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PhillipCapital Regional
Corporate Day
Key Takeaways
23 March 2015
We organized PhillipCapital Regional Corporate Day on March 10th in
Singapore. In the day-long event we hosted 17 leading corporates across
Asia.
An action packed day!
Participants
INDIA
 Aarti Industries
 Can Fin Homes
 Container Corporation of India
 Finolex Industries
 JK Cement
 Kaveri Seeds (no summary)
 Tata Communications
 Ultratech Cement (no summary)
 Va Tech Wabag
INDONESIA
 Garuda Indonesia
 Sawit Sumbermas Sarana
 Tiga Pilar Sejahtera Food
SINGAPORE
 OSIM International
 Raffles Medical Group
 Sheng Siong Group
THAILAND
 Beauty Community
 Inter Far East Engineering
Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
MCI (P) 019/11/2014
Ref. No.: SG2015_0103
REGIONAL CONFERENCE KEY TAKEAWAYS
Aarti industries
We have hosted Mr Rajendra Gogri – Chairman & Managing Director, Aarti Industries
(Aarti) in our Regional conference in Singapore. The key takeaways from the
conference are as follow:
 Aarti operates under three segments like - specialty chemical (~85% of sales),
bulk pharmaceuticals (~ 10%) and personal care (~ 5%). The key target industries
for its specialty chemical business are – Polymers (composite materials), agro
chemicals and pigments/dyes with almost equal revenue share for the company.
 It expects relatively stronger growth 10-12% growth in the demand from
polymer and agro chemical segment. In addition, capacity expansion should
boost Aarti’s overall growth in near future. Hence, the company guides for 15%
annual volume growth with margin expansion of about 200bps over next two
years.
 Aarti’s German based competitor for benzene derivatives - Lanxess has stopped
manufacturing Para Nitro Chloro Benzene (PNCB) and Ortho Nitro Chloro
Benzene (ONCB) due to lower captive demand. These two are important
products of Aarti. This coupled with an ongoing capacity expansion in Nitro
Chloro benzene should benefit the company in near future.
 Aarti believes rising scale, customized product delivery and balancing of coproducts is the key to successful growth in specialty chemical business. In order
to achieve scale, it has added processes like hydrogenation, ethylenation, etc.
Simultaneously, it generated demand for customized products in various target
industries in order to balance the co-products (isomers) which is important for
scale up.
 Aarti has a large basket of >155 products under specialty chemical and about 45
products in the pharmaceuticals space. Agro chemical is the leading target
industry for Aarti’s specialty chemical business with 30% share followed by
polymers 27%, pigments 19%, dyes 5%, etc. BASF is the largest customer with 8%
of Aarti’s sales.
 Aarti is currently on track with capex worth about Rs 5000mn over FY15 and
FY16, which should be the capex cycle apex. It doesn’t expect any major capex till
FY20.
 Currency fluctuations in the emerging markets would have no implication on
Aarti as 95% of its exports are dollar denominated.
 However, the long term growth projects for the company could be – 1) CRAMS in
Agro Chemical business or 2) JV with global chemical player in the field of
polymer or 3) new chemistry based product.
Can Fin Homes
We have hosted Mr. C Ilango –Managing Director of CanFin Homes (CANF) in our
Regional conference in Singapore. The key takeaways from the conference are as
follow:
 CANF expects loan book to grow over 30% CAGR through FY14 -20 taking the
loan book to Rs350bn from Rs76bn currently. The incremental branch additions
would play a pivotal role in contributing higher loan growth.
 Non housing proportion of the loan book which was at 1% of loan book in FY11
has increased 13%. CANF is targeting to increase it further to 20% of the book by
FY16, and eventually to 25%, this would be NIM accretive.
 Incremental borrowing is largely done through NCD & Commercial paper at 8.5%.
The proportion of NCD in overall borrowings to increase to 50% by FY16 from
24% currently.
 Change in the borrowing mix coupled with higher non housing loan and proceeds
from right issue are expected to drive margin from 2.5% currently to +2.8% by
FY16.
 CANF plan to increase branch network to 150 by FY16 and to 250 branches in
FY20. With the maturity of the newly opened branch, the cost to income ratio is
Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
REGIONAL CONFERENCE KEY TAKEAWAYS
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expected to moderate. The new branches would take around nine months to
breakeven.
