Regional Daily Ideas Troika Top Stories

Transcription

Regional Daily, 7 October 2014
5
Regional Daily
Ideas Troika
Top Stories
China Railway & Construction Sector
OVERWEIGHT
Pg3
We initiate China Railway & Construction Sector a new Overweight as we
like the strong railway and affordable housing FAI outlook in China, potential
overseas opportunities, and the undemanding valuation level. We rate CRG,
CRCC, CSCI, CNR a new BUY, and CSR, CCCC a new NEUTRAL.
Analyst: Winston Cao (winston.cao@rhbgroup.com)
Thailand Consumer
NEUTRAL (Maintained)
Pg4
While falling tuna prices add to the negative pressure on TUF, this could be
offset by the recent depreciation of the THB. Meanwhile, CPF is gaining from
rising chicken prices in Thailand and overseas. Maintain TRADING BUY on
TUF (TP: THB77.00) and BUY on CPF (TP: THB34.00).
Analyst: Chalie Kueyen (chalie.ku@rhbgroup.com)
Pg5
Lacklustre Growth
Other Key Stories
Hong Kong
China Communications Cons. (1800 HK)
Construction & Engineering
NEUTRAL HKD5.60 TP: HKD5.82
China CNR (6199 HK)
Transport – Transportation
BUY HKD6.60 TP: HKD8.47
Pg6
China Railway Construction (1186 HK)
Pg7
China Railway Group (390 HK)
Pg8
China State Construction (3311 HK)
Pg9
CSR Corp (1766 HK)
Transport – Transportation
NEUTRAL HKD6.86 TP: HKD7.47
Pg10
Indonesia
Arwana Citra Mulia (ARNA IJ)
Industrial - Misc. Manufacturer
BUY IDR94 TP: IDR1,135
See important disclosures at the end of this report
Riding On China’s High-Speed Rail Network
A Solid Value Play
Improving Fundamentals Set To Drive Re-Rating
Undisputed Leader In HK/China’s Construction Sector
Lacking Catalysts
Pg11
Headwinds From Rising Inventory Levels
Analyst: Andrey Wijaya (andrey.wijaya@rhbgroup.com)
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1
Regional Daily, 7 October 2014
Thailand
AP (Thailand) (AP TB)
Property - Real Estate
NEUTRAL THB6.95 TP: THB8.00
Pg12
Analyst: Wanida Geisler (wanida.ge@rhbgroup.com)
Bangkok Bank (BBL TB)
Financial Services – Banks
BUY THB198 TP: THB220
Pg13
Berli Jucker (BJC TB)
Consumer Cyclical – Retail
NEUTRAL THB45.80 TP: THB46.00
Pg14
LPN Dev (LPN TB)
BUY THB21.60 TP: THB27.00
Pg15
Pruksa Real Estate (PS TB)
Pg16
Thai Oil (TOP TB)
Energy & Petrochemicals - Oil & Gas Services
Pg17
PTT (PTT TB)
Energy & Petrochemicals - Integrated Oil & Gas
BUY THB364 TP: THB396
Pg18
Record High 3Q14 Presales From JV Condo Projects
Making Quiet Improvements
Analyst: Fiona Leong (fiona.leong@rhbgroup.com)
Good Looking But Expensive
Analyst: Chalie Kueyen (chalie.ku@rhbgroup.com)
3Q14 Numbers May Rebound Q-o-q
Record High Total Presales In 3Q14
Stock Loss Takes a Toll On Earnings
Analyst: Kannika Siamwalla, CFA (kannika.si@rhbgroup.com)
Energy Minister Lays Out Goals
Analyst: Kannika Siamwalla, CFA (kannika.si@rhbgroup.com)
2
Sector Initiation, 7 October 2014
China Railway & Construction Sector
Overweight
Macro
Risks
Rise Of The Phoenix
Growth
Value
We initiate coverage on China’s railway and construction sector with an
OVERWEIGHT rating. We are positive on this sector mainly on:
i) China's growing railway FAI, ii) strong demand for affordable housing,
and iii) the sector's generally undemanding valuations. Our Top Picks
are China Railway Group, China State Construction and China CNR.
Price Close
8.00
7.00
6.00
5.00

