Regional Daily Ideas Troika
Regional Daily, 7 January 2015
5
Regional Daily
Ideas Troika
Top Stories
Sound Global (967 HK)
Industrial - Environment Control
BUY HKD8.32 TP: HKD12.00
Mkt Cap : USD1,609m
Pg2
Sound Global continued to expand in Dec 2014 by securing more new
projects. Our DCF-based TP implies a FY15F PE of 19x, slightly above the
HK-listed waste water sector average of 18x.
Analyst: Laurent Wong (laurent.wong@rhbgroup.com)
Puncak Niaga (PNH MK)
Utilities - Water
TRADING BUY MYR2.93 TP: MYR4.01
Mkt Cap : USD343m
Pg3
Islamic Equity Focus
Pg4
Thailand
Krung Thai Bank (KTB TB)
Banks
BUY THB22.1 TP: THB26.0
See important disclosures at the end of this report
Recurring net profit growth (%) 1.6 0.4 33.0 42.6 44.9
We are shifting our shariah-compliant portfolio from Malaysian to Chinese
Recurring
0.33 0.40
0.50
0.67 and have also included three
equities in EPS
light (CNY)
of the 0.33
changing
macro
picture
property stocks (Shimao, Ananda, Matrix Concepts) in light of the low
Recurring P/E (x) 20.0 19.9 16.6 13.3 10.0
interest rate environment.
P/B (x) 3.26
2.80 2.29
1.70 1.45 CFA (athaporn@sg.oskgroup.com)
Analyst:
Athaporn
Arayasantiparb,
P/CF (x) na na na na 212
Other Key Stories
Hong Kong
Petro-King Oilfield Services (2178 HK)
Oil & Gas Services
NEUTRAL HKD1.21 TP: HKD1.22
Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F
Puncak’s EGM to decide on the proposed disposal of its water assets and
operations
is set
to be 2,652
held later
today.
advise
existing shareholders to
Total turnover
(CNYm)
3,140
3,868We
5,046
6,039
vote for the proposal. Maintain TRADING BUY with our SOP-based TP
Reported
net
(CNYm)
428 423
575 820 1,188
unchanged
atprofit
MYR4.01
(+38.3%
upside).
RecurringKong
net profit
430 432 575 820 1,188
Analyst:
Heng(CNYm)
Siong (kong.heng.siong@rhbgroup.com
Pg5
Bleaker Outlook Already Priced In
Analyst: Charles Zhang (charles.zhang@rhbgroup.com)
Pg6
Expect Slight Beat Of 4Q14 Earnings Estimate
Analyst: Fiona Leong (fiona.leong@rhbgroup.com)
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1
Company Update, 7 January 2015
Sound Global (967 HK)
Buy (Maintained)
Industrial - Environment Control
Market Cap: USD1,609m
Target Price:
Price:
HKD12.00
HKD8.32
Macro
Risks
Expansion On Track
Growth
Value
Sound Global (967 HK)
Price Close
What's new?
Relative to Hang Seng Index (RHS)
10.20
9.20
187
8.20
167
7.20
147
6.20
127
5.20
107
4.20
25
87
20
Further expansion in Dec 2014. Sound Global secured three more
build-operate-transfer (BOT) projects in Dec 2014, with total daily
capacity of 110,000 tonnes (3% of its estimated daily capacity as at endFY14). The projects include municipal/rural waste water treatment and
water supply. Two projects (100,000 tonnes) were secured via merger
and acquisition (M&A), and one (10,000 tonnes) via greenfield bidding.
The projects are located in Sichuan, Shandong and Guangdong. Total
investment is about CNY247m.
New projects secured in 2014 up 151% YoY. Total BOT projects
secured in 2014 reached 1.43m tonnes, up 151% YoY. Around 51% was
secured via M&As.
