in 9M20.

• COVID-19 vaccine distribution to bring about new business opportunities in 2021. According to management, COVID-19 vaccination is expected to cover 60-70% of China’s population. The company has been in active talks with vaccine suppliers over new business opportunities. With an established cold chain logistics services capacity and an extensive distribution network in China, management believes Sinopharm is well prepared for the distribution of COVID-19 vaccines in China.

EARNINGS REVISION • We raise our earnings forecasts from Rmb6.3b to Rmb6.7b for 2020 and from Rmb6.8b to

Rmb7.3b for 2021 to reflect the possibly stronger-than-expected earnings growth given the continued recovery of business operations in medical institutions in China.

RISKS • Possible resurgence of COVID-19 cases and GPO policy may continue to bring

uncertainties to earnings outlook. A possible resurgence could again interrupt business activities and continue to cloud revenue growth for Sinopharm. Moreover, lower medical product prices may pressure profit margins, with the GPO programme expanding in scale to include more drugs and medical devices. We foresee low earnings visibility for Sinopharm although policy changes may help the company significantly expand market share.

VALUATION/RECOMMENDATION • Upgrade to HOLD with a higher target price of HK$19.95, based on 8x 2021F PE, or 1x

PEG. Entry price is HK$16.00.




PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F

Net turnover 425,272.7 458,706.8 505,929.4 558,603.3 Fixed assets 11,712.9 11,041.6 10,437.4 9,893.7

EBITDA 21,617.4 20,717.0 22,353.0 24,119.4 Other LT assets 28,175.8 28,819.9 29,521.8 30,283.4

Deprec. & amort. 3,114.1 1,652.3 1,573.5 1,501.7 Cash/ST investment 39,192.0 15,291.4 9,849.2 11,068.0

EBIT 18,503.3 19,064.7 20,779.5 22,617.7 Other current assets 190,807.7 220,363.1 249,730.6 274,610.8

Total other non-operating income 53.2 40.0 40.0 40.0 Total assets 269,888.4 275,516.1 299,539.0 325,855.9

Associate contributions 876.4 920.2 966.2 1,014.5 ST debt 42,476.7 44,600.6 46,830.6 49,172.1

Net interest income/(expense) (3,143.5) (2,660.5) (2,934.4) (3,239.9) Other current liabilities 135,947.9 127,008.3 139,481.7 153,355.3

Pre-tax profit 14,176.2 15,180.2 16,405.0 17,741.4 LT debt 8,372.9 8,791.5 9,231.1 9,692.6

Tax (3,139.7) (3,351.4) (3,629.4) (3,932.8) Other LT liabilities 6,151.5 6,255.6 6,400.0 6,555.7

Minorities (4,367.5) (4,693.4) (5,082.8) (5,507.6) Shareholders' equity 47,422.1 55,957.5 61,018.2 66,519.9

Net profit 6,252.5 6,719.0 7,276.5 7,884.6 Minority interest 29,517.2 32,902.7 36,577.4 40,560.2

Net profit (adj.) 6,211.5 6,688.1 7,245.5 7,853.7 Total liabilities & equity 269,888.4 275,516.1 299,539.0 325,855.9

CASH FLOW KEY METRICS Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F Year to 31 Dec (%) 2019 2020F 2021F 2022F

Operating 18,777.1 (22,930.5) (88.4) 7,150.4 Profitability

Pre-tax profit 14,324.9 15,419.2 16,749.0 18,207.0 EBITDA margin 5.1 4.5 4.4 4.3

Tax (3,282.2) (3,277.3) (3,532.1) (3,826.6) Pre-tax margin 3.3 3.3 3.2 3.2

Deprec. & amort. 3,114.1 1,652.3 1,573.5 1,501.7 Net margin 1.5 1.5 1.4 1.4

Associates (876.4) (920.2) (966.2) (1,014.5) ROA 2.5 2.5 2.5 2.5

Working capital changes 2,819.5 (38,495.0) (16,894.0) (11,006.6) ROE 13.9 13.0 12.4 12.4

Non-cash items 3,143.5 2,660.5 2,934.4 3,239.9

Other operating cashflows (466.1) 29.9 47.1 49.6 Growth

Investing (6,796.0) (905.0) (905.0) (905.0) Turnover 23.4 7.9 10.3 10.4

Capex (growth) (610.0) (610.0) (610.0) (610.0) EBITDA 26.1 (4.2) 7.9 7.9

Investments (95.0) (95.0) (95.0) (95.0) Pre-tax profit 12.8 7.1 8.1 8.1

Proceeds from sale of assets (200.0) (200.0) (200.0) (200.0) Net profit 7.1 7.5 8.3 8.4

Others (5,891.0) 0.0 0.0 0.0 Net profit (adj.) 7.6 7.7 8.3 8.4

Financing (13,084.6) (65.1) (4,448.8) (5,026.6) EPS 7.6 2.5 8.3 8.4


Issue of shares 0.0 4,021.5 0.0 0.0 Leverage

Proceeds from borrowings (4,186.8) 2,542.5 2,669.6 2,803.1 Debt to total capital 39.8 37.5 36.5 35.5

Others/interest paid (6,073.9) (3,448.8) (3,694.7) (4,121.9) Debt to equity 107.2 95.4 91.9 88.5

Net cash inflow (outflow) (1,103.4) (23,900.6) (5,442.2) 1,218.8 Net debt/(cash) to equity 24.6 68.1 75.7 71.9

Beginning cash & cash equivalent 40,299.0 39,192.0 15,291.4 9,849.2 Interest cover (x) 6.9 7.8 7.6 7.4

Changes due to forex impact (3.6) 0.0 0.0 0.0





COMPANY UPDATE BUY (Maintained) Share Price HK$100.00 Target Price HK$148.00 Upside +48.0%

COMPANY DESCRIPTION Ping An Good Doctor is the leading online healthcare services provider in China, offering a mobile platform for online consultation, hospital referral and appointment, health management and wellness interaction services.

STOCK DATA GICS sector Health CareBloomberg ticker: 1833 HKShares issued (m): 1,067.3Market cap (HK$m): 113,026.5Market cap (US$m): 14,583.73-mth avg daily t'over (US$m): 84.8


1mth 3mth 6mth 1yr YTD0.1 (7.9) 60.1 133.5 86.3

Major Shareholders %Ping An Group 41.3

Le Jin Xuan Ltd. 12.1

Bang Qi Jian Ltd. 6.3


FY20 Net Cash/Share (Rmb) 5.07

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PING AN HEALTHCARE AND TECHN/HSI INDEX

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ANALYST(S) Carol Dou +852 2236 6749 [email protected]

Ping An Good Doctor (1833 HK)

Dedicated Online Healthcare Services Provider COVID-19 and government support will continue to boost the development of Internet healthcare services. As a dedicated online healthcare services provider, Ping An Good Doctor has actively upgraded service capacity and capabilities by offering more convenient services for patients and doctors. We believe its efforts will eventually transform into a great performance and lead to increasing market share in the next few years. Maintain BUY and target price of HK$148.00.

WHAT’S NEW • COVID-19 and government support to boost development of Internet healthcare.

With an integrated healthcare services platform that offers patients more convenient services and helps doctors improve service quality, Ping An Good Doctor (PAGD) has seen its number of registered users grown exponentially in the past few years to 346m and monthly active users reached 67.3m as at end-Jun 20.

• It is now the largest mobile medical services online provider in China in terms of user size. The COVID-19 pandemic has changed user behaviour and increased online medical consultation. Recently, the government has also rolled out policies, such as encouraging hospitals to set up online Internet platform. It is also allowing online follow-up for common and chronic diseases by qualified Internet healthcare services providers for Social Health Insurance (SHI) participants who are to be included into the SHI Payment scheme in accordance with local regulations, so as to facilitate the business development of online medical services providers and deepen the reforms in the healthcare system in China.

• As a leading online healthcare services provider with the largest online patient base in China, a vast group of doctors and experts, and extensive offline network, PAGD will continue to experience rapid growth as it has actively upgraded service capacity and capabilities by offering more convenient services for patients and doctors.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2018 2019 2020F 2021F 2022FNet turnover 3,338 5,065 6,624 9,403 12,457EBITDA (1,277) (965) (879) (474) 220Operating profit (1,321) (1,111) (932) (558) 94Net profit (rep./act.) (913) (747) (637) (198) 292Net profit (adj.) (1,040) (747) (637) (198) 292EPS (fen) (110.1) (74.6) (61.8) (18.6) 26.7PE (x) n.m. n.m. n.m. n.m. 349.5P/B (x) 8.6 9.7 10.7 11.2 11.2EV/EBITDA (x) n.m. n.m. n.m. n.m. 428.8Dividend yield (%) 0.0 0.0 0.0 0.0 0.0Net margin (%) (27.4) (14.7) (9.6) (2.1) 2.3Net debt/(cash) to equity (%) (9.1) (51.5) (58.1) (67.7) (81.0)Interest cover (x) n.a. n.a. n.a. n.a. n.a.ROE (%) n.a. n.a. n.a. n.a. 3.3Consensus net profit - - (605) (208) 294UOBKH/Consensus (x) - - 1.05 0.95 0.99Source: PAGD, Bloomberg, UOB Kay Hian




STOCK IMPACT • Efforts put into SHI reimbursement will lead to great performance. The government

supports the social healthcare insurance reimbursement for services by qualified Internet healthcare services providers. This will bring tremendous opportunities for growth in Internet healthcare services although there are also challenges. The medical insurance reimbursement system in China is very fragmented, but coordinated mostly at city-levels with different reimbursement policies. This requires PAGD to get approvals from local government entities for the establishment of a supporting platform to allow the reimbursement for Internet medical services. This process takes time and may need to establish different platforms for different cities. As of mid-Aug 20, PAGD has launched 14 Internet hospital platforms connecting local hospitals and regulatory parties, of which three (Yinchuan, Hubei and Dongguan) have realised local SHI payment. Being very new, SHI transaction volume is still small, and continued market-patient education is needed. We believe these efforts will eventually transform into a greater business performance for PAGD in the next few years.

• Focuses more on patient and online medical services vs peers. PAGD, JD Health and Ali Health are all comprehensive healthcare services platforms but with different business models. Ali Health’s and JD Health’s e-commerce revenue constitute >95% and >88% of their total revenue respectively, while PAGD focuses more on online healthcare and medical services, with about 50% revenue generated from healthcare services. Going forward, these companies may see increasing overlap in their operations as the industry matures, but they may still leverage their unique strength to expand their business. Management believes that focusing on healthcare services will allow PAGD establish stronger relationships with patients and doctors, and generate stable cash flow in the future. Moreover, PAGD sees great potential in healthcare services and expects it to generate robust revenue growth in the next few years, especially with the increasing support from government. PAGD’s Health Mall business has relatively low margin of 9.2% vs Ali Health’s over 23%. According to management, the lower gross margin was mainly due to their different cost structures.

• Benefits from Ping An Group’s strategic upgrade. Ping An Group has recently announced a strategic upgrade of its healthcare ecosystem. As a key player in the group’s healthcare ecosystem, PAGD expects to generate synergistic growth in every aspect of its business. The upgrading of the group ecosystem will allow PAGD to increase patient flow and influence their behaviour, and empower healthcare service providers to improve service quality and generate profit from their products and services. The group’s healthcare ecosystem upgrade also provides PAGD cross-selling opportunities for retail and corporate clients as well as deepens its penetration into commercial insurance agents and policy holders. With more diversified channels, more innovative services and enhanced capabilities for stakeholders in the ecosystem, we believe PAGD will experience rapid revenue growth and continue to expand market share.

EARNINGS REVISION • None.

VALUATION/RECOMMENDATION • Maintain BUY and target price of HK$148.00, based on SOTP valuation. We assign

EV/sales for 20xto online medical services, 15x EV/sales for consumer health, and 9x EV/sales for health mall and health management.

1H20 SEGMENT REVENUE

Source: PAGD, UOB Kay Hian




PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F

Net turnover 5,065.4 6,623.5 9,403.2 12,456.9 Fixed assets 186.4 297.2 445.3 626.9

EBITDA (964.8) (879.2) (474.4) 219.8 Other LT assets 3,714.8 3,860.4 4,060.2 4,323.6

Deprec. & amort. 145.7 52.6 83.8 125.5 Cash/ST investment 4,965.5 5,231.7 5,970.4 7,371.9

EBIT (1,110.6) (931.8) (558.1) 94.2 Other current assets 3,512.4 4,089.9 4,742.3 5,437.9

Total other non-operating income 123.7 41.9 41.9 41.9 Total assets 12,379.1 13,479.2 15,218.2 17,760.2

Net interest income/(expense) 252.7 252.7 252.7 252.7 ST debt 0.0 0.0 0.0 0.0

Pre-tax profit (734.1) (637.2) (263.6) 388.8 Other current liabilities 2,665.2 4,402.4 6,339.1 8,589.5

Tax (12.6) 0.0 65.9 (97.2) LT debt 0.0 0.0 0.0 0.0

Net profit (746.7) (637.2) (197.7) 291.6 Other LT liabilities 44.4 44.4 44.4 44.4

Net profit (adj.) (746.7) (637.2) (197.7) 291.6 Shareholders' equity 9,648.7 9,011.5 8,813.9 9,105.5



CASH FLOW KEY METRICS Year to 31 Dec (Rmbm) 2019 2020F 2021F 2022F Year to 31 Dec (%) 2019 2020F 2021F 2022F

Operating (504.2) 217.7 775.9 1,532.7 Profitability

Pre-tax profit (734.1) (637.2) (263.6) 388.8 EBITDA margin (19.0) (13.3) (5.0) 1.8

Tax (12.6) 0.0 65.9 (97.2) Pre-tax margin (14.5) (9.6) (2.8) 3.1

Deprec. & amort. 145.7 52.6 83.8 125.5 Net margin (14.7) (9.6) (2.1) 2.3

Working capital changes 372.9 1,159.8 1,284.3 1,554.8 ROA n.a. n.a. n.a. 1.8

Other operating cashflows (276.1) (357.5) (394.5) (439.2) ROE n.a. n.a. n.a. 3.3

Investing 4,476.6 48.5 (37.1) (131.2)

Capex (growth) (133.0) (204.1) (289.8) (383.9) Growth

Others 4,609.7 252.7 252.7 252.7 Turnover 51.8 30.8 42.0 32.5

Financing 8.8 0.0 0.0 0.0 EBITDA n.a. n.a. n.a. n.a.

Issue of shares 0.0 0.0 0.0 0.0 Pre-tax profit n.a. n.a. n.a. n.a.

Proceeds from borrowings 0.0 0.0 0.0 0.0 Net profit n.a. n.a. n.a. n.a.

Loan repayment 0.0 0.0 0.0 0.0 Net profit (adj.) n.a. n.a. n.a. n.a.

Others/interest paid 8.8 0.0 0.0 0.0 EPS n.a. n.a. n.a. n.a.

Net cash inflow (outflow) 3,981.3 266.2 738.7 1,401.4

Beginning cash & cash equivalent 926.5 4,965.5 5,231.7 5,970.4 Leverage

Changes due to forex impact 57.7 0.0 0.0 0.0 Debt to total capital 0.0 0.0 0.0 0.0

Ending cash & cash equivalent 4,965.5 5,231.7 5,970.4 7,371.9 Debt to equity 0.0 0.0 0.0 0.0


Interest cover (x) n.a. n.a. n.a. n.a.




COMPANY RESULTS HOLD

(Maintained) Share Price Rp10,550Target Price Rp9,470Upside -10.2%

COMPANY DESCRIPTION AALI is a palm oil plantation company with interests in both upstream and downstream businesses. It is one of the largest planters in Indonesia managing nearly 300,000 ha of palm oil estates in Sumatra, Kalimantan, and Sulawesi.

STOCK DATA GICS sector Consumer StaplesBloomberg ticker: AALI IJShares issued (m): 1,924.7Market cap (Rpb): 20,305.5Market cap (US$m): 1,386.03-mth avg daily t'over (US$m): 1.7

Price Performance (%) 52-week high/low Rp14,575/Rp4,290

1mth 3mth 6mth 1yr YTD5.8 12.5 92.7 (3.2) (27.6)

Major Shareholders %Astra International 79.7- -- -

FY20 NAV/Share (Rp) 10,107FY20 Net Debt/Share (Rp) 3,092

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16000(%)(lcy)

ASTRA AGRO LESTARI TBK PT

ASTRA AGRO LESTARI TBK PT/JCI INDEX

0

5

10

15


Volume (m)

Source: Bloomberg

ANALYST(S) Jacquelyn Yow 03 2147 1995 [email protected]

Leow Huey Chuen 03 2147 1990 [email protected]

Astra Agro Lestari (AALI IJ)

3Q20: Results Within Expectations; Mainly Buoyed By Higher Realised ASPs AALI reported a 9M20 core net profit of Rp593b, accounting for only 70% of our full-year assumption. 3Q20 core net income came in at Rp156b. This was mainly buoyed by higher realised ASPs despite lower production and sales volumes. We expect 4Q20 earnings to come in flat or slightly higher qoq. This is because the high CPO prices in Sep 20 and stable FFB production would likely be reflected in 4Q20’s earnings. Maintain HOLD with target price of Rp9,470. Entry price: Rp8,990.

3Q20 FINANCIAL SUMMARY

Year to 31 Dec (Rpb) 3Q20 qoq % chg yoy % chg 9M20 yoy % chg Remarks Revenue 4,243 (1.0) 9.9 13,324 7.6 Gross Profit 613 62.8 26.1 1,917 57.7 Operating Income 341 >100 64.4 1,098 >100 Net Profit 191 >100 >100 583 >100 Driven by higher realised ASP. Core Net Profit 156 8.1 >100 593 >100 Within expectation.

Margins (%) Gross Margin 14.46 64.4 14.7 14.39 46.6 Operating Margin 8.05 >100 49.6 8.24 >100 Net Margin 4.49 >100 >100 4.37 >100

Source: AALI, UOB Kay Hian

WHAT’S NEW • 9M20 net income within our expectations. Astra Agro Lestari (AALI) posted a 9M20 core

net profit of Rp593b, which accounted for 70% of our full-year assumption. The results are within our expectation where the net profit growth of 8% qoq and >100% yoy in 3Q20 was mainly driven by higher ASPs despite lower production (hence resulted in lower sales volumes). We expect 4Q20 earnings to come in flat or slightly higher qoq as the high CPO prices and stable fresh fruit bunch (FFB) production in Sep 20 would likely be reflected in 4Q20’s earnings.

• Buoyed by higher realised ASPs in 3Q20. AALI reported a 3Q20 core net profit of Rp156b, up 8% qoq. The qoq growth was mainly buoyed by a higher ASP which had increased by 16% qoq despite lower production and sales volumes. Mill utilisation rate was also low at only 68% vs the usual 75-80%. Furthermore, the oil extraction rate (OER) in 3Q20 had also declined due to fewer third-party FFB purchases. We reckon this mainly came on the back of lower production from smallholders’ estates (which had scaled down fertiliser application back in 2019).