4.00
3.00
2.00
1.00
Sep-09
Dec-10
Mar-12




Jul-13
Source: Bloomberg
China State Construction Int’l (3311 HK)
Price Close

17.0
15.0
13.0
11.0
9.0
7.0
Domestic railway market emerging from the shadows. We project
China's railway fixed asset investment (FAI) to achieve a CAGR of 15%
from 2013-2016F and to reach a historical new high of CNY950bn in
2015F. We are also positive on the country’s long-term development of
th
high-speed railway (HSR) network during its 13 5-year plan (20152020) and believe that it should continue to provide sufficient railway
infrastructure and equipment demand after 2015. We expect this
development to mainly benefit domestic railway construction contractors
and rolling stock manufacturers.
Affordable housing riding on urbanisation. We expect affordable
housing construction FAI to be maintained at high levels amid the
backdrop of China’s massive urbanisation plan. We forecast for 20142016F construction volume to be maintained at 7m units per year, driven
by Premier Li Keqiang’s "shanty town" redevelopment plan.
5.0

3.0
1.0
Sep-09
Dec-10
Mar-12
Jun-13
Source: Bloomberg
China CNR (6199 HK)
Price Close

7.40
6.90
6.40
5.90
5.40

4.90
May-14
Jun-14
Aug-14
Sep-14
Source: Bloomberg
Winston Cao +852 2103 9414
Huge potential in overseas market. We expect China to export its
experience and products in HSR construction and equipment,
underpinned by the country’s marketing and financial support. We also
expect China’s “Go Out” policy to increase infrastructure construction
demand of overseas developing region and benefit China’s major
construction state-owned enterprises (SOEs) with matured overseas
platforms and large overseas revenue exposure.
Less positive on rolling stock manufacturing sector. We expect
demand growth for China’s multiple units (MUs), or HSR carriages, to
remain flattish in 2015-2016F. Although the recent MU tender provided
enough orders to rolling stock manufacturers, we believe most of these
positives have already been priced in.
Top Picks. Our Top Picks are China Railway Group (CRG) (390 HK,
BUY, TP: HKD6.55), China State Construction International (CSCI)
(3311 HK, BUY, TP: HKD14.60) and China CNR (CNR) (6199 HK, BUY,
TP: HKD8.47). In our view, these companies are direct beneficiaries of
China’s expanding railway FAI and strong demand for affordable housing
over the next three years while still trading at attractive valuations.
Although we prefer CRG, we also rate China Railway Construction
(CRC) (1186 HK, TP: HKD10.97) as a BUY.
Company Name
Ticker
Price
(HKD)
Target P/E (x)
(HKD) Dec-14F
P/E (x)
Dec-15F
Rating
China Railway Group
390 HK
4.10
6.55
6.2
5.0
BUY
China Railway Construction
1186 HK
7.06
10.97
5.8
4.8
BUY
China Starte Construction Int'l
3311 HK
11.66
14.63
12.4
8.7
BUY
China CNR
6199 HK
6.60
8.47
10.0
9.4
BUY
CSR Corp
1766 HK
6.86
7.47
12.6
11.0
NEUTRAL
China Communication Construction
1800 HK
5.60
5.82
5.6
5.3
NEUTRAL
winston.cao@rhbgroup.com
Source: Company data, RHB
3


3

1

3
3
Sector Update, 7 October 2014
Consumer – Food & Agro
Neutral (maintain)
Macro
Mixed Effects From THB Depreciation
Risks
Growth
Value
Fluctuations in the THB/USD rate
While falling tuna prices add to the negative pressure on Thai Union
Frozen’s margins and inventory loss, this could be offset by the recent
depreciation of the THB. Meanwhile, Charoen Pokphand may benefit
from rising chicken prices in Thailand and continuously high product
prices overseas. Maintain TRADING BUY on Thai Union Frozen (TP:
THB77.00) and BUY on Charoen Pokphand (TP: THB34.00).
33.5
33.0
32.5
32.0
31.5

