Brokers Digest 906

(Oct 30: 73 cents)

MAINTAIN BUY. 3Q19 DPU of $1.31 cents fell 11.0% y-o-y, 0.6% q-o-q, mainly due to weaker-than-expected reversions in Singapore. The weak 9M19 DPU was in line with the Street. 3Q19 revenue and NPI fell 12.0% y-o-y and 8.3% y-o-y, and was -0.3% q-o-q and +3.3% q-o-q. Fundamentals remain sound, given high 92.8% pre-committed occupancy in Singapore and DPUs backed by rising Australian contributions. Revenue from Australia rose 7.6% y-o-y and 5.6% q-o-q, helped by the A$41.2 million ($39.7 million) Altona warehouse acquisition (at 6.8% NPI yield). Supply in Australia is tight, against a backdrop of growing demand. We see NPIs recovering as Singapore rents stabilise and leasing demand picks up from FY2020. Valuations are compelling at 8.0% dividend yield, with earlier-than-anticipated DPU recovery a catalyst. We cut estimates by 5- 6% to reflect slower-than-expected Singapore rental growth assumptions, and DDM-based price target 6% to 85 cents. — Maybank Kim Eng (Oct 29)

DBS Group Holdings

(Oct 30: $25.69)

MAINTAIN BUY. We expect NIM to recede 2bp q-o-q in 3Q19 due to lower interest rates. Wealth management fees are expected to grow 9.6% y-o-y due to continued expansion of AUM. We expect fees from trade and loans related activities to be relatively flat q-o-q. Overall, we expect net fees & commission to be up 1.5% y-o-y but down marginally by 1.6% q-o-q. We expect robust net trading income of $300 million. We expect DBS Group Holdings’ (DBS) loan growth at 4% y-o-y and 1% q-o-q in 3Q19, driven by non-trade corporate loans. We forecast net profit of $1,496 million for 3Q19, up 5.7% y-o-y but down 6.7% q-o-q. DBS is a beneficiary of the partial trade deal between the US and China as Greater China accounted for 29.9% of its total loans and 27.1% of total income in 2Q19. DBS provides an attractive dividend yield of 4.8% based on our forecast DPS of $1.20 for 2019. We trim our net profit forecasts by 1.1% for 2019 and 2.9% for 2020 due to lower interest rates. Our target price of $29.75 is based on 1.56x 2019F P/B. — RHB Research (Oct 29)

ESR Reit

(Oct 30: 53 cents)

MAINTAIN BUY. 3Q19/9M19 DPU is in line. Despite the challenging industrial market, ESR REIT managed to grow its portfolio and DPU, and generate positive rental growth. 3Q DPU down marginally by 0.4% y-o-y. Revenue/NPI (3Q) grew 92%/101% on the back of the merger last year. Strong leasing momentum (3Q), YTD rental reversion of +0.6%. ESR REIT has completed its acquisition of a 49% stake in PTC Logistics Hub, and is awaiting final approvals from the authorities to redevelop ~0.3m sqf at 7000 Ang Mo Kio Ave 5. Gearing post acquisition and fund-raising stands at 40.1%, leaving little debt headroom for future acquisitions. Price target of 60 cents from 61 cents, 11% upside with 8% FY20F yield. With its scale and well-diversified positioning across all industrial segments in Singapore, we believe its stock is undervalued, at 1.1x FY19F P/BV. We trim FY2019-2020F DPU by 1-2% to reflect the recent unit placement and acquisitions. Upside potential lies in asset enhancement opportunities. — RHB Research (Oct 29)

Hutchison Port Holdings Trust

(Oct 30: 15.7 US cents)