KEY FINANCIALS Year to 31 Dec (Rpb) 2018 2019 2020F 2021F 2022FNet turnover 19,084 17,453 19,333 19,502 20,591EBITDA 3,396 2,291 2,623 2,883 2,821Operating profit 2,326 960 1,296 1,527 1,451Net profit (rep./act.) 1,439 211 858 1,066 1,023Net profit (adj.) 1,439 211 858 1,066 1,023EPS (Rp) 747.4 109.7 446.0 553.9 531.8PE (x) 14.1 96.2 23.7 19.0 19.8P/B (x) 1.1 1.1 1.0 1.0 0.9EV/EBITDA (x) 7.9 11.7 10.2 9.3 9.5Dividend yield (%) 3.2 0.0 1.7 2.4 2.3Net margin (%) 7.5 1.2 4.4 5.5 5.0Net debt/(cash) to equity (%) 24.7 28.6 30.6 27.0 26.1Interest cover (x) 17.0 7.2 12.8 14.7 14.2ROE (%) 7.7 1.1 4.5 5.3 4.8Consensus net profit - - 827 1,102 1,205UOBKH/Consensus (x) - - 1.03 0.97 0.85Source: AALI, Bloomberg, UOB Kay Hian




STOCK IMPACT • 9M20 third-party purchases dropped by 26% yoy. To mitigate the FFB production

weakness due to aggressive replanting activities, management had ramped up capacity expansion at its mills in the last few years. This was to support an increase in third-party FFB purchases and keep total CPO production growth at 5-10% yoy. However, 9M20 CPO production had dropped by 17% yoy, mainly due to lower third-party purchases (-26% yoy) and a lower OER. The limited supply from third-parties remains a concern for AALI. The lack of fertiliser application activities since 2019 had impacted smallholders’ production which led to limited supply in the market. Furthermore, AALI might purchase less third-party FFB to protect their margins with FFB prices now being very competitive due to limited supply.

• Drawback from potential rise in export levy. The market is expecting the government to raise the export levy to further support the B30 mandate. The rise in CPO prices has prompted the government to increase biodiesel incentives. The gap between biodiesel conversion prices and Indonesia gasoil prices for Oct 20 stands at Rp5,179/litre. Hence, more funding is required to support the biodiesel programme. This would affect AALI’s CPO selling prices as upstream players would need to bear the additional export levy. Every US$5/tonne drop in AALI’s CPO selling price would hurt its net profit by 7%.

• Higher FFB production growth for 2021F. We had factored in 5% yoy growth for total FFB production for 2021, mainly coming from external FFB purchases (double-digit yoy growth). The positive FFB production growth in 2021F would mainly be a result of the recent high rainfall volumes which would lead to a sharp increase in FFB yield. Having said that, we foresee some pullback from AALI’s internal FFB production growth with its older age profile and aggressive replanting programme. However, we expect higher contribution from external FFB purchases at about 40% (out of total FFB processed in 2021F; external FFB contribution was at 38% in 2019).

• Replanting programme. AALI will carry out aggressive replanting activities at some of its estates with older age profiles in the next 3-5 years, mostly in Kalimantan. The company targets to replant about 6,000ha in 2020, which accounts for about 2% of its total planted area. (2019: 6,724ha). AALI had replanted 4,633ha as at Jun 20.

EARNINGS REVISION/RISK • Maintain earnings forecasts. We maintain our earnings forecasts for 2021-22 at Rp1.07t

and Rp1.02t respectively.

VALUATION/RECOMMENDATION • Maintain HOLD with target price of Rp9,470, pegged to 17x 2021F PE, based on its 5-year

mean. At +1SD to 25x 2021F PE, our target price would be at Rp13,900.

SHARE PRICE CATALYST • Higher-than-expected production.

• Higher-than-expected CPO prices.

OPERATIONAL HIGHLIGHTS Production (‘000 tonnes) 3Q20 qoq % chg yoy % chg 9M20 yoy % chgNucleus FFB 1,115 (4.6) (13.9) 3,393 (10.1)Third-party FFB 579 (4.9) (16.2) 1,827 (23.9)CPO 328 (7.1) (21.7) 1,034 (17.4)Palm Kernel 72 (2.0) (19.4) 218 (17.8)

Sales volume (tonnes) CPO 347 (13.9) (15.5) 1,100 (14.4)Olein 889 (4.2) 1.4 273 (0.9)Stearine 21 (17.2) 27.9 65 (7.9)

CPO ASP (Rp/kg) 8,271 15.8 28.0 NA NAFFB yield (tonne/ha) 4.20 (5.1) (14.0) 13.9 (7.9)OER (%) 19.34 (2.6) (8.2) NA NA

Source: AALI, UOB Kay Hian

PLANTATION AREA BY REGION

Kalimantan46%

Sumatra36%

Sulawesi18%

Source: AALI

FFB PRODUCTION AND OER TREND

0.00.20.40.60.81.01.21.41.61.8

18.0%18.5%19.0%19.5%20.0%20.5%21.0%21.5%22.0%22.5%

1Q16 4Q16 3Q17 2Q18 1Q19 4Q19 3Q20

(m tonnes) (%)

FFB productionOER

Source: AALI




PROFIT & LOSS Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F

Net turnover 17,453 19,333 19,502 20,591

EBITDA 2,291 2,623 2,883 2,821

Deprec. & amort. 1,331 1,327 1,356 1,370

EBIT 960 1,296 1,527 1,451


Associate contributions (6) (10) (10) (20)

Net interest income/(expense) (320) (205) (197) (198)

Pre-tax profit 661 1,294 1,559 1,496

Tax (417) (362) (436) (419)

Minorities (33) (74) (56) (54)

Net profit 211 858 1,066 1,023

Net profit (adj.) 211 858 1,066 1,023

BALANCE SHEET Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F

Fixed assets 16,832 17,311 17,836 18,169

Other LT assets 5,670 6,199 6,469 6,654

Cash/ST investment 383 199 189 155


Total assets 26,974 28,503 29,227 30,373

ST debt 150 150 150 150


LT debt 5,535 6,000 5,600 5,664

Other LT liabilities 893 794 794 794


Minority interest 457 457 457 457


CASH FLOW Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F

Operating 731 1,246 1,442 1,398

Pre-tax profit 960 1,296 1,527 1,451

Tax (417) (362) (436) (419)

Deprec. & amort. 1,331 1,327 1,356 1,370

Associates 0 0 0 0

Working capital changes (172) (172) (172) (172)


Other operating cashflows (972) (842) (833) (832)

Investing (892) (1,615) (1,500) (1,500)

Capex (growth) (895) (1,615) (1,500) (1,500)

Capex (maintenance) 0 0 0 0

Investments 0 0 0 0

Others 4 0 0 0

Financing 365 185 48 68

Dividend payments (431) (343) (480) (461)

Issue of shares 0 0 0 0

Proceeds from borrowings 954 528 528 528

Others/interest paid (158) 0 0 0

Net cash inflow (outflow) 204 (184) (10) (34)

Beginning cash & cash equivalent 49 383 199 189

Changes due to forex impact 131 0 0 0

Ending cash & cash equivalent 383 199 189 155



Pre-tax margin 3.8 6.7 8.0 7.3

Net margin 1.2 4.4 5.5 5.0

ROA 0.8 3.1 3.7 3.4

ROE 1.1 4.5 5.3 4.8

Growth Turnover (8.5) 10.8 0.9 5.6

EBITDA (32.5) 14.5 9.9 (2.2)

Pre-tax profit (70.1) 95.9 20.4 (4.0)

Net profit (85.3) 306.6 24.2 (4.0)

Net profit (adj.) (85.3) 306.6 24.2 (4.0)

EPS (85.3) 306.6 24.2 (4.0)


Debt to equity 30.7 31.6 27.9 26.9

Net debt/(cash) to equity 28.6 30.6 27.0 26.1

Interest cover (x) 7.2 12.8 14.7 14.2




COMPANY RESULTS BUY (Maintained) Share Price Rp5,775 Target Price Rp7,500 Upside +29.9% (Previous TP Rp6,925)

COMPANY DESCRIPTION State owned bank with largest market share corporate segment.

STOCK DATA GICS sector Financials Bloomberg ticker: BMRI IJ Shares issued (m): 46,666.7 Market cap (Rpb): 269,500.0 Market cap (US$m): 18,395.9 3-mth avg daily t'over (US$m): 19.6


1mth 3mth 6mth 1yr YTD 7.9 3.1 34.9 (17.5) (24.8)

Major Shareholders % Republic of Indonesia 60.0

FY20 NAV/Share (Rp) 3,809

FY20 CAR Tier-1 (%) 15.74

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9000(%)(lcy)

BANK MANDIRI PERSERO TBK PT

BANK MANDIRI PERSERO TBK PT/JCI INDEX

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100

200

300


Volume (m)

Source: Bloomberg

ANALYST(S) Raphon Prima +6221 2993 3876 [email protected]

Bank Mandiri (BMRI IJ) 3Q20: Net Profit Jumps 57% qoq On A 20% qoq Drop In Provision BMRI posted a strong 57% qoq net profit growth in 3Q20 on a 20% qoq drop in provision. Credit cost was at 2.2% in 9M20 but management maintains 2020 guidance of 2.5-3.0%. NIM was 4.7% in 9M20, thanks to lower cost of funds which is expected to continue to fall. We expect net profit to decline 40% yoy in 2020 but to rebound by 60% yoy in 2021. Maintain BUY with higher target price of Rp7,500 as we raise our net profit forecasts.

RESULTS • 3Q20 net profit jumped 57% qoq to Rp3.7t. Bank Mandiri (BMRI) reported a 57% qoq

jump in 3Q20 net profit, driven by a 21% qoq decline in provision. 9M20 net profit of Rp14t is above our estimate and also exceeded our full-year estimate of Rp12t. 9M20 net profit make up 82% of full-year consensus estimate of Rp17t. In the last three years, 9M net profit contributed to an average of 73% of full-year net profit.

3Q20 RESULTS Year end 31 Dec (Rpb) 3Q20 3Q19 yoy % chg 2Q20 qoq % chg 9M20 9M19 yoy % chgProfit & Loss Interest Income 21,172 23,282 -9.1 21,490 -1.5 66,371 67,770 -2.1Interest Expenses (7,948) (8,187) -2.9 (8,091) -1.8 (24,212) (23,829) 1.6Net Interest Income 13,224 15,095 -12.4 13,399 -1.3 42,159 43,940 -4.1Non Interest Income 5,995 7,610 -21.2 6,073 -1.3 20431 21,025 -2.8Total Income 19,605 22,705 -13.7 19,472 0.7 62,977 64.965 -3.1Operating Expenses (9,136) (9,826) -7.0 (9,156) -0.2 (28,321) (28,203) 0.4PPOP 10,469 12,879 -18.7 10,315 1.5 34,045 36,763 -7.4Provision Expenses (5,409) (4,062) 33.1 (6,811) -20.6 (15,699) (10,274) 52.8Operating Profit 5,060 8,871 -42.6 3,505 44.3 18,957 26,489 -28.4Earnings Before Tax 5,033 8,805 -42.8 3,451 45.8 18,901 26,430 -28.5Net Profit 3,735 6,719 -44.4 2,377 57.1 14,028 20,250 -30.7

Key Metrics 9M20 9M19 yoy % chg 1H20 qoq % chg CommentsLoan 873,729 841,857 3.8 871,660 0.2Customer Deposit 1,024,175 891,240 14.9 976,556 4.9Loan/Deposit Ratio (%) 85.3 94.5 -9.1 89.3 -3.9 Expecting 87-90% in 2021CASA Ratio (%) 65.4 63.7 1.7 61.9 3.5NIM (%) 4.7 5.6 -0.9 4.9 -0.3 Expecting 4.6%-4.7% in FY20Cost of Fund (%) 2.7 3.1 -0.4 2.9 -0.2 Still expecting further declineNPL Ratio 3.3 2.5 0.8 3.3 0.1NPL Coverage Ratio 205.2 152.2 53.0 195.5 9.7Credit Cost 2.24 1.52 0.72 2.17 0.07 Expecting ~2.5% in FY20Total CAR 19.5 21.8 -2.3 19.0 0.6ROAE 10.1 14.3 -4.2 11.31 -1.2ROAA 1.4 2.2 -0.8 1.5 -0.2

Source: BMRI

• Expecting net profit to decline 40% yoy in 2020 but rebound by 61% yoy in 2021. We see a possible higher provision in 4Q20. For 2021, we expect provision to decline 29% yoy, driven by an economic recovery, leading to a 61% yoy net profit growth.

KEY FINANCIALS Year to 31 Dec (Rpb) 2018 2019 2020F 2021F 2022FNet interest income 54,623 59,440 55,699 62,025 68,278Non-interest income 31,035 29,160 26,819 31,239 33,665Net profit (rep./act.) 25,015 27,482 16,503 26,571 30,690Net profit (adj.) 25,015 27,482 16,503 26,571 30,690EPS (Rp) 536.0 588.9 353.6 569.4 657.7PE (x) 10.8 9.8 16.3 10.1 8.8P/B (x) 1.5 1.3 1.5 1.4 1.3Dividend yield (%) 4.2 6.1 3.7 5.9 6.8Net int margin (%) 5.7 5.6 4.7 4.9 5.0Cost/income (%) 43.9 45.2 45.4 44.7 43.7Loan loss cover (%) 142.7 144.2 214.9 244.5 260.0Consensus net profit - - 17,142 24,845 30,799UOBKH/Consensus (x) - - 0.96 1.07 1.00Source: BMRI, Bloomberg, UOB Kay Hian




• Credit cost at 2.24% in 9M20; management maintains 2.5-3.0% guidance for 2020. Credit cost was at 2.24% in 9M20 (1H20: 2.17%). Management maintains its 2020 credit cost guidance of 2.5-3.0% although provision has slowed in 3Q20. However, management said credit cost for 2020 will likely come in at the lower end of its guidance. Its full-year guidance implies 4Q20 provision of Rp7.2t (2Q20: Rp6.8t, 3Q20: Rp5.4t).

• NIM was 4.7% in 9M20, still above guidance of 4.4-4.6%. 9M20 NIM is still higher than management’s 2020 guidance of 4.4-4.6%. Management expects 2020 NIM to come in at the higher end of its of guidance, driven by a 40bp yoy decline in cost of funds. Management expects cost of funds to further decline due to expectedly more cuts to time deposit rates.

• PPOP edged up 1.5% qoq to Rp10.5t in 3Q20 (2Q20: Rp10.3t). Net interest income declined 1.3% qoq due to lower interest income. PPOP growth was helped by a 5% qoq increase in non-interest income as cash recovery income jumped 65% qoq. Operating expense dipped 0.2% qoq.

• Loan-deposit ratio (LDR) declined to 85.3%; expecting 87-90% in 2021. The low LDR was driven by 15% yoy rise in customer deposits in 9M20. In 2021, deposit growth is expected to slow as management will pursue efficient funding.

EARNINGS REVISION/RISKS REVISED FORECASTS

2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021FLoan 924,043 999,362 924,043 995,531 0.0% 0.4% 877,505 945,998 5.3% 5.6%Deposit 1,065,481 1,137,833 1,001,005 1,092,475 6.4% 4.2% 1,009,763 1,089,984 5.5% 4.4%Interest Income 87,645 98,320 85,414 97,461 2.6% 0.9% N/A N/A N/A N/AInterest Expenses (31,945) (36,294) (32,062) (36,766) -0.4% -1.3% N/A N/A N/A N/ANet Interest Income 55,699 62,025 53,353 60,695 4.4% 2.2% 55,233 62,516 0.8% -0.8%Non Interest Income 26,819 31,239 27,088 31,710 -1.0% -1.5% N/A N/A N/A N/ATotal Income 82,518 93,265 80,441 92,406 2.6% 0.9% 83,935 93,016 -1.7% 0.3%Opex (37,452) (41,673) (38,678) (43,022) -3.2% -3.1% N/A N/A N/A N/APPOP 45,067 51,592 41,763 49,384 7.9% 4.5% N/A N/A N/A N/AProvision Expenses (22,894) (16,349) (25,641) (16,316) -10.7% 0.2% N/A N/A N/A N/AOperating Prof it 22,173 35,243 16,122 33,067 37.5% 6.6% 25,540 35,960 -13.2% -2.0%Net Profit 16,503 26,571 12,005 24,932 37.5% 6.6% 17,015 24,844 -3.0% 6.9%

New Original Difference (%) Street Difference (%)

• We raise net profit forecasts by 38% and 7% for 2020-21 respectively on a 10.7%

drop in provision in 2020 and higher PPOP growth of 7.9% and 5% in 2020-21.

VALUATION/RECOMMENDATION • Maintain BUY with higher target price of Rp7,500 (from Rp6,925), based on Gordon

Growth Model-derived fair P/B of 1.8x (normalised ROE: 15.4%, cost of equity: 11.3%, long-term growth: 6.1%). BMRI is currently trading at 1.4x 2021F P/B, or near its 10-year historical -1SD of 1.5x.