Our view
15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
5
Jan-14
Vol m
10
Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
31.2m/4.02m
29.8
44.2
4.72 - 9.12
31
1,500
Wen Yibo
CCB
IFC
50.3
11.2
7.7
Share Performance (%)
Guidance for 2015 likely achievable. Sound Global expanded rapidly
in 2014 after its financial bottleneck was resolved. We believe
management’s guidance of 1.2m-1.5m tonnes for 2015 is likely
achievable. Sound Global is discussing with German Development Bank
(KfW) for possible offshore loans financing.
"Water Plan" the near-term catalyst. The Water Pollution Prevention
and Treatment Plan ("Water Plan"), which reportedly will set aside
CNY2.0trn in 2013-2017 for water projects, 45% above the 12th 5-Year
Plan’s, has yet to be announced. However, we believe it is just a matter
of time before the plan is confirmed and it could be a strong near-term
catalyst for the water treatment sector, benefitting companies like Sound
Global.
Maintain BUY and HKD12.00 TP (44% upside). Our DCF-based TP of
HKD12.00 implies a FY15F P/E of 19x (13x currently), slightly above the
HK-listed waste water sector average of 18x. We expect Sound Global to
deliver a 3-year recurring EPS CAGR of 26%, slightly ahead of the HKlisted sector’s 22%. Its capacity expansion accelerated since its financial
bottleneck was resolved in 4Q13 via the issue of offshore loans.
YTD
1m
3m
6m
12m
Absolute
(7.4)
7.6
6.1
3.5
89.5
Forecasts and Valuations
Relative
(8.5)
8.2
2.7
2.2
84.9
Total turnover (CNYm)
Shariah compliant
Dec-12
Dec-13
2,652
3,140
Dec-14F Dec-15F Dec-16F
3,868
5,046
6,039
Reported net profit (CNYm)
428
423
575
820
1,188
Recurring net profit (CNYm)
430
432
575
820
1,188
Recurring net profit growth (%)
1.6
0.4
33.0
42.6
44.9
Laurent Wong +852 2103 9432
Recurring EPS (CNY)
0.33
0.33
0.40
0.50
0.67
laurent.wong@rhbgroup.com
Recurring P/E (x)
20.0
19.9
16.6
13.3
10.0
P/B (x)
3.26
2.80
2.29
1.70
1.45
P/CF (x)
na
na
na
na
212
EV/EBITDA (x)
12.4
10.1
10.4
10.2
8.8
Return on average equity (%)
17.3
14.8
15.5
14.4
15.7
3.6
36.5
62.7
66.6
3.7
(0.4)
0.3
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
net cash
Source: Company data, RHB
See important disclosures at the end of this report
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2
3
.
2
0
.
2
0
0
.
2
0
0
.
0
0
0
Company Update, 7 January 2015
Puncak Niaga (PNH MK)
Trading Buy (Maintained)
Utilities - Water
Market Cap: USD343m
Target Price:
Price:
MYR4.01
MYR2.93
Macro
Risks
Putting An End To The Water Saga
Growth
Value
Puncak Niaga (PNH MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
3.90
113
3.70
109
3.50
104
3.30
100
3.10
95
2.90
91
2.70
86
2.50
82
2.30
77
2.10
12
73
0
0
.
2
0
Puncak’s EGM to decide on the proposed disposal of its water assets 0
.
and operations is set to be held later today. Maintain TRADING BUY 0
0
with our SOP-based TP unchanged at MYR4.01 (36.9% upside). We 0
continue to advise existing shareholders to vote for the proposal and
walk away with total net proceeds of MYR1.56bn. Management remains
committed to announcing a special DPS of at least MYR1.00.
10
8
6
Nov-14
Sep-14
Jul-14
May-14
Mar-14
2
Jan-14
Vol m
4
Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
3.18m/0.93m
32.8
36.9
2.32 - 3.71
49
414
Tan Sri Rozali Ismail
Lembaga Tabung Haji
40.9
9.7
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
(1.0)
8.9
(12.0)
(12.8)
(12.0)
Relative
(0.5)
8.7
(7.2)
(5.8)
(7.8)
Shariah compliant
Kong Heng Siong +603 9207 7666
kong.heng.siong@rhbgroup.com
1
.