31.0
30.5
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
Mar-14
Jan-14
Feb-14
Dec-13
Oct-13
Nov-13
Sep-13
Aug-13
30.0
Source: Bloomberg
Charoen Pokphand’s chicken prices and cost
of animal feed
Chicken price
(THB/kg)
60
13
12
11
10
9
8
7
6
5
corn price
40
30
Chicken price

Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
20
Jan-11

Corn price
(THB/kg)
50

For Thai Union Frozen, tuna prices became
volatile again
2,500
2,000
1,500
1,000

500
0
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Tuna price (USD/ton)




Charoen Pokphand has solid key product prices in Thailand and
overseas. Chicken prices in Thailand rose for three straight months to
average at THB43.60/kg (+6.3% q-o-q, -2.2% y-o-y). Although pork
prices declined slightly, we believe it was a seasonal effect of the
vegetarian festival. For its overseas business, chicken prices in key
countries (Russia, Turkey, India and Vietnam) were sustained at high
levels. Meanwhile, its shrimp prices were stable for three consecutive
months, which implied that operations were stable.
Falling corn prices benefit production costs. Commodity prices have
been declining for two months, which spell positive implications for
Charoen Pokphand as animal feed costs would decline. This is positive
for its margins going forward.
Mixed implications for Thai Union Frozen. While the company tends
to benefit from a depreciating THB, tuna prices – which became volatile
again in September – may partly offset the positives. In Sep 2014, tuna
prices plunged 20% m-o-m to USD1,280/tonne, which was lower than
the historical 3-month moving average by 33%. The sharp fall in tuna
prices could imply a potential inventory loss in 3Q14. Note that the
THBUSD has depreciated by 1.2% m-o-m. Every 5% drop in the value of
the THB would boost Thai Union Frozen’s net profit by 4%, and lift its
bottomline growth by 12% (assuming other factors remain unchanged).
Higher product prices and lower cost of production to drive
Charoen Pokphand’s growth. Business recovery is expected to
continue in 2H14 and 2015, which could mainly come from its poultry
business in Thailand and overseas. This is because Japan and the
European Union (EU) have shifted their poultry product imports from
China, looking instead for exporters from Thailand due to concerns over
food quality in China. At the same time, its operation in Russia has
benefitted from business sanctions imposed by the EU and the US on
their trading partner. This has resulted in local product prices rising to
RUB106/kg currently from RUB70/kg as at end-2013.
We prefer Charoen Pokphand to Thai Union Frozen. Although falling
tuna prices have added to the negative pressure on Thai Union Frozen’s
margins and inventory loss, the depreciation of the THB would help to
mitigate the impact – since around 85% of its revenue is denominated in
the USD. Its costs in the USD are at around 60% of total costs. We
prefer Charoen Pokphand on the strength of the recovery of its poultry
business domestically and overseas. An upside surprise to earnings may
come from the recovery of its shrimp business, which has booked
recurring losses of around THB1.0bn for the past three consecutive
quarters.
Chalie Kueyen 66 2862 9745
chalie.ku@rhbgroup.com
4


1

1

1
1
Initiating Coverage, 7 October 2014
China Communications Construction (1800 HK)
Construction & Engineering - Engineering & Construction
Market Cap: USD12,274m
Neutral
Target Price:
Price:
HKD5.82
HKD5.60
Macro
Risks
Lacklustre Growth
Growth
Value
China Communications Construction (1800 HK)
Price Close
Relative to Hang Seng Index (RHS)
6.80
105
6.60
103
6.40
100
6.20
98
6.00
95
5.80
93
5.60
90
5.40
88
5.20
85
5.00
83
4.80
70
80
0
0
.
2
0
0
We initiate coverage on CCCC with NEUTRAL and HKD5.82 TP, a 3.9% .
0
upside. It is a leading infrastructure construction contractor for a broad 0
range of industries, mainly roads, bridges and maritime construction 0
works. We expect CCCC's earnings growth to remain unexciting, as we
expect China’s FAI spending to be mainly directed at the railway and
affordable housing sectors, to which the company has little exposure.