FORWARD P/B CREDIT COST

1.0x1.2x1.4x1.6x1.8x2.0x2.2x2.4x2.6x2.8x3.0x

Oct-10 Oct-12 Oct-14 Oct-16 Oct-18

+2SD 2.6x

+1SD 2.2x

avg 1.9x

-1SD 1.5x

-2SD 1.2x

1.1%

2.1%

3.9%

2.3%

1.8%

1.4%

2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020E

Source: UOB Kay Hian Source: BMRI, UOB Kay Hian

CREDIT COST BREAKDOWN NPL ratio (%) Business as Usual Build Up Total

Corporate 0.62 0.26 0.88

Commercial 2.31 0.23 2.53

SME 1.63 0.64 2.27

Micro 2.77 0.60 3.38

Consumer 3.50 1.58 5.08

Total Bank Only 1.69 0.49 2.18

Total Consolidated 1.72 0.52 2.24

Source: BMRI

COVID-19 LOAN RESTRUCTURING (Rpt) Pipeline Approved

Corporate 54.6 46.5

Commercial 12.7 12.3

Total Wholesale 67.3 58.8

SME 13.0 12.4

Micro Productive 20.5 20.5

Micro Salary Based Loan 5.3 5.3

Consumer 21.6 19.5

Total Retail 60.4 57.6

Total 127.7 116.4

% to Bank Only Loan 17.0% 15.5%Source: BMRI

LOANS AT RISK EXCLUDING COVID-19 RESTRUCTURING SCHEME

2.2% 2.2% 2.2% 2.6%

4.6%6.0% 6.0% 4.6%

2.3%2.4% 3.3%

3.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

12M19 3M20 6M20 9M20

Category 1 Restructuring Category 2 NPL

9.1%10.6%

11.5%10.5%

Source: BMRI




PROFIT & LOSS BALANCE SHEET Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F

Interest income 91,525 87,645 98,320 108,318 Cash with central bank 46,491 53,274 56,892 61,404

Interest expense (32,085) (31,945) (36,294) (40,040) Govt treasury bills & securities 129,000 159,822 170,675 184,213

Net interest income 59,440 55,699 62,025 68,278 Interbank loans 50,127 95,893 102,405 110,528

Fees & commissions 14,216 13,262 14,184 15,275 Customer loans 877,105 862,470 935,842 1,016,119

Other income 14,944 13,557 17,055 18,389 Investment securities 71,263 79,988 85,394 92,143

Non-interest income 29,160 26,819 31,239 33,665 Derivative receivables 3,573 4,262 4,551 4,912

Total income 88,600 82,518 93,265 101,943 Associates & JVs 606 791 975 1,160

Staff costs (17,221) (16,360) (17,996) (19,256) Fixed assets (incl. prop.) 44,612 49,012 49,712 50,412

Other operating expense (22,855) (21,092) (23,677) (25,334) Other assets 95,469 137,438 119,481 118,189

Pre-provision profit 48,524 45,067 51,592 57,353 Total assets 1,318,246 1,442,949 1,525,927 1,639,081

Loan loss provision (12,072) (22,894) (16,349) (16,641) Interbank deposits 13,844 15,982 17,068 18,421

Other non-operating income (10) 30 30 30 Customer deposits 933,125 1,065,481 1,137,833 1,228,087

Pre-tax profit 36,441 22,203 35,273 40,742 Derivative payables 4,977 8,858 10,522 8,119

Tax (7,986) (5,107) (7,760) (8,963) Debt equivalents 87,038 101,221 91,027 98,247

Minorities (973) (593) (942) (1,088) Other liabilities 70,228 68,531 68,737 68,933

Net profit 27,482 16,503 26,571 30,690 Total liabilities 1,109,212 1,260,073 1,325,186 1,421,807

Net profit (adj.) 27,482 16,503 26,571 30,690 Shareholders' funds 204,601 177,766 194,956 210,812

Minority interest - accumulated 4,434 5,110 5,785 6,461

Total equity & liabilities 1,318,246 1,442,949 1,525,927 1,639,081

OPERATING RATIOS KEY METRICS Year to 31 Dec (%) 2019 2020F 2021F 2022F Year to 31 Dec (%) 2019 2020F 2021F 2022F

Capital Adequacy Growth

Tier-1 CAR 20.3 15.7 16.4 16.5 Net interest income, yoy chg 8.8 (6.3) 11.4 10.1

Total CAR 21.4 16.6 17.4 17.5 Fees & commissions, yoy chg 9.2 (6.7) 7.0 7.7

Total assets/equity (x) 6.4 8.1 7.8 7.8 Pre-provision profit, yoy chg 0.9 (7.1) 14.5 11.2

Tangible assets/tangible common equity (x)

6.5 8.3 8.0 7.9 Net profit, yoy chg 9.9 (39.9) 61.0 15.5

Net profit (adj.), yoy chg 9.9 (39.9) 61.0 15.5

Asset Quality Customer loans, yoy chg * 10.7 1.8 8.2 8.1

NPL ratio 2.3 3.1 2.6 2.3 Customer deposits, yoy chg 11.0 14.2 6.8 7.9

Loan loss coverage 144.2 214.9 244.5 260.0 Profitability

Loan loss reserve/gross loans 3.3 6.7 6.4 6.0 Net interest margin 5.6 4.7 4.9 5.0

Increase in NPLs (6.7) 36.1 (9.3) (4.3) Cost/income ratio 45.2 45.4 44.7 43.7

Credit cost (bp) 1.4 2.5 1.7 1.6 Adjusted ROA 2.2 1.2 1.8 1.9

Reported ROE 14.2 8.6 14.3 15.1

Liquidity Adjusted ROE 14.2 8.6 14.3 15.1

Loan/deposit ratio * 97.2 86.7 87.8 88.0 Valuation

Liquid assets/short-term liabilities 23.7 28.5 28.5 28.5 P/BV (x) 1.3 1.5 1.4 1.3

Liquid assets/total assets 17.1 21.4 21.6 21.7 P/NTA (x) 1.3 1.5 1.4 1.3

Adjusted P/E (x) 9.8 16.3 10.1 8.8

Dividend Yield 6.1 3.7 5.9 6.8

Payout ratio 60.0 60.0 60.0 60.0




COMPANY RESULTS BUY (Maintained) Share Price Rp1,235 Target Price Rp1,370 Upside +10.9% (Previous TP Rp1,430)

COMPANY DESCRIPTION ROTI is the largest bread manufacturer in Indonesia. It dominates mass bread production in the market with its well-known brand of Sari Roti products.

STOCK DATA GICS sector Consumer Staples Bloomberg ticker: ROTI IJ Shares issued (m): 6,186.5 Market cap (Rpb): 7,640.3 Market cap (US$m): 521.5 3-mth avg daily t'over (US$m): 0.1


1mth 3mth 6mth 1yr YTD 1.6 0.4 (0.8) (5.0) (5.0)

Major Shareholders % Indoritel Makmur Internasional 25.8

BonLight Investment 20.8

Demeter Indo Investment 19.6

FY20 NAV/Share (Rp) 526

FY20 Net Cash/Share (Rp) 31

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NIPPON INDOSARI CORPINDO TBK

NIPPON INDOSARI CORPINDO TBK/JCI INDEX

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Source: Bloomberg

ANALYST(S) Stevanus Juanda +6221 2993 3845 [email protected]

Nippon Indosari Corpindo (ROTI IJ)

9M20: Underperforms Expectations, But Could Post A Sharp Rebound In 2021 Despite the 39.9% yoy decline in 9M20 net income, ROTI could record a 86.2% yoy rise in 2021F net income. Early hiring caused salaries to increase from 14.9% to 17.7% of sales. This ratio could subside as the company begins to recognise sales from new factories. Our new 2021 net margin assumption of 8.9% is below the company’s guidance of 10-11%. With ROTI trading at a below-average historical PE, maintain BUY and target price of Rp1,370, implying 10.9% upside from current price levels.

9M20 RESULTS Year to 31 Dec yoy yoy qoq(Rpb) 9M20 9M19 % chg 3Q20 3Q19 % chg % chg RemarksRevenue 2,440 2,463 -0.9% 766 875 -12.5% 0.6% Sales declined yoy in 3Q20Gross Profit 1,357 1,366 -0.7% 435 499 -13.0% 6.6%Op Profit 161 254 -36.4% 36 142 -74.6% 293.6% High salary expenses on

new hires for new factories Net Profit 127 212 -39.9% 36 110 -67.6% 162.1% yoy yoy qoqMargins (%) 9M20 9M19 bp chg 3Q20 3Q19 bp chg bp chgGross 55.6 55.5 14 56.7 57.1 (32) 167Operating 6.6 10.3 (369) 4.7 16.2 (1,152) (276)Net 5.2 8.6 (338) 4.7 12.6 (793) (79)

Source: ROTI, UOB Kay Hian

RESULTS • Reported 9M20 net income of Rp127.2b, down 39.9% yoy. 9M net income has

historically contributed to an average of 65.5% to full-year net income over the past three years. Hence, we deem the reported 9M20 results to be behind our (9M20F contribution forecasted at 50.8%) and consensus (9M20F contribution forecasted at 47.2%) full-year net income projections of Rp250.3b and Rp269.5b respectively. General trade sales were up 22% yoy while modern trade sales fell 7% yoy in 9M20.

• 3Q20 net income came in at Rp35.8b, declining 67.6% yoy but jumping 162.2% qoq. The strong qoq performance came on the back of the drop in sales return ratio from 14.4% in 2Q20 to 11.1% in 3Q20 and higher margins in 3Q20 (from a gross margin level to net margin level). 3Q20 net margin came in at 4.7%, against 1.8% in 2Q20.

• Guiding for 10-12% yoy revenue growth and 10-11% net margin in 2021. For 2021, ROTI is guiding 10-12% yoy revenue growth in view of the new factories in Banjarmasin and Pekanbaru.

KEY FINANCIALS Year to 31 Dec (Rpb) 2018 2019 2020F 2021F 2022FNet turnover 2,767 3,337 3,319 3,671 4,118EBITDA 323 491 414 498 540Operating profit 194 357 245 305 325Net profit (rep./act.) 173 301 176 328 360Net profit (adj.) 173 301 176 328 360EPS (Rp) 34.1 48.5 28.4 52.8 58.0PE (x) 36.2 25.5 43.5 23.4 21.3P/B (x) 2.7 2.5 2.3 2.2 2.0EV/EBITDA (x) 23.3 15.3 18.2 15.1 13.9Dividend yield (%) 0.5 0.4 0.2 0.4 0.5Net margin (%) 6.2 9.0 5.3 8.9 8.7Net debt/(cash) to equity (%) (17.8) 4.0 (5.9) (8.0) (14.2)Interest cover (x) 22.3 45.8 7.0 371.1 85.1ROE (%) 6.1 10.2 5.6 9.6 9.7Consensus net profit - - 269 360 408UOBKH/Consensus (x) - - 0.65 0.91 0.88Source: ROTI, Bloomberg, UOB Kay Hian




STOCK IMPACT 9M20 ANALYSIS In Bn Rp 9M20 9M19 YoY (%) 3Q20 3Q19 YoY (%) QoQ (%) 2Q20 1Q20 UOBKH % Var Street % VarSales 2,440 2,463 -0.9% 766 875 -12.5% 0.6% 761 913 3,499.1 69.7% 3,548.9 68.8%Gross Profit 1,357 1,366 -0.7% 435 499 -13.0% 6.6% 408 514 1,950.4 69.6% 1,932.8 70.2%EBIT 161 254 -36.4% 36 142 -74.6% 293.6% 9 116 326.3 49.5% 302.3 53.4%Sales Return (348) (375) -7.1% (96) (125) -23.2% -25.1% (128) -124Sales Return Ratio -12.5% -13.2% -11.1% -12.5% -14.4% -12.0%Net Income 127 212 -39.9% 36 110 -67.6% 162.1% 13.6 77.8 250.3 50.8% 269.5 47.2%Margins 9M20 1Q19 YoY (bp) 3Q20 1Q19 YoY (bp) QoQ (%) 2Q20 1Q20Gross Margin 55.6 55.5 14 56.7 57.1 (32) 167 53.5 56.3 EBIT Margin 6.6 10.3 (369) 4.7 16.2 (1,152) (276) 1.2 12.7 Net Margin 5.2 8.6 (338) 4.7 12.6 (793) (79) 1.8 8.5 Source: ROTI

S&A EXPENSES COMPRESSED EBIT MARGINS AS SALES DECLINED In Bn Rp 9M20 9M19 YoY (%) 3Q20 3Q19 YoY (%) QoQ (%) 1H20 1H19 YoY (%) 2Q20 2Q19 YoY (%) QoQ (%) 1Q20Sales 2,440 2,463 -0.9% 766 875 -12.5% 0.6% 1,674 1,587 5.5% 761 795 -4.3% -16.6% 912.9Selling Expense 9M20 9M19 YoY (%) 3Q20 3Q19 YoY (%) QoQ (%) 1H20 1H19 YoY (%) 2Q20 2Q19 YoY (%) QoQ (%) 1Q20Transportation 183.0 219.4 -16.6% 58.10 68.64 -15.4% -3.5% 124.9 150.8 -17.1% 60.21 80.64 -25.3% -6.9% 64.7 Expired Inventory 136.0 146.1 -6.9% 37.19 47.65 -22.0% -27.6% 98.8 98.4 0.3% 51.39 49.23 4.4% 8.5% 47.4 Salaries & Employee Benefit 235.9 161.1 46.4% 79.25 57.51 37.8% -1.3% 156.6 103.6 51.2% 80.28 56.84 41.2% 5.2% 76.3 Advertising & Promotion 196.3 192.7 1.8% 71.52 53.57 33.5% 16.0% 124.8 139.2 -10.4% 61.63 77.53 -20.5% -2.4% 63.1 Distribution Fees 53.7 56.4 -4.8% 14.67 18.63 -21.3% -15.8% 39.1 37.8 3.4% 17.43 21.28 -18.1% -19.5% 21.7 Repairs & Maintainance 13.9 10.6 30.8% 5.08 3.63 39.9% 2.8% 8.8 7.0 26.1% 4.94 3.91 26.2% 27.4% 3.9 Rental 24.4 10.8 126.3% 8.84 3.98 122.0% 10.3% 15.5 6.8 128.8% 8.02 3.48 130.6% 7.0% 7.5 Depreciation 14.0 10.1 37.7% 5.58 3.69 51.3% 24.1% 8.4 6.4 29.9% 4.50 3.36 33.6% 15.9% 3.9 Others 75.8 33.7 125.0% 31.55 14.30 120.6% 39.2% 44.2 19.4 128.3% 22.67 9.85 130.0% 5.2% 21.5 Total Selling Expenses 932.8 840.9 10.9% 311.77 271.59 14.8% 0.2% 621.1 569.3 9.1% 311.06 306.14 1.6% 0.3% 310.0

Gen & Admin 9M20 9M19 YoY (%) 3Q20 3Q19 YoY (%) QoQ (%) 1H20 1H19 YoY (%) 2Q20 2Q19 YoY (%) QoQ (%) 1Q20Salaries & Employee Benefit 196.1 204.7 -4.2% 65.14 65.52 -0.6% 6.0% 131.0 139.2 -5.9% 61.47 71.20 -13.7% -11.6% 69.5 Professional Fees 23.9 13.9 72.0% 7.52 (4.07) -284.6% -11.7% 16.3 17.9 -8.9% 8.52 9.90 -14.0% 8.8% 7.8 Depreciation 23.3 27.0 -13.9% 6.28 17.70 -64.5% -17.3% 17.0 9.4 81.9% 7.59 4.64 63.6% -19.3% 9.4 Repairs & Maintainance 20.7 15.6 32.6% 9.31 5.44 71.1% 64.8% 11.4 10.2 12.0% 5.65 5.27 7.3% -1.9% 5.8 Utilities 8.9 9.1 -1.9% 2.80 2.94 -4.8% -8.9% 6.1 6.2 -0.4% 3.07 3.18 -3.4% 0.3% 3.1 Business Travel 3.3 8.2 -59.4% 0.61 2.03 -70.1% -15.5% 2.7 6.2 -55.9% 0.72 3.24 -77.8% -64.2% 2.0 Others 31.8 47.6 -33.1% 9.82 15.27 -35.7% -7.8% 22.0 32.3 -32.0% 10.65 15.41 -30.9% -5.8% 11.3 Total Gen & Admin 304.7 317.9 -4.2% 100.88 102.80 -1.9% 4.0% 203.8 215.1 -5.3% 96.95 109.59 -11.5% -9.3% 106.9SGA 1,237.6 1,158.9 6.8% 412.65 374.39 10.2% 1.1% 824.9 784.5 5.2% 408.01 415.73 -1.9% -2.1% 416.9Source: ROTI

EARNINGS REVISION/RISK • We cut our 2020-21 net income forecasts by 29.6% and 3.7% respectively. As a

result of the weaker-than-expected results in 9M20, we cut our 2020 net income forecast by 29.6%. We trim our 2021 net income forecast by just 3.7% as the new guidance for 2021 is higher than our forecast. We project a 10.6% yoy rise in sales for 2021, at the low end of management’s guidance of 10-12% yoy. We assume net margin of 8.9% for 2021 vs guidance of 10-11%. Our new 2020-21 net income forecasts are 36.6% and 11.4% lower than the street’s respectively.

FORECAST REVISION

2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021F

Revenue 3,319 3,671 3,499 3,870 -5.1% -5.1% 3,548 3,963 -6.5% -7.4%

Gross Profit 1,842 2,033 1,950 2,151 -5.5% -5.5% 1,933 2,218 -4.7% -8.4%

Operating Profit 245 305 326 380 -25.0% -19.8% 302 386 -19.0% -21.1%

Net Income 176 328 250 341 -29.6% -3.7% 270 360 -34.6% -8.8%

EPS 28 53 40 55 -29.6% -3.7% 45 60 -36.6% -11.4%

StreetDifference (%) Difference (%)New Original

Source: ROTI

VALUATION/RECOMMENDATION • Maintain BUY and trim target price to Rp1,370, pegged to 26.x 2021F PE, or the

stock’s 5-year historical average PE. With more than 10.9% upside, maintain BUY. ROTI is trading at 23.4x 2020F PE, below its historical average PE of 26x.

SALES COMPOSITION AND SALES RETURNS 9M20 9M19 YoY (%) 3Q20 3Q19 YoY (%) QoQ (%) 2Q20 1Q20

White Bread 1,912 1,799 6.3% 573.1 646.6 -11.4% -13.0% 659 680 Sweet Bread 818 944 -13.3% 269.0 324.2 -17.0% 20.3% 224 326 Cake 51 88 -42.0% 15.1 27.2 -44.3% 53.1% 10 26 Others 7 6 13.2% 4.8 2.5 88.8% 188.2% 2 1 Sub Total 2,788 2,837 -1.7% 862.1 1,000.5 -13.8% -3.6% 894 1,032 Sales Return (348) (375) -7.1% (96.1) (125.2) -23.2% -27.6% (133) (119) Net Return 2,440 2,463 -0.9% 766.0 875.4 -12.5% 0.6% 761 913 Source: ROTI

SALES BY CHANNEL

Source: ROTI

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ROTI PE

-2stdev 12.4x -1stdev 19.2x Average 26x 1stdev 32.7x 2stdev 39.5x

+2STDEV 39.5x

+1STDEV 32.7x

-2STDEV 12.4x

-1STDEV 19.2x

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(x)

Source: Bloomberg




PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F

Net turnover 3,337 3,319 3,671 4,118 Fixed assets 2,540 2,841 2,963 2,958

EBITDA 491 414 498 540 Other LT assets 267 272 330 361

Deprec. & amort. 134 169 193 215 Cash/ST investment 1,186 1,090 1,058 1,214

EBIT 357 245 305 325 Other current assets 689 781 863 986

Total other non-operating income 0.9 (50) (16) (16) Total assets 4,682 4,984 5,215 5,519

Associate contributions 0.0 0.0 0.0 0.0 ST debt 1,104 197 170 146

Net interest income/(expense) (11) (59) (1.3) (6.3) Other current liabilities 3.1 479 500 557

Pre-tax profit 347 137 288 303 LT debt 206 701 602 517

Tax (111) (14) (72) (61) Other LT liabilities 277 259 300 333

Minorities 64 53 112 118 Shareholders' equity 3,069 3,265 3,560 3,884

Net profit 301 176 328 360 Minority interest 23 83 83 83

Net profit (adj.) 301 176 328 360 Total liabilities & equity 4,682 4,984 5,215 5,519

CASH FLOW KEY METRICS Year to 31 Dec (Rpb) 2019 2020F 2021F 2022F Year to 31 Dec (%) 2019 2020F 2021F 2022F

Operating 480 283 462 513 Profitability

Pre-tax profit 347 137 288 303 EBITDA margin 14.7 12.5 13.6 13.1

Tax (111) (14) (72) (61) Pre-tax margin 10.4 4.1 7.8 7.3

Deprec. & amort. 134 169 193 215 Net margin 9.0 5.3 8.9 8.7

Working capital changes (70) (45) (42) (79) ROA 6.6 3.6 6.4 6.7

Non-cash items 73 (1.5) (32) (0.2) ROE 10.2 5.6 9.6 9.7

Other operating cashflows 105 38 128 135

Investing (515) (388) (334) (210) Growth

Capex (growth) (453) (469) (315) (210) Turnover 20.6 (0.5) 10.6 12.2

Investments 4.5 (12) (2.5) (2.8) EBITDA 52.0 (15.8) 20.2 8.6

Others (67) 93 (16) 3.1 Pre-tax profit 85.7 (60.7) 110.7 5.1

Financing (55) 24 (145) (133) Net profit 74.3 (41.5) 86.2 9.7

Dividend payments (60) (18) (33) (36) Net profit (adj.) 74.3 (41.5) 86.2 9.7

Issue of shares (6.0) 0.0 0.0 0.0 EPS 42.0 (41.5) 86.2 9.7

Proceeds from borrowings 11 42 (113) (97)

Others/interest paid 0.0 0.0 0.0 0.0 Leverage

Net cash inflow (outflow) (91) (81) (17) 171 Debt to total capital 29.7 21.2 17.5 14.3

Beginning cash & cash equivalent 1,295 1,186 1,090 1,058 Debt to equity 42.7 27.5 21.7 17.1

Changes due to forex impact (18) (15) (15) (15) Net debt/(cash) to equity 4.0 (5.9) (8.0) (14.2)

Ending cash & cash equivalent 1,186 1,090 1,058 1,214 Interest cover (x) 45.8 7.0 371.1 85.1




STRATEGY – MALAYSIA

Bound To Rebound While market sentiment may remain cautious amid political uncertainties through to Budget Day, stocks are expected to rebound as investors’ focus shift to the upcoming results season and, in particular, the glove manufacturers’ spectacular qoq earnings growth. We maintain our year-end FBMKLCI target of 1,600, which also incorporates the expected headways made on a COVID-19 vaccine discovery. We make significant changes to our top picks to capitalise on market rebound.

