regional morning notes thursday, 20 july · pdf filethursday, 20 july 2017 refer to last page...

Thursday , 20 Ju l y 2017

1 Refer to last page for important disclosures.

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

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

CHINA Sector Healthcare Page 2 36 new drugs enter NRDL; Biosimilar faces huge opportunity.

Update Bank Of China (3988 HK/HOLD/HK$3.76/Target: HK$3.58) Page 5 Asset quality stabilises after lumpy NPL hit in 1Q17.

INDONESIA Results Bank Mandiri (BMRI IJ/HOLD/Rp13,325/Target: Rp11,800) Page 8 1H17: Not quite there yet with 3.8% NPL; fully valued; no further compelling risk-reward.

MALAYSIA Update CapitaLand Malaysia Mall Trust (CMMT MK/HOLD/RM1.55/Target: RM1.53) 1 2Q17: In line with expectations. Sungei Wang Plaza and The Mines continue to drag earnings growth, evidencing the tough times retail mall operators are facing.

SINGAPORE Results CapitaLand Commercial Trust (CCT SP/BUY/S$1.725/Target: S$1.90) Page 14 2Q17: Reconstituting portfolio for long-term growth.

Update First Resources (FR SP/HOLD/S$1.89/Target: S$1.95) Page 17 Site visit reaffirms our good review of FR’s ground management and expectation of stronger production in 2H17. Maintain HOLD in anticipation of CPO price weakness.

Small/Mid Cap Highlights Keppel Telecommunications & Transportation (KPTT SP/BUY/S$1.66) Page 20 2Q17: Buffeted by unexpected headwinds in logistics; recommendation and target under review.

THAILAND Update Delta Electronics (DELTA TB/SELL/Bt88.75/Target: Bt64.00) Page 23 2Q17 results preview: Net profit to be pressured by provisions.

KEY INDICES Prev Close 1D % 1W % 1M % YTD % DJIA 21640.8 0.3 0.5 0.8 9.5 S&P 500 2473.8 0.5 1.3 1.5 10.5 FTSE 100 7430.9 0.6 0.2 (0.6) 4.0 AS30 5779.4 0.7 1.1 (0.2) 1.1 CSI 300 3729.7 1.7 1.9 5.2 12.7 FSSTI 3325.1 0.6 3.6 2.9 15.4 HSCEI 10860.5 1.0 3.3 3.7 15.6 HSI 26672.2 0.6 2.4 3.2 21.2 JCI 5806.7 (0.3) (0.2) 0.3 9.6 KLCI 1757.3 0.1 0.0 (1.3) 7.0 KOSPI 2429.9 0.2 1.6 2.6 19.9 Nikkei 225 20020.9 0.1 (0.9) (1.0) 4.7 SET 1575.9 0.3 0.1 (0.2) 2.1 TWSE 10506.1 0.2 0.8 1.8 13.5 BDI 932 2.2 8.5 9.9 (3.0) CPO (RM/mt) 2601 (1.0) (1.3) (3.7) (18.7) Brent Crude (US$/bbl)

50 1.8 4.1 5.9 (12.5)

Source: Bloomberg

TOP PICKS Ticker CP (lcy) TP (lcy) Pot. +/- (%) BUY Alibaba BABA US 153.15 173.00 13.0 Beijing Ent. Water 371 HK 6.33 7.60 20.1 Ace Hardware ACES IJ 1,135.00 1,300.00 14.5 Waskita Karya WSKT IJ 2,190.00 3,350.00 53.0 V.S. Industry VSI MK 2.00 2.40 20.0 OCBC OCBC SP 11.20 13.00 16.1 Siam Cement SCC TB 600.00 18.1

SELL Great Wall Motor 2333 HK 9.92 6.00 (39.5) Hartalega HART MK 6.76 4.07 (39.8)

KEY ASSUMPTIONS GDP (% yoy) 2016 2017F 2018F US 1.6 2.5 2.5 Euro Zone 1.7 1.8 1.6 Japan 1.0 0.9 1.2 Singapore 2.0 2.4 2.5 Malaysia 4.2 5.0 4.9 Thailand 3.2 3.3 3.3 Indonesia 5.0 5.2 5.5 Hong Kong 1.9 2.0 2.0 China 6.7 6.6 6.3 Brent (Average) (US$/bbl) 45 55 58 CPO (RM/mt) 2,653 2,600 2,400 Source: Bloomberg, UOB ETR, UOB Kay Hian

CORPORATE EVENTS Venue Begin Close

Analyst Marketing on Singapore Strategy Taipei 19 Jul 21 Jul & Small & Mid Caps Roadshow with Jacobson Pharma Shanghai 28 Jul 28 Jul Visit to Sarawak Corridor of Renewable Energy: - Cahaya Mata Sarawak Holdings Bhd Sarawak 1 Aug 3 Aug - Press Metal Bhd Luncheon with Singapore Post Singapore 4 Aug 4 Aug Analyst Marketing on Singapore Strategy Malaysia 14 Aug 15 Aug & Small & Mid Caps Analyst Marketing on Greater China Singapore 16 Aug 16 Aug Strategy Analyst Marketing on Greater China Malaysia 17 Aug 18 Aug Strategy Roadshow with Globetronics Technology Taipei 22 Aug 23 Aug Analyst Marketing on Semiconductor Taipei 24 Aug 25 Aug Roadshow with Top Glove Corporation US/Canada 5 Sep 12 Sep Roadshow with Singapore Technologies Canada 9 Oct 11 Oct Engineering Ltd




SECTOR UPDATE

Healthcare – China 36 New Drugs Enter NRDL; Biosimilar Faces Huge Opportunity The MHRSS has released a list of 36 patent drugs that are newly-included in the 2017 NRDL. With more biologics entering the NRDL, target therapy for cancer treatment in China will become more systematic and affordable. We expect domestic biosimilar developers such as Fosun Pharma to benefit from this trend (ie evolving from chemotherapy to target therapy). Maintain OVERWEIGHT on the healthcare sector.

WHAT’S NEW • On 19 July, the Ministry of Human Resources and Social Security (MHRSS) released a

list of 36 patent drugs (see table) to be included in 2017’s National Reimbursement Drug List (NRDL). After inclusion, 70-80% of treatment costs of these drugs can be reimbursed.

• To enter the 2017 NRDL, manufacturers accepted sharp price cuts after four months of negotiation with the government. The average drug price cut is about 40%.

ESSENTIALS • The 36 drugs include 14 domestic drugs and 22 imported drugs. Most of these drugs

target cancer and cardiovascular diseases, which need long-term management and are expensive to treat. Major MNC beneficiaries include Roche, AstraZeneca, Merck and Janssen, as well as major domestic beneficiaries such as Hengrui Medicine (600276 SH), Tasly (600535 SH) and Salubris (002294 SZ).

• Earnings impact from 1H18. Although there is a 40% average price cut, we expect a significant sales volume expansion after being included into the NRDL. We expect the execution time of the new NRDL will be delayed from 4Q17 to 2Q18 since each province needs time to make its own adjustments to the NRDL.

• Significant change in China’s cancer treatment landscape… Three blockbuster drugs of Roche, Rituximab, Trastuzumab and Bevacizumab entered the NRDL and are now reimbursable. In the past, most Chinese patients cannot afford these biological drugs (Rmb100,000-150,000/year) although these drugs were verified to be effective in cancer treatment. We believe their inclusion will change cancer treatment in China from using chemical drugs (chemotherapy) to biological drugs (target therapy).

• …provides huge opportunity for mAb biosimilar. We estimate China’s biosimilar market for Rituximab, Trastuzumab and Bevacizumab can reach Rmb2.0b, Rmb2.5b and Rmb2.5b respectively (see table). After their inclusion into the NRDL, these high-end biological drugs will become more popular among physicians and more affordable for cancer patients. We believe domestic biosimilar developers such as Fosun Pharma (2196 HK), Livzon (1513 HK) and Hengrui (600276 SH) will benefit from the rapidly growing demand.

MARKET SIZE ANALYSIS OF DOMESTIC BIOSIMILAR

Drug name Manufacturer 2015 global

sales (Rmbb)

China’s market for domestic biosimilar

(Rmbb)

Domestic player entering Phase III

clinical trial Rituximab Roche 49.8 ~2.5 Fosun Pharma Trastuzumab Roche 46.2 ~3.0 Fosun Pharma Bevacizumab Roche 47.3 ~3.0 None

Source: UOB Kay Hian

OVERWEIGHT (Maintained) TOP HEALTHCARE PICKS Company Rec Share price Target price

(HK$) (HK$)CSPC (1093 HK) BUY 11.98 13.66UMFT (2666 HK) BUY 6.16 9.11Jacobson (2633 HK) BUY 1.99 2.56Source: UOB Kay Hian

ANALYST(S) Alex Jiang +852 2236 6749 [email protected]




ACTION

• Fosun Pharma (2196 HK/NOT RATED) - Positive. The company’s biosimilar products - Rituximab and Trastuzumab - entered Phase III clinical trial stage, which is far ahead of other domestic biosimilar developers. We believe biological therapy for cancer will become the mainstream in China.

• Based on current R&D progress, Fosun Pharma will likely have the first-mover advantage in seizing China’s market share from Roche. According to the medical insurance system of Fujian province, generics/biosimilar from domestic manufacturers can enjoy a higher reimbursement ratio than overseas branded drugs. For example, Recombinant human granulocyte stimulating factor from domestic players can enjoy 80% reimbursement vs only 8.3% for overseas branded drugs.

• CSPC (1093 HK/BUY/Target: HK$13.66) - Positive. Bortezomib for injection from Janssen has made it into the NRDL. CSPC has applied for production approval for Bortezomib injections and we expect this will be the first-to-market generic drug. After its launch, CSPC’s Bortezomib for injection is also likely to be included into the NRDL, leading to sales volume expansion.

• Luye Pharma (2186 HK/NOT RATED) - Positive. To avoid a significant price cut, Paclitaxel Liposome for injection (Lipusu) was withdrawn from the list. We believe this is positive for Luye as Lipusu has entered more than 20 provincial reimbursement lists (PRDL) and accounted for more than 50% market share of Paclitaxel in China.

• 3SBio (1530 HK/NOT RATED) - Negative. In Oct 16, 3SBio announced the in-licensing of AstraZeneca’s Byetta (Exenatide Injection) and Bydureon (exenatide extended-release for injectable suspension) in China. Liraglutide, a type of GLP-1 RA drug, has been included into the 2017 NRDL. We expect 3SBio will lose market share to Liraglutide since Exenatide has been included in only nine PRDLs.

• Sino Biopharm (1177 HK/SELL/Target: HK$5.89) - Negative. Major candidate Anlotinib will face fiercer competition after more first-/second-line NSCLC treatment drugs become available in China or are included into the NRDL. The market size of Anlotinib is expected to miss market expectations.

• Maintain OVERWEIGHT on the healthcare sector. We expect a polarity in China’s pharmaceutical industry which will divide pharma companies into two groups. On one side, companies with new drugs entering the NDRL will see significant sales volume expansion. If a company’s drugs do not have clear clinical efficacy, they will be gradually replaced by newly-included drugs as the budget of China’s medical insurance becomes tighter. Our top picks are CSPC and Jacobson Pharma (small-mid cap).

REIMBURSEMENT RATIO OF BIOSIMILAR IS HIGHER THAN MNC’S BRANDED DRUG IN FUJIAN PROVINCE

8.30%

80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Branded drug Domestic biosimilar

Reimbursement ratio of Recombinant human granulocyte stimulating factor (Fujian Province)

Source: Fujian CFDA, UOB Kay Hian




36 NEWLY-INCLUDED DRUGS IN NRDL Chinese name Generic name Manufacturer Indication Potential competitor Price cut

(%) Products included Oncology 参一胶囊 Shenyi Capsule Yatai Group (600881 SH) Cancer N/A 33% 复方黄黛片 Compound Huangdai Yifan Pharma (002019 SZ) Leukaemia N/A 37% 西达本胺片 Chidamide Tablets Chipscreen Peripheral T cell lymphoma (PTCL) N/A 30% 重组人血管内

皮抑制素 Recombinant Human Endostatin Injection

Simcere Pharma Stage Ⅲ/Ⅳ non-small cell lung cancer (NSCLC)

Wuzhong Pharma 29%

阿帕替尼片 Apatinib Mesylate Hengrui Medicine (600276 SH) Advanced gastric cancer N/A 36% 氟维司群 Fulvestrant Injection AstraZeneca Mammary cancer Hansoh Pharma; SBP (1177 HK) 56% 尼妥珠单抗 Nimotuzumab lnjection Biotech Pharma Nasopharyngeal darcinoma N/A 50% 索拉非尼片 Sorafenib Tosylate Bayer Advanced renal cell carcinoma or hepatocellular

carcinoma Chongqing Southwest No.2 Pharm; Jiangsu Jiayi Pharma; Furen Pharma (600781 SH)

50%

拉帕替尼片 Lapatinib Ditosylate GSK Mammary cancer Luoxin Pharma (8058 HK); SBP (1177 HK); Qilu Pharma 41% 贝伐珠单抗 Bevacizumab Injection Roche Metastatic colorectal cancer; non-small cell

lung cancer (NSCLC) Fosun Pharma (2196 HK); Hengrui Medicine (600276 SH); SBP (1177 HK)