2
0
.
1
Salient details. To recap, Puncak Niaga (Puncak) agreed in Nov 2014
to sell its 100% stake in Puncak Niaga SB and 70% stake in Syarikat
Bekalan Air Selangor SB (Syabas) to Kumpulan Darul Ehsan Bhd for a
total cash consideration of MYR1.56bn. Its EGM to decide on the
proposed disposal of its water assets and operations is set to be held
later today, with minimum 75% approval required from its shareholders
for the disposal exercise to proceed. We note that Puncak’s single
largest shareholder Tan Sri Rozali Ismail – with an effective stake of
40.9% – has given his undertaking to support the proposed disposal. We
continue to advise investors to vote for the proposed disposal to put an
end to the much-delayed saga after six years of protracted negotiations.
Completion by January. According to the circular, the entire exercise
will be completed by as soon as mid-Jan 2015. Upon completion,
management remains committed to announcing a special DPS of at least
MYR1.00. This could potentially translate into a total cash payout of
MYR411.7m based on its outstanding share base (excluding treasury
shares).
O&G play post-disposal. Upon completion of the disposal, Puncak will
be a pure oil and gas (O&G) play via its 100%-owned subsidiary in
Puncak Oil & Gas SB, which owns a derrick lay barge. The group has
secured Package B of the Pan Malaysia integrated offshore installation
contract worth MYR1.8bn over a 3-year period from 2014 to 2016.
Maintain TRADING BUY. All in, we maintain our TRADING BUY call
with our fully-diluted SOP-based TP unchanged at MYR4.01. Share price
has recovered by some 25% over the past three weeks after having
retraced from a high of MYR3.71 in tandem with weakness in local equity
market over the last two months. That said, we see potential for further
upside as we do not discount the possibility of a further dividend windfall
to better reward shareholders amidst current market volatility.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
3,744
1,147
1,044
1,435
1,492
Reported net profit (MYRm)
238
201
221
264
273
Recurring net profit (MYRm)
238
201
221
264
273
2302.2
(15.6)
10.0
19.5
3.5
Recurring EPS (MYR)
0.58
0.49
0.54
0.64
0.66
DPS (MYR)
0.05
0.05
0.06
0.07
0.07
Recurring P/E (x)
5.06
5.99
5.45
4.56
4.41
P/B (x)
2.38
0.68
0.61
0.55
0.49
P/CF (x)
5.57
5.52
4.56
4.41
2.5
Total turnover (MYRm)
Recurring net profit growth (%)
na
Dividend Yield (%)
1.7
1.8
2.0
2.4
EV/EBITDA (x)
5.7
15.9
8.8
6.6
5.8
61.1
17.6
11.8
12.6
11.7
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
net cash
78.2
62.4
46.9
34.0
(2.1)
(19.4)
(39.0)
Source: Company data, RHB
See important disclosures at the end of this report
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3
Strategy, 7 January 2015
Islamic Equity Focus
Macro
Risks
Back to China
Growth
Value
2
2
2
1
P/E band chart for FTSE Shariah Asia 100
From 9 Dec to 30 Dec, our shariah-compliant portfolio dropped 2.0% in
value, which is roughly in line with the benchmark FTSE Shariah Asia
100. In this upcoming period, we shift some of our exposure from
Malaysian to Chinese equities in light of the oil price decline and
include several beneficiaries of the low interest rate environment.