WHAT’S NEW • Near-term political uncertainties provide buying opportunity. Market sentiment will

likely remain cautious ahead of the US presidential election and amid domestic political uncertainties, eg there is lingering speculation that the prime minister may not garner sufficient support in parliament during the Budget Day (6 November).

• Upcoming results season to kick-start market uptrend. Ample global and domestic financial liquidity, coupled with an expected protracted period of a globally ultra-low interest rate environment, will continue to support relatively high equity valuations. We expect the upcoming reporting season to form a key market re-rating catalyst, as the key glove manufacturers (particularly Top Glove) are on course to report stratospheric earnings, and should also guide for loftier profits in the subsequent quarter.

• Positive newsflow on vaccine discovery an important re-rating catalyst. Major progress towards a WHO-endorsed COVID-19 vaccine find is widely expected in 4Q20, which would eventually usher in the reopening of global economies and international borders. This would jumpstart the “economic reopening” theme that benefits most Malaysia stocks, particularly for the travel and tourism-related segments, commodity companies, and retail REITs. Our assessment assumes glove producers would be more immune to a vaccine find this time around, as investors refocus on glove stocks’ exceptionally strong earnings and enhanced capital management (particularly for Top Glove). The glove producers’ valuations have also factored in a potential windfall tax.

ACTION • Maintaining year-end FBMKLCI target of 1,600 which compares to our bottom-up target

of 1,674. This values the index at 15.5x 2021F PE, or 0.5SD below mean valuation. Compelling investment themes include trading upside in selective glove manufacturers, trade and FDI diversion plays, high yielders and economic reopening plays.

• Our new top picks are large caps Genting Malaysia (GENM), MrDIY, Press Metal, Top Glove and VS Industry, and small-mid caps British American Tobacco (BAT), Globetronics Technology, Magnum, MRCB-Quill REIT and Pentamaster Corp. Our picks are well represented by growth (E&E) and defensive (high yielders) stocks, as well as reopening plays. Among these however, reopening play GENM can only sustain hefty outperformance in 1Q21, given its vulnerability to be displaced from the FBMKLCI in the upcoming December review (see overleaf table for the list of top market cap stocks).

• Stocks expected to be boosted by upcoming earnings announcements include most prominently Top Glove, followed by MrDIY and BAT.

CURRENT FBMKLCI: 1,495 TARGET END-20 FBMKLCI: 1,600

FBMKLCI PE


ANALYST(S) Vincent Khoo, CFA +603 2147 1998 [email protected]

Malaysia Research Team +603 2147 1988 [email protected]

TOP PICKS Company Ticker Rec Mkt Cap Price 26 Oct 20 Target Price ---------- PE (x) ---------- ---------- P/B (x) ---------- ----- Div Yield (%) ----- (US$m) (RM) (RM) 2020F 2021F 2020F 2021F 2020F 2021FLarge Cap Genting Malaysia GENM MK BUY 2,730 2.01 3.10 n.m. 11.8 0.7 0.7 10.0 10.0Mr DIY MRDIY MK BUY 2,637 1.75 2.20 35.7 25.0 20.9 14.0 1.8 2.6Press Metal PMAH MK BUY 5,384 5.55 6.10 53.7 26.1 5.8 5.2 0.8 1.7Top Glove TOPG MK BUY 17,020 8.70 12.30 6.4 23.3 6.7 5.8 7.9 2.1VS Industry VSI MK BUY 1,066 2.36 3.00 17.7 12.4 2.3 2.1 2.2 3.5Small-mid Cap British American Tobacco ROTH MK BUY 680 9.91 14.10 11.3 9.6 7.3 7.3 8.9 12.2Globetronics GTB MK BUY 466 2.90 2.70 35.7 28.0 6.3 6.0 2.2 2.9Magnum MAG MK BUY 694 2.01 2.55 20.6 12.1 1.2 1.2 5.4 7.4MRCB-Quill REIT MQREIT MK BUY 202 0.79 0.97 11.1 10.5 0.6 0.6 8.8 9.4Pentamaster PENT MK BUY 897 5.24 5.80 45.4 34.4 4.1 4.5 0.3 0.5Source: Bloomberg, UOB Kay Hian




TOP 40 STOCKS BY MARKET CAP (YELLOW HIGHLIGHTS INDICATE STOCKS IN FBMKLCI)

No Company Market Cap (RMm) Index Weight as at 30 June 2020

1 MALAYAN BANKING BHD 79,589 9.58

2 TOP GLOVE CORP BHD 70,851 5.79

3 PUBLIC BANK BERHAD 61,493 10.87

4 HARTALEGA HOLDINGS BHD 59,366 4.07

5 TENAGA NASIONAL BHD 56,989 9.64

6 PETRONAS CHEMICALS GROUP BHD 47,600 3.73

7 IHH HEALTHCARE BHD 44,764 3.48

8 MAXIS BHD 38,959 3.13

9 SIME DARBY PLANTATION BHD 33,666 3.73

10 NESTLE (MALAYSIA) BERHAD 33,135 1.82

11 HONG LEONG BANK BERHAD 32,472 1.99

12 PETRONAS GAS BHD 31,858 2.05

13 MISC BHD 31,068 2.34

14 DIGI.COM BHD 30,945 3.36

15 CIMB GROUP HOLDINGS BHD 30,265 5.29

16 IOI CORP BHD 27,070 2.92

17 PPB GROUP BERHAD 27,029 2.53

18 AXIATA GROUP BERHAD 25,491 3.50

19 SUPERMAX CORP 23,812

20 KUALA LUMPUR KEPONG BHD 23,079 2.20

21 PRESS METAL ALUMINIUM HOLDIN 22,573 1.83

22 DIALOG GROUP BHD 20,978 3.51

23 KOSSAN RUBBER INDUSTRIES 18,903

24 HAP SENG CONSOLIDATED 18,050 1.22

25 PETRONAS DAGANGAN BHD 17,425 1.54

26 RHB BANK BHD 17,243 1.57

27 HONG LEONG FINANCIAL GROUP 16,652 0.74

28 SIME DARBY BERHAD 16,596 1.61

29 TELEKOM MALAYSIA BHD 15,963 1.74

30 QL RESOURCES 15,454

31 KLCCP STAPLED GROUP 13,973 0.75

32 WESTPORTS HOLDINGS BHD 13,163

33 GENTING BHD 11,629 2.00

34 GENTING MALAYSIA BHD 11,589 1.58

35 FRASER & NEAVE HOLDINGS BHD 11,546

36 GENTING PLANTATIONS BHD 8,945

37 AMMB HOLDINGS BHD 8,878

38 GAMUDA BHD 8,596

39 YTL CORP BHD 8,520

40 INARI 8,519

Source: Bloomberg, FTSE, UOB Kay Hian




SECTOR UPDATE

Plantation – Malaysia 2021F’s Palm Oil Outlook And Challenges 2021F’s CPO price outlook will depend on the development of La Nina and the full implementation of the B30 biodiesel mandate in Indonesia. Mr Ling Ah Hong, director of Ganling, expects CPO prices to trade higher in 1H21 at RM3,100/tonne with weaker palm oil production in 1H21, a demand recovery and the reopening of the economy. However, if a strong La Nina takes place, CPO prices may trade even higher to RM3,300/tonne in 1H21, led by high soybean oil prices. Maintain MARKET WEIGHT.

WHAT’S NEW Based on our session with Mr Ling Ah Hong, director of Ganling Sdn Bhd (Ganling) on 26 Oct 20, there are a few interesting key points that we would need to monitor in 2021: • Will La Nina continue to disrupt soybean production in 2020/21 season? Some

soybean planting in South Brazil and Argentina has been delayed due to the current dry weather conditions. If the dryness persists for a few more weeks, it may impact soybean yields in the coming season and analysts may revise down their Brazil and Argentina soybean production forecasts. Furthermore, if the La Nina weather event continues into Apr 21, it might also impact US soybean planting progress as well.

• Demand recovery in 2021F. With the impact on the economy and reduced consumption amid the COVID-19 pandemic, the market expects demand to recover in 2021. Having said that, the narrowing price gap between soybean oil and palm oil prices may dampen demand for palm oil. Furthermore, the use of palm oil-based biodiesel in the EU might slow down if the supply of used cooking oil returns to the market with more economic activities opening up in 2021F.

• Indonesia’s biodiesel demand would be crucial. The Indonesian biodiesel mandate would be crucial towards supporting supply and demand dynamics in 2021. The sustainability of the B30 biodiesel mandate would be important for the absorption of the anticipated increase in palm oil supply in 2021.

The price outlook for 2021 will depend on: a) the development of La Nina and its impact on the soybean complex in South America; and b) the full implementation of the B30 biodiesel mandate in Indonesia. With these moving parts, Mr Ling had come up with two scenarios for his price assumptions: a) Scenario 1: If we see a moderate impact from La Nina and weaker production of palm oil

in 1H21, average CPO prices in end-20/1H21/2H21 would be at RM2800/ RM3,100/RM2,200 per tonne respectively.

b) Scenario 2: In the case of a strong La Nina event, we would see a more severe impact on soybean production and also limited supply of sunflower and rapeseed oil from the Black Sea region. Vegoil prices would then trade at a higher range in 1H21. In this scenario, CPO prices are projected at RM2800/RM3,300/ RM2,200 per tonne in end-20/1H21/2H21 respectively. Having said that, Mr Ling believes that Scenario 2 is most unlikely to take place.

ACTION • Maintain MARKET WEGHT despite there being the possibility of better CPO selling price in

the short- to medium-term as compared to our current assumptions. Plantation stocks might not react to the surge in CPO prices. This is because a higher CPO price does not translate into higher earnings as earnings would still be subject to erosion from higher operational costs, sustainability costs and additional taxes as prices rise.

MARKET WEIGHT (Maintained) CPO PRICE ASSUMPTIONS (RM/TONNE) CPO Price Assumption (RM/tonne)

2020F 2,400

2021F 2,350


SUPPLY-DEMAND DYNAMICS AND PRICE OUTLOOK (m tonnes) 2019 2020F 2021F

M’sia Palm Oil Production 19.9 19.5 19.8

Indo Palm Oil Production 43.8 42.3 45.3

Global Palm Oil Production 76.5 75.2 78.3

Global Palm Oil Production YoY Growth 3.4 (1.3) 3.1

Malaysia Palm Oil Inventory 2.0 1.9 2.6

CPO ASP (RM/tonne) 2,119 2,646 ?

Source: Ganling

ANALYST(S) Leow Huey Chuen +603 2147 1990 [email protected]

Jacquelyn Yow +603 2147 1995 [email protected]

PEER COMPARISON Company Ticker Rec Price @ Target Market ----------------- PE ----------------- 2020F Div

26 Oct 20 Price Cap 2019 2020F 2021F ROE P/B Div Yield (US$m) (x) (x) (x) (%) (x) (%)

Malaysia (RM) (RM) (sen)IOI Corporation IOI MK HOLD 4.38 3.80 6,590 28.3 26.4 25.5 6.5 3.0 7.3 1.7Kim Loong KIML MK HOLD 1.41 1.30 317 32.0 11.8 12.4 5.6 1.7 6.5 4.6KL Kepong KLK MK HOLD 22.50 23.00 5,827 38.9 27.3 23.6 5.7 2.3 49.4 2.2Sarawak Oil Palms SOP MK SELL 3.49 2.60 478 22.8 15.7 16.2 4.1 0.9 12.2 3.5Hap Seng Plantations HAPL MK SELL 1.64 1.30 315 42.1 16.1 18.4 1.9 0.8 7.1 4.3IJM Plantations IJMP MK SELL 1.61 1.40 340 (27.3) 20.4 22.4 (5.0) 1.0 4.6 2.9Genting Plantations GENP MK SELL 9.90 7.00 2,133 62.7 33.0 31.4 3.2 1.8 18.0 1.8Sime Darby Plantation SDPL MK SELL 4.97 3.40 8,216 NA 36.5 34.8 (1.5) 2.4 8.8 1.8





ESSENTIALS • Change in palm oil supply dynamics… Mr Ling highlighted that there might be structural

changes to global palm oil supply starting from 2021 onwards with the slowdown of new planting in Malaysia and Indonesia since 2015. He also expects a smaller number of areas to turn into maturity from Indonesia and Malaysia. With the aging palm tree age profiles in both countries, the replanting programmes will also temporarily limit supply growth in the near- to medium-term.

• …expect production growth at +4% yoy in 2021F. Given the negative palm oil growth in 2020F, Mr Ling expects palm oil supply to recover by 3.2m tonnes in 2021 (Malaysia: +0.3m tonnes, Indonesia: +2.9m tonnes). Furthermore, he also mentioned that the high rainfall and flooding during the La Nina period may cause short-term disruptions to harvesting and logistics operations and hence bring down fresh fruit bunch (FFB) yields. However, the high rainfall volume will result in better FFB yield and production in 2021F. Having said that, Mr Ling highlighted that if the heavy rainfall prolongs from Nov 20 to Feb 21, FFB production would likely come in lower than expectations in 1H21.

• Indonesia’s biodiesel mandate. Indonesia’s biodiesel usage might come down by 10-15% in 2020, mainly due to the COVID-19 lockdown which had limited traffic flow and transportation needs. Furthermore, the huge gap between biodiesel and diesel prices had led to the accelerated draw-down of CPO funds. In view of these factors, Mr Ling raised concerns about whether the B30 biodiesel mandate can be fully implemented and he also emphasised that the mandate is critical to increasing domestic CPO consumption and usage.

ASSUMPTION CHANGES • We maintain our CPO price assumptions of RM2,400/tonne and RM2,350/tonne for 2020

and 2021 respectively. SECTOR CATALYSTS • Labour shortage. The COVID-19 pandemic could leave Malaysia’s palm oil industry without

enough workers. Based on the estimation by Malaysian Palm Oil Association, Malaysia could lose about 10% of production due to labour shortages as the COVID-19 pandemic has restricted the movement of foreign workers while some foreign employees have been repatriated home.

IMPACT OF EL NINO/LA NINA ON SOYOIL AND PALM OIL PRICES

Source: Ganling

MALAYSIA PALM OIL INVENTORY AND PRICE FORECASTS

Source: Ganling

PALM OIL INVENTORIES ARE STILL LOW -SUPPORTIVE TO CPO PRICES TILL 1Q21

Source: Ganling

SLOW PLANTING GROWTH IN MALAYSIA

Source: Ganling

SLOW PLANTING GROWTH IN INDONESIA

Source: Ganling




COMPANY RESULTS BUY

(Maintained) Share Price RM1.65Target Price RM1.90Upside +15.1%

COMPANY DESCRIPTION IGB REIT is a real estate investment trust. Its portfolio consists of the Mid Valley Megamall and The Gardens Mall in Malaysia.

STOCK DATA GICS sector Real EstateBloomberg ticker: IGBREIT MKShares issued (m): 3,557.1Market cap (RMm): 5,869.2Market cap (US$m): 1,409.93-mth avg daily t'over (US$m): 0.5

Price Performance (%) 52-week high/low RM2.01/RM1.55

1mth 3mth 6mth 1yr YTD(10.3) (10.8) (2.4) (14.9) (12.7)

Major Shareholders %IGB Corp Berhad 50.0Employees Provident Fund 6.5Kumpulan Wang Persaraan 6.3

FY20 NAV/Share (RM) 1.07FY20 Net Debt/Share (RM) 0.30

PRICE CHART

70

80

90

100

110

120

1.40

1.60

1.80

2.00

2.20

2.40(%)(lcy)

IGB REAL ESTATE INVESTMENT T

IGB REAL ESTATE INVESTMENT T/FBMKLCI INDEX

0

5

10

15


Volume (m)

Source: Bloomberg

ANALYST(S) Malaysia Research Team +603 2147 1988 [email protected]

IGB REIT (IGBREIT MK)

3Q20: Results Above Expectations, But 4Q20 Earnings May See Weakness 3Q20 performance improved on the back of minimal rental assistance provided, coupled with well-managed operating expenses. Since the CMCO has been reimposed, we believe that 4Q20 earnings may see weakness as footfall at malls is disrupted. We like IGBREIT for its faster-than-peers’ recovery status with decent yields of >8% for 2021 in this low interest rate environment. Maintain BUY and target price of RM1.90.

3Q20 RESULTS Year to 31 Dec (RMm) 3Q20 2Q20 qoq % chg yoy % chg 9M20 yoy % chgTotal Income 130.7 62.0 111.0 (4.1) 317.7 (23.0)Operating Expenses (32.9) (24.6) 33.7 (7.6) (94.2) (14.3)Net Property Income 97.8 37.4 161.9 (2.8) 223.6 (26.1)Normalised PAT 76.8 19.5 294.1 (3.7) 164.7 (31.5) EPU (sen) 2.2 0.5 294.1 (3.7) 4.6 (32.4)DPU (sen) 2.1 0.6 240.3 (8.7) 4.7 (33.0) Margins (%) (%) +/- ppt +/- ppt (%) +/- pptNPI Margin 74.8 60.3 14.5 1.0 70.4 (3.0)Normalised PAT 58.8 31.5 27.3 0.2 51.8 (6.5)

Source: IGB REIT, UOB Kay Hian

RESULTS • Results above expectations. IGB REIT reported a 3Q20 turnover of RM130.7m (+>100%

qoq, -4.1% yoy) and net profit of RM76.8m (+>100% qoq, -3.7% yoy). Cumulatively, this brings 9M20 net profit to RM164.7m (-31.5% yoy) with RM317.7m in total revenue (-23% yoy). 9M20 net profit came in above our expectations but within consensus’ full-year net profit forecasts at 82% and 75% respectively. The surprise came from well-managed expenses and lower-than-expected rental assistance provided during the quarter.

• Declared 2.11 sen dividend (+>100% qoq, -8.7% yoy) for 3Q20, bringing its 9M20 dividend to 4.67 sen (-33% yoy). Dividend payout ratio for 3Q20 is 90% of distributable income.

KEY FINANCIALS Year to 31 Dec (RMm) 2018 2019 2020F 2021F 2022FNet turnover 536 552 421 565 573EBITDA 353 364 261 370 376Operating profit 350 362 259 368 374Net profit (rep./act.) 334 316 213 319 326Net profit (adj.) 304 316 213 319 326EPU (sen) 8.2 8.6 5.8 8.7 8.8DPU (sen) 9.2 9.2 5.9 8.8 9.2PE (x) 20.1 19.3 28.6 19.1 18.7P/B (x) 1.5 1.5 1.5 1.5 1.5DPU Yld (%) 5.6 5.6 3.6 5.4 5.6Net margin (%) 62.3 57.2 50.6 56.5 56.9Net debt/(cash) to equity (%) 26.7 26.1 28.0 26.5 26.7Interest cover (x) 7.6 7.9 5.7 7.6 8.0ROE (%) 8.9 8.4 5.6 8.4 8.6Consensus DPU (sen) n.a. n.a. 6.3 8.7 9.1UOBKH/Consensus (x) - - 0.94 1.02 1.01Source: IGB REIT, Bloomberg, UOB Kay Hian




STOCK IMPACT • Recovery may be dampened by resurgence of COVID-19 cases. The jump in turnover in

3Q20 was attributable to the bulk of rental assistance given in 2Q20. Net property income (NPI) margin also recovered to 74.8% (2Q20: 60%; 3Q19: 74%). However, we believe that 4Q20 earnings may see weakness as footfall at malls is disrupted, especially since the Conditional Movement Control Order (CMCO) has been re-imposed. All in all, occupancy rate remained steady at >95%.