61%

厄洛替尼片 Erlotinib Hydrochloride Roche Non-small cell lung cancer (NSCLC) TUL (3933 HK); Huadong Medicine (000963 SZ) 58% 利妥昔单抗 Rituximab Injection Roche Non-Hodgkin lymphoma Fosun Pharma (2196 HK); SBP (1177 HK) 36% 曲妥珠单抗 Trastuzumab Injection Roche Mammary cancer; gastric cancer Fosun Pharma (2196 HK) 67% 依维莫司片 Everolimus Tablets Novartis Advanced renal cell carcinoma Jumpcan Pharma (600566 SH); SBP (1177 HK); Aosaikang

Pharma 40%

来那度胺胶囊 Lenalidomide Capsules Gelgene Multiple myeloma SBP (1177 HK); Qilu Pharma; Shandong Kongfu Pharma 61% 阿比特龙片 Abiraterone Acetate Janssen Metastatic castration resistant prostate cancer Neptunus; Cisen Pharma; Guangzhou Nanxin Pharma 53% 硼替佐米 Bortezomib for Injection Janssen Multiple myeloma CSPC (1093 HK); Hainan Quanxin Pharma; Cisen Pharma;

Hengrui Medicine (600276 SH) 51%

Cardio/cebro-vascular 银杏内酯注射

液 Ginkgolide Injection Chendu Baiyu Pharma Mild to moderate cerebral infarction N/A 44%

银杏二萜内酯

葡胺 Ginkgo Two Terpene Lactone Meglumine

Kanion Pharma (600557 SH) Cerebral infarction N/A 48%

阿利沙坦酯片 Candesartan Ester Tablets Salubris Pharma (002294 SZ) Hypertension Shanghai Allist Medical 27% 重组人尿激酶

原 Reocmbinant Human Prourokinase

Tasly (600535 SH) ST-segment elevation myocardial infarction Suzhou Landing Bio-pharma 11%

重组人脑利钠

肽 Recombinant Human Brain Natriuretic Peptide

Tibet Pharma (600211 SH) Heart failure Suzhou Landing Bio-pharma 49%

替格瑞洛片 Ticagrelor Tablets AstraZeneca Acute coronary syndrome CSPC (1093 HK); Salubris Pharma (002294 SZ); SBP (1177 HK) 23% 利拉鲁肽 Liraglutide Injection Novo Nordisk Hyperglycemia Hangzhou Jiuyuan Gene Engineering; Hybio Pharma (300199

SZ) 48%

CNS: 喹硫平缓释片 Quetiapine Sustained

Release Tablets AstraZeneca Schizophrenia Jiangsu Guodan Bio-pharma; Shanghai Pharma (2607 HK) 24%

重组人干扰素β-1b

Recombinant Human Interferon Beta-1b

Bayer Multiple sclerosis N/A 29%

帕罗西汀 Paroxetine Hydrochloride GSK Depression Jilin Dongmeng Pharma; Livzon (1513 HK) 40% Ophthalmology: 康柏西普 Conbercept Kanghong Pharma Age-related macular degeneration (AMD) N/A 17% 雷珠单抗 Ranibizumab Novartis Age-related macular degeneration (AMD) N/A 20% Kidney disease: 碳酸司维拉姆

片 Sevelamer Carbonate Tablets

Sanofi Control of serium inorganic phosphorus for chronic kidney disease

Changzhou Fangyuan Pharma; Tianjin Pacific Pharma 36%

碳酸镧咀嚼片 Lanthanum Carbonate Chewable Tablets

Hamol Limited Hyperphosphatemia Hunan Mingrui Pharma 30%

Anti-infectious: 吗啉硝唑 Sodium Chloride Injection Hansoh Pharma Injection induced by anaerobic bacteria N/A 26% 泊沙康唑 Miconazole Oral

Suspension MSD Infection prevention from aspergillus and

monilia N/A 43%

Others: 黄芪多糖 Astragalus Polysaccharides

Injection Tianjin Cinorch Pharma Immunity improvement N/A 51%

重组人凝血因

子Ⅶa recombinant Human Coagulation Factor Ⅶa for Injection

Novo Nordisk Hemostasis N/A 9%

托伐普坦片 Tolvaptan Tablets Otsuka Pharmaceutical Hyponatremia Chendu Baiyu Pharma; Hengrui Medicine (600276 SH) 41% Products withdraw 紫杉醇脂质体 Paclitaxel Liposome Luye Pharma (2186 HK) Cancer 西妥昔单抗 Cetuximab Solution Merck Metastatic rectal cancer 益气复脉 Yiqifumai (lyophilization) Tasly (600535 SH) Coronary disease 心脉隆注射液 Xinmailong Injection Yunnan Tengyao Pharma Heart failure 英夫利西单抗 Infliximab Janssen Crohn's disease 血必净 Xuebijing Injection Chasesun Pharma (300026 SZ) Systemic inflammatory response syndrome 尤瑞克林 Urinary Kallidinogenase Techpool Pharma Mild to moderate acute thrombotic cerebral

infarction

波生坦片 Bosentan Tablets Patheonlnc Pulmonary artery hypertension

Source: MHRSS, UOB Kay Hian




COMPANY UPDATE HOLD

(Maintained)

Share Price HK$3.76Target Price HK$3.58Upside -4.8%(Previous TP HK$3.50)

COMPANY DESCRIPTION BOC is the third-largest commercial bank in China in total assets. It is the most internationalised with overseas operations accounting for 24.2% of operating income and 21.6% of total loans in 2016.

STOCK DATA GICS sector FinancialsBloomberg ticker: 3988 HKShares issued (m): 83,622.3Market cap (HK$m): 1,230,629.1Market cap (US$m): 157,686.03-mth avg daily t'over (US$m): 147.0

Price Performance (%) 52-week high/low HK$4.04/HK$3.17

1mth 3mth 6mth 1yr YTD(1.3) 3.0 6.2 17.5 9.3

Major Shareholders %Central Huijin Investment 64.0

FY17 NAV/Share (Rmb) 5.24

FY17 CAR Tier-1 (%) 11.50

PRICE CHART

90

100

110

120

130

2.80

3.00

3.20

3.40

3.60

3.80

4.00

4.20(%)(lcy) BANK OF CHINA LTD-H BANK OF CHINA LTD-H/HSI INDEX

0

500

1000

1500

Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17

Volume (m)

Source: Bloomberg

ANALYST(S) Jonathan Koh, CFA +65 6590 6620 [email protected] Duan +852 2826 1351 [email protected]

Bank Of China (3988 HK)

Asset Quality Stabilises After Lumpy NPL Hit In 1Q17 Management guided loan growth of 7-8% for the domestic market, 8% for BOCHK and 10-20% for other overseas operations. NIM is inching up gradually with a marginal increase in loan yield coupled with stable cost of deposits. The lumpy NPL hit from a steel company in northeastern China in 1Q17 was one-off and NPL formation should recede in 2Q17. Maintain HOLD. Target price: HK$3.58. Entry price: HK$3.26.

WHAT’S NEW • Pick-up in corporate loans. Bank of China’s (BOC) management guided growth of 7-

8% for domestic renminbi loans. It expects balanced growth from both corporate loans and residential mortgages, unlike the skewed mix of new loans in 2016 (corporate loans: 6%, residential mortgages: 94%). BOC supports major projects in the Yangtze River economic belt and the Beijing-Tianjin-Hebei economic area. It also provides financing for advanced manufacturing.

• Continues to disburse residential mortgages. Management sees continued demand for residential mortgages with developed and tier-1 cities accounting for 39% of new mortgages. First-homes account for 90% of its new mortgages while new homes bought directly from developers account for 66% of new mortgages. NPL ratio is low at 0.37% and loan-to-value (LTV) ratio is healthy at 45%. We expect growth in residential mortgages to moderate to 12.8% in 2017 from 31.2% in 2016.

• Demand for forex loans boosted by OBOR projects. Management guided growth of 10-20% for foreign-currency loans (2016: 11.7%) as demand recovers due to stability in the renminbi. BOC targets to disburse US$100b of loans for One Belt One Road (OBOR) initiatives over three years, including for infrastructure projects and Chinese companies expanding overseas. It disbursed US$55b OBOR loans in 2015-16 and the balance of US$45b would be disbursed in 2017.

• Upside for NIM supported by stable cost of deposits. NIM expanded 5bp qoq to 1.80% in 1Q17. NIM for renminbi loans expanded marginally by 2bp qoq to 2.00%. Comparatively, NIM for foreign-currency loans expanded a stronger 10bp qoq to 1.06% due to lagged positive impact from the previous hikes in interest rates for US$ and HK$. Yields for corporate and personal loans (excluding residential mortgages) have improved marginally by 2bp qoq. Cost of deposits was stable, aided by expansion in low-cost current accounts. Management expects NIM for 2017 to be better than 2H16’s.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2015 2016 2017F 2018F 2019F

Net interest income 328,650 306,048 329,584 354,765 378,752Non-interest income 147,596 180,505 167,036 168,977 177,180Net profit (rep./act.) 170,845 164,578 170,685 182,946 196,487Net profit (adj.) 170,845 164,578 170,685 182,946 196,487EPS (fen) 58.6 55.9 58.0 62.1 66.7PE (x) 5.6 5.8 5.6 5.2 4.9P/B (x) 0.7 0.7 0.6 0.6 0.5Dividend yield (%) 5.4 5.2 5.3 5.7 6.2Net int margin (%) 2.1 1.8 1.8 1.9 1.8Cost/income (%) 38.9 36.0 35.1 34.9 34.4Loan loss cover (%) 153.3 162.8 165.0 169.0 171.0Consensus net profit - - 167,280 179,995 190,592UOBKH/Consensus (x) - - 1.02 1.02 1.03Source: BOC , Bloomberg, UOB Kay Hian




• Unfortunate hit by lumpy NPL in 1Q17. NPL formation was elevated at 90bp in 1Q17 due to a lumpy NPL from a SOE in the steel industry in north-eastern China. There were also pockets of loan weakness in Shandong and Dalian. Otherwise, asset quality was resilient. SMLs declined 3.8% qoq in 1Q17. NPL formation is broadly expected to recede in the coming quarters. NPL balance could experience a moderate increase but management expects NPL ratio to be relatively unchanged at 1.46%.

• Continues to face headwinds in fees. Fees reversed to a marginal positive growth of 0.1% yoy in 1Q17 vs the 4% contraction in 2016. Stabilisation in the Rmb/US$ and a recovery in foreign trade have led to positive growth of 1.8% yoy for settlement & clearing (2016: -6.5%) and a 14.6% yoy in spread income from foreign exchange (2016: -3.2%). Consultancy fees grew by a robust 32% due to investment banking activities. Contributions from agency commissions declined due to thinner spread for wealth management products (WMP).

• Not reliant on growth from WMPs. Outstanding balance for WMPs was Rmb1.46t in 1Q17, contracting marginally by 3% qoq. BOC has a conservative approach for its wealth management business. WMP-to-total assets was 7.7% as of Mar 17 (ICBC: 11.2%, CCB: 8.8%). The business has slowed after a massive expansion of 30.7% in 2015 and 36.6% in 2016.

STOCK IMPACT

• U-turn to positive earnings growth in 2017. Loan growth is more broad-based in 2017. Management guided loan growth of 7-8% for the domestic market, 7-8% for BOCHK and 10-20% for other overseas operations. NIM is inching up gradually with a marginal increase in loan yield coupled with stable cost of deposits. The lumpy hit from a steel company in north-eastern China in 1Q17 was one-off and NPL formation should recede in the coming quarters.

• We expect BOC to turn around to positive earnings growth of 3.7% in 2017.

EARNINGS REVISION/RISK

• We raise our 2017 and 2018 net profit estimates by 1.0% and 0.4% respectively. We slightly increase our NIM assumption to 1.84% (previously 1.81%) and lower our NPL forecast to 1.46% (previously 1.49%).

VALUATION/RECOMMENDATION

• Maintain HOLD. Our target price of HK$3.58 is based on 0.77x 2017F P/B, derived from the Gordon Growth Model (ROE: 11.6%, COE: 14.2% and Growth: 3.0%). Entry price is HK$3.26.

• The stock provides an attractive 2017F dividend yield of 5.3%.

SHARE PRICE CATALYST

• Stabilisation of NIM in 2017.

• Recovery in China’s exports.

• Growth from overseas operations to support OBOR projects.