Source: Bloomberg
P/E band chart for MSCI Asia
Source: Bloomberg
P/E band chart for FBM KLCI
Roughly in line. Our shariah-compliant portfolio largely tracked the
benchmark during much of Dec 2014. The best performer was Westports
(WPRTS MK, BUY, TP: MYR3.3), but many beneficiaries of the strong
USD that were based in Malaysia also did not perform as well as
expected, due to the general market weakness in Malaysian equities. In
light of this, we are reducing our exposure to Malaysian equities and
introducing two new Chinese picks into our portfolio.
Low interest rates. The global macroeconomic environment is currently
conducive for low interest rates. China recently cut interest rates in Dec
2014. Even in Singapore, we believe any interest rate hike would be very
mild. Hence, we have included several defensive counters from the
telecom sector as well as property and construction stocks. In general,
property stocks benefit from improved affordability for housing, while new
housing starts, in turn, improve the investor sentiment on contractors.
Positives in China. In the near term, China would benefit from the end
of Occupy Central, the recent interest rate cut and increased awareness
on the Shanghai-HK Stock Connect which took effect in Nov 2014.
Chinese consumers should also benefit more than ASEAN consumers
from low oil prices, because China did not implement direct diesel
subsidies. Hence, the country is not using the low oil prices as an
opportunity to remove or reduce these subsidies, as many ASEAN
nations are doing.
Some relief for Indonesia. Although we remain cautious on Indonesia,
the political situation is slowly improving after the United Development
Party defected over to the government coalition. In light of this, we have
added AKR Corporindo (AKRA IJ, BUY, TP: IDR5,650) to our portfolio.
Stock Highlights
Com pany Nam e
Source: Bloomberg
Price
Target
P/E (x)
P/B (x)
Yield (%)
Dec-15F
Dec-15F
Dec-15F
Rating
AKR Corporindo
IDR4,120
IDR5,650
15.1
2.5
2.0
BUY
Ananda Development
THB3.28
THB3.70
8.9
1.3
2.3
BUY
Bossini
HKD0.63
HKD1.01
6.1
1.1
8.2
BUY
M1
SGD3.61
SGD4.40
17.0
8.2
5.8
BUY
Matrix Concepts Holdings
MYR2.70
MYR3.00
6.7
1.6
5.9
BUY
Shimao Property
HKD17.34
HKD20.30
5.0
0.9
6.0
BUY
Ta Ann Holdings
MYR3.88
MYR4.40
12.4
1.3
2.6
BUY
IDR930
IDR1,000
11.0
2.6
3.2
BUY
HKD3.11
HKD4.10
6.1
1.0
5.8
BUY
THB11.50
THB14.00
15.3
2.3
1.3
BUY
Athaporn Arayasantiparb, CFA +65 6232 3884
Tiphone Mobile Indonesia Tbk PT
athaporn@sg.oskgroup.com
Truly International Holdings
Unique Engineering & Construction
Source: Company data, RHB
See important disclosures at the end of this report
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Company Update, 6 January 2015
Petro-King Oilfield Services (2178 HK)
Energy & Petrochemicals - Oil & Gas Services
Market Cap: USD169m
Neutral (Maintained)
Target Price:
Price:
HKD1.22
HKD1.21
Macro
Risks
Bleaker Outlook Already Priced In
Growth
Value
Petro-King Oilfield Services (2178 HK)
Relative to Hang Seng Index (RHS)
132
5.10
120
3.60
84
3.10
72
2.60
60
2.10
48
1.60
36
1.10
24
0.60
18
16
14
12
10
8
6
4
2
12
Jul-14
May-14
Nov-14
96
Sep-14
108
4.10
Mar-14
4.60
Jan-14
Vol m
Price Close
5.60
0
0
.
2
0
0
On 24 Dec, Petro-King issued a profit warning and proposed a rights .
0
offer to raise HKD151m. We see the profit warning as a negative 0
surprise and slash our FY14-16 earnings forecasts. We cut our TP to 0
HKD1.22 (0.7x FY15F P/BV, 0.8% upside). Maintain NEUTRAL as we
believe the negatives have been priced in, with its share price having
dropped 9% since the announcement.
Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
Termbary Natural Resources
Co. LTD
King Shine Group
TCL Corp
2.43m/0.31m
50.4
0.8
1.08 - 4.94
30
1,080
31.5
31.4
6.9
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
12.0
(16.0)
(46.9)
(46.9)
(70.9)
Relative
12.0
(14.3)
(49.2)
(47.1)
(74.4)
2
.
1
0
.
2
Profit warning a negative surprise. Based on unaudited accounts and
confirmed orders and contracts for 2014, Petro-King Oilfield Services
(Petro-King) expects to record a net loss for FY14. This came as a
negative surprise as it is much worse than our original recurring net profit
forecasts of HKD135m (-34% YoY) for FY14 and HKD114m (-14% YoY)
for 2H14.
Rights offer raises concern over cash flow. On the same day, PetroKing proposed to raise HKD151m through a rights offer at HKD0.98 per
share on the basis of one rights share for every seven existing shares.
Upon completion of the rights issue, share capital will be enlarged by
about 14%. We believe the rights offer is primarily driven by Petro-King’s
tight cash flow position and negative outlook for operation in FY15.
Share price rally on oil industry ownership reform. On 5 Jan, shares
of oilfield service providers including Petro-King rallied by 7-13%,
stimulated by news reports that China National Petroleum
Corporation (CNPC) has kicked off a mixed-ownership reform in Xinjiang.
It is expected that there will be more bold reform actions in 2015 to
encourage private capital to participate in upstream exploration and
production (E&P) operations, which may revive investments in the field.
Gloomy earnings outlook. We believe Petro-King’s operation has been
severely challenged by a tough operating environment in both domestic
and overseas markets. We now see a loss of HKD35m for 2H14 and a
loss of HKD15m for FY14. For FY15, we expect a limited recovery with a
net profit of HKD30m.
Maintain NEUTRAL, lower TP to HKD1.22. We change our valuation to
P/BV from P/E-based, given the company’s highly volatile earnings. We
cut our TP to HKD1.22, based on 0.7x FY15F P/BV, 2SD below its
forward P/BV mean. Our previous TP of HKD2.10 was based on a 12x
FY15F P/E. As its share price has dropped 9% since the announcement,
we believe the negatives have been priced in. Maintain NEUTRAL.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
1,057
1,060
867
1,014
1,141
Reported net profit (HKDm)
180
207
(22)
30
57
Recurring net profit (HKDm)
149
205
(15)
30
Recurring net profit growth (%)
69.8
37.8
(107.1)
Charles Zhang +852 2103 5842
Recurring EPS (HKD)
0.20
0.21
(0.01)
charles.zhang@rhbgroup.com
Recurring P/E (x)
6.1
5.8
P/B (x)
0.86
0.59
P/CF (x)
6.91
Shariah compliant
Total turnover (HKDm)
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
na
0.62
na
0.87
na
57
88.5
0.02
0.05
49.6
26.3
0.69
0.68
na
0.99
4.4
3.3
(3.2)
13.0
17.7
12.7
(1.0)
1.4
1.8
2.5
net cash
net cash
4.8
net cash
(111.5)
(84.2)
(72.5)
2.6
Source: Company data, RHB
See important disclosures at the end of this report
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5
Company Update, 6 January 2015
Krung Thai Bank (KTB TB)
Buy (Maintained)
Financial Services - Banks
Market Cap: USD9,365m
Target Price:
Price:
THB26.00
THB22.10
Macro
Risks
Expect Slight Beat Of 4Q14 Earnings Estimate
Growth
Value
Krung Thai Bank Plc (KTB TB)
Relative to Stock Exchange of Thailand Index (RHS)
124
22.0
118
20.0
113
18.0
107
16.0
101
14.0
180
160
140
120
100
80
60
40
20
95
Sep-14
Jul-14
Source: Bloomberg
Avg Turnover (THB/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (THB)
Free float (%)
Share outstanding (m)
Shareholders (%)
Financial Institution
Development Fund
State Street Bank Europe Ltd
791m/24.2m
17.6
17.7
15.8 - 24.4
45
13,976
55.1
4.8
Thai NVDR
4.7
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
(2.7)
(8.3)
(6.8)
0.9
41.7
Relative
(2.7)
(2.0)
(2.2)
0.8
19.4
Shariah compliant
Loan growth gained momentum in 4Q14. Krung Thai Bank (KTB)
recorded net loan growth of 8.1% YTD (bank level) for 11M14,
translating into annualised growth of 8.8%. This is an acceleration from
the 5.9% annualised growth achieved for 9M14 and is ahead of
management’s targeted 2014 loan growth of 5-7%.