60
50

40
20
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
10
Oct-13
Vol m
30
Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
97.5m/12.6m
12.5
3.9
4.97 - 6.57
36
17,005
China Communications
Construction Group
63.7
Share Performance (%)

Unexciting growth outlook. Unlike China Railway Group (CRG) (390
HK, BUY, TP: HKD6.55) and China Railway Construction Corp (CRCC)
(1186 HK, BUY, TP: HKD10.97), China Communications Construction
Corp (CCCC) has significantly less exposure to sectors where the
nation’s fixed asset investment (FAI) is increasing rapidly, eg railways
and affordable housing construction. Hence, we expect CCCC’s y-o-y
revenue growth at 8% (2014) and 15% (2015F), with y-o-y recurring
earnings of 2% (2014) and 6% (2015F). In 1H14, its revenue and
recurring earnings grew by 12% and 1% y-o-y respectively.
Competitive overseas. In FY13, overseas revenue accounted for ~17%
of CCCC’s total revenue, much higher than its domestic construction
peers over the same period. Its expertise in roads, bridges and maritime
construction matches the majority of the world’s developing regions’
infrastructure demand. CCCC has also been supported by China’s
Government and policy banks. As the nation is pushing its “Go Out”
policy and deepening its cooperation with other developing/underdeveloped regions, we expect CCCC to benefit from increasing overseas
infrastructure demand.
Initiate coverage with NEUTRAL, HKD5.82 TP (3.9% upside). We
view CCCC's earnings outlook as unexciting vis-à-vis Hong Kong-listed
peers like CRG, CRCC, and China State Construction International
(CSCI) (3311 HK, BUY, TP: HKD14.63), given sluggish growth in its core
businesses and increasing finance costs. Although we like CCCC’s
overseas business, we believe it will be a long time before it makes a
meaningful contribution. We derive our TP from a 5.5x FY15F P/E (1SD
below its past 5-year forward P/E average, 8% below its listed peers’
average). We believe its core business will not directly benefit from
China’s increasing railway and affordable housing FAI, while its overseas
business still needs time to contribute material earnings growth in the
long term.
YTD
1m
3m
6m
12m
Forecasts and Valuations
Absolute
(10.4)
(4.3)
5.9
(0.5)
(9.1)
Total turnover (CNYm)
Relative
(8.8)
5.1
8.5
(2.1)
(7.9)
Shariah compliant
Winston Cao +852 2103 9414
Dec-12
Dec-13
295,321
331,798
357,816
410,060
455,358
Reported net profit (CNYm)
12,248
12,568
12,766
13,581
14,983
Recurring net profit (CNYm)
12,248
12,568
12,766
13,581
14,983
4.1
2.6
1.6
6.4
10.3
Recurring EPS (CNY)
0.79
0.78
0.79
0.84
0.93
DPS (CNY)
0.18
0.19
0.19
0.20
0.22
Recurring P/E (x)
5.61
5.70
5.61
5.28
4.78
P/B (x)
0.83
0.76
0.69
0.63
0.57
P/CF (x)
5.2
10.3
16.6
10.2
7.6
Dividend Yield (%)
4.2
4.2
4.3
4.6
5.0
EV/EBITDA (x)
5.72
6.70
7.25
6.69
6.13
Return on average equity (%)
15.6
13.8
12.8
12.4
12.5
Net debt to equity (%)
79.8
100.9
107.4
109.5
109.0
(5.4)
(7.0)
(5.4)
Recurring net profit growth (%)
Our vs consensus EPS (adjusted) (%)


2

.
1
0
.
2




Dec-14F Dec-15F Dec-16F
5
China CNR (6199 HK)
Buy
Transport - Transportation
Target Price:
Price:
HKD8.47
HKD6.60
Macro
Risks
Riding On China’s High-Speed Rail Network
Growth
Value
China CNR (6199 HK)
Price Close
7.30
137
6.80
128
6.30
119
5.80
110
5.30
101
4.80
350
92




