R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
PLEASE CLICK ON THE PAGE NUMBER TO MOVE TO THE RELEVANT PAGE.
KEY INDICES
KEY STORY CHINA
Initiate Coverage Online Game
Page 2
Entering a matured era; multiple drivers to capture incremental market. CHINA
Initiate Coverage Online Game
Page 2
Entering a matured era; multiple drivers to capture incremental market.
Results Alibaba Group (BABA US/BUY/US$120.72/Target: US$139.00)
Page 4
DJIA S&P 500 FTSE 100 AS30 CSI 300 FSSTI HSCEI HSI JCI KLCI KOSPI Nikkei 225 SET TWSE
Page 7
Downgrade from BUY to SELL on deteriorating customer sales. INDONESIA
Update Gudang Garam (GGRM IJ/HOLD/Rp72,025/Target: Rp74,000)
Page 10
Sees lower inventory purchases and interest expense. MALAYSIA
Results JCY International (JCYH MK/HOLD/RM0.665/Target: RM0.590)
Petronas Dagangan (PETD MK/BUY/RM24.40/Target: RM27.20)
Page 16 1Q17: Core profits in line, despite the absence of the positive effects of major inventory lag gains. Maintain BUY on its market leadership and stable dividend payouts.
Press Metal (PRESS MK/BUY/RM2.74/Target: RM3.30)
Page 19 1Q17: In line. Although sales grow 56.7% yoy on higher sales tonnage and ASP, net profit soars 180.5% yoy, mainly due to improved operating leverage on higher ASP. SINGAPORE Page 22
THAILAND Page 25
Downgrade to SELL on negative core earnings growth this year and low growth next year.
Refer to last page for important disclosures.
1M % 1.3 1.2 4.5 (1.1) (1.4) 3.1 2.9 5.5 0.7 1.6 6.9 6.1 (1.4) 3.4
YTD % 4.6 5.7 4.1 1.0 2.7 11.8 9.3 14.3 6.6 7.6 12.8 2.3 0.2 7.7
957 2876 53
(0.3) 1.3 0.6
(5.4) 2.7 3.4
(26.0) 5.8 (4.3)
(0.4) (10.1) (7.6)
TOP PICKS Ticker
CP (lcy)
TP (lcy) Pot. +/- (%)
BUY Alibaba Beijing Ent. Water Telekomunikasi Tiga Pilar V.S. Industry OCBC Bangkok Dusit Siam Cement
BABA US 371 HK TLKM IJ AISA IJ VSI MK OCBC SP BDMS TB SCC TB
121.27 6.09 4,310.00 2,050.00 2.01 10.38 18.60 522.00
130.00 7.60 5,000.00 2,500.00 2.20 11.70 27.00 600.00
7.2 24.8 16.0 22.0 9.5 12.7 45.2 14.9
SELL Great Wall Motor MGM China Hartalega
2333 HK 2282 HK HART MK
7.88 16.20 5.85
6.00 15.00 4.07
(23.9) (7.4) (30.4)
GDP (% yoy) US Euro Zone Japan Singapore Malaysia Thailand Indonesia Hong Kong China
2016 1.6 1.7 1.0 2.0 4.2 3.2 5.0 1.9 6.7
2017F 2.7 1.6 0.9 2.4 4.5 3.3 5.2 2.0 6.3
2018F 2.5 1.5 1.2 2.8 4.7 3.1 5.5 2.0 6.3
Brent (Average) (US$/bbl) 45 CPO (RM/mt) 2,653 Source: Bloomberg, UOB ETR, UOB Kay Hian
55 2,600
60 2,500
CORPORATE EVENTS
4QFY17: Shock earnings miss amid yield and cost mismatch.
Update Bangkok Dusit Medical Services (BDMS TB/SELL/Bt18.60/Target: Bt16.00)
1W % (1.2) (1.2) 0.7 (2.3) 1.2 (1.5) 0.1 0.0 (0.1) (0.5) (0.4) (2.0) (0.3) (0.3)
KEY ASSUMPTIONS
Page 13 2QFY17: Results above expectations on strong US dollar and lower administrative expenses. Declares 1.25 sen DPS.
Results Singapore Airlines (SIA SP/HOLD/S$10.76/Target: S$10.10)
1D % 0.3 0.4 (0.9) (0.8) (0.3) (0.1) (1.1) (0.6) 0.5 (0.5) (0.3) (1.3) (0.2) (0.4)
BDI CPO (RM/mt) Brent Crude (US$/bbl) Source: Bloomberg
4QFY17: Strongest top-line growth since IPO.
Update Nexteer Automotive Group (1316 HK/SELL/HK$12.08/Target: HK$10.00)
Prev Close 20663.0 2365.7 7436.4 5775.5 3398.1 3221.7 10271.4 25136.5 5645.5 1767.2 2286.8 19553.9 1545.9 9969.5
Venue Shanghai Hong Kong Hong Kong Hong Kong Singapore Kuala Lumpur Roadshow with Singtel Canada Roadshow with Tongda Group Holdings Hong Kong Roadshow with United Overseas Bank Canada Group meeting with Fortune REIT Hong Kong Roadshow with PT Siloam Int’l Hospital Canada Analyst Presentation on SIN Strategy Kuala Lumpur Luncheon with United Overseas Bank Singapore Roadshow with Top Glove Corporation US/Canada Site visit to Mircoport Scientific Corp Roadshow with Petronas Dagangan Bhd Roadshow with Petronas Dagangan Bhd Analyst Marketing on China Internet Sector
Begin 19 May 22 May 23 May 22 May 24 May 25 May 26 May 1 Jun 2 Jun 7 Jun 5 Jun 15 Jun 3 Jul 5 Sep
Close 19 May 23 May 23 May 23 May 24 May 26 May 26 May 1 Jun 2 Jun 7 Jun 16 Jun 16 Jun 3 Jul 12 Sep
1
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
INITIATE COVERAGE
OVERWEIGHT
Online Game – China Entering A Matured Era; Multiple Drivers To Capture Incremental Market China has moved ahead of the US to become the world’s largest online game market with revenue of US$26b (US: US$23b) in 2016, growing at a 28% CAGR in the past five years, led by strong mobile game growth in 2011-16. We expect the elaborate operations, overseas expansion and increasing ARPU to propel the Chinese market to over US$30b by 2018. Initiate coverage on the sector with an OVERWEIGHT rating. We like Tencent and NetEase.
SECTOR PICKS
WHAT’S NEW • Online game market growth softer but continues to grow. China's online game sector grew at a 28% CAGR in the past five years and growth is expected to slow down to mid-tolow teens in the coming years due to: a) peaking game player numbers; and b) Tepid PC client-based game growth. However, PC client-based games still have strong monetisation power, longer life cycles and higher entry barriers for existing players. We forecast a 4% CAGR for PC game revenue and believe hard core elements like eSports into Multiplayer Online Battle Arena Games (MOBA) will emerge as an important segment of PC games. We believe the sector will continue to benefit from the elaborate operations, overseas expansion and increasing ARPU to propel the Chinese market to over US$33b by 2018. • Mobile games to be main driver for online game sector. The mobile segment revenue grew at a 71% CAGR in the past five years driven by: a) hardware; fiber-optic networks and mobile 4G/5G network adoption for the full popularity; b) demand; growing demand for entertainment as Chinese people’s living standards improve; c) operations; innovative operating models for the industry to bring in more channels. We forecast a 22% CAGR for the mobile game segment’s size in the next three years in view of: a) more premium/hardcore content to extend the game’s life cycle and increase ARPU; b) new elements like AR/VR, live stream broadcasting, location-based service (LBS) technology and eSports, injected into games; and c) traditional grand PC game’s IP migrating to the mobile front. • Leading game companies to expand market share on elaborate operations. Tencent and NetEase’s mobile game revenue grew at 130% and 385% CAGR during the past two years, quickly taking a dominant 59% market share of China’ mobile game industry by the end of 2016. The prevalence of Honour of Kings and Onmyoji during the last six months has evidenced the strong R&D and marketing capability of the big players. We believe the leading game players will continue to gain market share and grow at a 30% CAGR on their elaborate content operation, rich player data resources and stronger bargaining power on distribution channels. In the meantime, we expect more traditional PC players will join the battlefield while small developers are likely to fail, given fewer resources on R&D and S&M. • Initiate coverage on the sector with OVERWEIGHT. China’s US and HK-listed game companies are trading at 12x and 17x 2017F PE, lower than pure US-listed global peers at 27x and A-share game sector’s 44x. We believe China’s online game players deserve a higher valuation on a faster-growing CAGR of 22% in the next 3 years. Investors can accumulate names like Tencent (700 HK, BUY) and NetEase (NTES US, BUY) for their leading positions. We also recommend two HK-SZ Connect HK-listed companiestraditional PC game player of Kingsoft (3888 HK, BUY) for its long and solid operation with successful PC games and active migration to the mobile from PC end. Tencent is our top pick for its strong 2017 game pipeline helped by strong R&D, aggressive investment in the sector and cooperation with Supercell.
Source: UOB Kay Hian
Click here for Blue Top dated 18 May 17.
Company
Ticker
Rec
Share Price Target Price (LC) (LC)
Tencent
700 HK
BUY
258.80
312.00
NetEase
NTES US
BUY
289.70
347.00
Kingsoft
3888 HK
BUY
22.10
28.00
ANALYSTS Julia Pan +8621 5404 7225 ext 808
[email protected] Olivia Li +8621 5404 7225 ext 858
[email protected]
PEER COMPARISON Company
Ticker
Price (LC)
Market Cap (US$m)
Tencent NetEase Kingsoft Average
700 HK NTES US 3888 HK
258.8 289.7 22.1
314,943 38,026 3,712
---------------PE--------------2017F 2018F (x) (x) 36.5 17.6 18.5 24.2
28.6 15.3 14.0 19.3
-------------P/B---------2017F 2018F (x) (x) 9.7 5.3 3.2 6.1
7.6 4.2 2.5 4.8
----------EV/EBITDA--------2017F 2018F (x) (x) 26.2 13.6 11.4 17.1
20.8 11.5 8.6 13.6
ROE 2017F (%)
Dividend yield 2017F (%)
28.3 31.8 16.6 25.5
0.3 1.3 0.8 0.8
Source: Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
2
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
SECTOR CATALYSTS
CHINA ONLINE GAME MARKET SIZE AND GROWTH
• New elements injected into game like AR/VR and eSport, Live stream; Overseas expansion; Strong IP investment; High conversion rate from traditional PC game’s IP.
(Rmbb) 160 140 120 100 80 60 40 20 0
ESSENTIALS • China has moved ahead of the US to become the world’s largest online game market with revenue of US$26b (US$23b of US market) achieved in 2016. The sector grew at 28% CAGR in the past five years, driven by the increase in the number of game players, growing ARPU and a boost to the Chinese mobile game industry’s growth from 2011-16. We believe games remain one of the cheapest forms of entertainment globally, and with rising smartphone adoption, the time spent playing games continues to rise. • China's mobile game market size reached Rmb91b, surpassing the PC game market’s size of Rmb69b for the first time, and dominating 50% of China’s total game market revenue in 2016. The sector grew at a 71% CAGR in the past five years, however, the growth rate slowed to 62% yoy in 2016, from 104% yoy in 2015 and 87% in 2014, due to policy standardisation and peaking user size (560m online game players vs China’s total number of internet users at 731m). • Tencent and NetEase are dominating the market. In the Top 10 billing of mobile games in 2016, 5 are from Tencent and 4 are from NetEase. These ten mobile game gained Rmb36b revenue in 2016, accounting for 44% of total mobile game market revenues. According to CNG, 66 of the Top 100 list (by revenue) were new games, and 55 of them belonged to neither Tencent nor NetEase. RISKS
(%) 120
104
100
87 68 47 41 18
61
80
62
21 6
2011 2012 2013 2014 PC game Mobile game Browser game yoy (RHS)
60
37
31 5
6
3
5
3
5
21
40
3
20 4
0 2015 2016F 2017F 2018F Browser game PC game yoy (RHS) Mobile game yoy (RHS)
Source: iResearch, UOB Kay Hian
2016 TOP 10 MOBILE GAME REVENUE MONITOR (Rmbb) 10 9 8 7 6 5 4 New New 3 New New New New 2 1 0 Fantasy Honour of Westward Naruto Wen Dao Ghost Mobile JX Onmyoji Cross Fire Zhengtu Westward Kings Journey (Tencent) (G-bit s) (NetEase) (Tencent) (NetEase) (Tencent) (Tencent) Journey (Tencent) (NetEase) (NetEase)
Source: GPC, CNG, IDC, UOB Kay Hian
• Risk factors. a) Stricter-than-expected game-related policies and regulations, b) falling profitability of existing games, and c) uncertainty of popularity of new game titles. ACTION • Tencent (700 HK/BUY/Target: HK$312.00). Tencent is our top pick for its strong 2017 game pipeline helped by strong R&D capabilities, aggressive investment in the sector and the cooperation with Supercell. Tencent is trading at 30x 2018F PE, according to our forecasts. Although the valuation is higher than the sector average of 20x, we believe the stock is still a solid pick given its higher EPS growth driven by the continuous expansion around social platforms, online gaming, advertising, digital content, and payment. Initiate coverage with a BUY and target price of HK$312.00, pegged to 37x 2018F PE. • NetEase (NTES US/BUY/Target: US$347.00). It is trading at 16x 2017F PE, according to our forecasts, about 2SD above the historical average, representing a 40% discount to the global average of 27x. Initiate coverage with BUY due to successful mobile transition and faster earnings growth from strong mobile and new PC games. We now estimate NetEase’s revenue CAGR at 17% and earnings CAGR at 14% in 2017F-20F translating into 1.5x PE. Our target price of US$347.00 is pegged to 20x 2017F PE, based on SOTP methodology. • Kingsoft (3888 HK/HOLD/Target: HK$28.00). This SZ-HK Connect stock trades at 14x 2017F PE, lower than its HK-listed peers’ 16x 2017F PE and lower than its historical average 17x forward PE. We think its valuation appears fair against the 11% revenue CAGR and 24% earnings CAGR in 2017-20. Initiate coverage with a BUY and target price of HK$28.00.
Refer to last page for important disclosures.