NET INTEREST MARGIN (NIM)

1.6

1.8

2.0

2.2

2.4

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17

(%)

Source: BOC

FEES AND COMMISSIONS

0

5,000

10,000

15,000

20,000

25,000

30,000

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17

(Rmb m)

Source: BOC

NPL AND SML RATIOS

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1H14 2H14 1H15 2H15 1H16 2H16

(%)

NPL Ratio

SML Ratio

Source: BOC




PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (Rmbm) 2016 2017F 2018F 2019F Year to 31 Dec (Rmbm) 2016 2017F 2018F 2019F Interest income 566,139 604,484 633,587 670,582 Cash with central bank 2,271,640 2,760,602 3,036,662 3,340,328 Interest expense (260,091) (274,900) (278,822) (291,829) Govt treasury bills &

securities 0 0 0 0

Net interest income 306,048 329,584 354,765 378,752 Interbank loans 1,254,030 1,512,389 2,156,029 2,924,152 Fees & commissions 88,664 90,382 95,493 100,897 Customer loans 9,735,646 10,597,955 11,490,751 12,463,450 Other income 91,841 76,654 73,484 76,282 Investment securities 3,972,884 4,290,715 4,633,972 5,004,690 Non-interest income 180,505 167,036 168,977 177,180 Derivative receivables 130,549 143,604 157,964 173,761 Income from islamic banking 0 0 0 0 Associates & JVs 14,059 14,651 15,302 16,019 Total income 486,553 496,620 523,742 555,932 Fixed assets (incl. prop.) 216,556 216,891 218,315 220,892 Staff costs (81,080) (83,999) (87,039) (90,208) Other assets 553,525 565,542 578,160 591,410 Other operating expense (93,989) (90,112) (95,509) (101,265) Total assets 18,148,889 20,102,350 22,287,155 24,734,701 Pre-provision profit 311,484 322,509 341,193 364,460 Interbank deposits 2,590,413 3,056,687 3,606,891 4,256,131 Loan loss provision (86,795) (88,131) (89,634) (90,081) Customer deposits 12,939,748 14,233,723 15,657,095 17,222,805 Other provisions (2,277) (2,277) (2,277) (2,277) Derivative payables 107,109 117,820 129,602 142,562 Associated companies 0 0 0 0 Debt equivalents 362,318 362,318 362,318 362,318 Other non-operating income 0 0 0 0 Other liabilities 662,209 710,350 763,304 821,554 Pre-tax profit 222,412 232,101 249,282 272,102 Total liabilities 16,661,797 18,480,898 20,519,210 22,805,371 Tax (38,361) (50,303) (54,265) (59,397) Shareholders' funds 1,411,682 1,542,000 1,683,491 1,835,729 Minorities (19,473) (11,114) (12,072) (16,218) Minority interest -

accumulated 75,410 79,453 84,454 93,601

Net profit 164,578 170,685 182,946 196,487 Total equity & liabilities 18,148,889 20,102,350 22,287,155 24,734,701 Net profit (adj.) 164,578 170,685 182,946 196,487 OPERATING RATIOS

KEY METRICS

Year to 31 Dec (%) 2016 2017F 2018F 2019F Year to 31 Dec (%) 2016 2017F 2018F 2019F Capital Adequacy Growth Tier-1 CAR 11.4 11.5 11.4 11.3 Net interest income, yoy chg (6.9) 7.7 7.6 6.8 Total CAR 14.3 14.9 14.9 14.9 Fees & commissions, yoy

chg (4.1) 1.9 5.7 5.7

Total assets/equity (x) 12.9 13.0 13.2 13.5 Pre-provision profit, yoy chg 7.1 3.5 5.8 6.8 Tangible assets/tangible common equity (x)

12.9 13.0 13.2 13.5 Net profit, yoy chg (3.7) 3.7 7.2 7.4

Net profit (adj.), yoy chg (3.7) 3.7 7.2 7.4 Asset Quality Customer loans, yoy chg 9.0 8.9 8.4 8.5 NPL ratio 1.5 1.5 1.5 1.4 Customer deposits, yoy chg 10.3 10.0 10.0 10.0 Loan loss coverage 162.8 165.0 169.0 171.0 Profitability Loan loss reserve/gross loans 2.4 2.1 2.2 2.2 Net interest margin 1.8 1.8 1.9 1.8 Increase in NPLs 45.3 20.5 16.8 17.0 Cost/income ratio 36.0 35.1 34.9 34.4 Credit cost (bp) 90.8 84.8 79.5 73.6 Adjusted ROA 0.9 0.9 0.9 0.8 Reported ROE 12.1 11.6 11.3 11.2 Liquidity Adjusted ROE 12.1 11.6 11.3 11.2 Loan/deposit ratio 75.2 74.5 73.4 72.4 Valuation Liquid assets/short-term liabilities

22.7 24.7 27.0 29.2 P/BV (x) 0.7 0.6 0.6 0.5

Liquid assets/total assets 19.4 21.3 23.3 25.3 P/NTA (x) 0.7 0.6 0.6 0.5 Adjusted P/E (x) 5.8 5.6 5.2 4.9 Dividend Yield 5.2 5.3 5.7 6.2 Payout ratio 30.1 30.0 30.0 30.0




COMPANY RESULTS HOLD (Maintained) Share Price Rp13,325 Target Price Rp11,800 Upside -11.4% (Previous TP Rp11,300)

COMPANY DESCRIPTION State owned bank with largest market share corporate segment

STOCK DATA GICS sector Financials Bloomberg ticker: BMRI IJ Shares issued (m): 23,333.3 Market cap (Rpb): 310,916.7 Market cap (US$m): 23,340.3 3-mth avg daily t'over (US$m): 18.6

Price Performance (%) 52-week high/low Rp13,575/Rp9,850

1mth 3mth 6mth 1yr YTD 6.8 13.4 20.6 31.9 15.1

Major Shareholders % Republic of Indonesia 60.0

FY17 NAV/Share (Rp) 6,975

FY17 CAR Tier-1 (%) 12.80

PRICE CHART

90

100

110

120

130

9000

10000

11000

12000

13000

14000(%)(lcy)

BANK MANDIRI PERSERO TBK PT

BANK MANDIRI PERSERO TBK PT/JCI INDEX

0

50

100


Volume (m)

Source: Bloomberg

ANALYST(S) Alexander Margaronis +6221 2993 3876 [email protected]

Bank Mandiri (BMRI IJ)

1H17: Not Quite There Yet With 3.8% NPL; Fully Valued; No Further Compelling Risk-Reward 1H17 net profit of Rp9.4t (+38% yoy) is in line with our and consensus full-year estimates. Earnings recovery in 2017 continues after a dire 2016 due to high NPL and kitchen-sinking exercise. Much of the recovery is coming from lower provisions as expected. NPL is slowly improving but still high at 3.8%. Opex discipline and non-interest income growth are positives. BMRI is trading at 1.8x 2017F P/B. Maintain HOLD with a slightly higher target price of Rp11,800. Entry price: Rp10,600. WHAT’S NEW • 2Q17 net profit of Rp5.3t up 65% yoy on provisions being lower by Rp1t. Net profit

was above our 2Q17 estimates mainly due to our lower provision estimate. Credit costs in 2Q17 amounted to to 2.8%, down from 3.3% in previous quarter. 2Q17 NIM contracted by 10bp qoq and 40bp yoy, only probably due to bond yield support and stable cost of funds.

• NPL has gradually come down, but is still high; Rp15.6t of write-offs since last year. NPL stands at 3.82% (the highest among peers), down from 3.96% in 1Q17. The asset quality issue remains in the commercial segment with NPL ratio at 10.77%, up 22bp from 1Q17. 2Q17 write-offs amounted to Rp2.5t (or Rp15.6t since 2Q16) and we anticipate this level to keep NPL ratio at acceptable levels. Bank Mandiri (BMRI) maintains a 3.5% NPL ratio target for 2017.

• Total loans at risk at 13%, stable from previous quarter. Special mention loans stood at 4.6% of total loans, up from 4.3% in the previous quarter, and this was probably due to an increase in restructured loans. Balance of restructured loans has stabilised to about Rp47t-49t or 7% of total loans, while downgrades to NPLs have also decelerated.

• Loan growth accelerates, but lower loan yield pressures revenue growth and NIM. Loans grew 11.6% yoy in 2Q17 with corporate/consumer/micro segments growing 18%/20%18% yoy respectively in 2Q17. The commercial segment slightly contracted mainly due to the NPL issues. Revenue growth grew moderately by 9% yoy (+1%qoq) with lower loan yield exerting pressure on revenue growth and NIM.

• Fee income momentum continues, strong control over opex. Fee income maintained its momentum with 13% yoy and 7% qoq growth in 2Q17. Both administration fees and credit cards grew strong by 14%/10%qoq in 2Q17 though we could see the credit growth reverse in 3Q17 due to the decline in credit card interest rate charge fees. BMRI maintained tight control over opex, which increased by a mere 2% yoy (CIR 43%), and this also assisted in maintaining a moderate 16% yoy increase in PPOP in 2Q17.

• BMRI could book Rp6t-12t lower provisions than in 2016… Earnings could recover by more than 30% yoy in 2017, coming close to 2015 earnings level. BMRI recorded Rp3.9t provisions (-26% yoy), down by Rp1.5t from 1Q17. BMRI is recording provisions at slower pace and could come below our Rp18t estimate for the year and thus boost earnings further.

• ... but we are not impressed with the strong earnings recovery; a clearer picture in 2018. We maintain our conservative stance on the stock till the kitchen-sinking exercise and clearing of many NPLs is completed in 2017. The stock has slightly outperformed the JCI index this year and we do not find the risk-reward compelling considering the investment case.

KEY FINANCIALS Year to 31 Dec (Rpb) 2015 2016 2017F 2018F 2019FNet interest income 45,363 51,825 52,764 58,227 64,778Non-interest income 21,516 21,939 23,058 24,905 27,932Net profit (rep./act.) 20,335 13,807 18,499 22,082 26,201Net profit (adj.) 20,335 13,807 18,498 22,082 26,201EPS (Rp) 871.5 591.7 792.8 946.4 1,122.9PE (x) 15.3 22.5 16.8 14.1 11.9P/B (x) 2.7 2.1 1.9 1.8 1.6Dividend yield (%) 1.9 1.9 2.0 2.7 3.2Net int margin (%) 6.0 6.2 5.5 5.4 5.4Cost/income (%) 42.6 41.4 44.7 45.8 46.4Loan loss cover (%) 145.4 124.5 154.7 174.3 182.5Consensus net profit - - 19,434 24,436 28,669UOBKH/Consensus (x) - - 0.95 0.90 0.91Source: Bank Mandiri, Bloomberg, UOB Kay Hian





• Maintain HOLD with slightly higher target price; dividend payout assumption change. Last year, BMRI provided a 45% dividend payout. Management states ROE will return back to 17-18% in the next two years. While we think it is an aggressive target, ROE could rebound to a 15-16% level as CAR is also above 21%. Hence, a permanently higher dividend payout ratio is possible. We assume BMRI will maintain 40-45% payout ahead (from our previous 35% assumption), implying dividend yield could come in at above 3%. Our target price is raised to Rp11,800, which implies 1.6x mid-2017-18F P/B (-0.5SD). Entry price is Rp10,600.

• In our previous sector update, we performed our valuation checks and found BMRI’s valuation to be fairly valued at a 1.6-1.8x forward P/B level. (LINK)


• None.


• NPL and credit costs coming below management’s target of 3.5% and 2.5% respectively. Strong foreign fund flows and sentiment push stock to historical mean of 2x forward P/B.

RESTRUCTURED LOANS NPL (RPT) – BANK ONLY

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

NPL BY SEGMENT & NPL MOVEMENT (%) Bank only Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Corporate 1.72 1.74 1.01 0.98 0.38 Commercial 6.69 6.34 9.32 10.55 10.77 Small 4.95 5.29 4.07 3.54 3.40 Micro 4.12 4.20 3.50 2.09 2.46 Consumer 1.87 1.94 1.73 1.84 1.92 Total NPL 3.74 3.69 3.96 3.95 3.80 Special Mention loans

5.0 5.0 3.9 4.3 4.6

Coverage Ratio 112.7 126.6 124.5 133.2 134.2 Source: BMRI, UOB Kay Hian

MANAGEMENT GUIDANCE MAINTAINED 2017 Guidance 2016A 2017F Loan Growth 11.2% 11-13% NIM 6.4% 5.7-5.8% Gross NPL 4.0% 3.5-4.0% Credit costs 4.0% 2.5-2.7%

FORWARD P/B BAND

Source: Bloomberg, UOB Kay Hian

2Q17 RESULTS

Profit & Loss (Rpt) 2Q17 2Q16 yoy % chg UOBKH

Estimate Deviation

(%) Comments

Net Interest Income 12,871 11,912 8.1 12,816 0.4 weak +1.2%qoq revenue grrrowttth in spite of stronger loan growth Non-Interest Income 5,637 4,988 13.0 5,256 7.2 Strong gains from sale of securities and bonds Gross Operating Income 18,508 16,900 9.5 18,072 2.4 Operating Expenses (8,195) (8,058) 1.7 (7,864) 4.2 CIR coming below 44% PPOP 10,313 8,842 16.6 10,208 1.0 Moderate growth in Net interest income, fees and good Opex discipline Credit Costs (3,929) (5,292) -25.8 (4,741) -17.1 Total provisions of Rp24.6t in 2016 PBT 7,038 4,387 60.4 6,088 15.6 Net Profit 5,384 3,263 65.0 4,625 16.4 Earnings get further boost from lower provisions EPS (cents) 231 139 66.0 198 16.4

Financial Ratios (%) 2Q17 2Q16 yoy chg

(ppt) Comments

NIM 5.9 6.2 -0.35 lower loan yield by anopther 20bps on the quarter Loan Growth, yoy 11.7 10.5 1.2 Led by corporate/cosnumer/micro loan growth 3rd Party Funds, yoy 10.0 5.7 4.3 +11%yoy growth in CASA deposits Loan/Deposit Ratio 89.4 88.1 1.3 Cost/Income Ratio 43.2 45.2 -2.0 total opex +1.2%yoy in 2Q17 ROE 12.2 10.6 1.6 Management targets 17-18% in two years NPL Ratio 3.8 3.9 0.0 management targets NPL of 3.5% by year-end Credit Costs (bp) 2.4 3.6 -1.22 Lower provisions lead the earnings recovery Loan Loss Coverage 134.2 112.7 21.5 Management targets coverage ratio of 140% in 2017 CAR 21.5 21.8 -0.3 Management confirms that ratio is too high


https://research.uobkayhian.com/content_download.jsp?id=40642&h=13e7bee3b430044417f76cc1a04dcb33




PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (Rpb) 2016 2017F 2018F 2019F Year to 31 Dec (Rpb) 2016 2017F 2018F 2019F Interest income 76,710 79,849 87,446 97,003 Cash with central bank 134,618 133,949 151,797 178,838 Interest expense (24,885) (27,085) (29,219) (32,225) Govt treasury bills & securities 98,919 103,865 109,058 114,511 Net interest income 51,825 52,764 58,227 64,778 Interbank loans 24,751 27,301 30,032 33,035 Fees & commissions 14,092 15,900 17,580 19,552 Customer loans 628,238 706,679 805,714 920,467 Other income 7,846 7,158 7,325 8,380 Investment securities 56,281 61,909 68,100 74,910 Non-interest income 21,939 23,058 24,905 27,932 Derivative receivables 239 251 264 277 Total income 73,764 75,822 83,132 92,710 Fixed assets (incl. prop.) 44,737 45,288 45,839 46,390 Staff costs (13,619) (15,117) (16,931) (19,132) Other assets 50,923 53,888 56,942 61,119 Other operating expense (16,888) (18,791) (21,102) (23,913) Total assets 1,038,706 1,133,130 1,267,746 1,429,546 Pre-provision profit 43,258 41,914 45,099 49,665 Interbank deposits 9,339 10,988 10,163 10,576 Loan loss provision (24,944) (17,558) (16,183) (15,536) Customer deposits 762,837 860,692 976,686 1,117,273 Other provisions 299 0 0 0 Derivative payables 502 401 452 426 Other non-operating income (40) (5) (22) (13) Debt equivalents 44,909 48,497 52,444 56,786 Pre-tax profit 18,573 24,351 28,894 34,116 Other liabilities 67,749 46,187 47,166 46,677 Tax (3,923) (5,143) (6,103) (7,206) Total liabilities 885,336 966,764 1,086,912 1,231,737 Minorities (844) (710) (710) (710) Shareholders' funds 150,454 162,741 176,499 192,764 Net profit 13,807 18,499 22,082 26,201 Minority interest - accumulated 2,916 3,625 4,335 5,044 Net profit (adj.) 13,807 18,498 22,082 26,201 Total equity & liabilities 1,038,706 1,133,130 1,267,746 1,429,546 OPERATING RATIOS KEY METRICS Year to 31 Dec (%) 2016 2017F 2018F 2019F Year to 31 Dec (%) 2016 2017F 2018F 2019F Capital Adequacy Growth Tier-1 CAR 12.9 12.8 12.6 12.5 Net interest income, yoy chg 14.2 1.8 10.4 11.3 Total CAR 14.2 14.1 13.9 13.8 Fees & commissions, yoy chg 7.2 12.8 10.6 11.2 Total assets/equity (x) 6.9 7.0 7.2 7.4 Pre-provision profit, yoy chg 12.7 (3.1) 7.6 10.1 Tangible assets/tangible common equity (x)

6.9 7.0 7.2 7.4 Net profit, yoy chg (32.1) 34.0 19.4 18.7

Net profit (adj.), yoy chg (32.1) 34.0 19.4 18.7 Asset Quality Customer loans, yoy chg * 9.8 12.5 14.0 14.2 NPL ratio 4.0 3.5 3.1 2.9 Customer deposits, yoy chg 12.7 12.8 13.5 14.4 Loan loss coverage 124.5 154.7 174.3 182.5 Profitability Loan loss reserve/gross loans 5.0 5.4 5.4 5.2 Net interest margin 6.2 5.5 5.4 5.4 Increase in NPLs 70.6 (1.2) 1.0 4.8 Cost/income ratio 41.4 44.7 45.8 46.4 Adjusted ROA 1.4 1.7 1.8 1.9 Liquidity Reported ROE 10.3 11.8 13.0 14.2 Loan/deposit ratio * 87.7 87.7 88.1 87.8 Adjusted ROE 10.3 11.8 13.0 14.2 Liquid assets/short-term liabilities 33.4 30.4 29.5 28.9 Valuation Liquid assets/total assets 24.9 23.4 22.9 22.8 P/BV (x) 2.1 1.9 1.8 1.6

P/NTA (x) 2.1 1.9 1.8 1.6 Adjusted P/E (x) 22.5 16.8 14.1 11.9 Dividend Yield 1.9 2.0 2.7 3.2 Payout ratio 43.8 33.6 37.7 37.9




COMPANY RESULTS HOLD

(Maintained)

Share Price RM1.55Target Price RM1.53Upside -1.2%

COMPANY DESCRIPTION CapitaLand Malaysia Mall Trust is a real estate investment trust. The trust makes long-term investments in income-producing real estate primarily used for retail purposes and located in Malaysia.

STOCK DATA GICS sector FinancialsBloomberg ticker: CMMT MKShares issued (m): 2,034.6Market cap (RMm): 3,153.7Market cap (US$m): 736.03-mth avg daily t'over (US$m): 0.5

Price Performance (%) 52-week high/low RM1.70/RM1.46

1mth 3mth 6mth 1yr YTD0.6 (2.5) (5.5) (0.6) 1.3

Major Shareholders %Capitamalls Asia Limited 35.2Employees Provident Fund 10.9Skim Amanah Saham Bumiputera 10.2

FY16 NAV/Share (RM) 1.51

FY16 Net Debt/Share (RM) 0.63

PRICE CHART

80

90

100

110

1.30

1.40

1.50

1.60

1.70

1.80(%)(lcy)

CAPITALAND MALAYSIA MALL TRU

CAPITALAND MALAYSIA MALL TRU/FBMKLCI INDEX

0

10

20

30


Volume (m)

Source: Bloomberg

ANALYST(S) Abdul Hadi Manaf +603 2147 1971 [email protected]

CapitaLand Malaysia Mall Trust (CMMT MK)

2Q17: Results In Line; SWP And The Mines Drag Earnings CMMT’s 2Q17 core net profit dropped 0.8% qoq and 0.7% yoy, resulting in a 1H17 core net profit decline of 1.4% yoy. Sungei Wang Plaza and The Mines continued to drag earnings, mainly due to a disruption to shopper traffic, lower rental reversions as well as occupancy rates. We gather that ytd tenant sales grew at a low single-digit and management is expecting flat rental reversions for 2017. Maintain HOLD. Target price: RM1.53. Entry price: RM1.40.

2Q17 RESULTS qoq yoy yoy Year to 31 Dec (RMm) 2Q16 2Q17 % chg % chg 1H17 % chg Rental Income 73.0 71.9 (1.5) (1.1) 144.9 (1.3) Car Park Income 6.2 6.0 (2.9) 2.6 12.2 (0.6) Other Revenue 13.3 13.9 4.7 3.5 27.1 2.2 Total revenue 92.4 91.8 (0.7) (0.2) 184.3 (0.8) Operating Expenses (32.7) (32.0) (2.2) 0.2 (64.8) (0.4) Net Property Income 59.7 59.8 0.1 (0.4) 119.5 (0.9) Non-operating Expenses (20.9) (21.2) 1.5 (0.3) (42.1) (0.5) Normalised Net Profit 40.2 39.9 (0.8) (0.7) 80.2 (1.4) EPU (sen) 2.0 2.0 (0.8) (0.7) 3.9 (1.4) DPU (sen) 0.0 4.1 n.m. (1.4) 4.1 (1.4) Source: CMMT, UOB Kay Hian

RESULTS

• Within expectations. CapitaLand Malaysia Mall Trust (CMMT) reported 2Q17 revenue of RM91.8m (-0.7% qoq, -0.2% yoy) and core net profit of RM39.7m (-0.8% qoq, -0.7% yoy). This brings its cumulative revenue for 1H17 to RM184.3m (-0.8% yoy) and core net profit to RM80.2m (-1.4% yoy), accounting for 47.5% and 47.7% of our and consensus full-year estimates respectively.

• Declared 4.14 sen dividend. CMMT declared a dividend of 4.14 sen (-1.4% yoy) in the second quarter which accounts for 49.8% and 49.9% of our and consensus full-year dividend forecasts respectively.

KEY FINANCIALS Year to 31 Dec (RMm) 2015 2016 2017F 2018F 2019FNet turnover 345 373 392 408 426EBITDA 203 219 223 234 244Operating profit 202 218 221 231 242Net profit (rep./act.) 226 168 169 179 189Net profit (adj.) 155 164 169 179 189EPU (sen) 10.4 10.9 11.3 11.9 12.6DPU (sen) 8.6 8.4 8.3 8.8 9.3PE (x) 15.0 14.2 13.8 13.0 12.3P/B (x) 1.0 1.0 1.0 1.0 1.0DPU Yld (%) 5.5 5.4 5.4 5.7 6.0Net margin (%) 65.5 45.0 43.1 43.8 44.3Net debt/(cash) to equity (%) 40.1 41.7 41.9 43.2 44.4Interest cover (x) 4.3 4.1 4.3 4.5 4.6ROE (%) 9.1 6.3 6.3 6.7 7.0Consensus DPU (sen) n.a. n.a. 8.8 9.1 n.a.UOBKH/Consensus (x) - - 0.94 0.97 1.01Source: CMMT, Bloomberg, UOB Kay Hian




STOCK IMPACT

• Sungei Wang Plaza and The Mines remain key drags to earnings growth. Sequentially, Gurney Plaza, Sungei Wang Plaza (SWP) and The Mines posted lower revenue (-2.9%, -2.9% and -0.7% qoq), but this was partially mitigated by improved revenue performances at East Coast Mall and Tropicana City Property (+5.5% and -0.7% qoq). On a yoy basis, CMMT’s overall performance was dragged by lower contribution from SWP and The Mines (top-line dropped by 14.7% and 4.8% yoy, respectively) which was offset by better performances by Gurney Plaza and East Coast Mall (top-line grew by 6.0% and 4.5% yoy).

• Tough times for general retail market persist. The Mines continues to be impacted by lower rental rates and occupancy, chiefly due to the tough general retail business environment. Separately, SWP posted a decline in revenue for the 15th consecutive quarter, mainly due to the disruption from the Klang Valley MRT (KVMRT) works as well as the closure of BB Plaza next door which led to lower footfall. Although management remains hopeful that the completion of KVMRT works will attract shoppers to SWP, we are cautiously optimistic about a recovery happening anytime soon given the influx of retail malls within the area.

• Tenant sales growth. Management shared that ytd (Jan-May 17) tenant sales growth came in at a low single-digit. We sense that management remains cautious on tenant sales growth for the rest of 2017 and added that sales could pick up by 4Q17.

• Rental reversions. As of 2Q17, rental reversions for CMMT’s portfolio (excluding SWP) improved marginally by 0.6% over previous rental reversions. We understand that leases expiring in 2017 are on track for renewal and management is expecting flattish rental reversions for 2017.


• None.


• Maintain HOLD and target price of RM1.53. Our target price is based on a dividend discount model (required rate of return: 6.75%, terminal growth: 1.0%) and supported by an implied dividend yield of 5.4%. Entry price is RM1.40.


• Organic growth via asset enhancement exercises and realignment of rental rates.

• Inorganic growth from acquisitions.

REVENUE AND NET PROPERTY INCOME MARGIN

0

20

40

60

80

100

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

(RMm)

50

55

60

65

70(%)

Gross Revenue NPI Margin

Source: CMMT, UOB Kay Hian

OCCUPANCY RATE

0

20

40

60

80

100

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

(%)


SHOPPER TRAFFIC

13.511.7

15.012.8 12.5 12.8 12.9 13.6

14.6 14.7

0

5

10

15

20

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

(m)


SEGMENTAL REVENUE Gurney Plaza38%

Sungei Wang Plaza11%

The Mines21%

East Coast Mall14%

City 16%





PROFIT & LOSS Year to 31 Dec (RMm) 2016 2017F 2018F 2019FNet turnover 373 392 408 426EBITDA 219 223 234 244Deprec. & amort. 1 2 2 2EBIT 218 221 231 242Associate contributions 0 0 0 0Net interest income/(expense) (54) (52) (52) (53)Pre-tax profit 168 169 179 189Tax 0 0 0 0Minorities 0 0 0 0Net profit 168 169 179 189Net profit (adj.) 164 169 179 189

BALANCE SHEET Year to 31 Dec (RMm) 2016 2017F 2018F 2019FFixed assets 3,938 3,938 3,938 3,938Other LT assets 3 3 3 3Cash/ST investment 192 185 152 120Other current assets 16 54 91 126Total assets 4,149 4,180 4,183 4,187ST debt 44 44 44 44Other current liabilities 111 140 144 148LT debt 1,268 1,268 1,268 1,268Other LT liabilities 41 41 41 41Shareholders' equity 2,686 2,687 2,687 2,687Minority interest 0 0 0 0Total liabilities & equity 4,149 4,180 4,183 4,187

CASH FLOW Year to 31 Dec (RMm) 2016 2017F 2018F 2019FOperating 227 253 237 248Pre-tax profit 164 169 179 189Tax 0 0 0 0Deprec. & amort. 1 2 2 2Associates (2) 0 0 0Working capital changes (2) 29 3 3Other operating cashflows 65 52 52 53Investing (49) (25) (25) (25)Capex (growth) (53) (25) (25) (25)Investments (2) 0 0 0Others 6 0 0 0Financing (169) (241) (252) (263)Distribution to unitholders (166) (183) (194) (205)Issue of shares (1) 0 0 0Proceeds from borrowings 76 0 0 0Loan repayment (23) 0 0 0Others/interest paid (55) (58) (58) (58)Net cash inflow (outflow) 9 (14) (41) (41)Beginning cash & cash equivalent 187 192 185 152Changes due to forex impact (3) 7 8 9Ending cash & cash equivalent 192 185 152 120

KEY METRICS Year to 31 Dec (%) 2016 2017F 2018F 2019FProfitability EBITDA margin 58.7 57.0 57.2 57.4Pre-tax margin 45.0 43.1 43.8 44.3Net margin 45.0 43.1 43.8 44.3ROA 4.1 4.1 4.3 4.5ROE 6.3 6.3 6.7 7.0

Growth Turnover 8.1 5.1 4.3 4.3EBITDA 7.8 2.1 4.6 4.6Pre-tax profit (25.8) 0.6 5.9 5.5Net profit (25.8) 0.6 5.9 5.5Net profit (adj.) 5.5 3.1 5.9 5.5EPU 5.5 3.1 5.9 5.5

Leverage Debt to total capital 32.8 32.8 32.8 32.8Debt to equity 48.8 48.8 48.8 48.8Net debt/(cash) to equity 41.7 41.9 43.2 44.4Interest cover (x) 4.1 4.3 4.5 4.6




COMPANY RESULTS BUY

(Maintained)

Share Price S$1.725 Target Price S$1.90 Upside +9.8%

COMPANY DESCRIPTION Singapore office REIT with a portfolio of prime and Grade-A properties including Capital Tower, Six Battery Road and One George Street.