0
0
.
3
0
0
We initiate coverage on CNR with BUY and HKD8.47 TP (12x FY15F .
0
P/E), implying a 28% upside. While CNR and CSR dominate China's 0
rolling stock industry, CNR’s competitive advantage consists in its 0
350km/h high-speed train carriages, for which we see rising demand
over the next six years on China’s expanding high-speed rail network.
We prefer CNR, as its earnings, margins and lower valuations, are
catching up to CSR’s.

To ride on rising demand for 350km/h multiple units (MUs). We
forecast that China CNR Corp’s (CNR) revenue from MU sales could
surge by 108% y-o-y in FY14. This would be mainly due to concentrated
MU deliveries over the same period and an increasing proportion of
350km/h MUs, of which ASPs are higher vis-à-vis 250km/h variants. We
see CNR shipping 143 sets of 350km/h MUs in 2014, ie 70% of its total
targeted MU shipments.
300

250
200
150
Sep-14
Aug-14
Jul-14
Jul-14
Jun-14
50
May-14
Vol m
100

Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
155m/20.0m
18.2
28.3
5.02 - 7.09
48
12,352

CNRG
52.0
YTD
Absolute
Relative
1H14 results show solid MU deliveries are on track. 1H14 revenue
rose 5% y-o-y, mainly on an 18% y-o-y growth of its rolling stock
business. As the delivery of MUs rose, CNR’s GPM improved by 2.6ppts
to 19.9% (1H13: 17.3%). As a result, recurring net profit surged 51%
y-o-y to CNY2.26bn in 1H14.
Catching up with CSR Corp (CSR). In FY13, CNR's CNY4.13bn
recurring net profit was almost identical to CSR’s (1766 HK, NEUTRAL,
TP: HKD7.47) net profit of CNY4.14bn. By contrast, its FY12 earnings of
CNY3.43bn were below CSR's CNY4.0bn. In FY14F, we expect CNR's
recurring net profit of CNY6.0bn (+46% y-o-y) to slightly surpass CSR’s
CNY5.9bn (+43.5% y-o-y), mainly driven by deliveries of 350km/h MUs.
Moreover, we expect CNR's GPM gap with CSR to continue to narrow
on an improved product mix (ie higher sales mix of higher-margin
350km/h MUs) and an enhanced in-house production ratio.
Initiate coverage with a BUY and HKD8.47 TP. Our HKD8.47 TP is set
at 12.0x FY15F P/E vs its current 9.4x. This is the same target P/E we
ascribed to CSR, and reflects the narrowing gap in financial performance
between the two and is in line with the global peers’ average. We also
expect more investors to shift their portfolios to CNR, as it was just listed
on the Hong Kong Stock Exchange in May.
1m
3m
(3.1)
24.8
Dec-12
Dec-13
27.4
91,798
96,756
123,459
136,553
150,537
3,431
4,129
6,027
6,764
7,376
3,431
4,129
6,027
6,764
7,376
13.4
20.3
46.0
12.2
9.0
Recurring EPS (CNY)
0.33
0.40
0.52
0.56
0.61
DPS (CNY)
0.05
0.06
0.08
0.08
0.09
Recurring P/E (x)
15.7
13.1
10.0
9.4
8.6
P/B (x)
1.55
1.43
1.15
1.08
0.97
6.3
6m
12m
Shariah compliant
Winston Cao +852 2103 9414
P/CF (x)
259
17
5
4
6
Dividend Yield (%)
1.0
1.2
1.5
1.6
1.7
EV/EBITDA (x)
10.5
8.5
5.3
4.2
3.5
11.5
11.4
13.4
12.2
11.9
32.4
37.7