3
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
BUY (Maintained)
COMPANY RESULTS
Alibaba Group (BABA US) 4QFY17: Strongest Top-line Growth Since IPO 4QFY17 revenue came in in line with our estimate and 7% above consensus estimate on strong growth in its core commerce and cloud businesses. Adjusted EBITDA was Rmb16.6b, up 44% yoy. Non-GAAP diluted EPS increased 44% yoy to Rmb4.35, 3% below consensus estimate due to a higher effective tax rate. The company will disclose its 2018 guidance on Investor Day on 8 June. Maintain BUY. We raise our target price to US$139.00 on strong top-line growth since IPO. 4QFY17 RESULTS Year to 31 Dec (Rmbm) Revenue - China Commerce - Intl’ Commerce - Cloud Computing - Others - Digital media GP GPM Non-GAAP OP Non-GAAP OPM Non-GAAP NP Non-GAAP diluted EPADS
4QFY17 38,579 27,284 4,286 2,163 4,846 3,927 23,089 59.8% 13,838 36% 11,235 4.35
qoq % chg -28 -36 1 23 -1 -3 -32% (4 ppt) -43% (10 ppt) -52% -52%
yoy % chg 52 40 111 103 191 234 46% (2 ppt) 28% (7 ppt) 27% 44%
Consensus 35,964
Variance 7.3%
21,106 58.7%
9.4% 1 ppt
Share Price Target Price Upside (Previous TP
US$120.72 US$139.00 +15.1% US$130.00)
COMPANY DESCRIPTION Alibaba Group is the largest e-commerce marketplace operator in China.
STOCK DATA GICS sector Information Technology Bloomberg ticker: BABA US Shares issued (m): 2,495.3 Market cap (US$m): 301,229.8 3-mth avg daily t'over (US$m): 1044.7 Price Performance (%) 52-week high/low
11,574 4.51
-3% -3%
1mth
US$124.02/US$74.23
3mth
6mth
1yr
YTD
20.1
29.3
52.8
37.5
8.5
Major Shareholders
Source: Alibaba, Bloomberg, UOB Kay Hian
RESULTS
%
Softbank
32.0
Yahoo
15.4
• Top-line beat consensus while in line with our estimate. Alibaba’s 4QFY17 revenue Jack Yun MA came in at Rmb38.6b, up 60% yoy, beating consensus by 7% while in line with our estimate. China retail marketplaces revenue was Rmb25.8b, up 41% yoy, driven by a 7% FY18 NAV/Share (Rmb) yoy increase in annual active buyers to 454m. Online marketing services rose 46% yoy FY18 Net Cash/Share (Rmb) and commission revenue growth rose 34% yoy. Core e-commerce grew 47% yoy to PRICE CHART Rmb31.6b with an adjusted EBITA margin of 59%. Non-GAAP diluted EPS came in at (lcy) Rmb4.35, 3% below consensus estimates due to higher effective tax rate of 22.6% 130 (3QFY17: 18.5%).
7.8 135.39 49.73
ALIBABA GROUP HOLDING-SP ADR
(%)
ALIBABA GROUP HOLDING-SP ADR/NYA INDEX
• Cloud computing revenue rose 103% yoy to Rmb2.2b, driven by a rise in the number of paying customers (4QFY17: 874,000, 4QFY16: 513,000) and higher ARPU (+19% yoy, +7% qoq) with more sophisticated product offerings and increasing contribution from bigger clients. Adjusted EBITA margin was -8%, down from the -16% in 4QFY16.
170 160
120
150 110
140
100
130
90
120 110
80
100 70
90 80
60 100
Volume (m)
KEY FINANCIALS Year to 31 Mar (Rmbm)
50
2016
2017
2018F
2019F
2020F
101,143 35,803 29,102 71,460 42,912 1,674.9 47.7 9.8 56.2 0.0 70.7 (46.3) n.a. 39.3 -
158,273 59,980 48,055 43,675 64,792 2,519.6 31.9 7.7 33.5 0.0 27.6 (37.9) n.a. 17.5 -
223,674 87,593 65,476 55,875 83,364 3,209.8 25.1 6.1 23.0 0.0 25.0 (36.4) n.a. 17.6 75,503 1.10
285,872 113,955 98,911 86,235 114,483 4,364.3 18.4 4.8 17.7 0.0 30.2 (45.7) n.a. 21.3 95,380 1.20
354,048 150,603 132,513 121,138 148,028 5,587.2 14.4 3.7 13.4 0.0 34.2 (54.0) n.a. 23.1 120,468 1.23
0
Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (fen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS Julia Pan +8621 5404 7225 ext 808
[email protected] Olivia Li +8621 5404 7225 ext 858
[email protected]
Source: Alibaba, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
4
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
STOCK IMPACT • Margins. Gross margin shrank 2ppt yoy to 60% and non-GAAP operating margin contracted 7ppt yoy to 36%, dragged by Lazada (estimate 2ppt), increasing investment in the Tmall market (3-4ppt drag) and heavy investment in video content.
MOBILE REVENUE AS % OF ONLINE CHINA COMMERCE RETAIL
• Mobile revenue grew 69% yoy and accounted for 85% of Alibaba’s China’s retail revenue in 4QFY17 (3QFY17: 80%, 4QFY16: 71%). Mobile MAU reached 507m, up 24% yoy. Annual active buyers grew 7% yoy to 454m in 4QFY17. • Global expansion on track. International commerce retail revenue increased 111% yoy with strong AliExpress organic growth as well as accelerating growth of Lazada. Global annual active buyers at both platforms combined reached 83m ending Mar 17. • Digital media and entertainment (Youku Tudou, UCWeb, Alibaba Music, Alibaba Sports) revenue soared 234% yoy to Rmb3.9b while adjusted EBITA margin narrowed to -44% from -60% in 3QFY17. Management reiterated its confidence in digital media and entertainment, and commitment on investment in content, user acquisition and infrastructure. It expects losses to narrow while revenue growth to speed up.
Source: Alibaba, UOB Kay Hian
QUARTERLY MOBILE MAU
• Innovation initiatives (YunOS, AutoNavi and Ding Ding) revenue was up 88% yoy to Rmb919mn with adjusted EBITA margin loss falling to -74% from -210% in 4QFY16. • Share of equity investees’ loss expanded to Rmb1.4b from Rmb716m in 4QFY16. FINANCIAL INFORMATION OF OPERATING SEGMENTS Adjusted EBITA margin (%)
Revenue
Income from operations
Adjusted EBITA
4QFY17 Core commerce Cloud computing Digital media and entertainment Innovation initiatives and others
31,570 2,163 3,927 919
16,500 -505 -2,586 -1,888
18,579 -169 -1,711 -682
59 -8 -44 -74
4QFY16 Core commerce Cloud computing Digital media and entertainment Innovation initiatives and others
21,455 1,066 1,174 489
10,733 -607 -838 -1,971
12,693 -166 -201 -1,025
59 -16 -17 -210
(yoy % chg) Core commerce Cloud computing Digital media and entertainment Innovation initiatives and others
47 103 234 88
54 -17 209 -4
46 2 751 -33
(0ppt) 8ppt (26ppt) 135ppt
(Rmbm)
Source: Alibaba, UOB Kay Hian
EARNINGS REVISION/RISK • We raise our FY18-19 revenue estimates by 2% and 4% on stronger growth outlook for core commerce revenue. Our FY18 EPS estimate is unchanged but we raise FY19 EPS estimate by 8%, thanks to higher operating leverage. VALUATION/RECOMMENDATION • Maintain BUY with a higher target price of US$139.00 on strong top-line growth. Alibaba is currently trading at 23x FY18F PE and 18x FY19F PE based on our EPS estimates. We lift our SOTP target price by 7% to US$139.00 to reflect stronger top-line growth. Our target price implies 29x FY18F PE and 23x FY19F PE.
Source: Alibaba, UOB Kay Hian
CHINA TOTAL RETAIL GROWTH VS. ONLINE RETAIL GROWTH
Source: Alibaba, UOB Kay Hian
EARNINGS REVISION (%) Total revenue COGS Gross profit Total operating expenses Operating profit Non-GAAP EBITDA margin Non-GAAP net profit to the company Non-GAAP diluted EPS (Rmb)
FY18F 2 3 1 6 -4
FY19F 4 6 3 -6 11
FY20F 5 7 4 -4 11
(54bp)
(262bp)
(233bp)
0
8
10
0
8
10
Source: Alibaba, UOB Kay Hian
SHARE PRICE CATALYST • a) Faster-than-expected global expansion progress, b) better-than-expected advertising revenue growth with further reach towards Tmall’s brand merchants, c) breakeven at Youku and Koubei, and d) potential listing of Ant Financial.
Refer to last page for important disclosures.
5
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 31 Mar (Rmbm) Net turnover EBITDA
Friday, 19 May 2017
BALANCE SHEET 2017
2018F
2019F
2020F
Year to 31 Mar (Rmbm)
2017
2018F
2019F
2020F
158,273.0
223,674.1
285,871.9
354,047.8
Fixed assets
20,206.0
29,452.4
39,265.7
49,382.6
59,980.0
87,593.0
113,954.6
150,602.6
Other LT assets
304,090.0
326,089.4
344,305.9
364,994.3
Deprec. & amort.
11,925.0
22,117.1
15,043.6
18,089.8
Cash/ST investment
143,736.0
169,169.6
251,595.2
367,199.0
EBIT
48,055.0
65,476.0
98,911.0
132,512.9
Other current assets
38,780.0
52,746.6
66,057.1
80,633.3
6,086.0
4,473.5
5,717.4
7,081.0
506,812.0
577,457.9
701,223.9
862,209.2
(5,027.0)
(4,028.0)
(3,628.0)
(2,928.0)
ST debt
5,948.0
5,948.0
5,948.0
5,948.0
5,888.0
5,704.8
10,353.9
16,921.9
Other current liabilities
87,823.0
82,531.5
102,079.4
122,497.2
Total other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit
Total assets
55,002.0
71,626.2
111,354.3
153,587.7
LT debt
30,959.0
34,054.9
37,460.4
41,206.4
(13,776.0)
(18,690.2)
(28,646.0)
(36,681.1)
Other LT liabilities
57,961.0
57,961.0
57,961.0
57,961.0
2,449.0
2,938.8
3,526.6
4,231.9
281,791.0
354,632.5
455,445.1
592,266.5
0.0
0.0
0.0
0.0
42,330.0
42,330.0
42,330.0
42,330.0
Net profit
43,675.0
55,874.8
86,234.9
121,138.5
506,812.0
577,457.9
701,223.9
862,209.2
Net profit (adj.)
64,792.0
83,364.2
114,482.7
148,028.3
2017
2018F
2019F
2020F
Tax Minorities Preferred dividends
CASH FLOW Year to 31 Mar (Rmbm) Operating Pre-tax profit Tax Deprec. & amort. Associates Working capital changes Non-cash items Other operating cashflows
Shareholders' equity Minority interest Total liabilities & equity
KEY METRICS 2017
2018F
2019F
2020F
80,326.0
55,795.0
103,989.2
140,838.1
Year to 31 Mar (%) Profitability
55,002.0
71,626.2
111,354.3
153,587.7
EBITDA margin
37.9
39.2
39.9
42.5
(13,776.0)
(18,690.2)
(28,646.0)
(36,681.1)
Pre-tax margin
34.8
32.0
39.0
43.4
11,925.0
22,117.1
15,043.6
18,089.8
Net margin
27.6
25.0
30.2
34.2
5,027.0
4,028.0
3,628.0
2,928.0
ROA
10.0
10.3
13.5
15.5
30,204.0
(19,258.0)
6,237.3
5,841.7
ROE
17.5
17.6
21.3
23.1
0.0
0.0
0.0
0.0 56.5
41.3
27.8
23.8
(8,056.0)
(4,028.0)
(3,628.0)
(2,928.0)
Growth
Investing
(78,364.0)
(53,362.8)
(43,073.4)
(48,895.1)
Turnover
Capex (growth)
EBITDA
(14,714.0)
(19,675.7)
(23,717.6)
(27,603.7)
67.5
46.0
30.1
32.2
Capex (maintenance)
0.0
0.0
0.0
0.0
Pre-tax profit
(31.0)
30.2
55.5
37.9
Investments
0.0
0.0
0.0
0.0
Net profit
(38.9)
27.9
54.3
40.5
Proceeds from sale of assets Others
0.0
0.0
0.0
0.0
Net profit (adj.)
51.0
28.7
37.3
29.3
(63,650.0)
(33,687.1)
(19,355.8)
(21,291.4)
EPS
49.2
27.4
36.0
28.0
32,914.0
23,001.4
21,509.8
23,660.8 10.2
9.2
8.0
6.9
Financing Dividend payments
0.0
0.0
n.a.
n.a.
Issue of shares
41,784.0
19,905.5
18,104.4
19,914.8
Proceeds from borrowings
29,040.0
3,095.9
3,405.5
3,746.0
0.0
0.0
0.0
0.0
Net debt/(cash) to equity Interest cover (x)
Loan repayment Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Changes due to forex impact Ending cash & cash equivalent
(37,910.0)
0.0
0.0
0.0
34,876.0
25,433.6
82,425.6
115,603.8
106,818.0
143,736.0
169,169.6
251,595.2
2,042.0
0.0
0.0
0.0
143,736.0
169,169.6
251,595.2
367,199.0
Refer to last page for important disclosures.
Leverage Debt to total capital Debt to equity
13.1
11.3
9.5
8.0
(37.9)
(36.4)
(45.7)
(54.0)
n.a.
n.a.
n.a.
n.a.
6
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
COMPANY UPDATE
Nexteer Automotive Group (1316 HK)
SELL (Downgraded)
A Good Company Facing Cyclical Headwinds
Share Price
HK$12.08
We downgrade Nexteer from BUY to SELL, given: a) stretched valuation after share price hit our target of HK$12.50, and b) looming earnings risk from the weakening US automobile market. We had remained upbeat on Nexteer’s profit outlook, given the still robust growth in the SUV and pick-up markets. But even these two segments in the US are now deteriorating and even customers in China are seeing lower sales. We cut 2017-19 EPS by 8-17%, and cut target price from HK$12.50 to HK$10.00.