MAINTAIN HOLD. Hutchison Port Holdings Trust’s (HPHT) 3QFY19 revenue and other income was flat (+0.1% y-o-y) at HK$3.0 billion. PATMI in 3QFY19 declined by 2.9% y-o-y to HK$232.5 billion mainly due to higher taxation, partly offset by lower financing cost following the recent rate cuts. The results came in above our expectations due to lower-than-expected revenue declines which were in turn attributed to seasonality impact and our overly bearish throughput projections. Management maintained their DPU guidance of 11 -17 HK cents for FY2019 but expects weaker volume growth in 4QFY19 due to declining US cargoes and high base effect from exporters’ frontloading activities ahead of tariff implementation in 2018. As such, we revised our FY2019 DPU down from 13 HK cents to 12 HK cents. Given that the stock remains a proxy to US-China trade tensions, we continue to expect high volatility with ongoing news flow on the trade situation. After adjustments, our fair value remains at 17 US cents. — OCBC Investment Research (Oct 29)

Oxley Holdings

(Oct 30: 34.5 cents)

MAINTAIN BUY. Yanlord’s GO for UE is at $2.60 per share, giving Oxley an opportunity to unlock its value (an ongoing concern for many investors). If realised, Oxley will be able to channel the >$300 million proceeds for other uses. With profits from the Chevron House sale, Dublin Landings and Cambodia, it should enjoy a record year in FY2020F. There could also be a possible special dividend for its 10-year anniversary, which we estimate at 3 cents (8.8% FY2020F (June) yield). Oxley owns 120.6 million United Engineers (UE) shares, representing a 18.92% stake in the latter. Despite the general offer (GO) price of $2.60 per share being lower than its cost (which we estimate at c.$2.70), this will enable Oxley to unlock $313.6 million in cash – which can be used to pare down debts, reward shareholders with special dividends, or be used to invest in other property projects. Price target of 43 cents, 26% upside. — RHB Research (Oct 29)

Raffles Medical

(Oct 30: $1.02)

MAINTAIN HOLD. Raffles Medical’s 9M19 net profit fell 15% y-o-y to $42 million; 70% of consensus’ and 68% of our FY2019F estimates, mainly impacted by start-up losses from the newly opened Raffles Hospital Chongqing. Excluding the start-up losses, 9M19 EBITDA and NPAT would have grown 10% and 2.5% y-o-y respectively. Similarly, 3Q19 net profit fell 17% y-o-y to $14 million as 8% y-o-y revenue growth was offset by start-up losses. 3Q19 NPAT (ex start-up losses) is estimated to have increased 5% y-o-y, the highest y-o-y growth in a quarter since 2015. Revenue growth was led by both healthcare services (+10% y-o-y) and hospital services (+7% y-o-y). 3Q19 EBITDA grew 1.4% y-o-y despite start-up losses from Raffles Hospital Chongqing. Excluding the start-up losses, EBITDA would have grown 12.1% y-o-y. Price target of $1.12. Raffles Medical’s share price is currently at 29-31x FY2019F-2020F PE (at 1 standard deviation [SD] above historical average) and 21-22x FY2019F-2020F EV/EBITDA. — DBS Group Research (Oct 29)

Singapore Exchange

(Oct 30: $8.98)

MAINTAIN NEUTRAL. Singapore Exchange’s 1QFY20 net profit grew 25% y-o-y to $114 million, and accounted for 30% of our pre-results FY2020F – ie above expectations. 1QFY20 SADV of $1.06 billion was relatively unchanged from 1QFY19’s $1.07 billion. Compared with 4QFY19, SADV was down 3% q-o-q. 1QFY20 derivatives was the star, with volume growing 12% y-o-y. 1QFY20 derivatives average daily contracts (DADC) traded was at 967,000, close to our FY2020 estimate of 960,000. We forecast FY2020 DPS of 31 cents, based on an 85% payout ratio – 1QFY20 dividend was at 7.5 cents. FY2020F dividend yield is 3.8%, higher than the Singapore sovereign 10-year yield of 1.69%. SGX remains in a net cash position, with a monopoly over trading of Singapore-listed equities. Our price target of $8.30 (from $8.10) is pegged to 23x FY2020F EPS, ie its 4-year mean. Hypothetically, if FY2020F SADV was 20% lower than our base case at $0.86 billion, SGX’s fair value would be $7.43. — RHB Research (Oct 25)

Venture

(Oct 30: $15.34)