STOCK DATA GICS sector Real EstateBloomberg ticker: CCT SPShares issued (m): 3,061.0Market cap (S$m): 5,295.5Market cap (US$m): 3,869.03-mth avg daily t'over (US$m): 12.1

Price Performance (%) 52-week high/low S$1.74/S$1.45

1mth 3mth 6mth 1yr YTD5.8 6.4 10.9 10.5 17.2

Major Shareholders %CapitaLand 31.9

FY17 NAV/Share (S$) 1.66

FY17 Net Debt/Share (S$) 0.67

PRICE CHART

80

90

100

110

120

1.30

1.40

1.50

1.60

1.70

1.80(%)(lcy)

CAPITALAND COMMERCIAL TRUST

CAPITALAND COMMERCIAL TRUST/FSSTI INDEX

0

10

20

30


Volume (m)

Source: Bloomberg

ANALYST(S) Vikrant Pandey +65 6590 6623 [email protected]

CapitaLand Commercial Trust (CCT SP)

2Q17: Reconstituting Portfolio For Long-term Growth Results were in line with expectations. Management plans to undertake DPU stabilisation measures in 2H17 following the loss of income from the divestment of One George Street and Wilkie Edge. Golden Shoe carpark redevelopment is underway with targeted yield-on-cost of 5%. Office yield compression to upcycle levels presents significant upside potential with recent data pointing to a sector turnaround. Maintain BUY with an unchanged target price of S$1.90. 2Q17 RESULTS

yoy yoy Year to 31 Dec (S$m) 2Q17 % chg 1H17 % chg Remarks Gross Revenue 87.5 29.5 177.0 31.7 Increased gross revenue and net property

income from contributions to CapitaGreen. Greater contribution from trusts which hold CapitaGreen and Raffles City (MSO Trust and RCS Trust, respectively.

Net Property Income 69.1 34.3 139.0 34.3 Distributable income 69.5 6.7 140.8 8.3 DPU (cents) 2.27 3.2 4.59 4.6

Source: CCT, UOB Kay Hian

Results • Results in line with expectations. CapitaLand Commercial Trust’s (CCT) 2Q17 DPU of

2.27 S cents was up 3.2% yoy. 2Q17 gross revenue and NPI were up 29.5% yoy and 34.3% yoy respectively, primarily due to higher contribution from CapitaGreen (remaining 60% stake acquired in Aug 16). The results were in line with expectations, with 1H17 DPU representing 50.4% of full-year forecast.

STOCK IMPACT • Proactive leasing activities. CCT signed approximately 201,000 sf of leases during the

quarter, of which 39% were new leases. Leasing demand came from diverse business sectors including banking, insurance and financial services, real estate and property services and legal. New and renewed tenants in 2Q17 include AEW Asia Pte Ltd, A.M. Best Asia-Pacific (Singapore) Pte Ltd, Mizuho Asia Partners Pte Ltd and Nagashima Ohno & Tsunematsu Singapore LLP. Regarding Mizuho Asia Partners’ lease management remarked that asking rents at Capital Tower are around S$8.50 psf pm.

• Continued pressure on rentals in 2Q17, with reversions at Six Battery Road ranging from -15.9% to +11.6% (committed rents vs average expired rentals) and One George Street's reversions ranging from -10.9% to +7.1%. Six Battery Road and One George Street achieved monthly rents in the range of S$10.40-S$13.80 psf pm and S$8.65-S$10.40 psf pm, respectively. Office rents for both properties were greater than market office rents for the period.

• Possible DPU stabilisation in 2H17. Management plans to stabilise DPU following the divestment of One George Street and Wilkie Edge. They alluded to DPU stabilisation measures for 2H17 using the divestment gains and the S$34m of tax-exempt funds.

KEY FINANCIALS Year to 31 Dec (S$m) 2015 2016 2017F 2018F 2019FNet turnover 273 299 354 349 359EBITDA 195 203 248 243 250Operating profit 195 203 248 243 250Net profit (rep./act.) 242 235 288 295 301Net profit (adj.) 261 246 288 295 301EPU (S$ cent) 8.5 8.0 9.5 9.5 9.7DPU (S$ cent) 8.6 9.1 9.1 8.9 9.0PE (x) 20.3 21.6 18.2 18.2 17.8P/B (x) 1.0 1.0 1.0 1.0 1.0DPU Yld (%) 5.0 5.2 5.3 5.1 5.2Net margin (%) 88.7 78.7 81.4 84.6 83.8Net debt/(cash) to equity (%) 22.4 46.8 40.4 39.8 39.2Interest cover (x) 6.1 4.4 3.8 3.9 3.8ROE (%) 4.7 4.5 5.5 5.7 5.7Consensus DPU (S$ cent) n.a. n.a. 9.1 9.0 9.1UOBKH/Consensus (x) - - 1.00 0.98 0.99Source: CapitaLand Commercial Trust, Bloomberg, UOB Kay Hian




• Slight decline in portfolio occupancy rate at 97.6% in 2Q17, as compared with 97.8% in 1Q17. The decline in occupancy was mainly attributable to Twenty Anson which saw occupancy rate decline from 93% to 84.2%. Management noted that this was in part due to the emergence of new properties in the Tanjong Pagar region. Occupancy at Golden Shoe Car Park declined, as expected, due to the redevelopment of the property.

• Increased valuations for existing properties. Valuators have compressed cap and discount rates from Dec 16 figures following recent transactions. Management noted that the higher valuation reflects the liquidity and capital that are seeking Grade-A CBD assets.

• Diversified debt maturity. CCT has diversified and spread out the maturity dates for its debts. Management alluded that the loan for the Golden Shoe Car Park development will be due in 2022. This will ensure that its debt maturity profile will remain relatively even.

• Drop in aggregate leverage to 36% in 2Q17 and to 35.2%, as compared with 38.1% in the previous quarter. Leverage declined further to 35.2% after the 2Q reporting period as a result of the conversion of S$78m of convertible bonds to 54.7m CCT units. Management has indicated that they are comfortable with aggregate leverage levels of 30-40%.

• Golden Shoe Car Park redevelopment. Management noted that the S$1.82b redevelopment and acquisition of Golden Shoe Car Park will be carried out in a similar style as CapitaGreen, but with a five-year call option instead of three for CapitaGreen. The new development will have a 42% higher NLA than CapitaGreen and the projected target yield-on-cost is 5% pa based on estimated rental rate of S$12-14 psf pm for the office space and RevPAR of S$255-270 pm for the serviced apartments.

• Early indications of Grade-A office rental turnaround. According to CBRE, Grade-A CBD core rents have stabilised as rentals remain unchanged from the previous quarter at S$8.95 psf pm in 2Q17, following eight quarters of decline since 2Q15. Jones Lang Lasalle reported a bottoming-out and a modest increase in CBD rents by 0.6% in 2Q17. This may suggest that wider Grade-A CBD core office rentals are at an inflexion point.

• Office yield compression to upcycle levels presents significant upside potential. Given that the current yield spread of the office sector is 3.2%, close to its long-term spread of 3.9%, despite a harsher operating landscape from previous years, an economic resurgence could present significant upside. We opine that with a resurgence in the economy, there could be a further compression in the office yield spread to its upcycle average spread of 2.3%, reflecting a 19% upside potential.

VALUATION/RECOMMENDATION • Maintain BUY with a target price of S$1.90. Our valuation is based on DDM (required rate

of return: 6.7%, terminal growth: 2%). SHARE PRICE CATALYST • Higher-than-expected contribution from Golden Shoe carpark redevelopment. • Higher office rentals, positive newsflow on leasing activity as well as employment growth

TENANT PROFILE

Source: CCT

LEASE EXPIRY PROFILE

Source: CCT

KEY FINANCIALS

Source: CCT

CCT’S KEY OPERATING METRICS 2013 2014 2015 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 yoy qoq

DPU 8.14 8.46 8.62 2.19 2.20 2.30 2.39 2.40 2.27 3.2% -0.5% Occupancy 98.7% 96.8% 97.1% 98.1% 97.2% 97.4% 97.1% 97.8% 97.6% 0.4ppt -0.2ppt Gearing 29.3% 29.3% 29.5% 30.1% 29.8% 37.8% 37.8% 38.1% 36%1 6.2ppt -2.1ppt Average Cost of Debt 2.60% 2.30% 2.50% 2.50% 2.50% 2.50% 2.60% 2.60% 2.60% 0.1ppt 0ppt % borrowing in fixed rates 80.0% 83.0% 84.0% 91.0% - 80.0% 80.0% 80.0% 85.0% - 5ppt WALE by NLA (yrs) 8 8.1 7.5 7.3 7.4 6.8 6.6 6.4 6.5 -12.2% 1.6% Weighted Debt Maturity 3.4 3.9 4.2 3.8 3.6 3.5 3.2 3.0 2.9 -19.4% -3.3% CCT Portfolio Cap Rates (%) Capital Tower 3.75 3.85 3.85 3.85 3.85 3.70 Six Battery Road 3.75 3.75 3.75 3.75 3.75 3.60 One George Street 3.75 3.85 3.85 3.85 3.85 3.75 HSBC Building 3.75 3.85 3.85 3.75 3.75 3.60 Twenty Anson 3.75 3.85 3.85 3.85 3.85 3.70 Wilkie Edge 4.25 4.25 4.25 4.25 4.25 4.10 CapitaGreen 4.00 4.15 4.15 4.15 4.10

Source: CCT, UOB Kay Hian




PROFIT & LOSS

BALANCE SHEETYear to 31 Dec (S$m) 2016 2017F 2018F 2019F Year to 31 Dec (S$m) 2016 2017F 2018F 2019F Net turnover 298.6 354.3 348.9 358.9 Fixed assets 6,591.9 6,127.3 6,215.2 6,305.0 EBITDA 203.0 248.3 243.0 250.1 Other LT assets 1,257.3 1,257.3 1,257.3 1,257.3 Deprec. & amort. 0.0 0.0 0.0 0.0 Cash/ST investment 160.0 200.6 199.0 199.7 EBIT 203.0 248.3 243.0 250.1 Other current assets 41.9 11.9 11.7 12.1 Total other non-operating income 4.9 0.0 0.0 0.0 Total assets 8,051.1 7,597.1 7,683.3 7,774.1 Associate contributions 85.7 105.6 115.2 117.1 ST debt 0.0 0.0 0.0 0.0 Net interest income/(expense) (46.2) (65.5) (62.9) (66.3) Other current liabilities 62.7 76.9 76.8 79.6 Pre-tax profit 236.1 288.4 295.2 300.9 LT debt 2,630.6 2,282.2 2,282.2 2,282.2 Tax (1.2) 0.0 0.0 0.0 Other LT liabilities 79.3 85.8 92.9 100.5 Net profit 234.9 288.4 295.2 300.9 Shareholders' equity 5,278.5 5,152.2 5,231.4 5,311.8 Net profit (adj.) 246.3 288.4 295.2 300.9 Total liabilities & equity 8,051.1 7,597.1 7,683.3 7,774.1 CASH FLOW KEY METRICS Year to 31 Dec (S$m) 2016 2017F 2018F 2019F Year to 31 Dec (%) 2016 2017F 2018F 2019F Operating 203.1 294.0 244.7 254.4 Profitability Pre-tax profit 270.7 284.6 291.2 296.9 EBITDA margin 68.0 70.1 69.6 69.7 Tax (1.2) 0.0 0.0 0.0 Pre-tax margin 79.1 81.4 84.6 83.8 Associates (92.8) (105.6) (115.2) (117.1) Net margin 78.7 81.4 84.6 83.8 Working capital changes 17.4 43.4 (0.8) 1.5 ROA 3.2 3.7 3.9 3.9 Non-cash items 4.9 5.2 5.6 5.7 ROE 4.5 5.5 5.7 5.7 Other operating cashflows 4.0 66.5 63.9 67.3 Investing (259.4) 90.0 92.1 93.6 Growth Capex (growth) (1,000.0) 0.0 0.0 0.0 Turnover 9.3 18.7 (1.5) 2.9 Capex (maintenance) 0.0 0.0 0.0 0.0 EBITDA 4.0 22.3 (2.1) 2.9 Others 740.6 90.0 92.1 93.6 Pre-tax profit (2.6) 22.1 2.4 1.9 Financing 135.1 (343.3) (338.5) (347.3) Net profit (3.0) 22.8 2.4 1.9 Distribution to unitholders (276.8) (276.8) (274.6) (279.9) Net profit (adj.) (5.7) 17.1 2.4 1.9 Issue of shares 0.0 175.0 0.0 0.0 EPU (6.3) 19.0 0.2 1.8 Proceeds from borrowings 745.0 0.0 0.0 0.0 Loan repayment 0.0 (175.0) 0.0 0.0 Leverage Others/interest paid (333.1) (66.5) (63.9) (67.3) Debt to total capital 33.3 30.7 30.4 30.1 Net cash inflow (outflow) 78.8 40.6 (1.6) 0.7 Debt to equity 49.8 44.3 43.6 43.0 Beginning cash & cash equivalent 81.2 160.0 200.6 199.0 Net debt/(cash) to equity 46.8 40.4 39.8 39.2 Ending cash & cash equivalent 160.0 200.6 199.0 199.7 Interest cover (x) 4.4 3.8 3.9 3.8




COMPANY UPDATE HOLD

(Maintained)

Share Price S$1.89Target Price S$1.95Upside +3.4%

COMPANY DESCRIPTION Oil palm plantation with more than 100,000ha of planted areas, as well as refinery and biodiesel operations in Indonesia.