Target Price Upside (Previous TP
HK$10.00
WHAT’S NEW • US automobile market’s deterioration worse than expected. The US auto market’s
deterioration is worse than we had expected with the yoy drop in passenger vehicle sales widening from 0.4% in Jan 17 to 5.5% in Apr 17. SUVs saw a plunge in yoy sales growth from 10.5% in Jan 17 to merely 2% yoy in Apr 17, while yoy sales growth of pick-ups even turned negative in Apr 17. All of Nexteer’s top three customers in the US – General Motors (GM), Ford and Chrysler – registered yoy sales declines in Apr 17 (see the chart overleaf). The US auto cycle peaked in 2016 after six years of expansion, and started to decline since 2017 given the interest rate hike and rising delinquency of subprime car loans. Inventories are piling up and retail discounts widening. While Nexteer expects US auto sales to remain flat yoy in 2017, the National Automobile Dealers Association expects the US auto sales to drop by 3% yoy in 2017. We expect even SUV and pick-up trucks to see yoy sales drops in 2017. • Customers in China seeing sales declines. Three of Nexteer’s four major customers in
China saw weaker sales momentums in Apr 17. SGM Wuling, Dongfeng PSA and Dongfeng Liuqi registered yoy sales declines of 6%/55%/42% respectively in Apr 17 and 2%/48%/24% in 4M17. SAIC GM is the only customer of Nexteer in China which posted positive yoy sales growth ytd, but its sales growth still slowed to 6% in 4M17 from 9% in 2016. Nexteer also sells some parts and components of steering products to its JV with Chang'an. But earnings contribution will be insignificant in the next couple of years. • ADAS products will only hit the market by 2020. The advanced driver assist system
steering (ADAS) products will not be launched before 2019, and thus will not contribute any earnings in the next few years. Nexteer has just started to deliver steering products for ADAS to customers for trial run this year.
-17.2%
HK$12.50)
COMPANY DESCRIPTION Nexteer Automotive Group manufactures and sells steering systems and drivelines to global automakers such as General Motors, Ford, Fiat-Chrysler, Peugeot SA, BMW and Volkswagen.
STOCK DATA GICS sector Bloomberg ticker: Shares issued (m): Market cap (HK$m): Market cap (US$m): 3-mth avg daily t'over (US$m):
Automobile 1316 HK 2,498 30,176 3,894 8.2
Price Performance (%) 52-week high/low
1mth 9.0
HK$13.20/HK$6.70
3mth
6mth
1yr
YTD
27.3
21.8
51.9
31.3
Major Shareholders
%
Pacific Century Motors
67.26
FY17 NAV/Share (HK$)
2.25
FY17 Net Cash/Share (HK$)
0.81
PRICE CHART NEXTEER AUTOMOTIVE GROUP LTD
(lcy)
(%) NEXTEER AUTOMOTIVE GROUP LTD/HSI INDEX
14
170 160
12
150
KEY FINANCIALS Year to 31 Dec (US$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
180
140
2015
2016
2017F
2018F
2019F
3,425 455 313 205 205 8.2 18.8 4.7 9.2 1.1 6.0 27.2 10.1 27.2 -
3,929 578 415 295 295 11.8 13.1 3.7 7.2 1.5 7.5 7.5 13.8 31.2 -
4,080 601 431 307 307 12.3 12.6 3.0 7.0 1.6 7.5 20.1 14.9 25.9 339 0.91
4,350 646 450 328 328 13.1 11.8 2.5 6.5 1.7 7.5 (0.7) 22.3 22.8 384 0.85
4,700 704 483 356 356 14.2 10.9 2.1 6.0 1.8 7.6 7.0 28.6 20.7 446 0.80
Source: Nexteer, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
130
10
120 110
8
100 90 80
6 40 30
Volume (m)
20 10 0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYST Ken Lee +852 2236 6760
[email protected] Sophie Yu +852 2826 1392
[email protected]
7
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
• New product cycle to start only in 2018. Nexteer launched only three projects in 1Q17,
much lower than eight projects launched in 1Q16 and 10 in 4Q16. Despite this, the company guided that the number of new product launches for 2017 will be roughly the same as that in 2016, ie 34. But the new product cycle will only start in 2018 when the company will launch a big project for a pick-up truck model of Chrysler called RAM in the US and roll out the next generation (3rd generation) of electric powered steering (EPS) products in Europe. The product can boost output by 70%, is 40% lighter and its circuit board is 50% smaller. Meanwhile, they support features like auto parking, traffic jam assist and selectable steering performance. • Cut 2017-19 revenue estimates by 6%, 10% and 13%. The deterioration of both the US
and China markets constitutes a double-whammy for Nexteer, as the two markets jointly contributed over 70% in total revenue in 2016. Before this, we remained upbeat on Nexteer’s earnings growth despite the sluggish auto sales in the US, as for the market, Nexteer supplies more than 80% of it steering products to the SUV and pick-up truck models which were selling better. But now even SUVs and pick-ups are losing sales momentum. Though the orders to deliver grew from US$25.6b at end-16 to US$26.2b at end-Mar 17, the numbers are just based on expected orders and actual orders still depend on end-demand of the customers’ car models. A continuous decline in auto sales would feed through to lower revenue at Nexteer. As such, we cut revenue estimates for 2017-19 by 6%, 10% and 13% to US$4.08b, US$4.35b and US$4.7b, implying yoy growth of 4%, 7% and 8% respectively. • Trim net margin assumptions. The company guided that margins will remain steady
despite the slowdown of sales growth, as the annual product price reductions are confined by contracts signed with carmakers. As such, carmakers cannot ask for bigger annual price reductions for parts and components despite sluggish car sales and weakening auto prices. In addition, the company would not suffer operating deleveraging as long as topline keeps growing, even at a slower pace. However, we previously assumed net margin would improve from 7.5% in 2016 to 7.7%, 7.9% and 8.0% in 2017-19 on >10% p.a. revenue growth. Now, we are assuming net margins to remain steady at 7.5-7.6% in 2017-19. EARNINGS REVISION • We slash our net profit forecasts for 2017-19 by 8%, 14% and 17% to US$307m
(US$0.12/share), US$328m (US$0.13/share) and US$356m (US$0.14/share), implying yoy growth of 4%, 7% and 9% respectively. Our 2017-19 earnings estimates are 9%, 15% and 20% below consensus, given our lower revenue estimates. VALUATION/RECOMMENDATION • Downgrade from BUY to SELL given: a) stretched valuation after share price hit our
target of HK$12.50, and b) looming earnings risk from the weakening US auto market. The stock trades at 12.6x 2017F PE, or 1SD above its historical mean of 10x. Given the prospective earnings slowdown, we lower our 2017 target PE from 12x to 10x, on a par with historical mean. Based on a lower target PE of 10x and 2017F EPS, we cut our target price from HK$12.50 to HK$10.00. KEY ASSUMPTIONS
Revenue - North America - Asia Pacific - Europe & South America EBITDA - North America - China - Europe Net profit Net margin (%)
(U S $b ) 14 13 12 11 10 9 8 7 6 D e c M a r J u n S ep D ec M a r J u n S e p D e c M ar J un S e p D e c 1 3 14 1 4 1 4 1 4 1 5 15 1 5 1 5 1 6 1 6 1 6 16
STOCK IMPACT
Year to 31 Dec (US$m)
NEXTEER’S ORDER BACKLOG
16 3,929 2,555 944 431 578 396 174 16 295 7.5
--------------- New --------------17F 18F 19F 4,080 2,640 990 450 601 409 182 17 307 7.5
4,350 2,800 1,100 450 646 434 202 17 328 7.5
4,700 3,000 1,250 450 704 465 230 17 356 7.6
---------------- Old ---------------17F 18F 19F 4,340 2,750 1,140 450 669 449 194 34 335 7.7
4,860 3,040 1,370 450 755 496 233 34 383 7.9
Source: Nexteer
US AUTO SALES BY CATEGORY yoy chg (%) 35 30 25 20 15 10 5 0 -5 -10 Jan Mar May Jul Sep Nov 15 15 15 15 15 15
SUV Pickup
Overall Jan M ar May Jul Sep Nov Jan Mar 16 16 16 16 16 16 17 17
Sources: US Alliance of Automobile Manufacturers
THE BIG THREE’S SALES IN THE US yoy chg (%) 30 25 20 F iat-C hrysler 15 F ord 10 GM 5 0 -5 -10 -15 -20 -25 Jan M ar M ay J ul Sep N ov J an M ar M ay Jul Sep N ov Jan M ar 15 15 15 15 15 15 16 16 16 16 16 16 17 17
Sources: The Companies
THE BIG THREE’S SALES IN THE US y oy c hg (% ) 30 25 20 F iat-C hrysler 15 F ord 10 GM 5 0 -5 -10 -15 -20 -25 J an M ar M ay J ul Sep N ov J an M ar M ay J ul Sep N ov J an M ar 15 15 15 15 15 15 16 16 16 16 16 16 17 17
Sources: The Companies
5,410 3,300 1,660 450 840 531 282 34 430 8.0
Source: Nexteer, UOB Kay Hian
Refer to last page for important disclosures.
8
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 31 Dec (US$m) Net turnover EBITDA Depreciation & amortization EBIT
Friday, 19 May 2017
BALANCE SHEET 2016
2017F
2018F
2019F
3,929
4,080
4,350
4,700
Year to 31 Dec (US$m)
2016
2017F
2018F
2019F
Fixed assets
780
840
895
923
Other LT assets
578
601
646
704
486
619
760
913
(163)
(169)
(196)
(221)
Cash/ST investment
484
117
291
150
Other current assets
943
1,020
1,061
1,173
2,693
2,597
3,007
3,158
415
431
450
483
Total other non-operating income
-
-
-
-
Total assets
Associate contributions
-
-
-
-
ST debt
75
80
80
80
Net interest income/(expense)
(30)
(29)
(20)
(17)
Other current liabilities
Pre-tax profit
785
617
854
707
386
402
430
466
LT debt
Tax
489
300
200
200
(84)
(89)
(95)
(103)
Other LT liabilities
Minorities
253
253
253
253
(7)
(7)
(7)
(8)
Net profit
295
307
328
356
1,059
1,307
1,574
1,864
Minority interest
Net profit (recurrent)
295
307
328
356
32
39
46
54
Total liabilities & equity
2,693
2,597
3,007
3,158
2016
2017F
2018F
2019F
2016
2017F
2018F
2019F
Operating
522
267
747
343
Pre-tax profit
386
402
430
466
EBITDA margin
14.7
14.7
14.8
15.0
Tax
(84)
(89)
(95)
(103)
Pre-tax margin
9.8
9.9
9.9
9.9
Depreciation/amortization
163
169
196
221
7.5
7.5
7.5
7.6
-
-
-
-
ROA
11.4
11.6
11.7
11.5
Working capital changes
28
(245)
196
(259)
ROE
31.2
25.9
22.8
20.7
Non-cash items
29
29
20
17
14.7
3.8
6.6
8.0
26.9
3.9
7.5
9.1
36.2
4.2
6.9
8.5
43.5
4.1
6.9
8.5
43.5
4.1
6.9
8.5
43.5
4.1
6.9
8.5
20.9
14.6
9.3
8.9
53.3
29.1
17.8
15.0
7.5
20.1
(0.7)
7.0
13.8
14.9
22.3
28.6
KEY METRICS
CASH FLOW Year to 31 Dec (US$m)
Associates
Other operating cashflows
Shareholders' equity
Year to 31 Dec (%) Profitability
Net margin
-
-
-
-
Investing
(284)
(361)
(390)
(400)
Turnover
Capex (growth)
(167)
(230)
(250)
(249)
EBITDA
Investments
-
-
-
-
Pre-tax profit
Proceeds from sale of assets
-
-
-
-
Net profit
(118)
(131)
(140)
(151)
(154)
(274)
(183)
(84)
(41)
(59)
(61)
(66)
Issue of shares
-
-
-
-
Proceeds from borrowings
-
-
-
-
Loan repayment
-
-
-
-
Others Financing Dividend payments
Others/interest paid Net cash inflow (outflow)
(36)
(31)
(21)
(18)
83
(367)
174
(142)
Growth
Net profit (adj.) EPS
Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x)
Beginning cash & cash equivalent
417
484
117
291
Ending cash & cash equivalent
484
117
291
150
Refer to last page for important disclosures.
9
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
COMPANY UPDATE
HOLD (Maintained)
Gudang Garam (GGRM IJ) Sees Lower Inventory Purchases And Interest Expense The low interest expense in 1Q17 is likely to remain through 2017. Ytd tobacco harvests appear to be of low quality and this has led to a decline in purchases by GGRM. Its interest rate declined from 9.46% in 1Q16 to 7.31% in 1Q17. 2Q17 could be a good quarter but quarterly net income growth should weaken in 3Q-4Q17. Sales volume should remain soft and selling price increases would be marginal. Maintain HOLD with a higher target price of Rp74,000. Entry price: Rp67,000. WHAT’S NEW • 2017 tobacco harvest seems to be of poor quality. Channel checks indicate that tobacco harvests were of poor quality in 1Q17. As such, Gudang Garam (GGRM) has decided to not make further purchases from the Madura farmers. In 2016, harvests were of good quality and GGRM had purchased more than the quota it has allotted to itself. This is typical of GGRM as the company likes to secure quality leaves which would be aged for the next two years as part of the production process. Inventory value declined from Rp38.3t in 1Q16 to Rp33.8t in 1Q17 (Rp37.5t in 2016). • Lower interest expense as rate falls. With the lack of tobacco leave purchases, working capital requirements are lower. Outstanding short-term loans declined from Rp20.6t in 1Q16 to Rp19.7t. Interest rate also declined from 9.46% in 1Q16 to 7.31%. As such, 1Q17 interest expense declined from Rp354.8b in 1Q16 to Rp233.7b. We view that this level of interest expense can be maintained in 2017. • 2Q17 could be strong, but a high hurdle expected in 2H17. Looking at GGRM’s quarterly profit in 2016, we believe the company could record strong yoy growth in 2Q17. In 2Q16, net income came in at Rp1,176b. GGRM has been able to deliver a net income averaging Rp1.9t in 3Q16-1Q17, net income has been above Rp1.5t. As such, there is the likelihood of strong yoy growth in 2Q17 net income. Given the high quarterly profits in 2H16, the ability to generate EPS growth of over 15% is unlikely in 2H17. • Sales volume declined last year and is still weak. In 2016, AC Nielsen reported that industry sales volume declined 0.8% yoy. Hand-rolled (SKT) sales fell 6.2% to 54.2b sticks, low-tar mild segment (SKM-Mild) sales fell 1.4% to 111b sticks but machine-rolled full flavour (SKM-FF) sales rose 4% to 103m sticks. Non-clove cigarettes continued to see sales decline 6% in 2016. GGRM’s overall sales volume was down 2.0% yoy in 2016 to 77.1m sticks and its SKM FF sales was down 3.7% yoy to 58.7b sticks. Its SKM-Mild sales increased 7.6% yoy to 9.9b sticks and SKT’s declined 0.4% yoy to 8.5b sticks.