NPAs are currently at ~0.25% lower compare to the Industry average which is
about 0.7%. CANF follows prudential lending and targeting mainly to salaried
middle class. Will look to also lend to non salaried where interest rates higher
CANF just completed a Rs. 2.7 bn rights issue which should take care of its capital
needs till 2017. The stock trades at approx 2X FY17 P/B, and generates ROE
around 17%.
Container Corporation
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Tariff hike in container in December was a shocker for Concor and totally
unexpected. Overall the haulage charges were increased by 18-20%. Concor
decided not to pass this on completely to end consumer since a) did not want to
show the railways that it is easy for Concor to pass on hikes, b) did not want to
lose market share to roads
Domestic volumes have suffered on account of the hike
Can further increase utilization by reducing the empty wagons by 3-4% and by
using double stacking
Are looking at 14-15% growth in volumes ex the DFCC but are having rolling stock
issues as wagons are being diverted towards imports
In Q415, domestic growth is 2-3% post strong growth earlier on sudden increase
in imports and rate increases
There has not been any significant change with the new railway minister coming
on board
Looking at acquiring surplus rail land for leasing as mentioned in the rail budget;
however not much available since they want land of 200-300acres to house
storage facilities as well for customers
Finolex Industries
We have hosted Finolex Industries (FI) in our Regional conference in Singapore and
Mr Anil Whabi – President Finance has represented the company. The key takeaways
from our conference was as follows:  FI is the pioneer of PVC pipes and fittings industry in India with 25% market share
in the organised market of PVC pipes in India. It has current capacity of PVC pipes
2.5lakh MTs p.a. It has infrastructure to increase by another 1lakh MTs at a
marginal incremental capex.
 It is the only PVC pipes manufacturer in India which is backward integrated in the
production of PVC resin (capacity of 2.72lakh MT p.a) with the advantage of a
consistent quality of raw material at a lower cost, than the prevailing import
parity of PVC resin.
 Though FI is the leader of PVC pipes in India, its business presence is
concentrated around western and southern India. It is currently taking further
steps to aggressively grow in East India and North-East India.
 Union Budget 2015 has emphasized on increasing irrigated area and initiated a
campaign of “housing for All” by 2022, which provides huge growth visibility for
the industry leader of PVC pipes like FI.
 FI distributes its PVC pipes through 600 dealers across India. Its focus on
branding of its pipes helps it distribute to its products on its Cash-n-carry (purely
on cash) model. Leveraging its strong brand equity position, the company wants
to distribute few third party products under Finolex brand.
 Implementation of GST would benefit the company indirectly as the unorganized
play (accounting 40% of total PVC pipe market of India) would face a hard hit.
 FI has a freehold land of 78 acres at Chinchwad (near Pune) and it is evaluating
for monetization, which should benefit the company in near future.
 Currently FI has gross debt of Rs 7.0bn and it has plans to make it a zero debt
company in next 3 years time.
Page | 3 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
REGIONAL CONFERENCE KEY TAKEAWAYS
JK Cement
Volume ramp-up will be immediate; volume guidance remains robust: JKCE continues
to give a robust volume guidance of +8mn tns of grey cement for FY16. 9MFY15 grey
cement volumes at JKCE have seen a robust growth of ~20%. JKCE expects to easily
sustain this robust double digit volume growth in FY16. JKCE also firmly believes there
will be no operating bottlenecks which will delay the ramp up of utilisation levels of
the expansions. The capacities will see healthy utilization levels in FY16E. Over FY16,
while all of the North capacities of JKCE are expected to operate at par with the
industry utilisation levels; utilisation guidance for south is at 65%. The utilization level
expected at Fujairah plant in CY15 is at minimum of 50-60%.
Efficiencies with the new expansion will help curtail costs: JKCE has been a consistent
sufferer on operating front due to operating inefficiencies at its Nimbahera plant in
Rajasthan. While the other North and South units of JKCE remain state of art in terms
of technology, Nimbahera unit has inherent inefficiencies with regards operating
cost. JKCE expects immediate cost efficiencies of ~Rs100/tonne in its overall
operating matrix with the commissioning of its Brownfield expansion at Mangrol.
Moreover, in times of lower than optimum capacity utilization levels, this new unit
gives more flexibility to JKCE of shifting operations to a more cost efficient production
platform and help maximize profitability at the company. JKCE has guided for
operating cost efficiencies of ~Rs350/tn at the new site.
Concerns at UAE to be addressed by Q1FY16: JKCE’s UAE operations have already
commenced operations but however these operations are yet to be EBITDA positive.