STOCK DATA GICS sector Consumer StaplesBloomberg ticker: FR SPShares issued (m): 1,584.1Market cap (S$m): 2,986.0Market cap (US$m): 2,183.13-mth avg daily t'over (US$m): 1.9


1mth 3mth 6mth 1yr YTD(2.1) 2.2 (5.8) 20.1 (0.8)

Major Shareholders %Eight Capital 63.2

FY17 NAV/Share (US$) 0.60

FY17 Net Debt/Share (US$) 0.17

PRICE CHART

90

100

110

120

130

140

1.40

1.60

1.80

2.00

2.20(%)(lcy) FIRST RESOURCES LTD FIRST RESOURCES LTD/FSSTI INDEX

0

5

10

15


Volume (m)

Source: Bloomberg

ANALYST(S) Leow Huey Chuen +603 2147 1990 [email protected] Mong Huey +603 2147 1995 [email protected]

First Resources (FR SP)

Expects Strong CPO Production In 2H17 Our visit to FR’s estate in Pekanbaru reaffirms our positive view of FR’s good estate management and practices. We are impressed with its R&D centre, seed production and learning centre, which is an indication of its commitment to sustainable growth within the group. We saw a lot of FFB on the trees - an indication of good harvest in 2H17. Female flower ratio has improved for a good production in 2018. Maintain HOLD. Target price: S$1.95. Entry price: S$1.75.

WHAT’S NEW • We visited First Resources’ (FR) estates and its Research and Learning Centre in

Pekanbaru, Indonesia. The estate is about 4,400ha and about 16 years old. We had a fruitful visit and remain positive on FR’s longer-term outlook. However, we gather that 2Q17 results are likely to be weaker qoq on weaker production due to the 20-24 months impact from El Nino. We maintain our earnings forecast and expect EPS growth of 54% yoy for 2017 on the back of FFB production growth of 18% yoy and stronger CPO price assumption of RM2,600/tonne (+8% yoy).

• Yield to improve yoy in 2017-18. We understand that the lagged impact from the severe drought in 2015 is weakening, while FFB yield is recovering. Management is expecting FFB yield for its Pekanbaru estates to improve 13% yoy in 2017. With the good estate management, we gather that FFB yield for a small plot in the estates is expected to hit 30 tonne/ha in 2017. Nevertheless, we are expecting the FFB yield for the group to be lower, growing 8% yoy in 2017, as the yield recovery could be diluted by older trees.

• FFB production to peak in Oct-Nov 17. During our site visit, we saw 4-8 fresh fruit bunches (FFB) growing on the trees which are ready for harvesting in the next 5-6 months. Thus, we are confident of a strong FFB production recovery in 2H17. The FFB production ratio for 1H:2H is expected at 46%:54% for 2017, while FFB production is likely to peak in Oct-Nov 17.

• Weaker qoq results but better yoy performance in 2Q17. 2Q17 earnings could likely be weaker qoq but better yoy. We forecast 2Q17 core net profit of US$29m-33m (1Q17: US$46m, 2Q16: US$25m). We gather that FFB production was flat mom in Apr-May 17, and marginally weaker mom in Jun 17 on fewer harvesting days due to the Hari Raya holidays. Refining volume could also be lower qoq due to lower biodiesel sales to Pertamina. However, this will partly be mitigated by better refining margins qoq. Meanwhile, the better yoy performance would mainly be supported by the recovery in FFB production and positive refining margins yoy (negative in 2Q16).

KEY FINANCIALS Year to 31 Dec (US$m) 2015 2016 2017F 2018F 2019FNet turnover 454 575 792 878 962EBITDA 219 251 270 261 288Operating profit 169 195 220 213 242Net profit (rep./act.) 96 103 144 137 157Net profit (adj.) 95 93 144 137 157EPS (US cent) 6.0 5.9 9.1 8.7 9.9PE (x) 22.9 23.4 15.2 15.9 13.9P/B (x) 3.0 2.5 2.3 2.2 2.0EV/EBITDA (x) 11.4 9.9 9.3 9.6 8.7Dividend yield (%) 1.8 2.2 2.8 2.6 3.0Net margin (%) 21.1 17.9 18.2 15.6 16.3Net debt/(cash) to equity (%) 39.3 21.5 28.2 28.9 27.1Interest cover (x) 10.1 10.3 13.1 11.4 11.8ROE (%) 10.6 12.7 15.8 14.1 15.1Consensus net profit - - 162 194 228UOBKH/Consensus (x) - - 0.89 0.71 0.69Source: FR, Bloomberg, UOB Kay Hian




STOCK IMPACT • Maintains FFB production growth for 2017. We maintain our FFB production growth of

18% yoy for 2017, mainly supported by a yield recovery and new areas coming into maturity. We are expecting FFB yield to rise 8% yoy in 2017, driven by the estates in Sumatra and West Kalimantan. Meanwhile, there will be 17,000ha of new areas coming into maturity in 2017 (10.7% of 2016 mature area), which should provide about 3% FFB production growth for 2017. Our FFB production growth forecast is higher than management’s guidance of 15% yoy. We deem management’s guidance very conservative, given that West Kalimantan’s production is expected to show good FFB yield (less impacted by the 2015 El Nino and have younger trees).

• More female flowers indicate better production in 2018. During the site visit, we note the female-to-male flower ratio has improved to 65-70%:35-30% in 2017 from 45:55% in 2016 on the back of less-stressed trees as rainfall has been good. This indicates good production in 2018. We are expecting FFB production growth of 19% yoy for 2018.

• Well-maintained mill. The mill is about 9 years old. We are impressed by the cleanliness of the mill. We understand that the OER for 2017 will be slightly below 2016’s, mainly due to a drop in the quality of FFB crop and higher rainfall. All in all, we expect higher CPO production on the back of better FFB yield despite a marginal drop in OER.

• Ventures into seed production. We visited FR’s 45-ha seed garden which is located near to the research and learning centre. The investment in seed production is in early stage. Meanwhile, the seeds produced are only for internal use.

• Labour shortage is still manageable. We note that Indonesia’s plantation companies are more labour intensive vs Malaysia’s plantation companies. We believe this could be due to the ease in recruiting workers in Indonesia than in Malaysia. We note that FR’s mill operations are largely manual, hence requiring more workers. Meanwhile, we understand that the labour shortage in Sumatra is not as severe as in Kalimantan.

• Learning centre ensures talent sustainability. FR employs fresh graduates from local universities and these new staff has to undergo a talent training programme which consists of three months of intensive classroom training and three months of on-the-job training. The programme ensures the sustainability of its workforce. FR recruits 100-150 fresh graduates to participate in the talent training programme each year with a retention rate of about 80%. FR has two more learning centres in Kalimantan.

EARNINGS REVISION/RISK • Maintain net profit forecasts. We forecast EPS of 9.1 US cents, 8.7 US cents and 9.9

US cents for 2017-19 respectively. The weaker earnings estimate for 2018 is mainly due to expected significantly weaker CPO prices going into 2018 as supply outweighs demand. We forecast CPO prices to average RM2,400/tonne (-8% yoy) for 2018.

VALUATION/RECOMMENDATION • Maintain HOLD and target price of S$1.95, based on 16x 2018F PE, or its 5-year mean

PE. Entry price is S$1.75. SHARE PRICE CATALYST • Better-than-expected CPO prices. FR’s earnings are still largely contributed by

upstream operation, making its earnings highly sensitive to CPO prices. Any increase in CPO selling prices from our base case of RM2,600/tonne would be positive to earnings.

• Stronger-than-expected FFB production. Stronger-than-expected production recovery will contribute to FR’s earnings. BREEDING BARN OWL FOR NATURAL PEST CONTROL; TARGETS TO SEND IT TO KALIMANTAN ESTATES

MANUAL POLLINATION IN SEED GARDEN

Source: Source: FR, UOB Kay Hian Source: Source: FR, UOB Kay Hian

FFB TRANSPORTED USING MOTORISED WHEEL BARROW TO REDUCE LABOUR DEPENDENCY

Source: FR, UOB Kay Hian

FFB READY FOR HARVESTING IN NEXT 5-6 MONTHS


WELL MAINTAINED 9-YEAR-OLD MILL


LEARNING CENTRE





PROFIT & LOSS Year to 31 Dec (US$m) 2016 2017F 2018F 2019FNet turnover 575 792 878 962EBITDA 251 270 261 288Deprec. & amort. 57 49 47 46EBIT 195 220 213 242Total other non-operating income 0 0 0 0Net interest income/(expense) (24) (21) (23) (24)Pre-tax profit 161 200 191 218Tax (51) (50) (48) (55)Minorities (6) (6) (6) (7)Net profit 103 144 137 157Net profit (adj.) 93 144 137 157

BALANCE SHEET Year to 31 Dec (US$m) 2016 2017F 2018F 2019FFixed assets 329 310 298 289Other LT assets 936 998 1,066 1,140Cash/ST investment 258 208 213 243Other current assets 177 267 302 324Total assets 1,700 1,784 1,880 1,997ST debt 224 242 262 282Other current liabilities 177 176 183 189LT debt 224 233 242 252Other LT liabilities 148 136 132 137Shareholders' equity 881 945 1,005 1,074Minority interest 45 51 57 63Total liabilities & equity 1,700 1,784 1,880 1,997

CASH FLOW Year to 31 Dec (US$m) 2016 2017F 2018F 2019FOperating 187 89 140 169Pre-tax profit 183 200 191 218Tax (49) (50) (48) (55)Deprec. & amort. 57 49 47 46Working capital changes 12 (90) (27) (16)Other operating cashflows (16) (21) (23) (24)Investing (81) (113) (113) (113)Capex (growth) (28) (60) (60) (60)Investments 0 0 0 0Proceeds from sale of assets 0 0 0 0Others (53) (53) (53) (53)Financing (60) (26) (22) (26)Dividend payments (23) (43) (41) (47)Issue of shares 0 0 0 0Proceeds from borrowings 0 27 29 31Loan repayment (28) 0 0 0Others/interest paid (9) (9) (9) (9)Net cash inflow (outflow) 46 (50) 5 30Beginning cash & cash equivalent 212 258 208 213Changes due to forex impact 0 0 0 0Ending cash & cash equivalent 258 208 213 243


Growth Turnover 26.8 37.6 11.0 9.5EBITDA 14.9 7.4 (3.5) 10.5Pre-tax profit 11.0 24.3 (4.6) 14.4Net profit 7.8 39.6 (4.6) 14.4Net profit (adj.) (2.0) 54.4 (4.6) 14.4EPS (2.1) 54.3 (4.6) 14.4

Leverage Debt to total capital 32.6 32.3 32.2 31.9Debt to equity 50.8 50.2 50.1 49.7Net debt/(cash) to equity 21.5 28.2 28.9 27.1Interest cover (x) 10.3 13.1 11.4 11.8




SMALL/MID CAP HIGHLIGHTS BUY (Under Review)

Share Price S$1.66Target Price S$2.51 (Under Review)Upside (Downside) n.a.

COMPANY DESCRIPTION Keppel Telecommunications & Transportation Limited provides logistics and DC services, with operations across Asia Pacific and Europe. The company provides third-party logistics, trucking, and freight forwarding services within Southeast Asia and integrated port logistics and food logistics in China. Keppel T&T also owns and invests in a portfolio Tier 3 DCs.