MAINTAIN BUY. Texas Instruments is observing broad-based weakness across end-markets, including those Venture Corp (VMS) participates in, due to the trade war. We see this as a short term headwind VMS’ volumes and lower our FY2019-2021E EPS by 2-8%. ROE-g/COE-g price target is largely unchanged at $18.85, now based on 2.1x FY20E P/B from FY2019E previously. Given the risk of negative revisions to consensus’ forecasts, we see near-term headwinds to share price. However, we are accumulators on dips as (i) this headwind appears priced in; and (ii) DPS is backed by still strong cash flow. Even at a fair value of $14.00, which implies an unlikely FY2019-2022E earnings CAGR of -8%, FCF can comfortably fund DPS above 80 cents; our current expectations are 70 cents- 75 cents. A key risk is weaker than expected capex sentiment which could delay VMS’ earnings recovery. — Maybank Kim Eng (Oct 29)

Yanlord Land

(Oct 30: $1.18)

MAINTAIN BUY. Yanlord Land Group Ltd (Yanlord) announced that it has acquired its partners’ stakes in United Engineers Ltd (UEL), and now holds 35.27% of its ordinary shares. The total cash amount paid by Yanlord amounted to $229.7 million, and translates into a value of $2.60 per UEL share. It is therefore required to make a mandatory general offer for all of UEL ordinary shares it does not hold and also a comparable offer for UEL preference shares. The mandatory conditional cash offer price of $2.60 per UEL ordinary share is slightly below UEL’s closing price of $2.62 on Oct 25, and is also at a 16.7% discount to UEL’s NAV/share (as at June 30, 2019), implying a takeover offer at 0.83x PB. As such, we believe the acceptance rate for this general offer would be low. This cash offer is conditional upon Yanlord garnering valid acceptances that will result in it holding more than 50% of the total voting rights attributable to the UEL ordinary shares. Fair value of $1.56. — OCBC Investment Research (Oct 29)

FOREIGN

Asia Commercial Joint Stock Bank

(Oct 30: VND24,300)

MAINTAIN NEUTRAL. Asia Commercial Joint Stock Bank’s (ACB) 3Q net profit was flat q-o-q and up 18% y-o-y, with 9M19 being 80% of CS FY2019E (avg. 9M 74% in last 3 years). PPOP grew 9% y-o-y led by net interest income (+17%) and fee income (+58%), but other non-interest income declined 35%, likely due to lower bad debt recoveries. Credit costs again came in lower at 10 bp (annualised) and have been only 9 bp YTD vs 43 bp in 2018. Loans growth of 2% q-o-q/16% y-o-y was broad-based, with the share of consumer and SME loans at 91%. With estimated 9M credit growth of ~11%, ACB still has ample credit quota to grow in 4Q19 given its initial granted credit quota of 17%. NIM was flat q-o-q at 3.6%. While asset yield rose 27 bp q-o-q, the impact was negated by rise in funding costs (+29 bp) due to lower CASA ratio (-13 bp) and 124% YTD growth in wholesale funding, which could keep near term margins in check. ACB is trading at 1.2x 2020E P/B and 6.7x P/E with a muted growth outlook (2018-2021E EPS CAGR of 8%). Price target of VND24,538. — Credit Suisse (Oct 24)

Goldwind Science & Technology

(Oct 30: HK$9.49)

MAINTAIN BUY. Goldwind Science & Technology (Goldwind) delivered strong revenue expansion of 32.7% y-o-y in 3Q19, pushing 9M19 revenue growth to 38.8% y-o-y. However, attributable net profit fell 54.3% y-o-y in 3Q19, resulting in 9M19 earnings falling by 34.2% y-o-y. This was mainly driven by the 9.3ppt y-o-y drop in overall gross margin and the 31.4% y-o-y hike in operating expenses in 9M19. On a positive note, 3Q19 overall gross margin picked up to 19.1%, which was 1.2ppt higher than 17.9% in 2Q19. The company’s wind turbine gearbox (WTG) shipment amounted to 5.2GW in 9M19, accounting for 89.5% of 2018’s 5.86GW shipment. Its backlog grew 17.1% y-o-y to 23.5GW as at end-September 2019. We raise price target to HK$12.67 from HK$11.87, given: a) management has guided for >12GW external WTG shipment in 2020, b) WTG prices are likely to remain at a relatively high level in 2020, and c) WTG gross margin recovery in 2020. — UOB Kay Hian (Oct 29)