Absence of power supplies from local authorities is the major concern area for JKCE
here. The management believes all of these issues have now been sorted out and
they expect power supply problems to get solved very soon. Notably, the entire
required infrastructure for supply of the requisite power is already in place at the
UAE site and hence it will not take much time for JKCE to capitalize on the benefits.
JKCE expect to turn EBITDA positive as and when this issue gets resolved.
Buy with price target of Rs836 (+18%): JKCE is the only mid-cap which is completely
out of the capex mode now. While other peers will have an excuse of gradual volume
ramp-up at the expansion sites, JKCE will have a competitive advantage to deliver
immediate volume growth and gain possibly gain a few points on market share vis-àvis mid-tier peers. Structurally, JKCE remains best placed to gain the maximum with
volume growth (amongst mid-caps) in FY16 and FY17. Moreover a largely diversified
capacity portfolio of the company de-risks the business model both, regionally and
also on business segments. It was also clarified by the Management that the next
phase of capex is unlikely to be announced before 12-15 months of times and all
energies of the senior management will remain focused on stabilizing operations at
all the existing sites. The priority will be to gain on efficiencies with new capex and
see a structural change in the operating matrix of the company.
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REGIONAL CONFERENCE KEY TAKEAWAYS
Tata Communications
Tata Communications discussed the various business verticals and stressed on the
improving metrics in the enterprise data services business. The following are the key
points:
 Whole sale voice is growing globally at 2% annually according to Telegeography.
Tata Communications focuses on quality of minutes and the business focus is to
improve cash flows from the business.
 The voice business segment generates around US$ 90mn cash and it has very
limited requirements of capex. Focus of the company will be to grow the cash
flows sustainably with market share gains.
 Enterprise data services will be key growth driver for the company and Tata
Communications focuses on providing complete suite of data products catering
enterprise requirements.
 Tata Communications is in the leader quadrant of Gartner’s magic quadrant and
it has consistently improved its position.
 The company focuses on managed and cloud based services which are the
primary growth drivers in the enterprise domain.
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New product launches like IZO are seeing good acceptance and client addition
rate is improving.
 Improvement in operating metrics is significantly ahead of the financial results.
 Revenue traction comes with a lag in enterprise data services and Tata
communications is seeing consistent deal wins which will help in future revenue
growth.
 Capex guidance for the company continues to US$ 250 – US$300mn but
depending on the market opportunities the capex could is likely to be at the top
end of band in the near term.
 Overall the company sees voice as stable business generating cash flows and
enterprise data to be the growth driver with significant improvement in traction.
VA Tech Wabag
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No change in guidance for revenues and orders for FY15. Guidance maintained
on orders for FY15e at Rs32-34bn and revenues at Rs26-27bn. The sharp
depreciation in the euro remains one of the key risks to the guidance, in our
view. Note that ~40-45% of VA Tech Wabag’s revenue comes from overseas with
Europe being one of the key contributors to the top line
Are not witnessing any increase in competition from the Chinese in India – most
of the European and Asian players are already present in India and there has not
been any increase in the competitive intensity of late.
There not been any significant on the ground improvement in the end markets
(Industrial/municipal) since the new government has come into power – there
has been a lot of talk but little action has happened till now.
The Ganga cleanup programme is a very ambitious project which has been taken
up by the new government in earnest. The management noted that currently the
project is in the planning stage and actual ordering should start soon. Note that
VA Tech has recently won a 140MLD sewerage treatment plant in Varanasi under
the Ganga Action plan.
Page | 5 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
REGIONAL CONFERENCE KEY TAKEAWAYS
Garuda Indonesia
Represented by:
 Mr. Ari Askhara, Chief Financial Officer
 Mr. Heri Akhyar, VP Investor Relation
Undergoing major turnaround from restructuring phase to expansion phase
Garuda presented revenue-generation and cost-saving plans for 2015. The airline has
undergone “Survival Phase” until 2007, “Restructuring Phase” in 2008-2011, and is
now undergoing expansion phase from 2012 onwards. Fleet size grew from 106 units
in 2012 to 189 units in 2015, with average age of aircrafts reduced from 5.8 years in
2012 to 4.0 years in 2015.
 Airline business is highly dependent on GDP per capita and purchasing power.
Garuda projected 12.5% revenue growth for FY15E - equal to more than 2x
Indonesia’s expected GDP growth range (5.1% to 5.8%).