STOCK DATA GICS sector IndustrialsBloomberg ticker: KPTT SPShares issued (m): 558.1Market cap (S$m): 926.4Market cap (US$m): 677.23-mth avg daily t'over (US$m): 0.4


1mth 3mth 6mth 1yr YTD(7.3) (4.6) (5.1) 18.1 (3.2)

Major Shareholders %Keppel Corp 79.5Investoasia P/L 6.0

FY16 NAV/Share (S$) 1.63FY16 Net Debt/Share (S$) 0.76

PRICE CHART

80

90

100

110

120

130

140

150

1.20

1.40

1.60

1.80

2.00

2.20(%)(lcy)

KEPPEL TELECOM & TRANSPORT

KEPPEL TELECOM & TRANSPORT/FSSTI INDEX

0

1

2

3

4


Volume (m)

Source: Bloomberg ANALYST(S) Edison Chen +65 6590 6637 [email protected]

Foo Zhi Wei +65 65906626 [email protected]

Keppel Telecommunications & Transportation (KPTT SP)

2Q17: Buffeted By Unexpected Headwinds In Logistics

KPTT reported a 2Q17 net profit of S$10.3m, below expectations. The weakness stemmed largely from continued weakness in the logistics business, as well as absence of datacentre revenue from assets divested (T27). The outlook for a turnaround in the logistics business has now been pushed from 2018 to 2019. The datacentre business remains robust, and will benefit from development fees and continued earnings from T20. Pending a review of the outlook with management, we are placing the stock UNDER REVIEW.

2Q17 RESULTS

Year to 31 Dec (S$m) 2Q17 yoy

% chg 1H17 yoy

% chg 2Q17 Remarks Revenue 47.6 (5.1) 88.3 (10.3) Lower logistics revenue, absence of

revenue from divested T27. Operating profit 2.4 (71.2) 0.7 (95.2) Lower top-line, impacted by start-up

losses from Logistics business in China. Share of associate/JV 16.6 (15.2) 36.1 1.3 Profit before tax 16.3 (35.2) 31.6 (29.6) Lower operating profit, and share of

associates. PATMI 10.3 (45.3) 21.9 (32.0) Operating margin (%) 5% (11.5ppt) 1% (14.4ppt) Segment Revenue Logistics 34.7 (5.0) 69.5 (2.8) Ramp-up in China assets offset by top-

line pressure from a SE Asian operation Data center 12.9 (5.4) 18.8 (30.1) Absence of contribution from T27, offset

by development fees from SG asset. Segment EBIT (excl . El) Logistics 0.6 (84.3) 2.0 (68.6) Continued headwinds. Data center 4.5 (41.4) 4.4 (69.9) Absence of contributions from T27.

Source: Keppel Telecommunications & Transportation, UOB Kay Hian

• 2Q17 net profit of S$10.3m, below expectations. Keppel Telecommunication and Transportation (KPTT) reported headline net profit of S$10.3m (-45.3% yoy, -11.1% qoq). The decline was largely due to an absence of earnings from T27 and continued weakness in logistics earnings, which saw operating margins decline to 1.7%. The revenue decline in the datacentre (DC) business was anticipated, but that from logistics was not.

• DC revenue boosted by development fees. Revenue was S$12.9m (-5.4% yoy, +118% qoq) due to the absence of revenue from T27 and Keppel DC Reit Management. The qoq improvement was due to development fees KPTT received for a Singapore DC asset. Operating profit was S$4.5m, a reversal from a loss in 1Q17. The margin on the fee is understood to be substantial and was the reason for the quarterly jump in operating margin from -2.5% in 1Q17 to 35.1% in 2Q17. Additional development fees are expected to be recognised in coming quarters.

KEY FINANCIALS Year to 31 Dec (S$m) 2015 2016 2017F 2018F 2019FNet turnover 201 195 224 265 316Core EBITDA 28 43 44 58 66Operating profit 22 76 24 38 46Net profit (rep./act.) 91 105 62 75 81Net profit (adj.) 53 48 62 75 81EPS (S cent) 9.6 8.7 11.1 13.4 14.5PE (x) 17.3 19.1 15.0 12.4 11.4P/B (x) 1.1 1.0 1.0 0.9 0.8EV/EBITDA (x) 48.8 31.8 31.2 23.8 20.8Dividend yield (%) 2.1 2.7 2.2 2.2 2.0Net margin (%) 26.6 24.9 27.6 28.1 25.6Net debt/(cash) to equity (%) 45.2 53.4 10.8 24.0 24.6Interest cover (x) 2.3 3.4 3.9 5.3 6.1ROE (%) 7.5 6.4 7.6 8.6 8.8Consensus net profit - - 60 75 81UOBKH/Consensus (x) - - 1.02 1.00 1.01Source: Bloomberg, UOB Kay Hian




• Stormy outlook for logistics. Revenue came in at S$34.7m (-5.0% yoy, 0% qoq) as additional revenue from assets ramping up in China was offset by weakness in a SE Asian operation. A stormy outlook lies ahead for KPTT’s logistics division as volumes and margins remain under pressure, with the market outlook challenging. KPTT’s focus on Vietnam and Indonesia has proven fruitful as the two regions saw better results. China’s Tianjin project remains in ramp-up mode, with rising occupancy, but breakeven remains distant. The Jilin and Lu’an projects have been delayed, with the latter project’s start-up being delayed to 1H18.

STOCK IMPACT • A silver lining for logistics. Courex (acquired in Oct 16) represents a bright spot and

part of KPTT’s transformational strategy for the logistics business in Singapore. It intends to tap on Courex’s last-mile fulfilment to capture additional parts of the logistics value chain and grow its urban logistics business. Additionally, the recent launch of its omni-channel management solution (providing a seamless shopping experience) targeting FMCG companies will help. Already, a large FMCG firm has signed up and KPTT is targeting more. Nonetheless, we admit overconfidence in prospects for the logistics division and anticipate breakeven only in 2019.

• DC demand remains healthy; KDC SG4 comes online. For the DC division, KDC SG4 (T20) has obtained full TOP and commenced operations. Revenue recognition is expected in 3Q17, with the delay attributed to additional sign-offs. The pipeline of enquires indicates healthy DC demand and KPTT is collaborating with Singapore’s government agencies to explore innovations in green DC solutions. Project pipeline remains robust, and we expect positive developments in the future. That said, earnings contributions from new projects will be subject to a 3-6 month delay due to initial planning and construction.

• KDC SG4 to still provide recurring earnings despite divestment. On 18 Jul 17, KPTT announced that it would be injecting KDC SG4 into the Alpha Datacentre Fund (ADCF). KPTT will still retain a 40.7% stake in the asset, and will continue to recognise earnings from it, albeit via associate earnings. The resultant drop in earnings from the lower stake will likely be offset by continued development fees KPTT will earn from ADCF. The move also frees up KPTT’s balance sheet to pursue new projects, bringing forward our expectations of earnings from future DC assets.

EARNINGS REVISION/RISKS • Earnings under review. We have left our earnings forecast for KPTT unchanged for

now, pending a review of the logistics and DC business with management.

VALUATION/RECOMMENDATION • Recommendation placed UNDER REVIEW. Given the various shifts in the business

outlook and strategy, we have placed our recommendation under review. As the review will impact our earnings outlook for the business units, our SOTP-based target price is also placed under review. We see no near-term catalysts in sight, and expect share price to trend sideways in the near-mid term. The outcome of our review is expected to be completed before end-August.




PROFIT & LOSS BALANCE SHEET Year to 31 Dec (S$m) 2016 2017F 2018F 2019F Year to 31 Dec (S$m) 2016 2017F 2018F 2019F Net turnover 194.6 224.1 265.4 315.9 Fixed assets 367.7 362.8 358.0 353.3 EBITDA 43.0 43.9 57.5 65.7 Other LT assets 873.0 771.1 987.9 1,106.9 Deprec. & amort. (18.5) (17.7) (16.9) (16.0) Cash/ST investment 103.0 275.4 120.0 120.0 EBIT 24.5 24.3 38.0 46.3 Other current assets 379.2 86.3 83.4 93.6 JV/Associate contributions 61.1 73.6 77.8 78.9 Total assets 1,722.9 1,495.7 1,549.3 1,673.8 Net interest income/(expense) (11.0) (9.9) (9.4) (9.2) ST debt 72.8 298.0 143.6 164.0 Pre-tax profit 130.3 87.9 106.4 116.0 Other current liabilities 264.5 151.0 170.3 199.9 Tax (17.0) (17.8) (20.8) (22.4) LT debt 456.0 67.6 190.8 190.8 Minorities 8.2 8.4 10.9 12.5 Other LT liabilities 21.5 21.5 21.5 21.5 Net profit 105.1 61.8 74.7 81.0 Shareholders' equity 796.7 837.8 892.4 954.4 Net profit (adj.) 48.5 61.8 74.7 81.0 Minority interest 111.4 119.7 130.7 143.2

Total liabilities & equity 1,722.9 1,495.7 1,549.3 1,673.8

CASH FLOW KEY METRICS Year to 31 Dec (S$m) 2016 2017F 2018F 2019F Year to 31 Dec (%) 2016 2017F 2018F 2019F Operating 28.8 21.8 49.5 53.4 Profitability Pre-tax profit 130.3 87.9 106.4 116.0 EBITDA margin 22.1 19.6 21.7 20.8 Tax (10.0) (17.8) (20.8) (22.4) Pre-tax margin 38.4 39.2 40.1 36.7 Deprec. & amort. 18.5 19.6 19.5 19.4 Net margin 24.9 27.6 28.1 25.6 Associates (61.1) (73.6) (77.8) (78.9) ROA 3.0 3.8 4.9 5.0 Working capital changes 8.5 5.6 22.2 19.3 ROE 6.4 7.6 8.6 8.8 Non-cash items 22.9 0.0 0.0 0.0 Other operating cashflows (80.4) 0.0 0.0 0.0 Growth Investing (166.0) 310.9 (153.6) (54.9) Turnover (3.0) 15.1 18.4 19.0 Capex (growth) 0.0 (14.7) (14.7) (14.7) EBITDA 53.2 2.0 31.1 14.2 Investments (111.1) 0.0 0.0 0.0 Pre-tax profit 0.5 (32.5) 21.0 9.0 Proceeds from sale of assets 35.9 150.2 0.0 18.4 Net profit 14.9 (41.2) 20.8 8.5 Others (90.9) 175.5 (138.9) (58.5) Net profit (adj.) (8.9) 27.4 20.8 8.5 Financing 77.2 (183.8) (51.3) 1.5 EPS (9.1) 27.4 20.8 8.5 Dividend payments (19.5) (20.6) (20.1) (19.0) Issue of shares 0.0 0.0 0.0 0.0 Leverage Proceeds from borrowings 199.1 0.0 0.0 0.0 Debt to total assets 30.7 24.4 21.6 21.2 Loan repayment (105.3) (163.2) (31.2) 20.4 Debt to equity 43.6 37.5 37.2 0.0 Others/interest paid 2.8 0.0 0.0 0.0

Net debt/(cash) to shareholders' equity

53.4 10.8 24.0 24.6

Net cash inflow (outflow) (60.1) 148.9 (155.4) (0.0) Interest cover (x) 3.4 3.9 5.3 6.1 Beginning cash & cash equivalent 188.5 126.5 275.4 120.0 Changes due to forex impact (1.9) 0.0 0.0 0.0 Ending cash & cash equivalent 126.5 275.4 120.0 120.0




COMPANY UPDATE SELL

(Maintained)

Share Price Bt88.75Target Price Bt64.00Upside -27.9%

COMPANY DESCRIPTION Leading power supplies manufacturer. The company produces power systems for information technology, telecommunication, automotive, medical equipment, industrial automation, and household appliances.

STOCK DATA GICS sector Information TechnologyBloomberg ticker: DELTA TBShares issued (m): 1,247.4Market cap (Btm): 110,705.1Market cap (US$m): 3,294.63-mth avg daily t'over (US$m): 3.1

Price Performance (%) 52-week high/low Bt98.75/Bt69.50

1mth 3mth 6mth 1yr YTD(3.3) 2.6 4.7 21.2 8.9

Major Shareholders %Deltron Holding 27.7Delta Electronics (TAIWAN) 20.0

FY17 NAV/Share (Bt) 27.02

FY17 Net Cash/Share (Bt) 17.50

PRICE CHART

80

90

100

110

120

130

140

150

60

70

80

90

100

110(%)(lcy)

DELTA ELECTRONICS THAI PCL

DELTA ELECTRONICS THAI PCL/SET INDEX

0

2

4

6

8


Volume (m)

Source: Bloomberg

ANALYST(S) Napat Vorajanyavong +662 659 8033 [email protected]

Delta Electronics (DELTA TB)

2Q17 Results Preview: Net Profit To Be Pressured By Provisions

We expect net profit in 2Q17 to have dived 60% yoy and qoq due to one-off provision. Excluding extraordinary items, core profit in 2Q17 is expected to have grown 11% yoy and 9% qoq to Bt1.4b, supported by continued growth in automobile electrical components and an uptick in its power supply business. Given that Delta is trading at 18.4x 2017F PE (more than +1SD to 5-year mean), this should have partly priced in all positives. Maintain SELL and target price of Bt64.00.