3

.
2
0
.
2
net cash net cash net cash
13.4
5.7
4.0
6
Buy
Target Price:
Price:
HKD10.97
HKD7.06
Macro
Risks
A Solid Value Play
Growth
Value
8.20
102
7.70
97
7.20
92
6.70
87
6.20
82
5.70
77
5.20
90
80
70
60
50
40
30
20
10
72

Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
89.5m/11.6m
3.7
55.4
5.63 - 8.94
39
11,683
CRCCG
61.3

Direct beneficiary of domestic and overseas railway construction
demand. We forecast for China Railway Construction Corp’s (CRCC)
revenue to grow 17% y-o-y each in 2014 and 2015F on increasing
railway fixed asset investments (FAI) and a faster backlog-to-sales
conversion rate. This is because China is accelerating the pace of
railway construction in order to support its GDP growth. It is also
attempting to have the world’s first “big high-speed railway transportation
network”. We also remain positive on the potential of its overseas
market, and believe CRCC could be one of the direct beneficiaries of the
growing demand for infrastructure construction. This is due to its
experience in all kinds of railway infrastructure construction.
Municipal and subway construction business may benefit from
accelerating urbanisation. China’s plans for migrating 100m rural
residents to the urban areas have sparked substantial demand for
infrastructure construction in its cities. We forecast for CRCC’s revenue
from urbanisation-related infrastructure works to make up 32% of its total
infrastructure business by end-2016F (2013: 28%). As a major part of
urban municipal and subway works falls under high-margin build-transfer
(BT) or build-operate-transfer (BOT) models, a change in product mix
could positively impact CRCC’s profitability over the next two to three
years.
A solid value play, initiate coverage with a BUY. We forecast for a 3year EPS CAGR of 16% for CRCC in 2013-2016. The stock is trading at
a mere 4.8x 2015F P/E, based on our 2015F EPS of CNY1.17. We
believe CRCC could see a long-term re-rating on the back of a
continuous global railway construction story. Our HKD10.97 TP is based
on our 2015F EPS and 7.5x target P/E, a 6.3% discount to our 8x target
P/E for China Railway Group (CRG) (390 HK, BUY, TP: HKD6.55).
YTD
1m
3m
6m
12m
Absolute
(8.6)
(5.1)
2.0
(5.0)
(12.5)
Relative
(7.0)
4.3
4.6
(6.6)
(11.3)
Shariah compliant
Dec-12
Dec-13
484,313
586,790
688,697
806,036
869,978
8,629
10,345
11,861
14,377
16,244
8,629
10,345
11,861
14,377
16,244
9.9
19.9
14.7
21.2
13.0
Recurring EPS (CNY)
0.70
0.84
0.96
1.17
1.32
DPS (CNY)
0.11
0.13
0.14
0.17
0.20
Recurring P/E (x)
7.99
6.66
5.81
4.79
4.24
P/B (x)
0.96
0.85
0.76
0.67
0.59
P/CF (x)
12.9
Winston Cao +852 2103 9414
Dividend Yield (%)
na
na
na
na
2.0
2.3
2.6
3.1
3.5
EV/EBITDA (x)
3.39
5.06
5.78
5.67
5.89
12.6
13.5
13.8
14.8
14.7
15.1
72.5
106.6
119.1
125.5
3.5
14.9
18.3


3

.
1
0
.
3
0
0
.
3
0
0
We initiate coverage on CRCC with a BUY and HKD10.97 TP, based on .
0
our 2015F EPS and 7.5x target P/E, representing a 55% upside. CRCC, 0
along with CRG, holds 90% share of China’s railway construction 0
market. We consider the company attractively-valued vs its domestic
peers, as we believe it could benefit from the rising demand for railway
construction locally and overseas.