 Revenue generators for 2015 include: 1) Flight routes restructuring: to reduce
flights on unprofitable routes, postpone opening new routes, and adjust flight
schedules to various destination cities in Australia and Europe. 2) Developing
routes in China: Charter flights to cities in China besides the 3 major cities
currently served by Garuda (Beijing, Shanghai, Guangzhou), such as Chengdu,
Chong Qin, Ningbo, Kunming, Jinan, Harbin, Xian, Shenyang, and Chengzhou. 3)
Developing markets to the Middle East, especially expanding services for the
Islamic pilgrimage destinations.
 Cost-saving plan include: Potential saving from lower fuel price: US$ 172.25
million; Potential saving from efficiency initiatives: US$ 146.94 million.
Efficiency initiatives include using GPU generators, and conservation of fuel,
which could contribute 25% to cost reduction.
Operational Performance
Garuda’s Available Seat Kilometers (ASK) grew 16.3% yoy in 2014, higher than Qantas
(5.9%), Air New Zealand (2.2%), Singapore Airlines (-0.1%), and Tigerair (-4.7%).
Revenue Passenger Kilometers (RPK) grew 12.7% in FY14. Load factor, however,
shrank 2.3% in FY14, as fleet expansion pace exceeded revenue-passenger growth.
Garuda’s Cost per Available Seat Kilometers (CASK) is one of the lowest among full
service carriers in Asia Pacific: 7.5 in 2013, and 7.6 in 2014.
Fuel comprises 40% of Garuda’s operating expense. The airline’s target for fuel
hedging is 50% for this year. Up to date of the conference, around 25% has been
hedged. Aircrews cost around 5% of operating expense. Garuda plans to increase
crew service capacity from currently 1:50 (1 flight attendant servicing 50 passengers)
to 1:55. As a comparison, SQ crew service capacity is 1:60.
Spillovers due to recent AirAsia’s unfortunate accident and Lion Air’s delay incidents
may boost Garuda’s February domestic market share to nearly 50%, from currently
around 39%.
Funding Plan: IPO of MRO subsidiary
Garuda has no plan to add debt to fund its expansion. Current debt-to-equity is 1.1x.
The company said it is considering the IPO of its Maintenance, Repair, and Operations
subsidiary - Garuda Maintenance Facility Aero Asia (GMFAA). GMFAA is a profitmaking unit of Garuda, with FY14 (unaudited) net income of US$ 16.89 million.
Page | 6 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Gunawan Sutanto
gunawan.sutanto@phillip.co.id
REGIONAL CONFERENCE KEY TAKEAWAYS
Sawit Sumbermas Sarana
Represented by:
1. Mr. Hadi Susilo, Investor Relations
How do you tackle the lower price of CPO
All plantation companies, as price taker, could not dodge the bottoming CPO prices.
Cost management is one of the differentiators between the planters. One of SSMS
competitive advantages is cost efficiency. SSMS CPO production cost / MT in 2014
was USD 224, much lower than average competitors of USD 300 – 400 / MT. That
efficiency occurred as the plantation areas are concentrated in the same area and all
operations such as mills, port, and refinery are located within 50 km radius.
What to expect from current acquisition of Tanjung Sawit Abadi (“TSA”) and Sawit
Multi Utama (“SMU”)
TSA and SMU are palm plantations owned by CBI group – initially outside SSMS. Post
acquisition, SSMS owns 59,386 ha planted area, increased from 34,046 ha previously.
The plantation age profile adjusted from 8.7 years to 5.5 years, which allows SSMS to
continue its strong growth profile. After the acquisition, the FFB production in 2015 is
expected to increase more than 40% as compared to last year. The acquisition value
was USD 8,593 / planted ha, which was very attractive as compared to other similar
acquisition done recently which averages at USD 10,988 / planted ha. Total
transaction of TSA and SMU is IDR 1.55 trillion. The financing sources come from
combination of IPO proceed, internal cash and issuance of new loan.
IDR depreciation’s effect on SSMS cost structured and why SG&A rose significantly
in 2014
CPO price is quoted in US dollar, hence stronger USD will benefit SSMS. SSMS main
cost is in IDR, but fertilizer cost, which contributes around 30%-35% of total
plantation cost is in US dollar term. In 2014, post-IPO, SSMS opened a representative
office in Jakarta. And, to comply with regulations, there were some additional
positions, such as audit committee, remuneration committee, corporate secretary,
etc. to join in the management level. There were also IPO fees that caused SG&A to
increase significantly.