Share Price Target Price Upside (Previous TP
Rp72,025 Rp74,000 +2.7% Rp68,000)
COMPANY DESCRIPTION One of the biggest cigarette producer in Indonesia. It operates its business related to cigarette industry
STOCK DATA GICS sector Consumer Staples GGRM IJ Bloomberg ticker: Shares issued (m): 1,924.1 138,582.4 Market cap (Rpb): Market cap (US$m): 10,376.0 3-mth avg daily t'over (US$m): 4.1 Price Performance (%) 52-week high/low
1mth
Rp77,500/Rp60,000
3mth
6mth
1yr
YTD
18.5
14.1
0.0
12.7
11.0
Major Shareholders
%
Suryaduta Investama
69.3
FY17 NAV/Share (Rp)
24,866
FY17 Net Debt/Share (Rp)
7,195
PRICE CHART (lcy)
GUDANG GARAM TBK PT
GUDANG GARAM TBK PT/JCI INDEX
(%) 110
80000 75000
100 70000 90
65000 60000
80 55000 70
50000 6
KEY FINANCIALS Year to 31 Dec (Rpb) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (Rp) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
4
2015 70,366 11,621 9,906 6,436 6,436 3,344.8 21.5 3.7 13.1 1.1 9.1 47.1 8.1 n.a. -
2016 76,274 12,035 9,972 6,677 6,677 3,470.3 20.8 3.5 12.7 1.1 8.8 46.0 10.1 17.3 -
2017F 87,300 12,831 10,946 7,520 7,520 3,908.4 18.4 2.9 11.9 2.0 8.6 28.9 11.7 17.2 7,548 1.00
2018F 100,906 14,158 12,279 8,519 8,519 4,427.4 16.3 2.6 10.8 2.2 8.4 23.8 12.6 16.8 8,538 1.00
2019F 115,864 15,869 13,880 9,742 9,742 5,063.0 14.2 2.3 9.6 2.5 8.4 18.6 14.1 17.3 9,457 1.03
Volume (m)
2 0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS Stevanus Juanda +6221 2993 3845
[email protected]
Source: GGRM, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
10
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
PE BAND
STOCK IMPACT • GGRM fared poorly last year. GGRM’s overall sales volume fell 2.0% yoy in 2016 to 77.1m sticks. Its SKM FF product sales was down 3.7% (to 58.7b sticks), SKM-Mild’s increased by 7.6% to 9.9b sticks and SKT’s sales declined 0.4% to 8.5b sticks. GGRM's market share declined from 21.5% in 2015 to 20.8% in 2016. In our many years of covering GGRM, the company has paid more attention to long-term sales volume and market share rather than 12-month profit. However, the financial market tends to assign their ratings based on the latter. • Expect a mediocre 2017. We expect sales volume growth to come in flat or fall in 2017 and believe that GGRM is willing to pay less attention to profits and focus more on securing sales volume and protecting market share. When ASP increases trail excise tax increases, GGRM will likely face a mediocre operational performance. Considering the still soft purchasing power and the near 20% increase in excise and VAT taxes ytd, we would lean towards a more mediocre guidance for 2017.
18.00 16.00 14.00 12.00 10.00 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 -2stdev 13.7x 1stdev 18.7x
-1stdev 15.3x 2stdev 20.3x
Average 17x GGRM
Source: Bloomberg, GGRM
QUARTERLY EARNINGS 2,500 2,076 1,890
2,000
1,732
1,693 1,176
• Raise 2017 forecast. Considering the lower working capital requirements and interest costs, we have revisited our model and raise our 2017F/18F net income forecasts by 9.1% and 6.5% respectively. Our new Rp7,520b net income forecast for 2017 represents a 12.6% yoy rise in net income. FORECAST REVISION
1,000 500 ‐ 1Q16
2Q16
3Q16 Net Income (Rp B)
4Q16
1Q17
Source: Bloomberg, GGRM
New Forecast 2017F 2018F
Revenue 87,300 Gross Profit 17,885 Op Profit 10,946 Net Income 7,520 Source: Bloomberg, GGRM
20.00
1,500
EARNINGS REVISION/RISK
(Rpb)
22.00
100,906 20,165 12,279 8,519
UOBKH Original 2017F 2018F 90,406 17,206 10,108 6,896
104,510 19,650 11,577 7,997
Difference (%) 2017F 2018F -3.4% 3.9% 8.3% 9.1%
-3.4% 2.6% 6.1% 6.5%
Street 2017F 2018F 84,101 18,846 11,302 7,548
93,389 21,003 12,696 8,538
Difference (%) 2017F 2018F 3.8% -5.1% -3.1% -0.4%
8.0% -4.0% -3.3% -0.2%
• Risks. Earnings falling short or coming in ahead of expectations in 9M17 and for the year. VALUATION/RECOMMENDATION • Maintain HOLD with a higher target price of Rp74,000. With the 9.1% upside to our 2017 earnings forecast, we raise our target price from Rp68,000 to Rp74,000, based on on an unchanged 19x 2017F PE. We will be more bullish if there is a significant rise in selling prices or if share price falls below Rp67,000. VOLUME SKM, SKT AND MARKET SHARE
Source: GGRM
Refer to last page for important disclosures.
11
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 31 Dec (Rpb)
BALANCE SHEET 2016
2017F
2018F
2019F
Net turnover
76,274
87,300
100,906
115,864
EBITDA
12,035
12,831
14,158
15,869
Deprec. & amort.
2,063
1,884
1,878
1,990
EBIT
9,972
10,946
12,279
13,880
150
169
195
Total other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax
Friday, 19 May 2017
Year to 31 Dec (Rpb) Fixed assets
2016
2017F
2018F
2019F
20,499
21,325
22,511
23,674
Other LT assets
520
919
1,062
1,220
LT debt
n.a.
n.a.
n.a.
n.a.
Cash/ST investment
1,595
5,035
6,672
8,313
224
Other current assets
40,338
43,537
47,157
51,378
0.0
0.0
0.0
0.0
Total assets
62,952
70,816
77,402
84,585
(1,191)
(1,095)
(1,124)
(1,124)
ST debt
19,753
18,879
19,379
19,379
8,931
10,020
11,351
12,980
Other current liabilities
1,885
2,478
2,872
3,115
(2,258)
(2,505)
(2,838)
(3,245)
Other LT liabilities
1,749
1,538
1,778
2,484
39,487
47,844
53,296
59,531
77
77
77
77
62,952
70,816
77,402
84,585
2016
2017F
2018F
2019F
Minorities
4.4
5.0
5.6
6.4
Net profit
6,677
7,520
8,519
9,742
Minority interest
Net profit (adj.)
6,677
7,520
8,519
9,742
Total liabilities & equity
2016
2017F
2018F
2019F
Year to 31 Dec (%)
Operating
6,938
6,813
7,154
7,733
Profitability
Pre-tax profit
8,931
10,020
11,351
12,980
EBITDA margin
15.8
14.7
14.0
13.7
(2,258)
(2,505)
(2,838)
(3,245)
Pre-tax margin
11.7
11.5
11.2
11.2
2,063
1,884
1,878
1,990
8.8
8.6
8.4
8.4
(2,064)
(2,754)
(3,160)
(3,402)
ROA
10.6
11.2
11.5
12.0
266
167
(78)
(589)
ROE
17.3
17.2
16.8
17.3
Investing
(2,226)
(1,581)
(3,189)
(3,291)
Capex (growth)
(2,335)
(2,711)
(3,064)
(3,153)
Investments
0.0
0.0
0.0
0.0
Turnover
8.4
14.5
15.6
14.8
Others
109
1,130
(125)
(138)
EBITDA
3.6
6.6
10.3
12.1
Financing
(5,838)
(1,792)
(2,327)
(2,801)
Pre-tax profit
3.4
12.2
13.3
14.4
Dividend payments
(1,539)
(2,707)
(3,067)
(3,507)
Net profit
3.8
12.6
13.3
14.4
Issue of shares
(0.9)
0.0
0.0
0.0
Net profit (adj.)
3.8
12.6
13.3
14.4
Proceeds from borrowings
(100)
(874)
500
0.0
EPS
3.8
12.6
13.3
14.4
CASH FLOW Year to 31 Dec (Rpb)
Tax Deprec. & amort. Working capital changes Other operating cashflows
Loan repayment
Shareholders' equity
KEY METRICS
Net margin
Growth
0.0
0.0
0.0
0.0
Others/interest paid
(4,198)
1,789
240
706
Net cash inflow (outflow)
(1,126)
3,439
1,637
1,641
Debt to total capital
33.3
28.3
26.6
24.5
2,726
1,595
5,035
6,672
Debt to equity
50.0
39.5
36.4
32.6
(4.7)
0.0
0.0
0.0
Net debt/(cash) to equity
46.0
28.9
23.8
18.6
1,595
5,035
6,672
8,313
Interest cover (x)
10.1
11.7
12.6
14.1
Beginning cash & cash equivalent Changes due to forex impact Ending cash & cash equivalent
Refer to last page for important disclosures.
Leverage
12
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
COMPANY RESULTS
HOLD (Maintained)
JCY International (JCYH MK) 2QFY17: Above Expectations 2QFY17 results came in above expectations on a strong US dollar and lower administrative expenses. Quarterly 1.25 sen dividend per share was maintained for 2QFY17. JCY’s net cash remains strong but is reduced, largely due to lower operating cash flow. We believe this phenomenon is temporary, but should it continue, it could affect JCY’s ability in sustaining its generous dividend payout over the longer term. Maintain HOLD. Target price: RM0.59. Entry price: RM0.55. 2QFY17 RESULTS Year to 30 Sep (RMm) Revenue Gross profit EBITDA Operating profit Finance cost Pre-tax profit Tax Net Profit Margins Gross EBITDA PBT Net profit
2QFY17 406.7 21.1 45.1 20.3 (0.5) 19.9 (4.4) 15.4
yoy % chg (11.1) (26.2) 157.9 (696.5) 39.2 (631.7) 65.0 (20.9)
qoq % chg (1.5) (28.6) (35.8) (55.7) 24.8 (56.4) 29.0 (41.5)
1H17 819.7 50.6 115.4 66.2 (0.8) 65.4 (7.9) 41.7
yoy % chg (16.8) (41.4) 32.1 62.1 16.9 62.9 52.4 (31.4)
(%) 5.2 11.1 4.9 3.8
+/-ppt (1.1) 7.3 5.7 (0.5)
+/-ppt (2.0) (5.9) (6.1) (2.6)
6.2 14.1 8.0 5.1
(2.6) 5.2 3.9 (1.1)
Source: JCY, UOB Kay Hian
Share Price Target Price Upside
RM0.665 RM0.590 -11.3%
COMPANY DESCRIPTION JCY International is a leading integrated HDD component maker. It has a decades-long working relationship with Western Digital, which controls >40% of the global HDD market. JCY’s main facilities are located in Malaysia but it also operates in Thailand.
STOCK DATA GICS sector Information Technology Bloomberg ticker: JCYH MK 2,060.8 Shares issued (m): Market cap (RMm): 1,370.4 316.6 Market cap (US$m): 3-mth avg daily t'over (US$m): 0.7 Price Performance (%) 52-week high/low
1mth
RM0.685/RM0.485
3mth
6mth
1yr
YTD
9.9
23.1
(0.7)
35.7
10.8
RESULTS
Major Shareholders
• Above expectations. JCY International (JCY) reported 2QFY17 revenue of RM407m (11.1% yoy, -1.5% qoq) and net profit of RM15m. 1HFY17 made up 68% of our FY17 forecast. Results were above expectations, mainly on the strong US dollar and sustained low administrative expenses during the quarter.
YKY Investment Ltd
FY17 NAV/Share (RM)
0.53
• Lower sales volume and ASP offset by favourable US$ exchange rate. Despite the stronger US dollar at an average of RM4.45/US$ in 2QFY17 (2QFY16: RM4.19/US$), JCY’s sales in ringgit terms fell 11% yoy. We estimate its sales in US$ terms would have dropped 16% yoy. On a qoq basis, the sales drop is unsurprising as 2QFY17 is a seasonally weaker quarter.
FY17 Net Cash/Share (RM)
0.09
% 74.4
CIMB Bank
3.0
UBS AG
2.6
PRICE CHART JCY INTERNATIONAL BHD
(lcy)
(%) JCY INTERNATIONAL BHD/FBMKLCI INDEX
0.75
110
0.70 100 0.65
KEY FINANCIALS Year to 30 Sep (RMm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (sen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
2015 1,942 304 209 210 183 8.8 7.5 1.1 3.9 10.2 10.8 (18.8) 193.2 17.3 -
2016 1,740 91 (6) (8) 19 0.9 73.5 1.2 13.1 7.5 (0.5) (20.4) 66.8 n.a. -
2017F 1,822 173 91 78 78 3.8 17.7 1.2 6.9 7.5 4.3 (16.1) 237.4 6.9 75 1.04
2018F 1,858 174 100 85 85 4.1 16.2 1.2 6.8 4.9 4.6 (20.6) 239.4 7.6 75 1.14
2019F 1,895 173 104 89 89 4.3 15.5 1.2 6.9 5.2 4.7 (24.5) 237.2 7.8 74 1.20
0.60
90
0.55 80 0.50 0.45
70
30 20
Volume (m)
10 0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS Yeoh Bit Kun +603 2147 1988
[email protected]
Source: JCY, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
13
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
• Lower administration expenses. Positively, cost efficiency saw improvement in the last two quarters. Administration expenses were at RM7m-8m per quarter in 1Q-2QFY17, vs 1Q-2QFY16 which stood at around RM11m each quarter.
ASSUMPTIONS
• Quarterly DPS maintained at 1.25 sen… Unsurprisingly, cash-rich JCY maintained its quarterly dividend of 1.25 sen per share in 2QFY17. We view that JCY would be able to sustain its quarterly dividend per share of 1.25 sen over the next 2-3 quarters, but its ability in generating operating cash flow is crucial in sustaining dividend payout.