Kia Motors

(Oct 30: KRW42,700)

MAINTAIN OUTPERFORM. Despite Theta II engine-related provisions of KRW300 billion, Kia Motors (Kia) 3Q19 OP came in at KRW291 billion (up 149% y-o-y), beating our OP estimate. We recommend Kia as our sector top-pick again. Although repeated engine issues create uncertainty, Kia's new product momentum led better-than-expected earnings. +6% y-o-y ex-China sales volume growth with improved SUV product mix (+KRW168 billion), forex tailwind (+KRW142 billion) with falling US incentive spending (down US$511/unit y-o-y) led OP turnaround. With 'Seltos' (entry SUV) from July, Kia's volume model cycle has begun and expected to refresh 48% of Kia's global sales by 4Q20E. We estimate 2019E sales volume of 2.76 million units (+2% y-o-y), the first y-o-y growth in four years, and 2020E of 2.96 million units (+7% y-o-y). We revise up 2019/2020E EPS by +4.5%/+6.7% and revise up our price target to KRW52,000 (from KRW49,000) by applying 9.1x to 2019-20E average EPS, which we derive from its intrinsic P/B. — Credit Suisse (Oct 25)

Radiant Opto-Electronics

(Oct 30: TWD119)

MAINTAIN NEUTRAL. Radiant reported 3Q EPS of TWD4.70, ahead of CS/street on better GM. 3Q sales of TWD15 billion were up 16% q-o-q on iPad refresh, while GM improved 2.6 pp q-o-q to 19.8% on better mix, improving efficiency and lower depreciation, leading to OPM of 14.9%, and ahead of CS and street by 0.6 pp and 2.9 pp, respectively. 4Q sales guidance is below our prior estimate of -6% q-o-q and street of -5% q-o-q, mainly on peak of iPad build in 3Q and slower demand for both MacBook and Windows NB, while iPhone remains stable. We expect its GM to decline by 0.7 pp q-o-q to 19.1% on smaller scale. Radiant stated that it sees increasing competition on mini-LED BLM, although the process it will handle and allocation are not finalised. We believe its value-add might decline as part of the work could eventually be shifted to other parties. We fine-tune our model and kept 2019-2021E EPS largely unchanged. Price target of TWD130 using 10x 2020E P/E, as we see limited upside from here, with revenue momentum fading in the next six months and uncertainties on miniLED. — Credit Suisse (Oct 25)

Sinopharm Group

(Oct 30: HK$27.85)

MAINTAIN HOLD. Sinopharm Group’s (Sinopharm) 9M19 revenue growth remained robust at 24.7% y-o-y. Sinopharm reported total revenue of RMB312.7 billion in 9M19, driven by strong growth across all business segments. Gross margin dropped 0.29ppt from 9.00% in 9M18 to 8.71% in 9M18. Operating margin fell 0.28ppt y-o-y. Net profit rose 11.6% y-o-y to RMB4.60 billion. Net operating cash outflow amounting to -RMB15.6 billion in 9M19 vs 1H19’s -RMB13.3 million, indicating a significant improvement in 3Q19. Trade receivables continued to expand by 43.1% y-o-y, much faster than revenue growth. EPS stood at RMBb1.55, up 4.0% y-o-y in 9M19. The results are largely in line with our estimates. As a consolidator, Sinopharm is well positioned for market share expansion. We expect revenue growth to remain strong and come in significantly higher than the industry’s in 2H19, while GPO may bring continued margin pressure. Price target of HK$29.70, based on 11.5x 2020F PE, or 1x PEG. — UOB Kay Hian (Oct 29)

SK Hynix

(Oct 30: KRW81,500)