Plan for upcoming years
SSMS will keep focus on upstream production. Meanwhile, for the downstream line
will be taken care of by its parent, CBI Group. SSMS focuses on its core competence,
which is upstream palm oil production, because it provides higher margins as
compared to downstream business. Previously, Sinarmas and Wilmar absorb 80% of
SSMS production. In coming years, SSMS plans to distribute its CPO output to other
refineries such as Salim Ivomas Pratama, Asiana Agri, and First Resources to minimize
third party risk. As of now, SSMS owns four CPO mills and another CPO mill with
180,000 MT FFB processing capacity will start commencing in 2Q15. SSMS also plans
to open another CPO mills in 2017.
Page | 7 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Martha Christina
martha@phillip.co.id
REGIONAL CONFERENCE KEY TAKEAWAYS
Tiga Pilar Sejahtera Food
Represented by:
1. Mr. Sjambiri Lioe, Chief Financial Officer
2. Mrs. Desilina, Corporate Secretary
Food Manufacturing business – Catering middle income classes through innovation
TPS food shared with the “buy-side” on the new products launches especially for the
snacks products. This year, the company is going to launch several new snacks
products including the new net flavors and 3D new flavors of its flagship “Taro”
snacks which they took over from Unilever and also other snacks such as biscuits,
crackers, wafer sticks and other extruded snacks. The company also introduced new
variances of its instant vermicelli “BihunKu”. To penetrate further into the middleincome classes, TPS food focuses on strong branding through TV commercials and
better packaging quality to project its premium to the consumers. The new packaging
will increase the packaging costs but at the same time selling prices will also increase
significantly which will generates better profit margins to the company. TPS food also
improves its distribution channels with 59% additional outlets in new cities to widen
the distribution coverage area. The company also depends on retailers via motorists
to introduce its products in the remote villages. The distribution coverage area has
increased from 76 cities to 121 cities and 114,235 outlets to 181,977 outlets up until
recently.
Rice business – Aiming for 5% market share of Indonesia by 2020
Indonesian government policy that prohibits rice imports limits the supply of rice in
the market. TPS food seizes this opportunity with their efficient production system of
7 to 8 MT/Ha paddy where national yield stays at 5.1 MT/Ha. Participants enquired
what the strategies will be to capture the 5% market share by 2020. TPS food claimed
to work with the government to increase the number of farmers and lands to be
planted. The government, through ministry of agriculture, supports the selected TPS
food farmers by providing high quality fertilizer and seeds. TPS food also acts as a
financer for these farmers to grow their planting capacity and capability which in
turn, increase the soil area and high-yielding paddy output. The paddy production will
then be processed and labeled by TPS food to be sold in premium to the market in
forms of packed and bulk rice. The packed rice provides higher gross profit margin (±
40%) as compared to the bulk rice of only 15 – 20% gross margin.
Palm oil – Spin-off plan in near future
TPS food confirms its plan to spin-off the Palm oil business in near future; however
the company did not disclose when exactly the plan will be realized. In 2014, Golden
Plantation, TPS food’s palm oil pillar, managed around 20,000 hectares planted area
with total land bank amounting to more than 53,000 hectares. This year, the
company targets its planted area to increase to 33,000 hectares. Land bank is also
targeted at 200,000 hectares in the next five years. Golden Plantation have agreed
and signed MOU to acquire majority stake in 2 palm oil companies located in south
Sumatra with total concession area of 19,100 hectares. TPS food hinted its spin-off
plan once the mature area have grown to more than 30,000 hectares which we
expect to be at the end of this year up to middle 2016.
Page | 8 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Edward Lowis
edward.lowis@phillip.co.id
REGIONAL CONFERENCE KEY TAKEAWAYS
OSIM International Limited
Represented by:
 Mr. Peter Lee Hwai Kiat, Chief Financial Officer
 Mr. Juan Chow Yee, Corporate Development Manager
Generate demand to drive core business growth
The management has expressed that the slower revenue growth in FY14 was in the
core OSIM business due to (1) the tougher operating environment with rising rental
and payroll; (2) the newly launched uDiva chair did not perform as well as its
predecessor uAngel and (3) weaker business environment in most markets,
especially in the second half of the year.