• In a better position to weather uncertainties. We continue to like IGB REIT due to its lean balance sheet with low gearing level of 0.23x, which is still well below the threshold set by Securities Commissions of 0.6x (limit increased to 0.6x from 0.5x until Dec 22).

EARNINGS REVISION/RISK • Revise earnings forecasts upwards by 6.5% for 2020, as we reduce our operating

expenses assumptions while keeping our rental assumptions unchanged. We have previously factored in a total of three months of rental relief for 2020.

VALUATION/RECOMMENDATION • Maintain BUY and target price of RM1.90, based on a dividend discount model (required

rate of return: 6.8%, terminal growth: 1.8%) and supported by an implied dividend yield of 4.7% for 2021.

SHARE PRICE CATALYST • Recovery in consumer spending.

• Opening of international borders.

REVENUE AND NPI MARGIN


DPU AND PAYOUT RATIO


2019 REVENUE CONTRIBUTION





PROFIT & LOSS Year to 31 Dec (RMm) 2019 2020F 2021F 2022F

Net turnover 552 421 565 573

EBITDA 364 261 370 376

Deprec. & amort. 3 2 2 3

EBIT 362 259 368 374

Associate contributions 0 0 0 0


Pre-tax profit 316 213 319 326

Tax 0 0 0 0

Minorities 0 0 0 0

Net profit 316 213 319 326

Net profit (adj.) 316 213 319 326

BALANCE SHEET Year to 31 Dec (RMm) 2019 2020F 2021F 2022F

Fixed assets 4,960 4,960 4,960 4,960

Other LT assets 6 7 7 8

Cash/ST investment 226 185 271 296

Other current assets 30 53 58 56

Total assets 5,221 5,205 5,296 5,320

ST debt 15 15 15 15

Other current liabilities 223 172 230 234

LT debt 1,199 1,229 1,259 1,289

Other LT liabilities 0 0 0 0




CASH FLOW Year to 31 Dec (RMm) 2019 2020F 2021F 2022F

Operating 392 218 420 380

Pre-tax profit 316 213 319 326

Tax 0 0 0 0

Deprec. & amort. 3 2 2 3

Associates 0 0 0 0

Working capital changes (7) (43) 49 4


Investing 6 (3) (3) (3)

Capex (growth) 0 (3) (3) (3)

Investments 0 0 0 0

Others 6 0 0 0

Financing (381) (228) (331) (352)

Distribution to unitholders (328) (205) (307) (326)

Issue of shares 0 0 0 0

Proceeds from borrowings 0 0 0 0

Loan repayment 0 30 30 30

Others/interest paid (53) (53) (54) (55)

Net cash inflow (outflow) 17 (12) 86 25

Beginning cash & cash equivalent 180 197 185 271


Ending cash & cash equivalent 226 185 271 296



Pre-tax margin 57.2 50.6 56.5 56.9

Net margin 57.2 50.6 56.5 56.9

ROA 6.1 4.1 6.1 6.1

ROE 8.4 5.6 8.4 8.6

Growth Turnover 3.1 (23.7) 34.2 1.4

EBITDA 3.3 (28.3) 41.7 1.6

Pre-tax profit (5.4) (32.5) 49.8 2.2

Net profit (5.4) (32.5) 49.8 2.2

Net profit (adj.) 4.0 (32.5) 49.8 2.2

EPU 4.0 (32.6) 50.1 2.1


Debt to equity 32.1 32.8 33.6 34.5

Net debt/(cash) to equity 26.1 28.0 26.5 26.7

Interest cover (x) 7.9 5.7 7.6 8.0




SECTOR UPDATE

Offshore & Marine – Singapore 3Q20 Results Preview: Not Expecting Anything Eye-Catching We do not expect compelling data points to come out from the upcoming results season for the Singapore industrials space. For companies with rig-building exposure (Keppel and SMM), the industry remains in the doldrums as we expect market recovery to be at least 1-2 years away while better prospects appear around the corner for SCI and YZJ in our view. Maintain MARKET WEIGHT.

RESULTS SEASON PREVIEW • Only YZJ is reporting 3Q20 results. In the Singapore offshore & marine (O&M) space,

Yangzijiang (YZJ) will be the only company reporting its 3Q20 unaudited results. We expect 3Q20 revenue and net profit to be in the range at Rmb5.7b-5.8b and Rmb650m-660m respectively. The company has had a decent run-rate of new order wins since China came out of the COVID-19 lockdown, and we continue to expect positive newsflow heading into the end of the year.

• Keppel will only report a 3Q20 business update and revenue which we expect at S$1.4-1.5b (2020F: S$6.14b). Investor interest will centre around the fate of its offshore & marine (O&M) business unit, which Keppel Corporation (Keppel) has said will either undergo a strategic merger or be disposed of. Commentary regarding its China property business will be important to gauge the sequential recovery post-COVID-19.

• Looking for better sequential guidance for SCI, given that some of the economies that it has a presence in are on the road to recovery post-COVID-19. We however, expect Sembcorp Marine’s (SMM) business updates to retain a bearish tone given the lack of new order wins this year. At present, both SMM and Sembcorp Industries (SCI) have not committed to releasing any business updates yet.

ESSENTIALS • Industry view: Neutral to bearish. For the O&M sector, industry headwinds persist as day

rates and utilisation rates for rigs have deteriorated further since our last update in August; thus, chances of a recovery in the O&M sector in the near to medium term remain low, in our view. In our base-case scenario, the industry outlook remains challenging and new order flow may only re-surface in 1H21 at the earliest. This reinforces our view that an upcycle is more than two years away.

• Keppel (BUY/Target: S$6.30). Our target price is based on SOTP methodology. The company’s share price performance in the next few months will hinge upon its ability to deliver a reasonable price for its O&M segment. We note that after nearly S$1b in impairments, the book value of this segment as at end-1H20 was S$1.4b (S$0.77/share).

• SCI (BUY/Target: S$1.66). We believe our target P/B of 0.8x is reasonable as it reflects a better comparability between SCI and its regional utilities peers without the offshore marine overhang.

• SMM (SELL/Target: S$0.154). Our target price which is under review implies 0.77x P/B, or 1SD below its 2015-19 average of 1.04x. We note that its past-5-year trough P/B of 0.64x equates to a share price of S$0.128.

• YZJ (BUY/Target: S$1.17). Our target price is based on 0.68x P/B, or a 10% discount to its past-5-year average P/B.

MARKET WEIGHT (Maintained) SECTOR PICKS

Company Rec Share

Price (S$) Target N.A.

Keppel BUY 4.48 6.30

Sembcorp Industries BUY 1.48 1.66

Sembcorp Marine SELL 0.132 0.154

Yangzijiang BUY 0.96 1.17


SHARE PRICE PERFORMANCE

-24

62

-50

4

-20

91

-69

-2

-33

26

-84

-13

-100

-75

-50

-25

0

25

50

75

100

KEP SCI SMM YZJ

3M 6M YTD

(%)

Source: Bloomberg

3Q20 EXPECTATIONS Company Reporting -------------- 3Q20 --------------

date Revenue Profit

Keppel 29 Oct S$1.4b n.a.

Sembcorp Industries n.a. n.a. n.a.

Sembcorp Marine 10 Nov n.a. n.a.

Yangzijiang 4 Nov Rmb5.7b Rmb650m


ANALYST(S) Adrian Loh +65 6590 6633 [email protected]

PEER COMPARISON Company Ticker Rec --------- Price (l.c.) --------- Upside Market Cap ------------------- PE (x) ------------------- P/B (x) ROE (%) Yield (%)

26 Oct 20 Target to TP (%) (S$m) 2019E 2020E 2021E 2020E 2020E 2020E

Keppel Corp KEP SP BUY 4.48 6.30 40.6 8,196 11.6 111.4 14.2 0.79 0.7 0.8

Sembcorp Industries SCI SP BUY 1.48 1.66 12.2 2,590 12.3 n.a. 10.4 0.45 (3.8) 1.7

Sembcorp Marine SMM SP SELL 0.132 0.154 16.7 1,720 n.a. n.a. n.a. 0.66 (9.9) 0.0

Yangzijiang YZJSGD SP BUY 0.96 1.17 21.9 3,794 6.3 7.4 7.3 0.62 7.8 4.8 Source: Bloomberg, UOB Kay Hian




• Share price performance ytd. The only stock which has seen a positive share price performance ytd has been SCI which is up 26% while the rest have declined. Over the past three months, SCI has also been the best performer, up 62% as the market appears to have looked favourably upon its demerger with SMM. Going forward, we expect the stock to continue to do well as we expect the company’s valuation metrics to re-rate towards its regional utilities peers’.

• Oil and gas demand has collapsed in 2020. The US Energy Information Administration (EIA) expects global oil demand to contract by 8.6mmbpd in 2020, from around 100mmbpd pre-crisis. Going into the Northern Hemisphere winter, and with an apparent second wave of infections having started in various countries, oil demand may not recover if lockdowns remain in place, or are reimposed. Thus, the EIA’s forecast of a rebound in oil demand of 6.3mmbpd in 2021 may likely have a high chance of being downgraded as we head into 1Q-2Q21.

• Nothing spared from the downdraft this year. With the exception of mid-water semi- submersibles (semi-subs), utilisation levels for other types of assets have declined by an average of 6% ytd. On the day-rate front, the experience has been similarly negative with both mid-water semi-subs and jack-ups rates declining by an aggregate of 9% ytd; only drill ships witnessed a 9% increase in day-rates since the start of 2020. In recent weeks, the newsflow for jack-ups has remained bearish with Saudi Aramco suspending one of its rigs for 12 months while Kuwait Oil has delayed the start date of one of its jack-ups into 1Q21 from its original start date of mid-20.

• No signs of thawing for cold-stacked rigs. Globally, there are 302 rigs that are inactive at present with 115 or 38% of these rigs being cold-stacked. Although there are fewer cold-stacked rigs in Asia, the fact that three in five rigs are not working indicates an industry that is in a very parlous state at present. In our view, it will take very bullish market conditions to reactivate the cold-stacked rigs given the time and cost required to bring them back up to fully operational standards.

DAYRATE & UTILISATION: SEMI-SUB 8000’ DAYRATE & UTILISATION: SEMI-SUB 5000-8000’

200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

360,000

380,000

20.0

40.0

60.0

80.0

100.0

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

Jun-

19

Sep-

19

Dec

-19

Mar

-20

Jun-

20

Sep-

20

Utlisation (%) Dayrate (US$/day, RHS)

180,000

200,000

220,000

240,000

260,000

280,000

300,000

20.0

40.0

60.0

80.0

100.0

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

Jun-

19

Sep-

19

Dec

-19

Mar

-20

Jun-

20

Sep-

20


Source: RigLogix, Bloomberg Source: RigLogix, Bloomberg

DAYRATE & UTILISATION: JACKUP 300+ IC DAYRATE & UTILISATION: DRILLSHIP

80,000

90,000

100,000

110,000

120,000

130,000

140,000

20.0

40.0

60.0

80.0

100.0

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

Jun-

19

Sep-

19

Dec

-19

Mar

-20

Jun-

20

Sep-

20


250,000

300,000

350,000

400,000

450,000

500,000

20.0

40.0

60.0

80.0

100.0

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

Jun-

19

Sep-

19

Dec

-19

Mar

-20

Jun-

20

Sep-

20


Source: RigLogix, Bloomberg Source: RigLogix, Bloomberg

ANNUAL CHANGE IN WORLD LIQUID FUELS CONSUMPTION (MMBPD)

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2018 2019 2020E 2021E

United States Other OECD ChinaIndia Middle East Other non-OECD

-8.6

+6.3

+0.8+1.8

Source: US Energy Information Administration

NUMBER OF RIGS, COLD- OR WARM-STACKED GLOBALLY

62

28 25

123

33 31

Jack-up Semi-sub Drillship

Warm stacked

Cold stacked

Source: Bassoe Analytics

NON-WORKING RIGS AS A PERCENTAGE OF ACTIVE DRILLING RIGS

38%

54% 55%

0%

10%

20%

30%

40%

50%

60%

Jack-up Semi-sub Drillship

Note: the above figures exclude rigs under construction Source: Bassoe Analytics




INITIATE COVERAGE BUY

Share Price S$0.175 Target Price S$0.20Upside +14.4%

COMPANY DESCRIPTION JEP is a solutions provider of high value, integrated and specialised precision machining and engineering services, primarily for the aerospace industry, as well as O&G and equipment manufacturing.

STOCK DATA GICS sector IndustrialsBloomberg ticker: JEP SPShares issued (m): 413.9Market cap (S$m): 72.4Market cap (US$m): 54.03-mth avg daily t'over (US$m): 0.1

Price Performance (%) 52-week high/low S$ 0.245/S$ 0.148

1mth 3mth 6mth 1yr YTD4.1 (11.5) (1.7) 9.3 (23.0)

Major Shareholders %UMS Holdings 39.9Zee Hoong Huay 13.9

FY20 NAV/Share (S$) 0.16FY20 Net Debt/Share (S$) 0.03

PRICE CHART

50

70

90

110

130

150

0.10

0.15

0.20

0.25

0.30(%)(lcy) JEP HOLDINGS LTD JEP HOLDINGS LTD/FSSTI INDEX

0

2

4

6


Volume (m)

Source: Bloomberg

ANALYST(S) Clement Ho +65 6590 6630 [email protected]

JEP Holdings (JEP SP)

Riding On UMS’ Coat-tails The step-in by a semiconductor specialist to lead the group in early-18 may have proven to be in good time, two years before the massive impact on the aerospace industry due to the COVID-19 pandemic. Diversifying away from aerospace, JEP has been filling orders from the structurally growing semiconductor industry, helped by controlling shareholder UMS Holdings. Initiate coverage with BUY and target price of S$0.20.

INVESTMENT HIGHLIGHTS • Diversifying away from aerospace orders and moving towards semiconductors.

Following the controlling stake taken over by UMS Holdings (UMS) in mid-19, JEP Holdings (JEP) could see a timely revenue shift from the waning aerospace industry and towards the expanding semiconductor industry. Currently fulfilling its backlog to aerospace clients that have not pushed back or cancelled their orders, JEP’s semiconductor division, Dolphin Engineering, is understood to be doing well as of Aug 20.

• Potential beneficiary of US-China trade war. Headquartered in Singapore, JEP operates out of four manufacturing facilities across the island. Together with its controlling shareholder, UMS Holdings, the duo has no manufacturing facilities in China and are not directly impacted by the on-going trade tensions between the US and China. With the geographic positioning in the region, JEP could benefit from new clients that are increasingly shifting away from the North-Asia region.

• Cost reduction underway. Since 4Q18, JEP started streamlining its operations by moving labour-intensive works from Singapore to Malaysia, and with a string of cost-cutting exercises. This resulted in a significant improvement in profitability in 2018 and 2019. Accordingly, net profit has risen from a region close to breakeven throughout 2014-17, to S$2.2m and S$6.5m in 2018 and 2019 respectively. Supported by improved profitability, we expect earnings to stay elevated in 2020-22F.

• Positive FCFF to alleviate debt concerns. As at end-1H20, net debt for JEP stood at S$27.5m, implying an elevated net gearing ratio of 0.43x. This has fallen from S$35.6m (net gearing: 0.75x) in end-17 and we believe that one of management’s priorities is to lower its gearing ratio. Going forward, we expect JEP to be able to generate positive FCFF, supported by healthy net cash from operations. This should improve the group’s ability to pare down its debt.

Click here for Blue Top dated 26 Oct 20

KEY FINANCIALS Year to 31 Dec (S$m) 2018 2019 2020F 2021F 2022FNet turnover 85.9 89.0 82.5 85.6 93.7EBITDA 10.6 15.2 13.0 14.4 16.8Operating profit 4.7 8.7 6.5 8.4 10.7Net profit (rep./act.) 2.2 6.5 6.0 6.3 8.1Net profit (adj.) 2.2 6.5 6.0 6.3 8.1EPS (S cent) 0.6 1.6 1.5 1.5 2.0PE (x) 32.0 11.2 12.2 11.6 9.0P/B (x) 1.3 1.2 1.1 1.0 0.9EV/EBITDA (x) 8.0 5.6 6.6 5.9 5.1Dividend yield (%) 0.0 0.0 0.0 0.0 0.0Net margin (%) 2.6 7.3 7.3 7.4 8.7Net debt/(cash) to equity (%) 61.6 31.8 18.5 1.5 (13.2)Interest cover (x) 7.0 8.4 9.2 11.3 13.8ROE (%) 4.4 11.6 9.5 9.1 10.6Consensus net profit - - 5.5 3.6 -UOBKH/Consensus (x) - - 1.1 1.8 -Source: JEP, Bloomberg, UOB Kay Hian

UOB Kay Hian is supported by the Research Talent Development Grant Scheme. See the last page for more information.

Research Talent Development Grant Scheme

https://research.uobkayhian.com/content_download.jsp?id=59365&h=90c88bf435e7bdafcb26109a12313c7d




STOCK IMPACT • Near-term weakness bolstered by rising semiconductor sales. Due to order

cancellations and deferments for aerospace parts, 2020F revenue is expected to decline 7.3% to S$82.5m (1H20: -5.2% yoy to S$42.4m; 2019: +3.6% yoy to S$89m). We are looking for top-line growth to return in 2021F and 2022F, with projected increases of 3.9% and 9.4% yoy to S$85.6m and S$93.7m respectively. This should be led by the anticipated strong upsurge in demand for semiconductor-related components.

• Improving cost structure to support rising profitability. Between 2014 and 2017, JEP suffered from high fixed cost. Gross profits obtained in each of the three years amounting to S$5m-10m were mainly spent on staff cost. This has since changed under the new management team. Together with better gross margins, operating profits have improved in 2018-19 where the group saw a significant expansion in EBIT to S$4.7m and S$8.7m, translating to margins of 5.5% and 9.8% respectively. We expect the cost reductions to remain sustainable and estimate EBIT of S$6.5m (-27%), S$8.4m (+41%) and 10.7m (+33%) in 2020-22 respectively.

VALUATION/RECOMMENDATION • Initiate coverage with BUY and target price of S$0.20. Our P/B valuation is pegged to its

historical 7-year average of 1.1x, backed by an 8.7% 2021F ROE, which also implies forward PE of 13.1x. We believe the valuation is justified given that the cost reduction exercise will result in a sustainable increase in ROE ahead. Currently, JEP trades at 1.0x 2021F P/B and an implied 11.5x forward PE.

SHARE PRICE CATALYST • Higher-than-expected factory utilisation rate from more semiconductor orders.

• Greater-than-expected cost cutting measures.