Item
Assumptions
US$ sales annual growth
2-3% p.a. in FY17- 19
RM/US$
RM4.20 for FY17-19
Labour reduction
1,500 headcount in FY17-19
Labour cost inflation
5%
Capex
RM50m, RM30m and RM30m in FY17-19 respectively
Source: UOB Kay Hian
• …but cash pile dropped. JCY’s net cash remains strong but was reduced to RM198m in 2QFY17 (1QFY17: RM270m), representing 14% of its market cap. Operating cash flow was -RM40m in 2QFY17 (1QFY17: RM69m, 2QFY16: RM47m), mainly due to the increment in receivables.
WD’S QUARTERLY HDD ASP (US$) 70 68 66 64 62 60 58 56 54 52 50
STOCK IMPACT
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
• JCY’s sales underperformed industry sales. JCY’s sluggish US$-denominated sales in 2QFY17 contrasts with market trends. JCY’s key client, WD, saw its HDD ASP rise 5% yoy to US$63 during the quarter while the industry’s total addressable market was only marginally lower yoy for the same period. This suggests that JCY could have been facing pricing pressure from WD. • Near-term stabilisation in HDD industry despite long-term outlook remaining vulnerable. Although JCY’s sales underperformed the industry, we expect its business to remain profitable and stabilise. The near-term stability in the HDD industry (due to the capacity constraint in solid state drives (SSD) which drove up SSD prices, while HDD sales benefitted from the substitution effect) is expected to provide a cushion to the HDD supply chain. While the tight SSD supply is expected to persist for the rest of the year, the long-term risk in the structural shift to adopting SSD remains.
Source: WD
• Exploring new opportunities. JCY is exploring possibilities to diversify its business beyond HDD. We do not expect much from JCY’s diversification plan until more concrete developments are revealed. EARNINGS REVISION/RISK • We increase our FY17/18/19 net profit forecasts by 20%-27%, mainly to reflect the sustained cost efficiency. VALUATION/RECOMMENDATION • Maintain HOLD with unchanged target price of RM0.59, pegged to 1.1x FY18F P/B (+1SD). Our target price coincides with DCF-based valuation that assumes WACC 9.8% and terminal growth of 0.5%. Our target price implies ex-cash PE of 11.6x in FY18. Entry price: RM0.55.
70.0
10.0
60.0
5.0
50.0
Source: WD
Refer to last page for important disclosures.
1Q17
4Q16
3Q16
2Q16
1Q16
4Q15
0.0 3Q15
10.0
(25.0)
2Q15
(20.0)
1Q15
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
40.0
20.0
4Q14
(15.0)
60.0
PC-Notebook
30.0
3Q14
(10.0)
80.0
PC-Desktop
40.0
2Q14
(5.0)
1Q14
100.0
Consumer electronics
4Q13
0.0
Branded
3Q13
120.0
Enterprise
2Q13
140.0
15.0
1Q13
YoY growth (RHS)
(m unit) 80.0
4Q12
Total shipment (LHS)
20.0
3Q12
160.0
(%)
1Q12
(m unit) 180.0
WD’S HDD UNIT SALES BY PRODUCT CATEGORY
2Q12
INDUSTRY QUARTERLY HDD SHIPMENT AND GROWTH
Source: WD
14
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 30 Sep (RMm) Net turnover
BALANCE SHEET 2016
2017F
2018F
2019F
Year to 30 Sep (RMm) Fixed assets
1,740
1,822
1,858
1,895
EBITDA
91
173
174
173
Deprec. & amort.
96
82
75
69
Cash/ST investment Other current assets
Other LT assets
EBIT
(6)
91
100
104
Net interest income/(expense)
(1)
(1)
(1)
(1)
Pre-tax profit
(7)
91
99
103
ST debt
Tax
(1)
(13)
(14)
(14)
Other current liabilities
Total assets
Minorities
0
0
0
0
Net profit
(8)
78
85
89
Other LT liabilities
Net profit (adj.)
19
78
85
89
Shareholders' equity
LT debt
Minority interest Total liabilities & equity
CASH FLOW Year to 30 Sep (RMm)
Friday, 19 May 2017
2016
2017F
2018F
2019F
557
525
480
441
34
34
34
34
282
229
283
331
584
704
718
732
1,457
1,491
1,514
1,538
51
51
51
51
232
292
298
304
0
0
0
0
38
38
38
38
1,136
1,110
1,127
1,145
0
0
0
0
1,457
1,491
1,514
1,538
2016
2017F
2018F
2019F
KEY METRICS 2016
2017F
2018F
2019F
186
101
152
149
Profitability
Pre-tax profit
(7)
91
99
103
EBITDA margin
5.2
9.5
9.4
9.1
Tax
(1)
(13)
(14)
(14)
Pre-tax margin
(0.4)
5.0
5.3
5.5
Deprec. & amort.
96
82
75
69
Net margin
(0.5)
4.3
4.6
4.7
Working capital changes
48
(59)
(8)
(8)
ROA
n.a.
5.3
5.7
5.8
Other operating cashflows
50
0
0
0
ROE
n.a.
6.9
7.6
7.8
Investing
(58)
(50)
(30)
(30)
Capex (growth)
Operating
Year to 30 Sep (%)
(67)
(50)
(30)
(30)
Investments
(8)
0
0
0
Turnover
(10.4)
4.7
2.0
2.0
Proceeds from sale of assets
13
0
0
0
EBITDA
(70.0)
90.3
0.9
(0.9)
Others
Growth
5
0
0
0
Pre-tax profit
(103.3)
n.a.
9.3
4.5
Financing
(213)
(104)
(68)
(71)
Net profit
(103.9)
n.a.
9.3
4.5
Dividend payments
(139)
(104)
(68)
(71)
Net profit (adj.)
(89.8)
314.9
9.3
4.5
Issue of shares
8
0
0
0
EPS
(89.8)
314.9
9.3
4.5
Proceeds from borrowings
0
0
0
0
(82)
0
0
0
Leverage
0
0
0
0
Debt to total capital
4.3
4.4
4.3
4.2
Net cash inflow (outflow)
(85)
(53)
54
48
Debt to equity
4.5
4.6
4.5
4.4
Beginning cash & cash equivalent
383
282
229
283
(20.4)
(16.1)
(20.6)
(24.5)
Changes due to forex impact
(17)
0
0
0
66.8
237.4
239.4
237.2
Ending cash & cash equivalent
282
229
283
331
Loan repayment Others/interest paid
Refer to last page for important disclosures.
Net debt/(cash) to equity Interest cover (x)
15
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
COMPANY RESULTS
BUY (Maintained)
Petronas Dagangan (PETD MK) 1Q17: Profit Growth In Check Despite No Major Inventory Gains Petronas Dagangan’s 1Q17 core profit was in line. Operating margins declined slightly, which we believe was due to the absence of the positive effects of major inventory lag gains. Nevertheless, ongoing cost control and its focus to boost nonfuel income kept its profit growth in check. Its market leadership, strong distribution channel and ability to access Petronas’ infrastructure enables it to be a winner in the current competitive landscape. Maintain BUY with DDM target price of RM27.20. 1Q17 RESULTS Year to 31 Dec (RMm) Revenue -Retail -Commercial EBIT -Retail -Commercial Impairment losses Operating margin (%) Finance cost Associates Pre-tax profit Income tax Net profit Core profit
1Q17 6,686.3 3,556.0 3,124.9 336.1 198.8 132.2 (5.7) 5.0 (1.5) 1.0 335.6 (81.0) 253.2 253.8
qoq % chg 11.3 11.4 11.2 (0.8) (16.4) 26.2 (63.1) (0.6) 17.5 (177.0) (0.1) 7.2 (3.2) 0.5
yoy % chg 36.2 23.6 54.1 13.2 28.1 (1.7) 470.0 (1.0) (15.5) 66.5 13.5 11.1 15.4 13.9
Comments Higher revenue mainly due to higher MOPS
Lower commercial margins due to product mix No positive effect of major inventory lag gains
Share Price Target Price Upside
RM24.40 RM27.20 +11.5%
COMPANY DESCRIPTION The principal domestic marketing arm of Petronas for downstream products, in retail, commercial, liquefied petroleum gas (LPG) and lubricants.
STOCK DATA GICS sector Bloomberg ticker: Shares issued (m): Market cap (RMm): Market cap (US$m): 3-mth avg daily t'over (US$m):
Energy PETD MK 993.5 24,240.3 5,606.6 2.9
Price Performance (%) 52-week high/low
1mth Strip out RM6m impairments and various One-off gains
* Note: PetDag does not disclose segmental profits for LPG and lubricants Source: Petronas Dagangan , UOB Kay Hian
RM25.14/RM22.92
3mth
6mth
1yr
YTD
1.8
4.1
4.8
2.5
1.7
Major Shareholders
%
Petronas
69.9
EPF
5.0
RESULTS •
•
1Q17 core profit in line. Core profit of RM253m accounted for 25% of our and 27% of consensus estimates. This excludes RM6m asset gain of disposal, RM1m gain on forward contract, RM5m impairment on receivables and RM3m write-off on assets. Higher revenue was recorded across the board as the high levels of Means of Platts Singapore (MOPS) prices (vs that of 1Q16) offset lower sales volumes of 4%. However, EBIT growth was mild. In comparison to 1Q16/4Q17 margins which benefitted from inventory lag gains on the sharp MOPS and oil price uptrend, we believe 1Q17 margins were more reflective of the group’s business and product/sales mix, rather than inventory lag effects. Higher dividends. PetDag declared a 14 sen interim dividend (~55% payout), on track vs our RM0.75 DPS forecast, and higher than 1Q16’s 12 sen DPS.
FY17 NAV/Share (RM)
5.59
FY17 Net Cash/Share (RM)
2.38
PRICE CHART PETRONAS DAGANGAN BHD
(lcy)
(%) PETRONAS DAGANGAN BHD/SHBSHR INDEX
27.00
120
26.00 25.00
110
24.00 23.00 100
22.00 21.00 20.00
90
6
KEY FINANCIALS Year to 31 Dec (RMm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (sen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
4
2015 25,171 1,484 1,094 790 789 79.5 30.7 4.9 14.8 2.5 3.1 (21.1) 110.4 16.3 -
2016 21,787 1,602 1,214 945 965 97.1 25.1 4.6 13.7 2.9 4.3 (43.6) 209.1 18.4 -
2017F 23,497 1,711 1,313 996 996 100.2 24.3 4.4 12.8 3.1 4.2 (42.7) 195.7 18.3 937 1.06
2018F 24,677 1,789 1,379 1,044 1,044 105.1 23.2 4.2 12.3 3.2 4.2 (42.7) 163.5 18.4 964 1.08
2019F 26,220 1,887 1,465 1,109 1,109 111.6 21.9 4.0 11.6 3.4 4.2 (43.1) 144.5 18.6 989 1.12
Volume (m)
2 0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS Kong Ho Meng +603 2147 1987
[email protected]
Source: Petronas Dagangan Bhd, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
16
EARNINGS REVISION/RISK • No changes to earnings forecast. We still project a business volume growth of 5% p.a to mainly track in line with Malaysia’s GDP growth of 4-5%. We also foresee that PetDag will benefit slightly from a mild increase in oil prices in 2017 (consensus projection of oil prices is US$56-61/bbl in 2017 and 2018). • Risks would be higher opex and a sharp uptrend of oil prices to >US$80/bbl. At this level, the risk of major subsidy receivables to resume on retail/ petrol products may emerge and this may severely weaken PetDag’s position, as it did in its historical earnings. VALUATION/RECOMMENDATION • Maintain DDM-based target price at RM27.20. This implies 26x 2018F PE, 14x 2018F EV/EBITDA and 2.8% 2017F dividend yield. Our dividend payout assumption is at 75%, which is nevertheless still above the minimum 50% policy and in line with its 5-year average of 85%. Key assumptions are disclosed in the RHS table of this page. • Maintain BUY. In the past, the company had been an outstanding beneficiary of a stable low oil price environment, whereby it transitioned into a sustained period of strong cash flow since end-14. Moving forward, we believe the stock remains attractive as it is a direct beneficiary of a mild but steady uptrend in oil prices. Also, its premium valuation adequately reflects PetDag’s position as a market leader in a non-cyclical industry and minimal leverage position.
3.0
2.0
2.0
1.0 1.0
0.0 -1.0
2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
0.0
Source: PetDag, UOB Kay Hian
DIVIDENDS, QUARTERLY Payout, RHS
30.0
DPS, LHS (sen)
25.0 20.0 15.0 10.0
1Q17
4Q16
0.0
3Q16
5.0 2Q16
• On the recent implementation of weekly pump prices, we believe PetDag’s leading market position would enable it to be cost-competitive vs other station operators and dealers. Almost all of PetDag’s stations are owned by the company (while dealers only operate stations). In addition, market participants are not likely to engage in a price war, as the fixed margins for station owners/ dealers were already razor-thin to begin with, at 5 sen/litre for operator and 12 sen/litre for dealers
3.0
1Q16
• 2017 outlook. We believe the group will continue to see a decent growth in its business volumes amid the challenging macroeconomic conditions in Malaysia. While asset expansion is expected to be minor ie10-20 stations p.a on its 1,000-retail station network, management guided a RM0.4b capex allocation to boost the appeal of its non-fuel income stream (ie Kedai Mesra convenience stores). This is necessary to be ahead of competition and secure more footfall/spending from customers visiting its stations.
(RMb)
Financing/ dividends Investing cash flow Operating cash flow Cash
4Q15
• Cash flow review. The group’s net cash balance saw a minor decline to RM2.3b (2017 forecast: RM2.6b) vs RM2.4b in 4Q16. Relative to 1Q16, PetDag’s cost of sales might have surged in tandem with MOPS. Nevertheless, the group continues to practice strong management on its opex (RM0.3b per quarter), capex and financing outflow.
(RMb)
3Q15
• Segmental review. The group’s higher revenue was a result of higher ASPs (up 43%, retail: +31%, commercial: +60%). This is in tandem with the higher level of MOPS given higher oil prices and high downstream margins globally due to refinery outages. Recall that in 1Q16, MOPS was low due to the plunge of oil price back in early 1Q16. This effect offset lower sales volumes by 4% (retail: -6%, commercial: -3%). Despite some hopes of better demand from festive season, we believe the lower sales volume could be reflective of ongoing cautiousness in the economy. 1Q17 Malaysia Consumer Confidence Index was 76.6, below the 100 threshold. While margins demonstrated growth, it was milder vs revenue growth due to the absence of the effect of major inventory lag gains, in our view.