MAINTAIN OUTPERFORM. SK Hynix reported BTE 3Q19 OP of KRW473 billion (Cons. KRW410 billion, CSe KRW512 billion). Revenue grew q-o-q on significantly stronger DRAM bit shipment while NAND ASP surprisingly rose 4% q-o-q on lower mix of discreet NAND on flat q-o-q volume. DRAM demand recovery was broader than earlier indicated, with all segments and geographies participating to drive the 23% q-o-q bit growth. The China server demand pick-up was the main surprise, while pick-up in PC DRAM and density increase in mobile products also contributed to the high demand pick-up. While the NAND ASP increase was mostly due to the mix change, price elasticity continued to work driving higher density uptake in MCPs for Chinese brand smartphones and higher penetration of client SSDs. Inventory for both DRAM and NAND declined. 3Q19 will likely prove to be the OP bottom. NAND continues to damage overall earnings, but early ASP recovery bodes well for loss reduction in 2020. We maintain price target of KRW103,000 on mid-cycle target multiple of 1.4x P/B. We introduce 2021 earnings. — Credit Suisse (Oct 24)

Sunway Reit

(Oct 30: RM1.84)

UPGRADE TO BUY. During a recent meeting, management updated us on its latest development. Retail properties remain the key driver for SREIT in the short to medium term, especially Sunway Pyramid Mall which contributes 56% of total net property income (NPI). The company seeks to increase contribution from other segments and geographical locations to diversify its earnings base. Occupancy rates at Sunway Pyramid, Carnival and Putra Mall are strong at 98%, 97% and 90% respectively. Both Sunway Pyramid and Carnival have captive markets surrounded by mature townships, making them the leading malls in their locality, offering a wide array of retailers. Fair value of RM2.16 (from RM1.97) based on a lower target yield of 5.0%. We lower our target yield to 5.0% from 5.5% in view of the possibility that BNM may cut interest rates. We keep our FY2020F–2022F numbers unchanged at RM308.3 million, RM326.7 million and RM340.2 million respectively. — AmBank Research (Oct 30)

Wanhua Chemical

(Oct 30: RMB45.08)

MAINTAIN OUTPERFORM. Wanhua's 3Q19 NP came in at RMB2.3 billion (-25% y-o-y/-19% q-o-q) due to lukewarm methylene diphenyl diisocyanate (MDI) market in 3Q19. However, 9M19 bottom line is still in line, tracking 74% of our FY2019 estimates. 3Q19 polyurethane selling price decreased by 6% as the listing price of pure MDI fell by RMB3,700/ton in July caused by destocking pressure from downstream white goods. But, we think MDI prices are likely to stabilise in 4Q19 due to eased trade tension, scheduled maintenance and limited regional capacity expansion. Wanhua's Ningbo plant is scheduled to go through major maintenance in 4Q19. Two production lines with aggregate annual capacity of 1.2 mn tons will be taken offline for 55 days, which means 4Q19 earnings will decrease as volume goes down. Our FY2019 earnings are lowered by 10% to take into account the impact. We cut 2019-2021E EPS by 2-10%. We lower our DCF-based price target to RMB52 (from RMB54). — Credit Suisse (Oct 25)

YiChang HEC ChangJiang Pharmaceutical

(Oct 30: HK$46.40)

MAINTAIN BUY. YiChang HEC ChangJiang Pharmaceutical (HEC Pharma) reported promising sales and net income of RMB1.37 billion and RMB351 million respectively in 3Q19, representing y-o-y growths of 470% and 632%. The data set comes as an upside surprise to the market, which had been bracing for tepid financial data as the 3Q is traditionally an off-season for influenza. In 9M19, HEC Pharma had already recognised sales of RMB4.43 billion. We have revised upward our revenue forecasts for 2019/20 by 6.1% per year to reflect the stronger-than-expected sales. Sales ratio in OTC channel increased dramatically from 2018’s 5% to 3Q19’s 30%, in our estimate. We raise our revenue forecasts for 2019 and 2020 by 6.1% per year to reflect the stronger growth of Kewei sales. Our price target of HK$58.23 is based on SOTP valuation, comprising: a) 11.3x 2020F PE for existing drugs, and b) HK$6.00 per share for its near-term drug pipeline, comprising HCV, insulins and six abbreviated new drugs (ANDA). — UOB Kay Hian (Oct 29)