HISTORICAL EV/EBITDA BAND


PEER COMPARISON Company Bloomberg Trading Price @ Market --------------- PE --------------- --------------- PB --------------- -------- EV/EBITDA --------- Net ROE

Ticker Curr 26 Oct 20 Cap 2019 2020F 2021F Curr 2020F 2021F 2019 2020F 2021F Gearing 2021F (lcy) (US$m) (x) (x) (x) (x) (x) (x) (x) (x) (x) (%) (%)

JEP Holdings JEP SP S$ 0.175 53 11.1 17.2 11.5 1.2 1.1 1.0 6.0 6.5 5.1 31.8 8.7 Aerospace Spirit AeroSystems SPR US US$ 20.48 1,596 n.a. n.a. n.a. 1.7 2.4 3.1 n.a. n.a. 21.3 41.6 (44.7) Meggitt PLC MGGT LN EUR 305.50 1,760 n.a. 16.9 12.6 1.1 1.1 1.1 10.3 9.8 8.2 37.1 4.8 Senior PLC SNR LN EUR 60.85 188 n.a. n.a. 24.3 0.6 0.6 0.6 17.4 17.7 5.8 41.0 (1.7) Hanwha Aerospace 012450 KS KRW 26,800 1,214 12.7 13.0 10.4 0.5 0.5 0.5 6.5 6.2 5.4 36.9 4.1 Average 12.7 14.9 15.8 1.0 1.1 1.3 11.4 11.2 10.2 39.1 (9.4) EMS UMS Holdings UMSH SP S$ 0.98 386 12.9 12.1 10.9 2.0 2.1 1.9 9.0 9.3 8.1 (8.6) 17.7 Micro-Mechanics MMH SP S$ 2.62 269 24.9 20.2 18.1 6.3 5.6 5.4 11.8 11.6 10.6 (35.6) 30.4 Innotek INNOT SP S$ 0.48 81 8.6 13.7 10.0 0.7 0.7 0.6 5.1 n.a. n.a. (30.4) 4.9 Average 15.4 15.3 13.0 2.3 2.8 2.7 8.6 10.4 9.3 (28.0) 17.7

Source: UOB Kay Hian, Bloomberg




PROFIT & LOSS Year to 31 Dec (S$m) 2018 2019 2020F 2021F 2022F

Revenue, net 85.9 89.0 82.5 85.6 93.7

Operating expenses (81.2) (80.2) (76.0) (77.3) (83.0)

EBIT 4.7 8.7 6.5 8.4 10.7

Associate contributions 0.0 0.0 0.0 0.0 0.0

Net interest income/(expense) (1.5) (1.8) (1.4) (1.3) (1.2)

Exceptional items 0.0 0.0 1.8 0.0 0.0

Pre-tax profit 3.2 6.9 6.9 7.1 9.5

Tax (0.9) (0.4) (0.9) (0.8) (1.3)

Minorities (0.1) 0.0 0.0 0.0 0.0

Net profit(rep./act.) 2.2 6.5 6.0 6.3 8.1

Net profit(adj.) 2.2 6.5 6.0 6.3 8.1

Deprec. & amort. 5.9 6.5 6.5 6.0 6.1

EBITDA 10.6 15.2 13.0 14.4 16.8

Per share data (S$ cent)

EPS - diluted 0.6 1.6 1.5 1.5 2.0

Reported EPS - diluted 0.6 1.6 1.5 1.5 2.0

Book value per share (BVPS) 13.2 14.5 15.9 17.5 19.5

Dividend per share (DPS) 0.0 0.0 0.0 0.0 0.0

BALANCE SHEET Year to 31 Dec (S$m) 2018 2019 2020F 2021F 2022F

Cash/Near cash equiv. 4.5 11.9 17.4 27.3 37.8

Accounts receivable/debtors 22.7 20.9 21.5 21.7 23.4

Stocks 15.7 15.0 14.1 14.9 16.0

Other current assets 0.0 0.1 0.0 0.0 0.0

Current assets 43.0 47.9 53.0 63.9 77.2

Fixed assets 51.2 53.9 48.6 43.9 40.6

Investments 0.0 0.0 0.0 0.0 0.0

Other financial assets 18.0 17.8 18.0 18.0 17.9

Total non-current assets 69.1 71.7 66.6 61.9 58.6

Total assets 112.1 119.6 119.6 125.8 135.7

Accounts payable/creditors 15.5 17.3 15.6 16.1 17.8

Short-term debt/borrowings 11.1 5.8 5.4 5.0 4.6

Other current liabilities 2.0 1.5 1.5 1.5 1.5

Current liabilities 28.6 24.6 22.4 22.6 24.0

Long-term debt 25.6 25.3 24.3 23.4 22.5

Deferred tax liability 1.3 1.6 1.1 1.3 1.5

Other non-current liabilities 4.6 8.1 5.8 6.1 7.3

Total non-current liabilities 31.4 35.0 31.1 30.8 31.2

Total liabilities 60.0 59.6 53.6 53.4 55.2

Minority interest - accumulated 0.0 0.0 0.0 0.0 0.0

Shareholders' equity 52.1 60.1 66.0 72.4 80.6

Liabilities and shareholders' funds 112.1 119.6 119.6 125.8 135.7

CASH FLOW Year to 31 Dec (S$m) 2018 2019 2020F 2021F 2022F

Operating cashflows 10.1 17.3 6.3 12.4 14.5

Pre-tax profit 3.2 6.9 5.1 7.1 9.5

Tax 0.0 (0.0) (1.6) (0.5) (1.2)

Deprec. & amort. 5.9 6.5 6.5 6.0 6.1

Working capital changes (4.4) 7.4 (3.7) (0.2) 0.1

Non-cash items 5.4 (3.4) 0.0 0.0 0.0

Cash from investing activities (7.2) (0.5) (1.2) (1.3) (2.8)

Capex (growth) (3.5) (1.0) (1.2) (1.3) (2.8)

Proceeds from sale of assets 0.1 0.5 0.0 0.0 0.0

Others (3.8) 0.0 0.1 0.0 0.0

Cash from financing activities (4.6) (9.4) (2.8) (2.5) (2.4)

Dividend payments 0.0 0.0 0.0 0.0 0.0

Issue of shares 2.6 1.4 0.0 0.0 0.0

Loan repayment (5.2) (5.6) (1.4) (1.3) (1.2)

Others/interest paid (2.1) (5.2) (1.4) (1.3) (1.2)

Net increase/(decrease) in cash (1.7) 7.4 2.3 8.5 9.2

Beginning cash 6.2 4.5 11.9 17.4 27.3

Changes due to forex impact 0.0 0.0 3.2 1.3 1.3

End cash 4.5 11.9 17.4 27.3 37.8

KEY METRICS Year to 31 Dec (%) 2018 2019 2020F 2021F 2022F

Growth

Turnover (0.3) 3.6 (7.3) 3.9 9.4

EBITDA 42.9 42.7 (14.2) 10.3 16.8

Pre-tax profit n.a. 117.6 (0.8) 3.7 32.8

Net profit 165.8 197.2 (7.7) 5.0 28.7

Net profit (adj.) n.a. 197.2 (7.7) 5.0 28.7

EPS 876.3 184.5 (7.7) 5.0 28.7

Profitability

EBITDA margin 12.4 17.1 15.8 16.8 17.9

EBIT margin 5.5 9.8 7.9 9.8 11.4

Gross margin 21.6 24.9 24.0 25.3 26.0

Pre-tax margin 3.7 7.8 8.3 8.3 10.1

Net margin 2.6 7.3 7.3 7.4 8.7

ROE 4.4 11.6 9.5 9.1 10.6

ROA 1.9 5.6 5.0 5.1 6.2

ROIC 4.2 9.3 8.0 7.7 9.0

RONTA 8.6 12.7 12.0 11.4 12.4

Leverage

Interest cover (x) 7.0 8.4 9.2 11.3 13.8

Debt to total capital 41.3 34.1 31.0 28.2 25.2

Debt to equity 70.3 51.7 44.9 39.2 33.7

Net debt/(cash) to equity 61.6 31.8 18.5 1.5 (13.2)

Current ratio (x) 1.5 1.9 2.4 2.8 3.2




COMPANY RESULTS BUY

(Maintained) Share Price S$3.03Target Price S$3.65Upside +20.5%

COMPANY DESCRIPTION AREIT invests in business & science park, suburban office, high-specification industrial,light industrial and logistics & distribution properties. Its portfolio stands at S$12.8b as of Dec 19, comprising 200 properties located across Singapore, Australia, UK and the US.

STOCK DATA GICS sector Real EstateBloomberg ticker: AREIT SPShares issued (m): 3,620.2Market cap (S$m): 10,969.3Market cap (US$m): 8,063.33-mth avg daily t'over (US$m): 28.2

Price Performance (%) 52-week high/low S$3.57/S$2.29

1mth 3mth 6mth 1yr YTD(6.8) (12.9) 11.8 (3.2) 2.0

Major Shareholders %Temasek Hldgs 21.0

FY21 NAV/Share (S$) 2.51FY21 Net Debt/Share (S$) 1.40

PRICE CHART

60

70

80

90

100

110

120

130

140

150

160

2.00

2.50

3.00

3.50

4.00

4.50

5.00(%)(lcy)

ASCENDAS REAL ESTATE INV TRT

ASCENDAS REAL ESTATE INV TRT/FSSTI INDEX

020406080


Volume (m)

Source: Bloomberg

ANALYST(S) Jonathan Koh, CFA +65 6590 6620 [email protected]

Peihao Loke +65 6590 6614 [email protected]

Ascendas REIT (AREIT SP)

3Q20: Resiliency From Geographical And Tenant Diversification Portfolio occupancy edged higher by 0.4ppt qoq to 91.9% in 3Q20 due to higher occupancies in Singapore. Rental reversion swung from a positive 4.3% in 2Q20 to a negative 2.3% in 3Q20. Management maintained guidance of positive low single-digit rental reversion for full-year 2020. We like AREIT for its quality tenant base and geographical diversification. Maintain BUY with target price of S$3.65.

WHAT’S NEW • Portfolio occupancy edges higher by 0.4ppt qoq to 91.9% in 3Q20. Singapore

occupancy improved 0.9ppt qoq to 88.8% due to higher occupancies at Cintech II and 40 Penjuru Lane. Occupancies in the UK and US were stable at 97.5% and 92% respectively. Occupancy for Australia eased slightly by 0.9ppt to 97.5% due to non-renewal at 92 Sandstone Place at Brisbane.

• Swung to negative rental reversion in 3Q20. Rental reversion swung from a positive 4.3% in 2Q20 to a negative 2.3% in 3Q20. In Singapore, its business & science parks segment registered a positive reversion of 4.5%. Overall rental reversion for Singapore was negative 2.8% due to its high-specification industrial (-3.3%) and logistics & distribution centres (-16.2%) segments. In the US, Ascendas REIT’s (AREIT) business park properties achieved positive rental reversion of 11.5%.

• On a ytd basis, rental reversion is a positive 4.2%. Management maintained guidance of positive low single-digit rental reversion for full-year 2020.

• Further expansion in Australia. AREIT completed the acquisition of an eight-storey suburban office building at 254 Wellington Road in Melbourne for S$100.6m in Sep 20. Nissan has leased 65% of the office space to serve as its head office and training centre for 10 years. The suburban office provides net property income (NPI) yield of 5.8%. It has also acquired two properties under development, which are logistics warehouse Lot 7 Kiora Crescent (completion: 2Q21) and suburban office MQX4 Macquarie Park (completion: mid-22), in Sydney for S$182.1m. The two properties provide NPI yield of 5.8% and 6.1% respectively.

• Completes AEI for 52 & 53 Serangoon North Avenue 4. AREIT has converted the roof level into a production area to maximise plot ratio for 52 & 53 Serangoon North Avenue 4. It has also upgraded the drop-off point, main lobby and toilets. The asset enhancement initiative (AEI) cost S$8.5m and was completed in Jul 20.

• Ample headroom to accommodate growth. Aggregate leverage has edged lower by 1.2ppt qoq to 34.9%. AREIT has available debt headroom for acquisition of S$4.2b before reaching the regulatory limit on aggregate leverage of 50%. It has issued S$300m of non-call green perpetual securities at 3.00% in Sep 20. Its average all-in cost of debt has improved 0.1ppt qoq to 2.8%.

KEY FINANCIALS Year to 31 Dec (S$m) 2018 2019* 2020F# 2021F 2022FNet turnover 886 699 1,049 1,094 1,102EBITDA 593 491 704 735 741Operating profit 593 491 704 735 741Net profit (rep./act.) 503 388 546 552 555Net profit (adj.) 463 357 525 552 555EPU (S$ cent) 15.3 10.9 14.5 15.2 15.3DPU (S$ cent) 16.0 11.5 15.2 15.9 15.9PE (x) 19.8 27.8 20.9 19.9 19.8P/B (x) 1.4 1.4 1.2 1.2 1.2DPU Yld (%) 5.3 3.8 5.0 5.2 5.3Net margin (%) 56.8 55.5 52.1 50.4 50.4Net debt/(cash) to equity (%) 58.2 55.7 53.4 54.0 55.0Interest cover (x) 5.1 4.3 4.3 4.4 4.4ROE (%) 7.5 5.2 6.2 5.9 5.9Consensus DPU (S$ cent) n.a. n.a. 15.2 16.1 16.6UOBKH/Consensus (x) - - 1.00 0.98 0.96Source: AREIT, Bloomberg, UOB Kay Hian *9-month period ending Dec 19; #12-month period ending Dec 20




STOCK IMPACT • Weathering the COVID-19 pandemic. Many companies remain cautious and have put their

expansion plans on hold. Demand and rental growth for industrial space is expected to be subdued. AREIT has provided rental waivers of S$11.3m in 9M20, which included rental waiver of 0.5 months for retail tenants in August and September.

• Overseas properties more resilient. In Australia, AREIT has suspended rent collection for F&B and retail tenants at its three suburban offices. Lease for one hospitality/leisure tenant was restructured and rent waiver/deferment was provided to four SME tenants. In the UK, AREIT has changed rental payment frequency from quarterly to monthly to ease tenants’ cash flow management. The UK portfolio benefits from high e-commerce penetration and long weighted average lease expiry (WALE) of 9 years. In the US, AREIT’s business parks properties benefit from growth in technology and healthcare sectors. It has provided rental rebates to a cafe operator in Portland and restructured the lease of a tenant whose supply chain was disrupted by the COVID-19 pandemic.

• Silver lining from business park properties. Business park space benefits from increased demand from technology and pharmaceutical companies. In particular, Chinese technology giants setting up their regional HQ in Singapore could boost demand. Business & science parks in Singapore accounted for 32% of AREIT’s asset under management (AUM).

EARNINGS REVISION/RISK • We maintain our existing earnings forecast.

VALUATION/RECOMMENDATION • Maintain BUY. Our target price of S$3.65 is based on dividend discount model (COE: 6.0%,

terminal growth: 1.8%).

SHARE PRICE CATALYST • Resiliency from business parks and high-specifications industrial segments.

• Contributions from development projects and AEIs.

KEY OPERATING METRICS Year to 31 Dec 1QFY19 2QFY19 3QFY19 1QFY20 2QFY20 3QFY20 yoy hoh DPU 4.01 3.98 3.51 7.27 n.a. n.a. n.a. Occupancy 91.1% 91.0% 90.9% 91.7% 91.5% 91.9% 1ppt 0.2ppt Aggregate Leverage 37.2% 36.2% 35.1% 36.2% 36.1% 34.9% -1.3ppt -1.3ppt Average Cost of Debt 3.00% 3.00% 2.90% 2.90% 2.90% 2.80% -0.2ppt -0.1ppt % Borrowing in Fixed Rates 75.3% 76.8% 75.8% n.a. 80.9% 81.9% 5.1ppt 81.9ppt WALE by NLA (years) 4.1 4.0 3.9 n.a. 3.9 3.9 -2.5% 390.0% Weighted Debt Maturity 3.8 3.6 4.0 3.8 3.6 3.7 2.8% -2.6% Rental Reversion 2.7% 4.0% 8.8% 8.0% 4.3% -2.3% -6.3ppt -10.3ppt

Source: AREIT, UOB Kay Hian

PORTFOLIO OCCUPANCY

Source: AREIT

POSITIVE RENTAL REVERSIONS

Source: AREIT

WELL-DIVERSIFIED PORTFOLIO

Source: AREIT




PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (S$m) 2019* 2020F# 2021F 2022F Year to 31 Dec (S$m) 2019* 2020F# 2021F 2022F

Net turnover 699.1 1,048.8 1,094.1 1,102.4 Fixed assets 12,925.8 14,745.5 14,785.4 14,845.4

EBITDA 490.6 703.7 735.0 740.9 Other LT assets 687.0 661.3 635.6 609.9

Deprec. & amort. 0.0 0.0 0.0 0.0 Cash/ST investment 95.7 97.8 97.0 95.7

EBIT 490.6 703.7 735.0 740.9 Other current assets 155.6 63.9 65.8 66.1

Associate contributions 0.4 0.6 0.6 0.6 Total assets 13,864.1 15,568.6 15,583.8 15,617.1

Net interest income/(expense) (113.4) (162.2) (165.6) (168.0) ST debt 576.9 576.9 576.9 576.9

Pre-tax profit 408.5 563.7 569.9 573.5 Other current liabilities 402.1 290.9 301.4 303.4

Tax (20.7) (17.3) (18.2) (18.4) LT debt 4,034.8 4,545.6 4,595.6 4,675.6

Minorities 0.0 0.0 0.0 0.0 Other LT liabilities 739.2 739.9 717.9 692.7

Net profit 387.9 546.3 551.7 555.1 Shareholders' equity 8,111.2 9,415.3 9,391.9 9,368.5

Net profit (adj.) 356.9 524.7 551.7 555.1 Minority interest 0.0 0.0 0.0 0.0


CASH FLOW KEY METRICS Year to 31 Dec (S$m) 2019* 2020F# 2021F 2022F Year to 31 Dec (%) 2019* 2020F# 2021F 2022F

Operating 589.1 608.0 747.7 720.0 Profitability

Pre-tax profit 377.6 542.0 569.9 573.5 EBITDA margin 70.2 67.1 67.2 67.2

Working capital changes 130.4 (85.0) 12.7 2.3 Pre-tax margin 58.4 53.7 52.1 52.0

Non-cash items 8.6 14.6 14.8 14.8 Net margin 55.5 52.1 50.4 50.4

Other operating cashflows 72.5 136.3 150.4 129.4 ROA 3.1 3.7 3.5 3.6

Investing (1,724.7) (1,714.7) (60.0) (59.0) ROE 5.2 6.2 5.9 5.9

Capex (growth) (1,701.6) (1,759.7) 0.0 1.0

Capex (maintenance) (71.0) (60.0) (60.0) (60.0) Growth

Proceeds from sale of assets 27.0 105.0 0.0 0.0 Turnover (21.1) 50.0 4.3 0.8

Others 20.9 0.0 0.0 0.0 EBITDA (17.2) 43.4 4.4 0.8

Financing 1,179.5 1,108.8 (688.5) (662.4) Pre-tax profit (21.0) 38.0 1.1 0.6

Distribution to unitholders (375.4) (552.0) (575.0) (578.5) Net profit (22.9) 40.8 1.0 0.6

Issue of shares 453.1 1,310.0 0.0 1.0 Net profit (adj.) (22.9) 47.0 5.1 0.6

Proceeds from borrowings 507.6 510.9 50.0 80.0 EPU (28.8) 33.1 5.0 0.5

Loan repayment 0.0 0.0 0.0 0.0

Others/interest paid 594.2 (160.0) (163.5) (164.8) Leverage

Net cash inflow (outflow) 44.0 2.1 (0.8) (1.3) Debt to total capital 36.2 35.2 35.5 35.9

Beginning cash & cash equivalent 52.3 95.7 97.8 97.0 Debt to equity 56.9 54.4 55.1 56.1

Changes due to forex impact (0.6) 0.0 0.0 1.0 Net debt/(cash) to equity 55.7 53.4 54.0 55.0

Ending cash & cash equivalent 95.7 97.8 97.0 96.7 Interest cover (x) 4.3 4.3 4.4 4.4

*9-month period ending Dec 19; #12-month period ending Dec 20




COMPANY UPDATE BUY (Maintained) Share Price S$0.635 Target Price S$0.86 Upside +35.7% (Previous TP S$0.69)

COMPANY DESCRIPTION Singapore's largest real estate agency with dominant market share of the residential primary private and HDB resale market.