2Q17F RESULTS PREVIEW Year to 31 Dec (Btm) 2Q17F 1Q17 2Q16 qoq chg (%) yoy chg (%) Net turnover 13,030 12,127 11,273 7.4 15.6 Gross profit 3,381 3,218 3,070 5.1 10.1 EBIT 1,534 1,453 1,322 5.6 16.0 Net income 533 1,348 1,329 -60.5 -59.9 EPS (Bt) 0.43 1.08 1.07 -60.5 -59.9 Core profit 1,437 1,323 1,298 8.6 10.8 Ratio (%) qoq ppt chg yoy ppt chg Gross margin 26.0 26.5 27.2 -0.6 -1.3 SG&A % of sales 14.8 15.2 16.4 -0.4 -1.6 Net margin 4.1 11.1 11.8 -7.0 -7.7

Source: Delta, UOB Kay Hian

WHAT’S NEW

• Sales to increase 16% yoy. We forecast Delta Electronics’ (Delta) 2Q17 sales at Bt13b (+16% yoy, +7% qoq), driven by: a) high growth in the automobile segment, b) a stronger power supply business due to a low revenue base last year, and c) efforts to penetrate the cloud segment. Excluding the impact of the baht’s appreciation to Bt34.30/US$ in 2Q17 (-3% yoy, -2% qoq), sales in US dollar terms would likely be US$380m (+19% yoy, +10% qoq).

KEY FINANCIALS Year to 31 Dec (Btm) 2015 2016 2017F 2018F 2019FNet turnover 46,938 46,887 47,481 50,623 53,211EBITDA 7,410 6,342 7,042 7,507 7,954Operating profit 6,630 5,481 6,173 6,612 7,036Net profit (rep./act.) 6,714 5,516 6,006 6,439 6,853Net profit (adj.) 6,302 5,333 6,006 6,439 6,853EPS (Bt) 5.1 4.3 4.8 5.2 5.5PE (x) 17.6 20.8 18.4 17.2 16.2P/B (x) 3.6 3.5 3.3 3.1 2.9EV/EBITDA (x) 12.0 14.0 12.6 11.8 11.2Dividend yield (%) 3.4 3.5 3.8 4.1 4.3Net margin (%) 14.3 11.8 12.6 12.7 12.9Net debt/(cash) to equity (%) (66.4) (60.7) (64.8) (66.6) (67.4)Interest cover (x) 188.1 140.4 320.3 443.9 459.7ROE (%) 23.1 17.7 18.3 18.6 18.7Consensus net profit - - 6,309 6,838 7,191UOBKH/Consensus (x) - - 0.95 0.94 0.95Source: Delta, Bloomberg, UOB Kay Hian




• Net profit in 2Q17 will be pressured by provisions. We expect net profit to have dived 60% yoy and qoq to Bt533m, pressured by provisions. The bulk of the extraordinary items in 2Q17 would come from: a) Bt400m gains from asset disposal, and b) provisions totaling Bt1,304m, including Bt734m for the recent Supreme Court judgment no.10338/2559, and Bt504m for three other pending cases.

• Excluding extraordinary items, we forecast 2Q17 core profit at Bt1.4b. Excluding one-offs, we expect core profit to have grown 11% yoy and 9% qoq to Bt1.4b in 2Q17. The yoy growth would have been supported by improving top-line and lower R&D expenses. Meanwhile, gross margin could have softened by 130bp yoy, partly pressured by the baht appreciation. Core profit in 1H17 should remain on track and account for 46% of our full-year forecast.

STOCK IMPACT

• DELTA to pay extra corporate income tax. On 28 Jun 17, DELTA said that with regard to Supreme Court judgment no.10338/2559, it has to pay an extra corporate income tax of Bt734m for 1997-2000. This should hit its share price as the Bt734m represents 12-14% of Delta’s annual net profit. The company plans to book this provision in 2Q17. However, we believe this would not affect the company’s expansion plan as it has a huge cash pile of Bt19b.

• Further downside risk from three other pending cases. There are three pending cases on the same tax issue from the Revenue Department, totaling Bt570m covering 2001-04, 2005 and 2006. Hence, DELTA decided to book in provisions for these three pending cases in 2Q17 too in view of the outcome from the first case. However, these cases could take time for a final court decision as the first case took almost 11 years to finalise.


• Despite the additional tax provisions, we keep our core profit projections unchanged as those expenses are considered one-off and there are no cash flow concerns affecting its expansion plan.


• Maintain SELL. DELTA is trading at 18.4x 2017F PE, or more than +1SD to its 5-year mean. Meanwhile, we expect unexciting earnings growth in in 2017. Maintain SELL and target price of Bt64.00, based on 13.3x 2017F PE, or its 5-year average. Our 2017F PE multiple is justified as we forecast earnings to grow slower than its average growth in the past three years.


• None.

SALES BY PRODUCT (2016)


PEER COMPARISON

Company 2017F PE (x) 2017F EPS growth (%)

DELTA 18.4 13 HANA 15.3 21 KCE 17.5 16 SVI 17.8 32 Sector 17.5 16


PE BAND





PROFIT & LOSS Year to 31 Dec (Btm) 2016 2017F 2018F 2019FNet turnover 46,887 47,481 50,623 53,211EBITDA 6,342 7,042 7,507 7,954Deprec. & amort. 861 869 895 917EBIT 5,481 6,173 6,612 7,036Total other non-operating income 251 28 30 31Associate contributions 0 0 0 0Net interest income/(expense) (45) (22) (17) (17)Pre-tax profit 5,686 6,179 6,624 7,050Tax (170) (173) (185) (197)Minorities 0 0 0 0Net profit 5,516 6,006 6,439 6,853Net profit (adj.) 5,333 6,006 6,439 6,853

BALANCE SHEET Year to 31 Dec (Btm) 2016 2017F 2018F 2019FFixed assets 5,966 6,096 6,201 6,284Other LT assets 1,425 1,853 1,868 1,881Cash/ST investment 19,685 22,037 23,931 25,600Other current assets 19,243 15,898 16,945 17,796Total assets 46,319 45,884 48,945 51,560ST debt 321 202 200 212Other current liabilities 12,081 9,911 10,998 11,499LT debt 0 0 0 0Other LT liabilities 2,026 2,070 2,115 2,161Shareholders' equity 31,891 33,700 35,632 37,688Minority interest 0 0 0 0Total liabilities & equity 46,319 45,884 48,945 51,560

CASH FLOW Year to 31 Dec (Btm) 2016 2017F 2018F 2019FOperating 5,329 8,050 7,374 7,420Pre-tax profit 5,686 6,179 6,624 7,050Tax (274) (173) (185) (197)Deprec. & amort. 861 869 895 917Associates 0 0 0 0Working capital changes (1,159) 859 65 (329)Non-cash items 112 0 0 0Other operating cashflows 103 316 (25) (20)Investing (2,379) (1,427) (1,016) (1,012)Capex (growth) (2,059) (1,000) (1,000) (1,000)Capex (maintenance) 0 0 0 0Investments 0 0 0 0Proceeds from sale of assets 104 0 0 0Others (423) (427) (16) (12)Financing (3,736) (4,272) (4,464) (4,739)Dividend payments (3,867) (4,197) (4,507) (4,797)Issue of shares 0 0 0 0Proceeds from borrowings 0 0 0 0Loan repayment 131 (119) (2) 12Others/interest paid 0 44 45 46Net cash inflow (outflow) (786) 2,351 1,894 1,669Beginning cash & cash equivalent 20,488 19,685 22,037 23,931Changes due to forex impact (17) 0 0 0Ending cash & cash equivalent 19,685 22,037 23,931 25,600


Growth Turnover (0.1) 1.3 6.6 5.1EBITDA (14.4) 11.0 6.6 5.9Pre-tax profit (18.6) 8.7 7.2 6.4Net profit (17.8) 8.9 7.2 6.4Net profit (adj.) (15.4) 12.6 7.2 6.4EPS (15.4) 12.6 7.2 6.4

Leverage Debt to total capital 1.0 0.6 0.6 0.6Debt to equity 1.0 0.6 0.6 0.6Net debt/(cash) to equity (60.7) (64.8) (66.6) (67.4)Interest cover (x) 140.4 320.3 443.9 459.7




Disclosures/Disclaimers This report is prepared by UOB Kay Hian Private Limited (“UOBKH”), which is a holder of a capital markets services licence and an exempt financial adviser in Singapore. This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. Advice should be sought from a financial adviser regarding the suitability of the investment product, taking into account the specific investment objectives, financial situation or particular needs of any person in receipt of the recommendation, before the person makes a commitment to purchase the investment product. This report is confidential. This report may not be published, circulated, reproduced or distributed in whole or in part by any recipient of this report to any other person without the prior written consent of UOBKH. This report is not directed to or intended for distribution to or use by any person or any entity who is a citizen or resident of or located in any locality, state, country or any other jurisdiction as UOBKH may determine in its absolute discretion, where the distribution, publication, availability or use of this report would be contrary to applicable law or would subject UOBKH and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registration, licensing or other requirements within such jurisdiction. The information or views in the report (“Information”) has been obtained or derived from sources believed by UOBKH to be reliable. However, UOBKH makes no representation as to the accuracy or completeness of such sources or the Information and UOBKH accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Information. UOBKH and its connected persons may have issued other reports expressing views different from the Information and all views expressed in all reports of UOBKH and its connected persons are subject to change without notice. UOBKH reserves the right to act upon or use the Information at any time, including before its publication herein. Except as otherwise indicated below, (1) UOBKH, its connected persons and its officers, employees and representatives may, to the extent permitted by law, transact with, perform or provide broking, underwriting, corporate finance-related or other services for or solicit business from, the subject corporation(s) referred to in this report; (2) UOBKH, its connected persons and its officers, employees and representatives may also, to the extent permitted by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securities referred to in this report or other investments related thereto; (3) the officers, employees and representatives of UOBKH may also serve on the board of directors or in trustee positions with the subject corporation(s) referred to in this report. (All of the foregoing is hereafter referred to as the “Subject Business”); and (4) UOBKH may otherwise have an interest (including a proprietary interest) in the subject corporation(s) referred to in this report. As of the date of this report, no analyst responsible for any of the content in this report has any proprietary position or material interest in the securities of the corporation(s) which are referred to in the content they respectively author or are otherwise responsible for. IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by UOBKH, a company authorized, as noted above, to engage in securities activities in Singapore. UOBKH is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution by UOBKH (whether directly or through its US registered broker dealer affiliate named below) to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). All US persons that receive this document by way of distribution from or which they regard as being from UOBKH by their acceptance thereof represent and agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through UOB Kay Hian (U.S.) Inc (“UOBKHUS”), a registered broker-dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through UOBKH. UOBKHUS accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to and intended to be received by a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of UOBKHUS and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.




Analyst Certification/Regulation AC Each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are generated from UOBKH’s business of dealing in securities. Reports are distributed in the respective countries by the respective entities and are subject to the additional restrictions listed in the following table. General This report is not intended for distribution, publication to or use by any person or entity who is a citizen or resident of or

located in any country or jurisdiction where the distribution, publication or use of this report would be contrary to applicable law or regulation.

Hong Kong This report is distributed in Hong Kong by UOB Kay Hian (Hong Kong) Limited ("UOBKHHK"), which is regulated by the Securities and Futures Commission of Hong Kong. Neither the analyst(s) preparing this report nor his associate, has trading and financial interest and relevant relationship specified under Para. 16.4 of Code of Conduct in the listed corporation covered in this report. UOBKHHK does not have financial interests and business relationship specified under Para. 16.5 of Code of Conduct with the listed corporation covered in this report. Where the report is distributed in Hong Kong and contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact UOBKHHK (and not the relevant foreign research house) in Hong Kong in respect of any matters arising from, or in connection with, the analysis or report; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Hong Kong who is not a professional investor, or institutional investor, UOBKHHK accepts legal responsibility for the contents of the analyses or reports only to the extent required by law.

Indonesia This report is distributed in Indonesia by PT UOB Kay Hian Sekuritas, which is regulated by Financial Services Authority of Indonesia (OJK). Where the report is distributed in Indonesia and contains research analyses or reports from a foreign research house, please note recipients of the analyses or reports are to contact PT UOBKH (and not the relevant foreign research house) in Indonesia in respect of any matters arising from, or in connection with, the analysis or report.

Malaysia Where the report is distributed in Malaysia and contains research analyses or reports from a foreign research house, the recipients of the analyses or reports are to contact UOBKHM (and not the relevant foreign research house) in Malaysia, at +603-21471988, in respect of any matters arising from, or in connection with, the analysis or report as UOBKHM is the registered person under CMSA to distribute any research analyses in Malaysia.

Singapore This report is distributed in Singapore by UOB Kay Hian Private Limited ("UOBKH"), which is a holder of a capital markets services licence and an exempt financial adviser regulated by the Monetary Authority of Singapore.Where the report is distributed in Singapore and contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact UOBKH (and not the relevant foreign research house) in Singapore in respect of any matters arising from, or in connection with, the analysis or report; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, UOBKH accepts legal responsibility for the contents of the analyses or reports only to the extent required by law.

Thailand This report is distributed in Thailand by UOB Kay Hian Securities (Thailand) Public Company Limited, which is regulated by the Securities and Exchange Commission of Thailand.

United Kingdom

This report is being distributed in the UK by UOB Kay Hian (U.K.) Limited, which is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

United States of America (‘U.S.’)

This report cannot be distributed into the U.S. or to any U.S. person or entity except in compliance with applicable U.S. laws and regulations. It is being distributed in the U.S. by UOB Kay Hian (US) Inc, which accepts responsibility for its contents. Any U.S. person or entity receiving this report and wishing to effect transactions in any securities referred to in the report should contact UOB Kay Hian (US) Inc. directly.

Copyright 2017, UOB Kay Hian Pte Ltd. All rights reserved. http://research.uobkayhian.com RCB Regn. No. 197000447W

regional morning notes thursday, 20 july · pdf filethursday, 20 july 2017 refer to last page...

Documents