Deposits surged 13.2% in two months. Deposits jumped 13.2%,
between Sep and Nov 2014, lifting YTD growth to 14.4% for 11M14
(9M14: +1% YTD). Management attributed the strong growth to the
bank’s successful deposit campaigns. This lowered its loan-to-deposit
ratio (LDR) to 83% in Nov 2014 (Sep 2014: 94.6%). To ensure that the
improved liquidity does not become a drag on net interest margin (NIM),
management intends to: i) reduce the bank’s interbank borrowings, and
ii) boost loan growth via increased working capital loans to the small and
medium-sized enterprise (SME) segment and expansion of its retail
customer base. Management believes KTB’s LDR will rise to the low90% in 2015.
Fee income to be flat in 4Q14. Management guided that fee income will
be similar to the THB6.90bn (-4% QoQ) achieved in 3Q14. Management
attributed the still-weak fee income trend to the country’s sluggish
economic conditions.
Non-performing loans (NPLs) stabilising. NPLs, which rose 8% QoQ
in 3Q14, have started to stabilise in 4Q14. Still, management indicated
that 4Q14 provision charges will likely be similar to the THB2.82bn
booked in 3Q14.
4Q14 net profit likely to be beat our forecast, albeit slightly. Our
projected FY14 net profit of THB32.83bn implies 4Q14 earnings of
THB7.66bn (-18% QoQ). We believe KTB will likely post net profit that
will be slightly higher than our estimates, given our more conservative
assumption on provision charges.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Net interest income (THBm)
58,122
64,481
69,257
74,306
80,530
Reported net profit (THBm)
23,366
33,929
32,832
38,438
43,510
37.4
45.2
(3.2)
17.1
13.2
23,366
33,929
32,832
38,438
43,510
Recurring EPS (THB)
1.97
2.43
2.35
2.75
3.11
DPS (THB)
0.73
0.88
0.95
1.12
1.20
Recurring P/E (x)
11.2
9.1
9.4
8.0
7.1
P/B (x)
1.69
1.50
1.35
1.23
1.11
Net profit growth (%)
Fiona Leong +603 9207 7638
fiona.leong@rhbgroup.com
Recurring net profit (THBm)
Dividend Yield (%)
3.3
4.0
4.3
5.1
5.4
Return on average equity (%)
14.9
17.4
15.1
16.0
16.4
Return on average assets (%)
1.1
1.4
1.3
1.4
1.4
(1.8)
2.5
2.3
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report
2
.
2
0
.
3
0
0
.
2
0
0
For the soon-to-be released 4Q14 results, we expect KTB to report .
0
healthy loan growth, a surge in deposits, stable provision charges but 0
flattish non-interest income. Maintain BUY and THB26.00 TP (17.7% 0
upside), valuing stock at 1.4x FY15 P/BV. We believe KTB would likely
beat our 4Q14F earnings of THB7.66bn, albeit slightly, given our more
conservative assumption on provision charges.
Nov-14
24.0
May-14
130
Mar-14
26.0
Jan-14
Vol m
Price Close
Source: Company data, RHB
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RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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