STOCK DATA GICS sector Real Estate Bloomberg ticker: PNEX:SP Shares issued (m): 370.0 Market cap (S$m): 235.0 Market cap (US$m): 172.7 3-mth avg daily t'over (US$m): 0.1

Price Performance (%) 52-week high/low S$0.645/S$0.440

1mth 3mth 6mth 1yr YTD 7.6 21.0 35.9 25.3 25.3

Major Shareholders % P&N Holdings 55.6

Fong Kelvin 7.4

Ismail Mohamed 8.1

FY20 NAV/Share (S$) 0.21

FY20 Net Cash/Share (S$) 0.26

PRICE CHART

80

90

100

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150

160

170

0.40

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0.90(%)(lcy) PROPNEX LTD PROPNEX LTD/FSSTI INDEX

0

2

4

6


Volume (m)

Source: Bloomberg

ANALYST(S) Peihao Loke +65 6590 6614 [email protected]

Adrian Loh +656590 6633 [email protected]

PropNex (PROP SP)

Continued Strength And Resiliency Unlike in previous crises, the Singapore property sector had entered the COVID-19-pandemic on a firmer footing due to policies limiting excessive leverage and speculative-buying. PropNex’s strong cash generation and digital edge also puts it in an enviable position to tide through the storm. To better reflect the group’s strong cash reserves (43% market cap), we shift our valuation methodology to 11x 2021F ex-cash PE. Maintain BUY with a higher target price of S$0.86.

WHAT’S NEW • Singapore property sector to see continued “Strength and Resiliency” amid COVID-19

pandemic. At UOB Kay Hian’s Asian Gems E-Conference, PropNex’s management stated that they saw resilient buying sentiment, which they attributed to liquidity (ie low interest rates) and government stimulus. Recent Urban Redevelopment Authority (URA) statistics appear similarly upbeat. Sep 20 URA new sales saw its highest level since Jul 18 with 1,329 units sold (+5.6% mom, +4.6% yoy), while 3Q20 URA property price index (PPI) grew by 0.8% qoq.

STOCK IMPACT • Private new home sales demand supported by HDB upgraders; may potentially

surpass 2019 volumes. Management pointed to the resilient and (still) growing 9M20 private new home sales volume of 7,532 units (+0.8% yoy), which will likely see 2020 volumes marginally surpass 2019’s (9,192 units sold). Based on Sep 20 statistics, they observed stable and slight up-tick in pricing for Rest of Central Region (RCR) and Outside Central Region (OCR) projects respectively - although Core Central Region (CCR) prices have softened. Management attributed the CCR softness to the absence of foreign buyers due to travel restrictions, and the OCR resilience to HDB upgraders’ demand for mass-market products.

• Singapore property market to see “resilience”, unlike in SARS period. Management attributes this to the ‘firmer footing’ going into the crisis, from introduction of total-debt-servicing-ratio limits and seller-stamp-duty in 2010/13. In our view, this has eradicated most speculative-buying (ie sub-sales) and capped the most levered-buyers (ie tightened further from 80% to 75% from 6 Jul 18) - ensuring that current home owners have better holding-power. The government’s Job Support Scheme (JSS) has also helped in part to moderate, or at least delay retrenchment. Singapore’s unemployment rate of 3.4% is still well below the SARS peak (4.8%). Bloomberg consensus suggests that unemployment rate would peak at 3.8% in 4Q20, before moderating to 3.4%/3.0%/2.6%/2.3% levels between 1Q-4Q21. Unlike in previous crises, the unemployment risk is disproportionately concentrated in certain sectors (eg aviation, tourism) - limiting the impact on the potential homebuyers pool. Despite the looming recession, we believe home purchases are long-term commitments which would not be easily derailed. According to Savills, low/negative GDP growth bearing down on private property demand is considered an “old-school thought”; they suggested considering household-liquidity which is seeing pent-up demand and has also grown exponentially compared to the URA PPI. Anecdotally, we also heard about instances of parents of first-time home-owners helping with downpayments on private property purchases.

KEY FINANCIALS Year to 31 Dec (US$m) 2018 2019 2020F 2021F 2022FNet turnover 432 420 441 450 467EBITDA 28 28 31 30 31Operating profit 27 24 27 26 27Net profit (rep./act.) 19 20 22 21 22Net profit (adj.) 19 20 22 21 22EPS (S$ cent) 5.2 5.4 5.8 5.6 5.8PE (x) 12.1 11.7 10.9 11.3 10.9P/B (x) 3.5 3.4 3.1 2.8 2.6EV/EBITDA (x) 5.3 5.1 4.6 4.8 4.7Dividend yield (%) 5.5 5.5 5.9 6.2 6.4Net margin (%) 4.5 4.8 4.9 4.6 4.6Net debt/(cash) to equity (%) (113.1) (117.7) (122.7) (126.8) (127.4)ROE (%) 45.7 29.4 29.5 26.0 25.0Consensus net profit - - 22 22 22UOBKH/Consensus (x) - - 0.99 0.96 0.96Source: PropNex, Bloomberg, UOB Kay Hian




• Strong digitalisation edge. PropNex’s 2Q20 market share surge (ie 18.1% qoq) to 68.7% in private new launches signifies its strong digitalisation edge. Like agents of most other agencies, PropNex agents had to reach out to clients via digital platforms during the circuit breaker period. The group has also been a front-runner in hosting Singapore’s first virtual property expo (25-26 Jul 20) and the Singapore Property Show (10 Oct 20) which has boosted its consumer out-reach.

• Cash-rich business in COVID-19 environment. PropNex has accumulated a solid cash hoard of S$99.7m (S$0.27/share) for potential distributions and acquisitions. The group has demonstrated strong cash generation capabilities, with positive (and growing free cash flow in the last five years (2015-19), which is desirable during a crisis when most companies reduce operating expenses to preserve cash for survival. Although PropNex has no fixed dividend policy, management has the intention to pay out at least 50% of the group’s net profits (ie 2018/19/1H20: 66.7%/64.6%/76.5%).

CASH AS % MARKET CAP (SINCE LISTING) DISTRIBUTION PAY-OUT HISTORY

0%10%20%30%40%50%60%70%80%90%

100%

18 19 20

Cash (% of market-cap)

5.5 6.5 7.1 5.8 6.7

10.813.0 13.0

6.5 7.6

16.3 19.4 20.0

88.7% 87.6%

66.1% 66.7% 64.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2015 2016 2017 2018(listed Jul'18)

2019

S$m

Dividends payout ratio

Source: PropNex, Bloomberg, UOB Kay Hian

EARNINGS REVISION/RISK • Earnings may be past its worst after 3Q20; c.2% EPS growth in 2021F (excluding 2020F

one-offs grants). We expect 3Q20 earnings to be dragged by lower new sales segment contributions, given the substantially lower 1,713 option-to-purchases (-20% qoq, -27% yoy) lodged in 2Q20, which will incur a 3-4 months’ lag before recognition in 3Q20. Resale volumes (typically one-month recognition lag) which have recovered in 3Q20 should partially offset the weakness in the new sales segment.

• Excluding the S$1.8m in one-offs from government grants (eg JSS) and rental rebates factored in 2020F, we see 2021F EPS growing 2% yoy.

• We raised our net profit forecasts for 2020-22 by 1-3%, factoring in improved volumes from better liquidity in a low-interest rate environment. In terms of private resale, we moderated our assumed declines in private resale volumes to -10% (from -20%) in 2020F. For private new sales, we factored in higher overall volumes of 10,000 units (vs 10-year average: 11,538 units p.a between 2010-19) and a 55% market share in 2021F/22F.

VALUATION/RECOMMENDATION • Maintain BUY with a higher target price of S$0.86 (previously S$0.69). We move our

valuation methodology from PE to ex-cash PE, as a reflection of PropNex’s strong cash reserves (43% of market cap) and stable future distributions.

• We value PropNex at 11x ex-cash 2021F PE, which we believe justifies a premium over APAC Realty’s historical PE (10x) due to its wider outreach (19% larger agent network), dominant market-share (eg 50%) in the lucrative new sales segment, and ownership of its proprietary brand (vs APAC Realty which has master franchisee for the ERA brand). PropNex is also better positioned as the “preferred suitor” amid industry consolidation, due to its stronger reputation, training, and more attractive commission structure for agents and team leaders.

SHARE PRICE CATALYST • Positive news flow on new launches and take-ups.

MARKET SHARE IN PRIMARY PRIVATE NEW SALES

28.2% 26.4%

42.9% 42.4%48.0% 45.7%

68.7%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2015 2016 2017 2018 2019 1Q20 2Q20 Source: PropNex, Uob Kay Hian

PRIVATE NEW HOME SALES (EXCLUDING ECS)

Source: PropNex, URA

PRIVATE NEW HOME SALES (EXCLUDING ECS)

Source: PropNex, URA EX-CASH P/E TARGET PRICE

Valuation (S$m)

P/E (1) 11x

Net Income in 2021F (2) S$21

Interest income in 2021F (3) S$1.4

Cash in 2021F (4) $106

Est. Value of Owners’ Equity [1*(2-3]+4)] $319

Fully Diluted No. of Shares (m) 370

Ex-Cash P/E-based target price (S$) $0.86 Source: UOB Kay Hian




PROPNEX: HISTORICAL EX-CASH PE (LISTED JUL’18) PROPNEX VS APAC PE CHARTS

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

18 19 20

(x)

+1SD

Mean =6.6

-1SD

+2SD

-2SD

PROPNEX: HISTORICAL PE (LISTED JUL 18) APAC: HISTORICAL PE

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

18 19 20

(x)

+1SD

Mean = 10.6

-1SD

+2SD

-2SD

0.22.24.26.28.2

10.212.214.216.218.2

2017 2018 2019 2020

(x)

-1SDMean =9.7

-2SD

+1SD

+2SD


PRIVATE HOME SALES AND PPI INDEX SINGAPORE UNEMPLOYMENT RATE (%)

83.8 82.3 80.6 81.3 84.593.1

122.1 116.4 118.4

139.2147.4 151.5 153.2

147.0 141.6 137.2 138.7149.6 153.6 152.1 152.6 153.8

0

50

100

150

200

0

10,000

20,000

30,000

40,000

50,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q20 2Q20 3Q20

Pro

pe

rty

Pri

ce

In

de

x

Un

its

New Sale Re Sale Sub Sale Property Price Index (PPI)

Source: REALIS, Ministry of Manpower, Bloomberg, UOB Kay Hian

URA MONTHLY PRIVATE NEW SALES

1,329

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0

200

400

600

800

1000

1200

1400

1600

1800

Sep 19 Oct 19 Nov 19 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20

Launched Sold Takeup

Source: URA, UOB Kay Hian




PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (S$m) 2019 2020F 2021F 2022F Year to 31 Dec (S$m) 2019 2020F 2021F 2022F

Net turnover 419.8 440.6 449.9 467.2 Fixed assets 3.5 3.7 3.7 3.9

EBITDA 28.3 31.4 30.1 31.0 Other LT assets 6.0 0.0 0.0 0.0

Deprec. & amort. 3.8 4.3 4.1 4.3 Cash/ST investment 81.6 94.5 105.5 114.3

EBIT 24.4 27.2 26.0 26.8 Other current assets 63.5 66.6 68.0 70.6

Total other non-operating income 0.0 0.0 0.0 0.0 Total assets 154.6 164.7 177.3 188.8

Associate contributions 0.0 0.0 0.0 0.0 ST debt 0.0 0.0 0.0 0.0

Net interest income/(expense) 1.1 1.2 1.4 1.6 Other current liabilities 79.5 83.2 87.7 90.9

Pre-tax profit 25.6 28.4 27.4 28.4 LT debt 0.0 0.0 0.0 0.0

Tax (4.5) (5.0) (4.8) (5.0) Other LT liabilities 3.0 0.1 0.1 0.1

Minorities (1.1) (1.9) (1.8) (1.9) Shareholders' equity 69.3 77.0 83.2 89.7

Net profit 20.0 21.6 20.8 21.6 Minority interest 2.6 4.4 6.2 8.0

Net profit (adj.) 20.0 21.6 20.8 21.6 Total liabilities & equity 154.4 164.7 177.3 188.8

CASH FLOW KEY METRICS Year to 31 Dec (S$m) 2019 2020F 2021F 2022F Year to 31 Dec (%) 2019 2020F 2021F 2022F

Operating 29.3 29.1 28.5 27.0 Profitability

Pre-tax profit 25.6 28.4 27.4 28.4 EBITDA margin 6.7 7.1 6.7 6.6

Tax (4.5) (5.0) (4.8) (5.0) Pre-tax margin 6.1 6.4 6.1 6.1

Deprec. & amort. 3.8 4.3 4.1 4.3 Net margin 4.8 4.9 4.6 4.6

Associates 0.0 0.0 0.0 0.0 ROA 13.5 13.5 12.2 11.8

Working capital changes 0.4 0.2 0.3 (2.3) ROE 29.4 29.5 26.0 25.0

Non-cash items 1.3 1.2 1.4 1.6

Other operating cashflows 2.7 0.0 0.0 0.0 Growth

Investing (1.0) (3.3) (3.5) (3.7) Turnover (2.7) 4.9 2.1 3.8

Capex (growth) (1.9) (2.1) (2.0) (2.1) EBITDA 2.6 11.2 (4.3) 3.3

Capex (maintenance) 0.0 0.0 0.0 0.0 Pre-tax profit (3.0) 11.0 (3.5) 3.7

Investments 0.0 0.0 0.0 0.0 Net profit 3.2 7.8 (3.5) 3.7

Proceeds from sale of assets 0.0 0.0 0.0 0.0 Net profit (adj.) 3.2 7.8 (3.5) 3.7

Others 0.8 (1.2) (1.4) (1.6) EPS 3.2 7.8 (3.5) 3.7

Financing (22.4) (13.0) (14.0) (14.6)

Dividend payments (13.0) (13.0) (14.0) (14.6) Leverage

Issue of shares 0.0 0.0 0.0 0.0 Debt to total capital 0.0 0.0 0.0 0.0

Proceeds from borrowings 0.0 0.0 0.0 0.0 Debt to equity 0.0 0.0 0.0 0.0

Loan repayment 0.0 0.0 0.0 0.0 Net debt/(cash) to equity (117.7) (122.7) (126.8) (127.4)

Others/interest paid (9.4) 0.0 0.0 0.0

Net cash inflow (outflow) 5.9 12.8 11.1 8.8

Beginning cash & cash equivalent 75.7 81.6 94.5 105.5


Ending cash & cash equivalent 81.6 94.5 105.5 114.3




COMPANY RESULTS BUY

(Upgraded) Share Price Bt179.50Target Price Bt224.00Upside +24.8%(Previous TP Bt124.00)

COMPANY DESCRIPTION DELTA is a leading power supplies manufacturer. The company produces power systems for information technology, telecommunications, automotive, medical equipment, industrial automation, and household appliances.

STOCK DATA GICS sector Information TechnologyBloomberg ticker: DELTA TBShares issued (m): 1,247.4Market cap (Btm): 223,905.0Market cap (US$m): 7,159.23-mth avg daily t'over (US$m): 20.7

Price Performance (%) 52-week high/low Bt200.00/Bt30.00

1mth 3mth 6mth 1yr YTD17.3 99.4 360.3 266.3 235.5

Major Shareholders %Deltron Holding 27.7Delta Electronics (TAIWAN) 20.0- -

FY20 NAV/Share (Bt) 29.40FY20 Net Cash/Share (Bt) 13.36

PRICE CHART

0

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180

270

360

450

540

630

0

50

100

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200

250

300(%)(lcy)

DELTA ELECTRONICS THAI PCL

DELTA ELECTRONICS THAI PCL/SET INDEX

0

5

10

15


Volume (m)

Source: Bloomberg

ANALYST(S) Sarat Ruangtaweep +662 659 8033 [email protected]

Delta Electronics (DELTA TB)

3Q20: Share Price Could Outperform In The Near Term; Upgrade From SELL To BUY DELTA’s 3Q20 core profit came in at Bt2.5b (+329% yoy, +25% qoq), exceeding our and consensus estimates thanks to strong revenue of Bt18b (+41% yoy, +21 qoq), yoy gross margin improvement to 26.1% and lower SG&A-to-sales. Despite an expensive forward PE ratio, share price could outperform in the near term on several headwinds while its P/S ratio is still relatively low vs regional peers’. Upgrade from SELL to BUY with a target price of Bt224.00.

3Q20 RESULTS Year to 31 Dec (Btm) 3Q20 3Q19 2Q20 yoy % chg qoq % chgNet turnover 17,540 12,404 14,491 +41.4 +21.0Gross profit 4,574 2,373 3,892 +92.7 +17.5EBIT 2,741 576 1,980 +375.6 +38.5EBITDA 3,170 949 2,448 +234.0 +29.5Net profit 2,642 618 2,019 +327.3 +30.9EPS (Bt) 2.12 0.50 1.62 +327.3 +30.9Core profit 2,536 591 2,026 +328.9 +25.1Ratio (%) yoy ppt chg qoq ppt chgGross margin 26.1 19.1 26.9 +6.9 -0.8SG&A as % of sales 12.2 15.8 14.4 -3.6 -2.2Core margin 14.5 4.8 14.0 +9.7 +0.5

Source: DELTA, UOB Kay Hian

RESULTS • 3Q20 core profit sky-rocketed by 329% yoy. Delta Electronics (Delta) posted a 3Q20 core

profit of Bt2.5b (+329% yoy, +25% qoq), exceeding our and consensus estimates by 10% and 6% respectively. The growth was driven by strong revenue of Bt18b (+41% yoy, +21% qoq) on the back of a two-fold qoq jump in sales of electric vehicle (EV) products (which accounted for 11% of total sales in 3Q20). This was mainly thanks to the easing of lockdown measures across the world. Fiscal stimulus packages in European countries are focused on new technology industries involving EVs as well as data centre products which sales grew by 20% qoq and accounted for 22% of total sales in 3Q20. Meanwhile, gross margin improved yoy to 26.1% in 3Q20 (2Q20: 26.9%, 3Q19: 19.1%) on a better product mix, while SG&A-to-sales ratio declined to 12.2% (2Q20: 14.4%, 3Q19: 15.8%

KEY FINANCIALS Year to 31 Dec (Btm) 2018 2019 2020F 2021F 2022FNet turnover 53,067 51,172 58,932 67,772 77,583EBITDA 6,320 4,453 7,905 9,124 10,581Operating profit 5,079 2,825 6,480 7,654 9,043Net profit (rep./act.) 5,137 2,960 6,636 7,835 9,250Net profit (adj.) 4,984 3,029 6,636 7,835 9,250EPS (Bt) 4.0 2.4 5.3 6.3 7.4PE (x) 44.9 73.9 33.7 28.6 24.2P/B (x) 6.6 6.8 6.1 5.6 5.1EV/EBITDA (x) 32.8 46.5 26.2 22.7 19.6Dividend yield (%) 1.2 1.3 1.8 2.1 2.5Net margin (%) 9.7 5.8 11.3 11.6 11.9Net debt/(cash) to equity (%) (46.0) (37.5) (45.4) (48.9) (51.4)Interest cover (x) 670.8 2,424.9 995.6 1,403.9 1,442.7ROE (%) 15.5 8.8 19.0 20.5 22.2Consensus net profit - - 6,501 7,313 8,391UOBKH/Consensus (x) - - 1.02 1.07 1.10Source: DELTA, Bloomberg, UOB Kay Hian




KEY OPERATING STATISTICS Revenue by product (Btm) 3Q20 3Q19 2Q20 yoy ppt chg qoq ppt chgPower electronics 11,162 7,634 8,820 +46.2 +21.8Infrastructure 5,639 4,227 5,442 +33.4 +6.8Automation 726 500 217 +45.2 +16.1Revenue mix by products (%) Power electronics 64 62 64Infrastructure 32 34 35Automation 4 4 1


STOCK IMPACT • 4Q20 core profit expected to drop qoq but should still post tremendous yoy growth.