CASH BALANCE, QUARTERLY
2Q15
STOCK IMPACT
Friday, 19 May 2017
1Q15
N o t e s
4Q14
M o r n i n g
3Q14
R e g i o n a l
(%) 120 110 100 90 80 70 60 50
Source: PetDag, UOB Kay Hian
EARNINGS AND FCFE FORECASTS Revenue (RMb) Sales Volume (m litres) - Retail (% share) - Commercial (%) - LPG (% share) - Lubricant (% share) Core profit (RMm) DPS (RMm) ROE (%) FCFE (RMm) Net cash (RMb) Source: UOB Kay Hian
2016 21.8 na 43 44 12 1 965 0.70 18.8 1,160 2.2
2017F 23.5 17,097 43 44 12 1 996 0.75 18.3 56 2.4
2018F 24.7 18,166 43 44 12 1 1,044 0.79 18.4 54 2.5
DDM VALUATION Risk-free Rate Beta Equity Market Risk Premium Cost of Equity 2017-20F Earnings Growth 2017F EPS Dividend Payout Ratio Target Price Source: UOB Kay Hian
4.0% 0.75x 4.5% 7.4% 5.4% (long-term: 4.5%) RM0.77 75% RM27.20
SHARE PRICE CATALYST • Better-than-expected earnings and dividend payouts. PetDag’s gross cash balance forecast of ~RM2b alone can sustain three years of annual DPS of RM0.60. At the moment, the cash is earning 4% interest, which represents a minor <10% of group EPS of RM0.80-0.91. If we assume PetDag pays out RM1b as special dividends, this could result in a special DPS of RM1.00 (~4% yield). This is of the view that Petronas is always in need to fund its own dividend obligations (2016: RM16b, 2017: RM13b).
Refer to last page for important disclosures.
17
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 31 Dec (RMm) Net turnover EBITDA Deprec. & amort. EBIT Associate contributions Net interest income/(expense)
BALANCE SHEET 2016
2017F
2018F
2019F
21,787
23,497
24,677
26,220
1,602
1,711
1,789
1,887
388
398
410
422
1,214
1,313
1,379
1,465
6
6
6
6
(8)
(9)
(11)
(13)
Pre-tax profit
1,212
1,310
1,373
1,458
Tax
Year to 31 Dec (RMm)
2016
2017F
2018F
2019F
3,794
3,740
3,622
3,509
503
499
489
478
Cash/ST investment
2,432
2,619
2,768
2,968
Other current assets
2,636
2,221
2,426
2,675
Total assets
9,365
9,079
9,306
9,630
Fixed assets Other LT assets
ST debt Other current liabilities LT debt
(297)
(308)
(323)
(343)
Minorities
30
(6)
(6)
(6)
Net profit
945
996
1,044
1,109
Shareholders' equity
Net profit (adj.)
965
996
1,044
1,109
Minority interest
Other LT liabilities
Total liabilities & equity
CASH FLOW Year to 31 Dec (RMm)
Friday, 19 May 2017
34
60
35
100
3,737
3,066
2,992
2,970
84
190
248
246
172
172
172
172
5,303
5,552
5,813
6,090
34
39
45
51
9,365
9,079
9,306
9,630
2016
2017F
2018F
2019F
KEY METRICS 2016
2017F
2018F
2019F
Year to 31 Dec (%)
Operating
1,984
1,099
1,147
1,232
Profitability
Pre-tax profit
1,212
1,310
1,373
1,458
EBITDA margin
7.4
7.3
7.2
7.2
Tax
297
308
323
343
Pre-tax margin
5.6
5.6
5.6
5.6
Deprec. & amort.
390
388
398
410
Net margin
4.3
4.2
4.2
4.2
6
6
6
6
ROA
10.8
10.8
11.4
11.7
Working capital changes
734
(285)
(296)
(287)
ROE
18.4
18.3
18.4
18.6
Other operating cashflows
(655)
(627)
(657)
(697)
Investing
(128)
(200)
(215)
(231)
Growth
Capex (growth)
(228)
(295)
(310)
(326)
Turnover
(13.4)
7.9
5.0
6.3
(19)
(14)
(14)
(14)
EBITDA
7.9
6.8
4.5
5.5
10
0
0
0
Pre-tax profit
11.8
8.0
4.9
6.2
109
109
109
109
Net profit
19.6
5.4
4.9
6.2
Financing
(693)
(711)
(783)
(801)
Net profit (adj.)
22.2
3.2
4.9
6.2
Dividend payments
(596)
(747)
(783)
(831)
EPS
22.2
3.2
4.9
6.2
(97)
36
0
30 Debt to total capital
2.2
4.3
4.6
5.3
Debt to equity
2.2
4.5
4.9
5.7
Net debt/(cash) to equity
(43.6)
(42.7)
(42.7)
(43.1)
Interest cover (x)
209.1
195.7
163.5
144.5
Associates
Investments Proceeds from sale of assets Others
Loan repayment Others/interest paid
0
0
0
0
Net cash inflow (outflow)
1,164
187
149
200
Beginning cash & cash equivalent
1,259
2,432
2,619
2,768
9
0
0
0
2,432
2,619
2,768
2,968
Changes due to forex impact Ending cash & cash equivalent
Refer to last page for important disclosures.
Leverage
18
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
COMPANY RESULTS
BUY (Maintained)
Press Metal (PRESS MK) 1Q17: Earnings Match Expectations Press Metal’s 1Q17 results are within expectations. Although sales grew 56.7% yoy on higher sales tonnage and ASP, core net profit jumped 180.5% yoy, mainly due to improved operating leverage on higher ASP. We expect 2017 production tonnage to grow 20% yoy to 760,000MT with a higher ASP. A major longer-term potential catalyst will be a further 50% expansion at its Samalaju plant. Maintain BUY and target price of RM3.30, based on 17x fully-diluted 2018F EPS. 1Q17 RESULTS Year to 31 Dec (RMm) Revenue
1Q17 2,021.6
qoq % chg 1.1
yoy % chg 56.7
EBITDA
337.8
(8.7)
92.9
EBIT Exceptional Item
244.2 0.0
(12.0) na
104.6 na
PBT Core net profit Margins EBIT PBT Core net profit
199.3 148.0 (%) 12.1 9.9 7.3
(0.6) (4.9) qoq ppt chg (1.8) (0.2) (0.5)
45.2 180.5
Share Price Target Price Upside
RM2.74 RM3.30 +20.4%
COMPANY DESCRIPTION Principally involved in the manufacture and trading of primary aluminium and other aluminium-based products.
STOCK DATA Remarks Yoy top-line growth was lifted by higher sales tonnage and ASP. On a qoq basis, sales tonnage was flat. The qoq EBIT decline despite a higher ASP qoq is attributed to seasonally weaker performance at its extrusion unit due to Lunar New Year. 1Q16: RM40m insurance claim and RM1.8m unrealised forex gain net of MI, 4Q16: RM18m asset impairment from China unit and RM5.8m unrealised loss on derivatives. In line with expectations.
GICS sector Bloomberg ticker: Shares issued (m): Market cap (RMm): Market cap (US$m): 3-mth avg daily t'over (US$m):
Materials PRESS MK 3,729.9 10,220.1 2,361.4 4.6
Price Performance (%) 52-week high/low
1mth (2.1)
RM2.93/RM1.02
3mth
6mth
1yr
YTD
16.6
70.2
149.1
72.3
Major Shareholders
yoy ppt chg 2.8 (0.8) 3.2
Source: Press Metal, UOB Kay Hian
RESULTS • 1Q17 net profit of RM148m is within our and consensus expectations, representing 24% of both full-year earnings forecasts. Sales rose 56.7% yoy, driven by: a) a 30% yoy increase of sales tonnage from the full ramp-up of Samalaju Phase 2 smelter since midMay 16, and b) higher locked-in ASP of US$1,700/tonne or all-in ASP of US$1,795 (1Q16: spot LME aluminium price of about US$1,520/tonne or all-in ASP of US$1,610). Core net profit rose by a higher quantum of 180.5% yoy driven by improvement in operating leverage on higher ASP and, to a lesser extent, a lower effective tax rate of 7.1% (1Q16: 10.2%). An interim DPS of 1.5 sen was declared, representing a payout of 38%.
%
Alpha Milestone Sdn Bhd
24.0
Koon Poh Keong
16.7
Koon Poh Weng
5.0
FY17 NAV/Share (RM)
0.74
FY17 Net Debt/Share (RM)
0.69
PRICE CHART (lcy)
PRESS METAL BERHAD
PRESS METAL BERHAD/FBMKLCI INDEX
3.00
(%) 260 230
2.50
200 2.00 170 140
1.50
110 1.00 80 50
0.50 30
KEY FINANCIALS Year to 31 Dec (RMm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (sen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
20
2015 4,321 206 464 132 270 7.3 37.8 5.3 65.3 1.0 3.1 164.4 2.2 6.9 -
Refer to last page for important disclosures.
2016 6,612 483 814 495 456 12.2 22.4 4.5 27.9 1.7 7.5 135.8 2.9 23.6 -
2017F 8,096 715 1,048 605 605 16.2 16.9 3.7 18.8 1.8 7.5 92.6 4.6 24.1 628 0.96
2018F 8,276 939 1,276 774 774 20.7 13.2 3.1 14.4 2.3 9.4 62.4 6.4 25.5 789 0.98
2019F 8,397 996 1,338 826 826 22.2 12.4 2.6 13.5 2.4 9.8 37.1 7.4 23.0 928 0.89
Volume (m)
10 0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYST Fong Kah Yan +603 2147 1993
[email protected]
19
R e g i o n a l
M o r n i n g
N o t e s
• Reasonable all-in aluminium prices at US$1,880, US$1,970 and US$2,000/tonne in 2017-19 respectively. For 2017, given that Press Metal has locked in the bulk of their orders for its production volume at an estimated average spot price of US$1,700-1,750, we forecast all-in aluminium price at US$1,880, lower than the current all-in aluminium price (inclusive of JMP premium) of over US$2,000. For 2018, we assume a higher all-in aluminium price of US$1,970 as we expect management to lock in the bulk of its 2018 production volume this year at current aluminium prices, which are hovering at an all-in price of over US$2,000/tonne. Based on our sensitivity analysis, every US$100/tonne increase to our forecast for all-in aluminium prices could raise Press Metal’s 2017-19F earnings by about RM170m. • Samalaju deepsea port to be operational by Jul 17. Instead of the current system of using lorries to transport goods, the new port will be equipped with facilities to deliver raw materials from incoming cargo vessels directly to the manufacturing plant via a conveyor belt system. The land logistics costs savings are estimated at RM30m-40m annually. STOCK IMPACT • Healthy global demand in 2017… According to key aluminium player UC Rusal, global aluminium demand is expected to grow 5% in 2017 with demand from China forecasted to grow 6.7% yoy and that from the rest of the world to grow 3.3% yoy, driven by demand growth in Europe, the Middle East and Africa, North America and Asia.
Friday, 19 May 2017
LME SPOT PRICE AND LME SPOT PRICE + MJP PREMIUM
Source: Bloomberg
GLOBAL ALUMINIUM SUPPLY & DEMAND ('000 tonnes) 7,000 6,000 5,000
('000 tonnes) 70,000
Net Surplus/(Deficit) (LHS) Demand (RHS) Supply (RHS)
60,000
4,000
50,000
3,000 40,000
2,000
• …and China’s production curbs to support all-in aluminium prices at above US$2,000/tonne. According to UC Rusal, global aluminium supply is expected to grow 4.3% yoy in 2017 with Chinese supply expected to grow 6% yoy and that from the rest of the world likely to grow 2.4% yoy. Consequently, the global aluminium market is expected to see a further deficit in 2017. In addition, China has intensified efforts to curb choking industrial pollution. In Feb 17, the Chinese government issued a draft policy, calling producers to cut aluminium and alumina capacities by 30% and 50% in Beijing, Tianjin, Hebei and the surrounding areas during the winter season. • Strong cash flow generation to reduce net gearing levels. Assuming no significant capex spending on further expansion over the next three years, Press Metal’s expected strong operating cash flow at an average of RM938m per year for 2017-19F should pare down its net gearing to a comfortable 0.4x by 2019 from 1.3x in 2016. EARNINGS REVISION/RISK • No change to our earnings forecasts. Key risks to our earnings forecasts include: a) lower-than-expected aluminium prices, b) reliability of power supply, and c) a sharperthan-expected depreciation of US dollar against the ringgit. VALUATION/RECOMMENDATION
1,000
30,000
0 -1,000
20,000 2010 2011 2012 2013 2014 2015 2016 2017F
Source: World Bureau of Metal Statistics, Bloomberg
KEY ASSUMPTIONS Year to 31 Dec
2017F
2018F
2019F
Volume (MT)
760,000
760,000
760,000
- P1020 - Value-added Aluminium Products
380,000
380,000
380,000
380,000
380,000
380,000
1,760
1,850
1,880
1,890
1,980
2,010
120
120
120
US$/RM
4.40
4.30
4.30
Effective Tax Rate (%)
12.5
12.5
12.5
Aluminium spot price (US$/tonne ) Value-added aluminium products (US$/tonne) MJP premium (US$/tonne)
Source: Press Metal, UOB Kay Hian
• Maintain BUY and target price of RM3.30, based on 17x fully-diluted 2018F EPS. Our 17x PE multiple represents a premium of 14% to global peers’ average of 14.9x. We opine the PE premium is justified, given: a) its low-cost advantage over peers, and b) potential catalysts from further expansion at its Samalaju plant. SHARE PRICE CATALYST • A further 320,000MT p.a. expansion at its Samalaju plant (current capacity at 640,000MT), which will be dependent on the availability of power supply from Sarawak Energy.
Refer to last page for important disclosures.
20
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 31 Dec (RMm) Net turnover EBITDA Deprec. & amort. EBIT Associate contributions Net interest income/(expense)
Friday, 19 May 2017
BALANCE SHEET 2016
2017F
2018F
2019F
6,612
8,096
8,276
8,397
483
715
939
996
(331)
(333)
(337)
814
1,048
3
3
Year to 31 Dec (RMm) Fixed assets
2016
2017F
2018F
2019F 4,404
5,176
4,923
4,665
Other LT assets
133
167
170
172
(341)
Cash/ST investment
325
576
771
1,042
1,276
1,338
Other current assets
1,943
2,224
2,555
2,916
3
3
Total assets
7,576
7,890
8,161
8,534 1,250
(167)
(156)
(146)
(135)
ST debt
1,550
1,450
1,350
Pre-tax profit
689
895
1,133
1,205
Other current liabilities
1,277
1,120
931
848
Tax
(71)
(112)
(142)
(151)
LT debt
1,833
1,683
1,483
1,233
Minorities
(123)
(178)
(218)
(228)
Other LT liabilities
148
184
184
184
Net profit
495
605
774
826
Shareholders' equity
2,252
2,761
3,302
3,881
Net profit (adj.)