Moving forward, FY15 will still be a challenging year with soft performance expected
in the first half of this year, but the team is optimistic that the new $5000 range
chair, which is to be launched in next month, will drive the core business
performance in the second half of this year. The management believe that there is
still growth in the massage chair industry and more innovation will come with
technology. At the same time, the company continue to emphasize strengthening the
sale teams’ product knowledge and professional service to enhance the customers'
buying experience. Customers usually upgrade their massage chairs in 3-5 years and
OSIM has revealed that approximately 30-40% of premium massage chair purchases
were from existing customers.
OSIM believes that the product innovation and professional customer service will be
the key determinants to the success of the business.
TWG – sustainable business for profitability
The management reiterates that the TWG business is doing well. It aims to open 1520 new stores this year. TWG revenue currently accounts for <10% of the group
revenue. In Singapore, TWG has a presence in 80% of the luxurious hotels and has a
strong positioning at the airport with a store each in the three terminals. Nearly all
the stores in Singapore have high traffic flow and are profitable. Following the
success in Singapore, OSIM is now replicating the business model in China, Taiwan
and Hong Kong. With the change of the logo to TeaWG in Hong Kong and Macau,
OSIM will engage hotels as it looks out for the second shop space in Hong Kong. In
China, OSIM will extend to the four tier 1 cities – Shanghai, China, Guangzhou and
Shenzhen. It will take about 2 years to recover the capital investment of a new store.
OSIM expects the legal disputes to be resolved by this year and estimates the legal
costs incurred to be same as last year.
Moving towards online and digital marketing
Management shares that a research study, done with a brand consultant last year,
finds that marketing strategy should shift online. OSIM is accelerating advertising in
the digital world and social media to drive traffic into the physical stores.
Page | 9 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Caroline Tay
carolinetayyy@phillip.com.sg
REGIONAL CONFERENCE KEY TAKEAWAYS
Raffles Medical Group
Represented by:
 Dr. Jeremy Lai, Senior Manager, Investor Relations
 Mr. Andrew Aw, Investor Relations
Strong Clinical Governance
One key strength of Raffles Medical Group (RMG) is its group practice model,
allowing sharing of case notes among its specialists and provision of better cost
estimates to patients, as every specialist doctors are RMG’s employees. This leads to:
 cost effective care for patients
 integrated team-based care across medical disciplines
 better clinical outcomes.
Attributing growth factors
RMG’s FY14 strong revenue growth was bolstered by health insurance services and
acquisition of major corporate clients, such as Resorts World Sentosa and Global
Foundries. Other growth factors include its new Nuclear Medicine Centre which
provides PET/CT scanning (previously outsourced) and clinical network expansion.
Growth in healthcare services is mainly volume-driven while both volume and
increasing bill size drove hospital services growth.
Hospital extension offers runway for growth for next 8-10 years
The extension to Raffles Hospital will provide additional space for expansion of its
clinical and specialist centres. The expansion will be demand led and unutilised space
in the hospital would be leased out to tenants to generate rental income. RMG will
progressively take back the leased space over time as it expand its hospital
operations.
The hospital extension will also help to free up existing hospital space for more beds
if necessary. Current bed utilisation rate is about 60-70%, below the rate of most
public hospitals in the 80s.
Private hospitals in China will offer excellent growth opportunities
RMG sees strong growth prospects as affluent Chinese patients tend to seek medical
treatments locally rather than travelling abroad. China government’s promoting of
private hospitals development has also been encouraging as it seeks to wealthy
patients away from overcrowded public hospitals. RMG intends to build two private
hospitals – one in Shanghai and another in Shenzhen. It will leverage on the
experiences learnt through its Shanghai medical centre, which has provided a
platform to familiarise with China’s health regulations and cultural trends over the
last few years.
Page | 10 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Colin Tan
colintanwh@phillip.com.sg
REGIONAL CONFERENCE KEY TAKEAWAYS
Sheng Siong Group
Represented by:
 Mr. Wong Soong Kit, Finance Director
Oligopolistic industry structure suggests stable margins
Singapore’s modern grocery industry is made up of three players: Sheng Siong Group
(SSG), NTUC Co-operative Ltd (NTUC) and Dairy Farm International Holding. The
industry has strong pricing power as consumers tend to have few alternatives to
meet their grocery needs. Traditional grocery players operate shorter hours, have a
smaller range of produce and tend to be more expensive. This encourages
consumers to shop at modern grocers instead.