DELTA’s 3Q20 results were strong, in line with the industry’s outlook with monthly Thai electronics exports having reached a record 26-month high in terms of value at US$3.4b in Sep 20. We expect DELTA’s core profit to drop qoq in 4Q20 as many of its key clients (mainly located in the US) are likely to defer their purchase orders from 4Q20 to 1Q21. This is because many corporates are concerned that the US election could impact the direction of US trade policies. However, we still expect 4Q20 core profit to grow tremendously yoy due to the low base in 4Q19.

• Back on growth trajectory from 1Q21 onwards. We still have an optimistic view towards DELTA’s earnings outlook in 1Q21. Management remains confident about the recovery in purchase orders from key clients amid the continuous surge in data consumption globally despite easing lockdown measures. Moreover, concerns about the US trade policy should dissipate after the results of the US election are announced. Hence, we expect earnings to resume on its growth momentum from 1Q21 onwards.

• Major semiconductors’ and technology stocks’ valuations are now more expensive vs DELTA’s. Taiwan and US semiconductor and technology stocks are now trading at 5.5x and 4.9x 2021F price-to-sales (P/S) respectively, much higher than DELTA’s 3.3x 2021F P/S. Thai electronics stocks’ fundamentals are likely to remain strong going forward. Hence, we think DELTA’s share price will outperform despite the expensive PE

EARNINGS REVISION/RISK • We revised our 2020-21F earnings forecasts up by 12% and 21% respectively.

EARNINGS REVISION ----------------------- 2020F ----------------------- ----------------------- 2021F -----------------------

(Bt m) Old New ppt chg Old New ppt chg Net turnover 55,373 58,932 6.4 63,679 67,772 6.4 Core profit 5,945 6,636 11.6 6,487 7,835 20.8 Gross profit margin (%) 25.3 25.3 0 bp 24.7 25.5 83 bp SG&A-to-sales (%) 15.6 15.1 (50 bp) 15.5 15.0 (50 bp)


VALUATION/RECOMMENDATION • Upgrade from SELL to BUY with a target price of Bt224. DELTA’s share price has

corrected by 10% since our SELL recommendation on 15 Oct 20. The stock is currently trading at 28.6x 2021F PE or +1.5x SD to its 5-year mean. Meanwhile, we think the stock would outperform in the near term, given its relatively strong earnings owing to strong demand. Hence, we upgrade our recommendation to BUY with a target price of Bt224. We have pegged our valuation at 35.7x 2021F PE or +3SD to its 5-year mean. This implies 4.1x 2021F P/S vs 4.9-5.5x of regional peers.

SHARE PRICE CATALYST • Second round of lockdowns across the world, 5G network roll-out and Bt/US$ depreciation.

SALES BY APPLICATION


SALES BY COUNTRY


EUROPE NEW CAR REGISTERS


THAI ELECTRONICS EXPORTS

Source: Ministry of Commerce, UOB Kay Hian

CORE PE BAND





PROFIT & LOSS Year to 31 Dec (Btm) 2019 2020F 2021F 2022F

Net turnover 51,172 58,932 67,772 77,583

EBITDA 4,453 7,905 9,124 10,581

Deprec. & amort. 1,628 1,425 1,471 1,538

EBIT 2,825 6,480 7,654 9,043


Associate contributions 25 65 75 85


Pre-tax profit 2,970 6,660 7,863 9,283

Tax (19) (42) (50) (59)

Minorities 8 19 22 26

Net profit 2,960 6,636 7,835 9,250

Net profit (adj.) 3,029 6,636 7,835 9,250

BALANCE SHEET Year to 31 Dec (Btm) 2019 2020F 2021F 2022F

Fixed assets 11,403 10,978 10,508 9,970

Other LT assets 2,177 2,224 2,196 2,163

Cash/ST investment 12,394 16,962 19,791 22,762


Total assets 45,958 52,641 58,308 64,396

ST debt 0 301 333 383


LT debt 0 0 0 0

Other LT liabilities 2,114 2,120 2,265 2,410




CASH FLOW Year to 31 Dec (Btm) 2019 2020F 2021F 2022F

Operating 5,297 8,263 8,304 9,267

Pre-tax profit 2,979 6,678 7,885 9,309

Tax (19) (42) (50) (59)

Deprec. & amort. 1,628 1,425 1,471 1,538

Associates (8) (19) (22) (26)

Working capital changes 717 221 (980) (1,494)



Investing (4,586) (1,140) (928) (922)

Capex (growth) (4,951) (1,047) (972) (968)

Capex (maintenance) 0 0 0 0

Investments 77 0 0 0

Proceeds from sale of assets 0 0 0 0

Others 287 (93) 44 45

Financing (3,925) (2,554) (4,547) (5,375)

Dividend payments (2,869) (3,982) (4,701) (5,550)

Issue of shares 0 1,004 0 0

Proceeds from borrowings (39) 401 132 150

Loan repayment 0 0 0 0

Others/interest paid (1,017) 22 22 26

Net cash inflow (outflow) (3,214) 4,569 2,829 2,971

Beginning cash & cash equivalent 15,608 12,394 16,962 19,791


Ending cash & cash equivalent 12,394 16,962 19,791 22,762



Pre-tax margin 5.8 11.3 11.6 12.0

Net margin 5.8 11.3 11.6 11.9

ROA 6.3 13.5 14.1 15.1

ROE 8.8 19.0 20.5 22.2

Growth Turnover (3.6) 15.2 15.0 14.5

EBITDA (29.5) 77.5 15.4 16.0

Pre-tax profit (44.1) 124.2 18.1 18.1

Net profit (42.4) 124.2 18.1 18.1

Net profit (adj.) (39.2) 119.1 18.1 18.1

EPS (39.2) 119.1 18.1 18.1


Debt to equity 0.0 0.8 0.8 0.9


Interest cover (x) 2,424.9 995.6 1,403.9 1,442.7




COMPANY UPDATE BUY

(Maintained) Share Price Bt93.75Target Price Bt125.00Upside +33.3%(Previous TP Bt133.00)

COMPANY DESCRIPTION BBL is the largest commercial bank in Thailand with roughly 15% of the credit market. The bank's strong focus in on corporate lending, which accounts for 41% of loan book.

STOCK DATA GICS sector FinancialsBloomberg ticker: BBL TBShares issued (m): 1,908.8Market cap (Btm): 180,862.9Market cap (US$m): 5,786.33-mth avg daily t'over (US$m): 29.7

Price Performance (%) 52-week high/low Bt179.00/Bt88.00

1mth 3mth 6mth 1yr YTD(1.0) (9.8) (9.3) (43.8) (41.4)

Major Shareholders %NVDR 25.8SET for Depository 4.4State Street Bank 3.4

FY20 NAV/Share (Bt) 232.53FY20 CAR Tier-1 (%) 14.38

PRICE CHART

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BANGKOK BANK PUBLIC CO LTD

BANGKOK BANK PUBLIC CO LTD/SET INDEX

0

50

100


Volume (m)

Source: Bloomberg

ANALYST(S) Tanadech Rungsrithananon+662 659 8439 [email protected]

Bangkok Bank (BBL TB)

The Path To Recovery Remains Intact BBL’s earnings growth continues to recover after having hit a bottom in 2Q20. With an increased focus on corporate and international loans, BBL will face less of an impact from the debt moratorium programme vs peer banks. Valuation is compelling, factoring in the weaker growth in 2020. The stock is trading at 0.4x 2020F P/B, -3SD to its 2015-19 mean. Dividend yields are relatively high at 4.0-5.3% in 2020-22. Maintain BUY with a lower target price of Bt125.00.

WHAT’S NEW • Preemptive measures for the uncertainties ahead. Bangkok Bank’s (BBL) management

expects a U-shaped recovery for the Thai economy. The Thai economy is expected to shrink by 8-9% in 2020 and would likely rebound by 3-4% in 2021. The rebound would be gradual as Thailand’s tourism sector has been hard hit by the COVID-19 pandemic. Moreover, it expects a sluggish recovery in private investment going forward due to low capacity utilisation. Despite the severe impact to the hotel sector, BBL is not expected to be significantly impacted as only 9% of its total loans is exposed to the hospitality sector. Although loan demand is not expected to pick up strongly, loan quality should improve going forward. Management affirmed that its CAR remains solid. It has issued an additional tier-1 of US$750m to strengthen its capital position amid uncertainties ahead.

• Impact from debt moratorium programme is limited. BBL’s fundamentals are resilient and it is well prepared for the uncertainties ahead. We believe that the bank will likely experience a limited impact from new NPLs arising from the debt moratorium programme. This is due to the fact that less than 5% of its total loans are registered under the debt moratorium programme compared with the 30% for the banking sector. With a high loan loss coverage (LLC) ratio of 178% and CAR of 17.6%, we believe that the bank’s fundamentals are solid and it is equipped to withstand economic uncertainties and higher NPLs.

• 4Q20 earnings to rise qoq. We believe earnings have bottomed out for the year in 2Q20. 4Q20 earnings are likely to increase qoq due to higher operating income on continued loan growth and higher fee income. Overhead expense will decline qoq in 4Q20 after it set aside one-off provision related to the Permata Bank (Permata) acquisition and the integration of the Indonesia branches.

KEY FINANCIALS Year to 31 Dec (Btm) 2018 2019 2020F 2021F 2022FNet interest income 71,376 71,071 78,057 85,560 87,503Non-interest income 49,947 62,582 41,022 40,891 43,804Net profit (rep./act.) 35,330 35,816 20,546 24,040 27,249Net profit (adj.) 35,330 35,816 20,546 24,040 27,249EPS (Bt) 18.5 18.8 10.8 12.6 14.3PE (x) 5.1 5.0 8.8 7.5 6.6P/B (x) 0.4 0.4 0.4 0.4 0.4Dividend yield (%) 6.9 7.1 4.0 4.7 5.3Net int margin (%) 2.3 2.3 2.3 2.3 2.2Cost/income (%) 45.5 41.1 53.1 52.1 51.6Loan loss cover (%) 190.9 220.2 154.2 159.4 169.3Consensus net profit - - 22,880 27,048 32,206UOBKH/Consensus (x) - - 0.90 0.89 0.85Source: BBL, Bloomberg, UOB Kay Hian




• A gradual economic improvement. Thai exports in September continued to decline, albeit contracting by a smaller 3.9% yoy (Aug 20: -7.9%, Jul 20: -11.4% yoy). Moreover, China’s GDP growth continued to rise by 4.9% yoy in 3Q20 (2Q20: +3.2%, 1Q20: - 6.8% yoy). With BBL’s loan portfolio of large corporate and international loans accounting for 64% of total loans, BBL is likely to see less of an impact from a lacklustre domestic economy. It should also face limited NPL risks compared with banks which are largely focused on domestic customers.

STOCK IMPACT • Valuation has largely factored in economic uncertainties. Share price has fallen >41%

ytd, given concerns on weak earnings and asset quality deterioration. The stock is trading at 2021F P/B of 0.4x, -3SD to the historical mean (2015-19) - largely pricing in uncertainties.

EARNINGS REVISION/RISK NET PROFIT FORECAST (Btm) 2020F 2021F 2022FOld 22,065 24,987 27,885New 20,546 24,040 27,249% chg -6.9% -3.8% -2.3%


• Downgrade earnings projections due to one-time provision expenses related to Permata integration. We have fine-tuned our earnings projections after the bank booked extra expenses of Bt4.0b in 3Q20 related to the Permata Bank (Permata) acquisition and the integration of the Indonesia branches. We have thus revised up our cost-to-income ratio assumption to 53% for 2020 (from 49%) and 52% for 2021 (from 50%). We have revised down our earnings projections by 7% for 2020, 4% for 2021 and 2% for 2022. We thus expect earnings to decline 43% yoy in 2020 to Bt20.5b, largely due to higher provisions, lower investment gains and weaker fee income.

• Earnings growth to rebound in 2021. The Thai economy is expected to gradually improve in 2H20 after the government eases lockdown measures. We expect more economic sustainability in 2021, which would boost consumption and investments going forward. Moreover, the cost-to-income ratio will be lower due to lower overhead expenses relating to the Permata acquisition and higher operating income. Earnings are expected to rebound by 17% yoy to Bt24.0b in 2021, supported by higher operating income (net interest income and fee income). Note that despite its high loan loss reserves and an improving economic environment, we conservatively assume high provisions of Bt30b for 2021 (2020: Bt30b).

VALUATION/RECOMMENDATION • Maintain BUY with a lower target price at Bt125.00 (from Bt133.00), reflecting the

earnings downgrade and lower ROE outlook. Our valuation is pegged to 0.5x 2021F P/B, or -2SD to the stock’s 2015-19 mean.

SHARE PRICE CATALYST • New infrastructure investments would shore up new loan demand.

• Better-than-expected asset quality leading to lower credit cost.

EARNINGS GROWTH OUTLOOK

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2015 2016 2017 2018 2019 2020F 2021F 2022F

PIOP (Btm) Net profit (Btm)Net profit growth (RHS)

Source: BBL, UOB Kay Hian

NPL RATIO, LLC RATIO

0%

50%

100%

150%

200%

250%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

2015 2016 2017 2018 2019 2020F 2021F 2022F

Credti costs NPL ratio Coverage ratio (RHS)


LOAN PORTFOLIO

Source: BBL

P/B AND ROE

0.00

0.20

0.40

0.60

0.80

1.00

1.20

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2015 2016 2017 2018 2019 2020F 2021F 2022F

ROE (%) P/BV (x)





PROFIT & LOSS Year to 31 Dec (Btm) 2019 2020F 2021F 2022F

Interest income 112,565 114,404 120,172 125,732

Interest expense (41,494) (36,346) (34,612) (38,228)

Net interest income 71,071 78,057 85,560 87,503

Fees & commissions 28,505 25,118 26,194 29,011

Other income 34,077 15,904 14,697 14,793

Non-interest income 62,582 41,022 40,891 43,804

Income from islamic banking 0 0 0 0

Total income 133,653 119,079 126,451 131,307

Staff costs (26,726) (31,537) (34,690) (35,731)

Other operating expense (28,237) (31,682) (31,147) (32,006)

Pre-provision profit 78,690 55,860 60,615 63,570

Loan loss provision (32,351) (30,332) (30,064) (28,928)

Other provisions 0 0 0 0

Associated companies 93 102 112 115

Other non-operating income 0 0 0 0

Pre-tax profit 46,432 25,630 30,663 34,757

Tax (10,219) (4,665) (6,133) (6,951)

Minorities (397) (419) (491) (556)

Net profit 35,816 20,546 24,040 27,249

Net profit (adj.) 35,816 20,546 24,040 27,249

BALANCE SHEET Year to 31 Dec (Btm) 2019 2020F 2021F 2022F

Cash with central bank 58,090 73,953 72,863 75,049

Govt treasury bills & securities 509,025 605,373 613,682 632,092

Interbank loans 472,349 583,839 607,192 625,408

Customer loans 1,891,046 2,249,247 2,370,124 2,449,327

Investment securities 138,672 145,833 147,333 151,753

Derivative receivables 49,807 60,266 62,677 64,557

Associates & JVs 1,737 1,737 1,737 1,737

Fixed assets (incl. prop.) 50,117 77,497 64,406 66,338

Other assets 45,899 94,513 107,936 103,126

Total assets 3,216,743 3,892,259 4,047,950 4,169,388

Interbank deposits 134,346 155,690 161,918 166,776

Customer deposits 2,370,792 2,930,536 3,069,387 3,154,608

Derivative payables 37,837 60,266 62,677 64,557

Debt equivalents 144,681 134,681 134,681 134,681

Other liabilities 100,970 165,945 158,083 169,408

Total liabilities 2,788,627 3,447,118 3,586,746 3,690,029

Shareholders' funds 427,751 443,864 459,862 477,950

Minority interest - accumulated 365 1,278 1,342 1,409

Total equity & liabilities 3,216,743 3,892,259 4,047,950 4,169,388

OPERATING RATIOS Year to 31 Dec (%) 2019 2020F 2021F 2022F

Capital Adequacy Tier-1 CAR 17.7 14.4 14.3 14.5

Total CAR 20.7 16.9 16.7 16.8

Total assets/equity (x) 7.5 8.8 8.8 8.7

Tangible assets/tangible common equity (x)

7.5 8.8 8.8 8.7

Asset Quality NPL ratio 3.4 4.3 4.5 4.5

Loan loss coverage 220.2 154.2 159.4 169.3

Loan loss reserve/gross loans 8.5 7.5 8.1 8.7

Increase in NPLs (1.2) 50.0 10.0 5.0

Credit cost (bp) 156.1 135.0 120.0 110.0

Liquidity Loan/deposit ratio 86.9 83.0 84.0 85.0

Liquid assets/short-term liabilities 41.5 40.9 40.0 40.1

Liquid assets/total assets 32.3 32.5 32.0 32.0


Growth Net interest income, yoy chg (0.4) 9.8 9.6 2.3

Fees & commissions, yoy chg 3.3 (11.9) 4.3 10.8

Pre-provision profit, yoy chg 18.9 (29.0) 8.5 4.9

Net profit, yoy chg 1.4 (42.6) 17.0 13.4

Net profit (adj.), yoy chg 1.4 (42.6) 17.0 13.4

Customer loans, yoy chg (2.3) 18.9 5.4 3.3

Customer deposits, yoy chg 1.9 23.6 4.7 2.8

Profitability Net interest margin 2.3 2.3 2.3 2.2

Cost/income ratio 41.1 53.1 52.1 51.6

Adjusted ROA 1.1 0.6 0.6 0.7

Reported ROE 8.5 4.7 5.3 5.8

Adjusted ROE 8.5 4.7 5.3 5.8

Valuation P/BV (x) 0.4 0.4 0.4 0.4

P/NTA (x) 0.4 0.4 0.4 0.4

Adjusted P/E (x) 5.0 8.8 7.5 6.6

Dividend Yield 7.1 4.0 4.7 5.3

Payout ratio 36.0 35.0 35.0 35.0




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