456
605
774
826
Minority interest
516
694
911
1,139
7,576
7,890
8,161
8,534
2016
2017F
2018F
2019F
Total liabilities & equity
CASH FLOW Year to 31 Dec (RMm)
KEY METRICS 2016
2017F
2018F
2019F
Year to 31 Dec (%)
Operating
824
784
948
1,081
Profitability
Pre-tax profit
689
895
1,133
1,205
EBITDA margin
7.3
8.8
11.3
11.9
Tax
(11)
(109)
(142)
(151)
Pre-tax margin
10.4
11.1
13.7
14.4
Deprec. & amort.
331
333
337
341
Net margin
7.5
7.5
9.4
9.8
(3)
(3)
(3)
(3)
ROA
6.6
7.8
9.6
9.9
Working capital changes
(387)
(486)
(520)
(444)
ROE
23.6
24.1
25.5
23.0
Other operating cashflows
204
153
142
131
Investing
(329)
(77)
(77)
(76)
Growth
Capex (growth)
(328)
(80)
(80)
(80)
Turnover
53.0
22.4
2.2
1.5
(3)
0
0
0
EBITDA
133.8
48.1
31.3
6.1
Proceeds from sale of assets
0
0
0
0
Pre-tax profit
197.2
29.8
26.6
6.4
Others
2
3
4
4
Net profit
274.4
22.1
27.9
6.8
Financing
(385)
(455)
(678)
(733)
Net profit (adj.)
68.6
32.7
27.9
6.8
Dividend payments
(135)
(181)
(232)
(248)
EPS
68.6
32.7
27.9
6.8
24
85
0
0
Associates
Investments
Issue of shares Proceeds from borrowings
0
0
0
0
(85)
(250)
(300)
(350)
Debt to total capital
55.0
47.6
40.2
33.1
(189)
(109)
(146)
(135)
Debt to equity
150.2
113.5
85.8
64.0
Net cash inflow (outflow)
110
252
194
272
Net debt/(cash) to equity
135.8
92.6
62.4
37.1
Beginning cash & cash equivalent
227
325
576
771
Interest cover (x)
2.9
4.6
6.4
7.4
Changes due to forex impact
(13)
0
0
0
Ending cash & cash equivalent
325
576
771
1,042
Loan repayment Others/interest paid
Refer to last page for important disclosures.
Leverage
21
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
HOLD (Maintained)
COMPANY RESULTS
Singapore Airlines (SIA SP) 4QFY17: Shock Earnings Miss Amid Yields and Cost Mismatch SIA surprised with a loss of S$138m vs our expectation of an $8m profit as the parent airline swung to a loss. While SIA managed to boost load factor, this was achieved at the expense of yields, which fell by a whopping 7.5% yoy in Feb 17. SIA and other regional carriers need to cut capacity to boost yields. Maintain HOLD. But we cut our target price to S$10.10, still valuing SIA at 0.7x FY18F book value-ex SIAEC. 4QFY17 RESULTS Year to 31 Mar (S$m)
4QFY17
yoy % chg
UOBKH estimate
Parent Airline Op Profit
(41.0)
(141.8)
116.2
SIA Cargo Op Profit
(5.0)
n.a.
8.2
Other Subsidiaries Op Profit Total Op Profit Non-Operating profit
69.7
(26.8)
81.2
23.7 (155.8)
(84.5) n.a.
205.5 (152.1)
PBT Net Profit Net Profit (Ex-EI)
(132.1) (138.3) (6.4)
n.a. n.a. n.a.
53.4 7.8 150.6
Remarks Yields fell 4.7% yoy vs our est of a 3.3% decline. Ex-fuel unit cost +5.2% yoy. Cargo yields fell 3.0% yoy vs our est of a 1% decline. Unit cost in line. Lower profitability of Scoot and Tigerair. Includes S$131.9m provisions for cargo fines, vs original guidance of S$111.8m.
Excluding EI & preceding year’s reversal on cargo fines.
Source: SIA, UOB Kay Hian
Share Price Target Price Upside (Previous TP
S$10.76 S$10.10 -6.1% S$10.40)
COMPANY DESCRIPTION Singapore Airlines is Singapore's flagship carrier, flying to more than 60 destinations in over 30 countries. Traveller’s World Magazine nominated SIA as Best Airline for the sixth consecutive year in 2016.
STOCK DATA GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m): Market cap (US$m): 3-mth avg daily t'over (US$m):
Industrials SIA SP 1,181.5 12,712.7 9,132.7 8.3
Price Performance (%) 52-week high/low
1mth
S$11.20/S$9.60
3mth
6mth
1yr
YTD
9.3
10.8
0.0
11.3
5.8
RESULTS
Major Shareholders
• 4QFY17 earnings sharply below our and consensus estimates of S$7.8m and S$27m. The steep earnings variance was due to losses at the parent airline, whose yields deteriorated by a greater amount than expected, while costs accelerated. Yields took a sharp dive in February, before recovering in March. In the previous two quarters, parent airline’s operating profit had declined by only 19% and 16% respectively. This comes as a surprise as load factors had improved in 4QFY17 by 2.1ppt, compared to declines in the past two quarters. It appears that SIA had been too aggressive in discounting fares at the expense of loads and at the same time faced a 52% increase in plane fuel cost. Non-fuel cost also rose by 5% during the period. Provision relating to cargo price fixing was also higher at S$132m vs S$112m mentioned previously.
Temasek Hldgs
% 56.0
FY18 NAV/Share (S$)
11.18
FY18 Net Debt/Share (S$)
1.53
PRICE CHART (lcy)
SINGAPORE AIRLINES LTD
SINGAPORE AIRLINES LTD/FSSTI INDEX
11.00
105
10.50 10.00
• SIA declared 11 S cents in final dividend (4QFY16: 35 S cents), but payout ratio remains unchanged at 65%.
(%)
11.50
95
9.50 9.00
85
8.50
KEY FINANCIALS Year to 31 Mar (S$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
8.00
2016
2017
2018F
2019F
2020F
8
15,229 2,257 681 804 804 69.0 15.6 1.0 4.9 4.2 5.3 (24.7) n.a. 6.4 -
14,868 2,215 623 360 282 24.1 44.7 1.0 5.0 1.9 2.4 (15.9) n.a. 2.8 -
15,206 2,209 489 343 343 29.1 37.0 1.0 5.0 1.4 2.3 13.6 37.2 2.6 530 0.65
15,651 2,270 477 304 304 25.9 41.5 1.0 4.9 1.2 1.9 32.0 14.0 2.3 453 0.67
16,106 2,441 567 331 331 28.3 38.0 0.9 4.5 1.3 2.1 45.5 10.3 2.5 488 0.68
4
6
75
Volume (m)
2 0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYSTS K Ajith +65 6590 6627
[email protected] Sophie Leong +65 6590 6621
[email protected]
Source: SIA, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
22
R e g i o n a l
M o r n i n g
N o t e s
• SilkAir and budget carriers (TigerAir and Scoot) generated S$27m and S$22m in operating profit as unit cost declined 7.8% and 9.4% respectively. Their earnings stand in stark contrast to that of the parent airline, even as load factors were mostly flat for the period. SIA Cargo’s losses narrowed as pace of yield decline fell to the lowest level in 8 quarters. Airline associates losses widened by 8% yoy in 4QFY17 to S$26m. • Warns of continued yield pressure and plans for next phase of transformation. The carrier will be reviewing its network, fleet and product and services with a view towards achieving longer term sustainable growth
Friday, 19 May 2017
4QFY17 OPERATING STATS Year to 31 Mar SIA’s Pax yield (S cents/RPK) Cargo yield (S cents/CTK) SIA’s Pax unit cost (S cents/ASK) Cargo unit cost (S cents/AFTK) Pax breakeven LF (%) Pax LF (%) Cargo breakeven LF (%) Cargo LF (%)
STOCK IMPACT
Source: SIA, UOB Kay Hian
• First 4Q loss in 3 years, SIA needs to rationalise capacity on unprofitable routes. Parent airline’s profitability stands in stark contrast to that of SilkAir and budget carriers. We believe the losses could be due to a steep 7.5% decline in pax yields in February. While the rate of decline subsequently narrowed to 4.8% in March, we are unsure if the improvement will continue. We believe that SIA’s strategy of aggressive price discounting is not sustainable and the carrier needs to rationalise unprofitable routes, cut capacity or frequency to improve yields and profits. We will seek guidance on SIA’s strategy at the analyst briefing and will provide a further update.
PAX YIELDS
• At current yield levels, very few full-service carriers will be profitable. Airlines will have to cut capacity cuts or delivery deferments, until the yield environment improves. There are already signs of capacity cuts by the Chinese and the Middle Eastern Airlines. Emirates, for example, has cut capacity to the US by 20%. The carriers recently reported a 70% decline in full-year profits and an 82% decline in airline profits, amid a 7% decline in pax yields for the year. • Stock price will react negatively to the earnings miss. At $10.10, the stock will be trading at 0.7x FY18F book value, ex SIAEC. EARNINGS REVISION/RISK • We have temporarily revised our FY18 numbers but will tweak the same following an analyst meeting later today. VALUATION/RECOMMENDATION
yoy % chg (4.7) (3.0) 4.8 (5.0) 7.8 ppt 2.1 ppt -1.4 ppt 2.3 ppt
Source: SIA
SIA EX-SIAEC P/B (x ) 1.3 1.2
+1SD
1.1 1.0 0.9 0.8
Mean -1SD
0.7 0.6 0.5 06 07 08 09 10 11 12 13 14 15 16 17
• We lower our fair value to S$10.10, valuing the stock at 0.7x FY18F book value.
Source: Datastream, UOB Kay Hian
SHARE PRICE CATALYST
SOTP VALUATION
• Capacity cuts across the industry.
4QFY17 10.1 26.0 8.7 17.0 86.1 80.6 65.4 63.6
(S$) SIA Book Value Per Share Less Carrying Cost Of SIAEC Per Share SIA value per share (ex SIAEC) SIA @ 0.7x BV Fair Value per share of 77% SIAEC stake Value of SIA Group
FY18F 11.51 0.98 10.53 7.44 2.58 10.10
Source: UOB Kay Hian
Refer to last page for important disclosures.
23
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 31 Mar (S$m) Net turnover
Friday, 19 May 2017
BALANCE SHEET 2017
2018F
2019F
2020F
Year to 31 Mar (S$m)
2018F
2019F
2020F
14,868.5
15,206.3
15,651.2
16,105.8
16,433.3
20,013.4
22,822.1
25,101.9
EBITDA
2,214.7
2,208.8
2,269.9
2,441.2
Other LT assets
2,586.7
2,447.8
2,297.0
2,138.9
Deprec. & amort.
1,591.9
1,719.7
1,792.9
1,873.9
Cash/ST investment
3,920.4
2,919.5
2,649.6
2,679.4
EBIT
622.8
489.1
476.9
567.2
Other current assets
1,779.6
1,794.8
1,833.9
1,873.9
Total other non-operating income
(95.4)
(10.7)
(10.7)
(10.7)
Total assets
24,720.0
27,175.5
29,602.6
31,794.0
Associate contributions
(36.6)
27.1
99.6
115.3
ST debt
27.8
(59.3)
(162.5)
(237.9)
Net interest income/(expense)
Fixed assets
2017
42.0
42.0
42.0
42.0
Other current liabilities
6,246.6
5,744.8
5,885.9
6,045.4 8,729.2
Pre-tax profit
518.6
446.2
403.4
433.9
LT debt
1,794.7
4,672.2
6,850.7
Tax
(76.7)
(58.0)
(52.4)
(56.4)
Other LT liabilities
3,166.5
3,166.5
3,166.5
3,166.5
Minorities
(81.5)
(45.3)
(46.7)
(46.4)
Shareholders' equity
13,083.0
13,155.1
13,253.6
13,398.2
Net profit
360.4
342.9
304.3
331.1
Minority interest
387.2
394.9
403.9
412.7
Net profit (adj.)
282.3
342.9
304.3
331.1
Total liabilities & equity
24,720.0
27,175.5
29,602.6
31,794.0
2017
2018F
2019F
2020F
Year to 31 Mar (%)
2017
2018F
2019F
2020F
CASH FLOW Year to 31 Mar (S$m) Operating
KEY METRICS 2,532.9
1,513.1
2,349.9
2,529.5
Pre-tax profit
518.6
446.2
403.4
433.9
EBITDA margin
14.9
14.5
14.5
15.2
Tax
(50.5)
(76.7)
(58.0)
(52.4)
Pre-tax margin
3.5
2.9
2.6
2.7
1,589.8
1,715.7
1,788.9
1,869.9
Net margin
2.4
2.3
1.9
2.1
96.8
(628.4)
128.6
131.4
ROA
1.5
1.3
1.1
1.1
407.8
(1.2)
(73.7)
(89.4)
ROE
2.8
2.6
2.3
2.5
Deprec. & amort. Working capital changes Non-cash items Other operating cashflows
Profitability
(29.6)
57.5
160.7
236.1
Investing
(2,943.5)
(5,115.1)
(4,433.9)
(3,990.5)
Growth
Capex (growth)
(3,944.7)
(5,450.0)
(4,750.0)
(4,300.0)
Turnover
(2.4)
2.3
2.9
2.9
848.6
0.0
0.0
0.0
EBITDA
(1.9)
(0.3)
2.8
7.5
45.4
193.2
193.2
193.2
Pre-tax profit
(46.7)
(14.0)
(9.6)
7.6
Investments Proceeds from sale of assets Others
107.2
141.7
122.9
116.3
Net profit
(55.2)
(4.9)
(11.3)
8.8
Financing
(224.6)
2,601.1
1,814.2
1,490.8
Net profit (adj.)
(64.9)
21.5
(11.3)
8.8
Dividend payments
(558.9)
(273.4)
(208.4)
(189.1)
EPS
(65.1)
20.8
(10.9)
9.3
Issue of shares
(101.1)
(35.0)
(35.0)
(35.0)
431.8
3,000.0
2,500.0
2,400.0
Leverage
(213.5)
(21.5)
(321.5)
(521.5)
Debt to total capital
12.0
25.8
33.5
38.8
217.1
(69.0)
(121.0)
(163.6)
Debt to equity
14.0
35.8
52.0
65.5
Net cash inflow (outflow)
(635.2)
(1,000.9)
(269.9)
29.8
(15.9)
13.6
32.0
45.5
Beginning cash & cash equivalent Changes due to forex impact
3,972.4
3,380.5
2,379.6
2,109.7
n.a.