Although the barriers of entry are low, competitors need to attain a certain size
before it’s able to enjoy economies of scale. Thus, Management does not view the
“warehouse retail” concept introduced in 2014 through the opening of Big Box in
Jurong East (owned by TT International Ltd, TTI SP, non-rated) and Warehouse Club
(owned by NTUC) as an immediate threat. However, SSG is monitoring their progress
to gauge if the concept will gain acceptance with the consumers.
These factors have resulted in a sensible competition, led by NTUC that owns ~56%
of the modern grocery industry. The last price war was seen in 4Q11 and 1Q12. This
has helped widen SSG’s gross margin from 22.1% in FY11 to 24.2% in FY14. We
expect gross margin to expand by 80 basis points to 25% by FY16F.
Leasing preferred for new stores
Management shared that it prefers to rent when opening new stores, compared to
buying store space. This allows SSG to reduce its initial capital outlay and offers the
flexibility of closing down the store if it does not perform up to expectations.
However, we note that SSG has only closed two stores since inception. Both closures
were due to factors out of their control, and not because of underperformance.
Management shared that their rents range between SGD4-9/sqf. This is lower than
SGD9-18/sqf rents at sub-urban malls. Moving forward, SSG shared that it will
continue to watch rent cost closely when opening new stores.
First China store expected in 2H15
SSG intends to open its first store in Kunming, China, in 2H15. Management shared
that the store could be ~20,000 sqf. It will only be a supermarket. The usual store in
China is about 50,000 sqf. Apart from groceries, it sells other items such as clothes
and electronics.
Page | 11 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Shane Goh
shanegohla@phillip.com.sg
REGIONAL CONFERENCE KEY TAKEAWAYS
Beauty Community


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
BEAUTY is the third largest player in Thailand’s cosmetics and beauty market,
capturing as much as 8% market shares after the local brands Oriental Princess
and Cute Press.
In 2014, same-store sales grew notably by 26.8%, due chiefly to a remarkable
growth in a number of Chinese tourists entering into Thailand that pushed samestore sales sharply higher by 50% in the fourth quarter.
Looking ahead, BEAUTY aims to add up to 50 stores per year in Thailand and 12
stores each in CLMV (Cambodia, Laos, Myanmar, and Vietnam) over the next
three years. For overseas stores, BEAUTY will sign an one-year wholesale
contract, similar to franchise terms, which will require its business partners to
order not less than Bt12mn per year.
Days inventory outstanding has been climbing over years but we have no
concerns as BEAUTY has stocked up varieties of products in order to support an
opening of new stores “Beauty Market” and the launches of new product items,
and to prevent any shortages.
Inter Far East Engineering




IFEC tapped into renewable energy business recently and disposed its original
business engaged in distribution and lease services for electronics equipment in
3QFY14. It foresees stellar growth prospect in alternative energy business on the
back of the government’s subsidy programs.
The company aims to increase power generating capacity from 11.5MW in 2014
to 271.3MW in 2015 and further to 551.3MW and 906.3MW in 2016-2017.
Investment in power generating business in Cambodia is aimed at increasing
revenue stream in overseas segment and reducing exposure to domestic
business. It has also been in talks to generate power in Korea.
There are plans to engage in a various kind of renewable energy such as, solar
farm, wind turbine, biomass, and waste-to-energy.
According to Thailand eight-year infrastructure development scheme, the
government plans to build several mass rapid transit lines as well as a rapid
transit that will collaborate with China, which should bode well for further
growth to power industry in the country.
Page | 12 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
REGIONAL CONFERENCE KEY TAKEAWAYS
Contact Information (Singapore Research Team)
Management
Chan Wai Chee
(CEO, Research - Special Opportunities)
yebo@phillip.com.sg
Research Operations Officer
Jaelyn Chin
chinjn@phillip.com.sg
Macro | Equities
Soh Lin Sin
sohls@phillip.com.sg
Bakhteyar
osama@phillip.com.sg
Osama
Market Analyst | Equities
Kenneth Koh
kennethkohwk@phillip.com.sg
US Equities
Wong Yong Kai
Finance | Offshore Marine
Benjamin
Ong
benjaminongcw@phillip.com.sg
Real Estate
REITs
Telecoms | Technology
Transport & Logistics
Richard Leow,
richardleowwt@phillip.com.sg
CFTe
Contact Information (Regional Member Companies)
MALAYSIA
Phillip Capital Management Sdn Bhd
B-3-6 Block B Level 3 Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450
Kuala Lumpur
Tel +603 2162 8841
Fax +603 2166 5099
Website: www.poems.com.my
Colin Tan
colintanwh@phillip.com.sg
SINGAPORE
Phillip Securities Pte Ltd
Raffles City Tower
250, North Bridge Road #06-00
Singapore 179101
Tel +65 6533 6001
Fax +65 6535 6631
Website: www.poems.com.sg
Caroline Tay
carolinetayyy@phillip.com.sg
Dehong Tan
wongyk@phillip.com.sg
tandh@phillip.com.sg
Consumer
Shane Goh
shanegohla@phillip.com.sg
HONG KONG
Phillip Securities (HK) Ltd
11/F United Centre 95 Queensway
Hong Kong
Tel +852 2277 6600
Fax +852 2868 5307
Websites: www.phillip.com.hk
JAPAN
Phillip Securities Japan, Ltd.