37.2
14.0
10.3
43.3
0.0
0.0
0.0
Ending cash & cash equivalent
3,380.5
2,379.6
2,109.7
2,139.5
Proceeds from borrowings Loan repayment Others/interest paid
Refer to last page for important disclosures.
Net debt/(cash) to equity Interest cover (x)
24
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
COMPANY UPDATE
SELL (Downgraded)
Bangkok Dusit Medical Services (BDMS TB) Downgrade To SELL On Negative Earnings Growth Despite management acknowledging various problems, the measures implemented will take time to bear fruit. Moreover, there is no sign that the Thai economy would recover strongly any time soon. This will continue to put pressure on BDMS’ patient volume and margins. Downgrade to SELL. Target price: Bt16.00.
Share Price Target Price Upside (Previous TP
Bt16.00 -14.0% Bt27.00)
COMPANY DESCRIPTION
WHAT’S NEW • Decline in Thai patient volume. Although the yoy drop in influenza and dengue fever cases in Thailand in 1Q17 was partly responsible for the lower Thai patient volume at Bangkok Dusit Medical Services (BDMS), we believe the major reason for the patient volume decline should be the sluggish economy. The weak economy has forced the middle-income to cut spending on healthcare. Instead, they may seek cheaper treatment under the government’s sponsored programmes, such as Universal Healthcare or Social Security Healthcare Scheme. BDMS seems to be impacted as 15% of its revenue comes from this group of patients (via the Phyathai and Paolo group). As the economy is expected to remain weak with GDP growth at around 3% in the next two years, we expect Thai patient volume at BDMS to remain low. • To focus on patients from Myanmar, Cambodia and China. International patient volume at BDMS has also been impacted by declining patients from the Middle East due to low oil prices and cutback in state-sponsored programmes for civil servants seeking healthcare overseas. BDMS has turned to focus on getting patients in Myanmar and Cambodia. The group is also in talks with Chinese officials to bring in Chinese patients. However, the shift in focus will take time to bear fruit. We therefore expect international patient volume at BDMS to also remain low. Currently, the proportion of Thai to international patients at BDMS was at 67:33 in 1Q17. • Low intensity cases. With lower patient volumes, the number of OPD visit/day declined 2% yoy in 1Q17, which also brought down IPD cases by 11% yoy. This means lower intensity cases for BDMS and pressure on margins as intenstiy cases enhance the group’s margins. • Cost control needed. Due to declining patient volumes, BDMS has paid attention to internal cost control. Measures have been implemented, including cutting its annual capex from 10% of revenue to 7% of revenue. As a group of hospitals with nationwide network, these measures will take time to bear fruit.
A group of leading private hospitals with a nationwide network. The proportion of its local and foreign revenue stands at about 70:30. Local and regional expansion via greenfield projects and M&A are the growth drivers.
STOCK DATA GICS sector Bloomberg ticker: Shares issued (m): Market cap (Btm): Market cap (US$m): 3-mth avg daily t'over (US$m):
Health Care BDMS TB 15,491.0 288,131.8 8,354.1 17.0
Price Performance (%) 52-week high/low
Bt24.30/Bt18.60
1mth
3mth
6mth
1yr
YTD
(7.9)
(10.6)
(15.1)
(21.8)
(19.5)
Major Shareholders
%
Prasarttong-osoth family
30.5
Tongtang family
8.8
Viriya Insurance
6.1
FY17 NAV/Share (Bt)
3.92
FY17 Net Debt/Share (Bt)
2.06
PRICE CHART BANGKOK DUSIT MED SERVICE
(lcy)
(%) BANGKOK DUSIT MED SERVICE/SET INDEX
26 24
KEY FINANCIALS Year to 31 Dec (Btm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (Bt) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
Bt18.60
2015 62,835 13,017 9,035 8,021 7,794 0.5 37.0 5.5 24.8 1.4 12.8 46.6 11.5 16.2 -
2016 67,984 13,579 9,063 8,386 8,156 0.5 35.3 5.2 23.8 1.6 12.3 48.7 15.4 15.5 -
2017F 70,000 13,852 9,288 9,920 7,722 0.5 37.3 4.7 23.3 2.0 14.2 52.5 9.2 17.0 8,813 0.88
2018F 74,208 14,695 9,776 8,341 8,341 0.5 34.5 4.5 22.0 1.7 11.2 52.7 10.7 13.4 9,845 0.85
2019F 81,842 16,409 11,058 9,840 9,840 0.6 30.3 3.8 19.7 1.9 12.0 30.3 17.8 13.8 11,540 0.85
110
100
22 90 20 80 18 70
16 14
60
300 200
Volume (m)
100 0
May 16
Jul 16
Sep 16
Nov 16
Jan 17
Mar 17
May 17
Source: Bloomberg
ANALYST Kowit Pongwinyoo +662 659 8304
[email protected]
Source: BDMS, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
25
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
REVENUE
STOCK IMPACT • Expect moderation in 2Q17 results. Although 2Q is the industry’s weak season, management will put effort to grow sales and margins. With the cost-control measures taken, we expect 2Q17 sales to increase slightly by 3% yoy to Bt16b on slightly improving foreign patient volume. EBITDA margin is expected to improve to 19% from 18% in 2Q16. Core profit is expected to rise 1% yoy to Bt1.6b. Net profit is expected to jump to Bt3.8b on Bt2.2b extraordinary gains from selling part of its holdings in Bumrungrad Hospital.
16% 14% 12% 10% 8% 6% 4% 2% 0% ‐2% ‐4% ‐6%
1Q16
2Q16
3Q16
Thai
4Q16
International
EARNINGS REVISION/RISK
Source: BDMS
• Forecast revision. As patient volumes will take time to normalize and the stringent cost control measures will need time to be implemented due to BDMS’ nationwide network, we revise down our 2017-18 sales and earnings forecasts. We now forecast sales in 2017 and 2018 to grow only 3% and 6% yoy to Bt70.0b and Bt74.2b respectively. As BDMS’ investments continue but at a lower scale to comply with cost control measures, we expect EBITDA margins to maintain at 20% for both years. We forecast core profit to decline 5% yoy to Bt7.7b in 2017 before increasing 8% yoy to Bt8.3b in 2018.
SALES AND CORE PROFIT (% )
(Btm) 80,000 70,000
8
50,000
6
40,000
3 (5)
30,000
10,000 -
• Cut target price to Bt16.00. In line with our lower forecasts, we cut our target price to Bt16.00, based on SOTP valuation. • Downgrade to SELL. With declining sales and core earnings this year and low growth next year, we downgrade BDMS from BUY to SELL. We believe earnings have peaked. Share price offers limited upside and may be under pressure amid weak market sentiment and its high PE valuation
2016
2017F
Core profit
2018F
Sales growth yoy
Core profit growth
MARGINS 40.0% 35.0%
32.9%
33.0%
19.8%
19.8%
30.0% 25.0% 20.0% 15.0%
RESULTS PREVIEW
11.2%
11.0%
10.0%
Year to 31 Dec (Btm)
2Q17F
yoy % chg
2H17
yoy % chg
Sales Gross Profit EBITDA Pre-tax Profit Tax Net Profit Net Profit (Ex EI) EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%)
16,004 5,154 3,094 1,776 (373) 3,811 1,613 0.25 32.2 19.3 23.8
3.3 4.3 9.8 2.1 (5.1) 128.3 1.4 128.3
33,211 10,930 6,575 3,958 (835) 5,785 3,587 0.4 32.9 19.8 17.4
1.8 (0.8) (1.4) (11.3) (12.7) 42.0 (10.2) 40.4
PEER COMPARISON Stock Code BDMS TB BH TB BCH TB RFMD SP IHH MK KPJ MK RHC AU APHS IN
5.0% 0.0% 2015
2016
Gross margin
2017F
EBITDA margin
2018F
Core net margin
Source: BDMS, UOB Kay Hian
EARNINGS FORECASTS (Btm) Sales Core profit
------------- 2017F -----------Old New % chg 73,516 70,000 -5 8,830 7,722 -13
------------ 2018F ----------Old New % chg 83,143 74,208 -11 10,696 8,341 -22
Source: UOB Kay Hian
SOTP VALUATION
Source: UOB Kay Hian
Bangkok Dusit Bumrungrad Bangkok Chain Raffles Medical IHH Healthcare KPJ Healthcare Ramsay Apollo Local aver. Total average
2015 Sales
Source: BDMS, UOB Kay Hian
SHARE PRICE CATALYST
Company
14 12 10 8 6 4 2 (2) (4) (6) (8)
60,000
20,000
VALUATION/RECOMMENDATION
1Q17
PE 2017F (x)
P/B 2017F (x)
EV/EBITDA 2017F (x)
Div yield 2017F (%)
ROE 2017F (%)
Earnings Growth 2017F (%)
32.8 33.7 31.1 33.9 45.3 29.2 26.6 61.8 33.1 36.6
4.9 7.9 5.6 3.4 2.2 2.7 6.4 4.7 5.8 4.7
22.1 21.4 16.3 23.3 64.0 14.5 12.9 24.4 21.9 31.3
1.7 1.5 1.6 1.4 0.6 1.7 1.9 0.5 1.7 1.3
14.6 24.5 17.1 10.5 4.7 9.1 24.5 7.6 17.7 14.6
5.3 6.7 27.9 2.5 41.4 4.4 13.8 (7.1) 5.7 18.5
BDMS TB
Value (Btm) 216,196
Value/share (Bt) 13.48
RAM TB (38%) BH TB (21%) Total
13,537 26,739 256,472
0.84 1.67 16.00
Note DCF, discount rate 6% market price market price (fully diluted)
Source: UOB Kay Hian
PE MEAN AND SD PE Forward 54
+3S.D., 52.3x
49
+2S.D., 46.4x
44
+1S.D., 40.4x
39 Mean, 34.5x
34
-1S.D., 28.6x
29
-2S.D., 22.6x
24 19 May-12 Nov-12 Jun-13 Dec-13
Jul-14
Jan-15 Aug-15 Mar-16 Sep-16 Apr-17
Oct-17
Source: UOB Kay Hi
Source: Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
26
R e g i o n a l
M o r n i n g
N o t e s
PROFIT & LOSS Year to 31 Dec (Btm)
BALANCE SHEET 2016
2017F
2018F
2019F
Net turnover
67,984
70,000
74,208
81,842
EBITDA
13,579
13,852
14,695
16,409
Deprec. & amort.
4,516
4,564
4,919
5,351
EBIT
9,063
9,288
9,776
11,058
911
853
859
865
Total other non-operating income
Friday, 19 May 2017
Year to 31 Dec (Btm)
2016
2017F
2018F
2019F
Fixed assets
56,164
66,625
71,709
77,889
Other LT assets
38,180
38,852
39,547
40,266
Cash/ST investment
4,765
3,425
1,417
1,102
Other current assets
7,830
8,081
8,562
9,415
106,939
116,983
121,235
128,672
Total assets
Associate contributions
1,370
1,251
1,389
1,531
ST debt
5,964
1,483
2,311
7,524
Net interest income/(expense)
(881)
(1,505)
(1,371)
(922)
Other current liabilities
11,913
12,897
14,077
15,565
25,934
33,840
32,621
17,440
4,824
5,306
5,837
6,421
55,718
60,741
63,537
78,728
2,586
2,715
2,851
2,994
106,939
116,983
121,235
128,672
2016
2017F
2018F
2019F
Pre-tax profit
10,463
9,888
10,653
12,531
LT debt
Tax
(1,922)
(1,814)
(1,945)
(2,310)
Other LT liabilities
Minorities
(385)
(352)
(366)
(381)
Shareholders' equity
Net profit
8,386
9,920
8,341
9,840
Minority interest
Net profit (adj.)
8,156
7,722
8,341
9,840
Total liabilities & equity
2016
2017F
2018F
2019F
12,193
10,910
12,432
14,798
Profitability
9,323
10,834
9,264
11,000
EBITDA margin
20.0
19.8
19.8
20.0
(1,922)
(1,814)
(1,945)
(2,310)
Pre-tax margin
15.4
14.1
14.4
15.3
Deprec. & amort.
4,516
4,564
4,919
5,351
Net margin
12.3
14.2
11.2
12.0
Associates
1,370
1,251
1,389
1,531
ROA
8.0
8.9
7.0
7.9
506
(477)
194
756
ROE
15.5
17.0
13.4
13.8
(1,215)
(3,097)
(1,023)
(1,150)
CASH FLOW Year to 31 Dec (Btm) Operating Pre-tax profit Tax
Working capital changes Non-cash items Other operating cashflows
KEY METRICS Year to 31 Dec (%)
(385)
(352)
(366)
(381)
Investing
(9,238)
(12,093)
(9,756)
(11,707)
Turnover
8.2
3.0
6.0
10.3
Capex (growth)
(9,238)
(12,093)
(9,756)
(11,707)
EBITDA
4.3
2.0
6.1
11.7
Financing
(3,747)
(156)
(4,685)
(3,405)
Pre-tax profit
4.6
(5.5)
7.7
17.6
Dividend payments
(5,575)
(4,193)
(4,960)
(4,171)
Net profit
4.6
18.3
(15.9)
18.0
Net profit (adj.)
4.6
(5.3)
8.0
18.0
EPS
4.6
(5.3)
8.0
14.0
Issue of shares Proceeds from borrowings Loan repayment Others/interest paid
0
0
0
10,007
1,828
4,037
275
0
0
0
0
(9,241)
Growth
0
0
0
0
Net cash inflow (outflow)
(792)
(1,340)
(2,009)
(315)
Debt to total capital
35.4
35.8
34.5
23.4
Beginning cash & cash equivalent
5,557
4,765
3,425
1,417
Debt to equity
57.2
58.2
55.0
31.7
Ending cash & cash equivalent
4,765
3,425
1,417
1,102
Net debt/(cash) to equity
48.7
52.5
52.7
30.3
Interest cover (x)
15.4
9.2
10.7
17.8
Refer to last page for important disclosures.
Leverage
27
R e g i o n a l
M o r n i n g
N o t e s
Friday, 19 May 2017
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. 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Friday, 19 May 2017
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