4-2 Nihonbashi Kabuto-cho Chuo-ku,
Tokyo 103-0026
Tel +81-3 3666 2101
Fax +81-3 3666 6090
Website: www.phillip.co.jp
INDONESIA
PT Phillip Securities Indonesia
ANZ Tower Level 23B,
Jl Jend Sudirman Kav 33A
Jakarta 10220 – Indonesia
Tel +62-21 5790 0800
Fax +62-21 5790 0809
Website: www.phillip.co.id
CHINA
Phillip Financial Advisory (Shanghai) Co Ltd
No 550 Yan An East Road,
Ocean Tower Unit 2318,
Postal code 200001
Tel +86-21 5169 9200
Fax +86-21 6351 2940
Website: www.phillip.com.cn
THAILAND
Phillip Securities (Thailand) Public Co. Ltd
15th Floor, Vorawat Building,
849 Silom Road, Silom, Bangrak,
Bangkok 10500 Thailand
Tel +66-2 6351700 / 22680999
Fax +66-2 22680921
Website www.phillip.co.th
FRANCE
King & Shaxson Capital Limited
3rd Floor, 35 Rue de la Bienfaisance 75008
Paris France
Tel +33-1 45633100
Fax +33-1 45636017
Website: www.kingandshaxson.com
UNITED KINGDOM
King & Shaxson Capital Limited
6th Floor, Candlewick House,
120 Cannon Street,
London, EC4N 6AS
Tel +44-20 7426 5950
Fax +44-20 7626 1757
Website: www.kingandshaxson.com
UNITED STATES
Phillip Futures Inc
141 W Jackson Blvd Ste 3050
The Chicago Board of Trade Building
Chicago, IL 60604 USA
Tel +1-312 356 9000
Fax +1-312 356 9005
Website: www.phillipusa.com
AUSTRALIA
Phillip Capital Limited
Level 12, 15 William Street,
Melbourne, Victoria 3000, Australia
Tel +61-03 9629 8288
Fax +61-03 9629 8882
Website: www.phillipcapital.com.au
SRI LANKA
Asha Phillip Securities Limited
No-10 Prince Alfred Tower,
Alfred House Gardens,
Colombo 03, Sri Lanka
Tel: (94) 11 2429 100
Fax: (94) 11 2429 199
Website: www.ashaphillip.net
TURKEY
PhillipCapital Menkul Degerler
Dr. Cemil Bengü Cad. Hak Is Merkezi
No. 2 Kat. 6A Caglayan
34403 Istanbul, Turkey
Tel: 0212 296 84 84
Fax: 0212 233 69 29
Website: www.phillipcapital.com.tr
DUBAI
Phillip Futures DMCC
Member of the Dubai Gold and
Commodities Exchange (DGCX)
Unit No 601, Plot No 58, White Crown Bldg,
Sheikh Zayed Road, P.O.Box 212291
Dubai-UAE
Tel: +971-4-3325052 / Fax: + 971-4-3328895
Website: www.phillipcapital.in
INDIA
PhillipCapital (India) Private Limited
No.1, 18th Floor
Urmi Estate
95, Ganpatrao Kadam Marg
Lower Parel West, Mumbai 400-013
Maharashtra, India
Tel: +91-22-2300 2999 / Fax: +91-22-2300 2969
Website: www.phillipcapital.in
Page | 13 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
REGIONAL CONFERENCE KEY TAKEAWAYS
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Page | 14 | PHILLIP SECURITIES RESEARCH (SINGAPORE)