Aug-14
Jun-14
Feb-14
Apr-14
107
Dec-13
112
8.70
Oct-13
Vol m
Price Close
9.20




7
Buy
Target Price:
Price:
HKD6.55
HKD4.10
Macro
Risks
Improving Fundamentals Set To Drive Re-Rating
Growth
Value
115
4.60
111
4.40
107
4.20
103
4.00
99
3.80
95
3.60
91
3.40
87
3.20
83
3.00
79
2.80
90
80
70
60
50
40
30
20
10
75

Aug-14
Jun-14
Apr-14
Dec-13
Feb-14

Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
69.8m/9.00m
9.8
59.8
3.02 - 4.63
40
20,714
CRECG
56.1

Direct beneficiary of domestic and overseas railway demand. We
forecast a 13% revenue CAGR and 19% earnings CAGR for 20142016F. This is due to our forecast for China Railway Group’s (CRG)
overall new contract value to stay at high levels over 2014-2016F, while
we envision the construction pace should accelerate during the last
th
stage of the 12 Five-Year Plan. Hence, we expect fast topline and
bottomline expansion over the same period.
Improving margins and balance sheet. We also expect improving
margins, driven by GPM for China’s infrastructure construction business
bottoming out, as well as better cost control due to CRG’s internal
restructuring. We also expect its balance sheet pressure to ease, as we
anticipate an acceleration of collecting receivables and earnings
improvements in CRG’s toll roads, bridges and other operating projects.
Consensus earnings too low. We believe the current Bloomberg
consensus forecast for 2014 earnings growth of 11% is way too
conservative, given that CRG has already delivered 12% y-o-y revenue
growth and 16% y-o-y net profit growth for 1H14. We expect Bloomberg
consensus earnings forecasts to be raised further in 2H14, as we
foresee railway-related fixed asset investment (FAI) to be back-end
loaded in 2H14.
Initiate coverage with BUY and TP of HKD6.55. Our TP is based on a
FY15F P/E of 8.0x, 0.5SD below the counter's past 5-year forward
average P/E. It also represents a premium to the Hong Kong sector
average FY15F P/E of 5.9x, which we feel is justified by the company’s
faster earnings growth, improving balance sheet, and our expectation of
a further sector re-rating for China’s railway industry, likely to be driven
by a historical new high of railway FAI probably in 2015F.
YTD
1m
3m
6m
12m
Absolute
2.5
(4.0)
7.0
4.6
(2.4)
Relative
4.1
5.4
9.6
3.0
(1.2)
Shariah compliant
Winston Cao +852 2103 9414
Dec-12
Dec-13
483,992
560,444
660,389
782,958
805,190
7,390
9,375
11,125
13,776
15,865
7,390
9,375
11,125
13,776
15,865
10.5
26.9
18.7
23.8
15.2
Recurring EPS (CNY)
0.35
0.44
0.52
0.65
0.74
DPS (CNY)
0.05
0.07
0.08
0.10
0.11
Recurring P/E (x)
9.35
7.37
6.21
5.02
4.36
P/B (x)
0.89
0.80
0.72
0.64
0.57
8.64
9.96
3.97
3.30
1.6
2.0
2.4
3.0
3.4
8.18
7.93
6.82
5.72
5.04
P/CF (x)
Dividend Yield (%)
EV/EBITDA (x)


3

.
2
0
.
3
0
0
.
3
0
0
We initiate coverage on CRG with BUY and HKD6.55 TP (8.0x FY15F .
0
P/E), representing a 59.8% upside. We believe CRG is a key beneficiary 0
of accelerating railway FAI. While CRG and China Railway Construction 0
Corporation (CRCC) enjoy a combined 90% share of China's railway
construction market, we prefer CRG, as we expect a bigger
improvement in its balance sheet and forecast faster EPS growth.

Oct-13
Vol m
Price Close
4.80




na
9.9
11.4
12.2
13.5
13.9
102.1
106.5
103.3
90.4
77.4
6.6
21.3
30.7
8
Buy
Target Price:
Price:
HKD14.63
HKD11.66
Macro
Risks
Undisputed Leader In HK/China’s Construction Sector
Growth
Value
Price Close
15.0
123
14.5
119
14.0
114
13.5
110
13.0
106
12.5
101
12.0
97
11.5
92
11.0
25
88

15
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
5
Oct-13
Vol m
10
Source: Bloomberg

Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
64.2m/8.28m
32.5
25.5
11.4 - 14.7
43
3,892
China Overseas Holdings
57.1

Key beneficiary of affordable housing demand. We forecast for
CSCI’s affordable housing new contract value in China to increase by
47% y-o-y in 2014 and 36% in 2015F, driven by continued market share
gains in mainland China. We estimate overall new contract value for
2014 at HKD62bn, surpassing the company’s revised (Aug 2014) fullyear target of HKD60bn (from HKD55bn).
Potential further asset injections from parent. CSCI’s A-share listed
parent, China State Construction Engineering Corporation (CSCEC)
(601668 CH, NR), has been injecting quality assets into CSCI over the
past few years including toll roads, bridge projects and constructionrelated companies. We expect this trend to accelerate in 2014-2015F
amid the backdrop of the restructuring of state-owned enterprises
(SOEs). Potential assets to be injected include domestic infrastructure
operating projects and/or overseas construction-related business.
Solid earnings growth prospects. We forecast a 35% EPS CAGR for
2013-2016F, driven by topline expansion and margin improvements. We
expect increasing revenue contribution from its high-margin affordable
housing build-transfer (BT) business to further boost the company’s
blended gross profit margin to 16.2% in 2016F, up from 13.7% in 2013.
Initiate coverage with BUY call and TP of HKD14.63. Our TP is based
on a FY15F P/E of 11x, which is about 0.5SD below its past five years’
forward P/E average. Our target P/E is also substantially higher than its
HK-listed railway and infrastructure construction peers of 5.9x, which we
believe is wholly justified by its much higher 3-year recurring EPS CAGR
of 35%, higher margins, stronger balance sheet and dominant status in
China’s construction market, helped by the fast-growing affordable
housing sector and potential asset injections from its parent.
YTD
1m
3m
6m
12m
Dec-12
Dec-13
Absolute
(16.1)
(8.5)
(12.9)
(14.4)
(5.7)
Total turnover (HKDm)
21,911
27,192
34,234
47,600
57,962
Relative
(14.5)
0.9
(10.3)
(16.0)
(4.5)
Reported net profit (HKDm)
2,131
2,772
3,642
5,188
6,784
Recurring net profit (HKDm)
2,131
2,772
3,642
5,188
6,784
41.4
30.1
31.4
42.5
30.8
Recurring EPS (HKD)
0.58
0.71
0.94
1.33
1.75
DPS (HKD)
0.16
0.21
0.27
0.39
0.51
Recurring P/E (x)
20.0
16.3
12.4
8.7
6.7
P/B (x)
3.35
2.80
2.42
2.03
1.67
Shariah compliant
Winston Cao +852 2103 9414
P/CF (x)
25.1
17.2
15.1
1.8
2.3
3.3
4.3
EV/EBITDA (x)
20.3
16.1
11.9
8.4
6.4
18.5
18.7
20.9
25.3
27.4
22.9
27.5
23.2
17.3
13.0
4.2
17.5
25.5
na
na
1.4
Dividend Yield (%)


3

.
1
0
.
3
0
0
.
3
0
0
We initiate coverage on China State Construction International (CSCI) .
0
with BUY and TP of HKD14.63 set at an 11x FY15F P/E, a 25.5% upside. 0
A leading affordable housing construction company in HK and China, 0
we expect CSCI to deliver 35% recurring EPS CAGR from FY13-16F, the
fastest among its peers, mainly driven by China’s massive spending on
affordable housing. Potential injections of quality assets into CSCI amid
the backdrop of SOE restructuring are an added bonus.

20




9
CSR Corp (1766 HK)
Neutral
Transport - Transportation
Target Price:
Price:
HKD7.47
HKD6.86
Macro
Risks
Lacking Catalysts
Growth
Value
CSR Corp (1766 HK)
Price Close
7.60
135
7.10
127
6.60
119
6.10
111
5.60
103
5.10
120
95
100
80
60

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Vol m
20
Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
105m/13.5m
33.7
8.9
5.36 - 7.30
44
13,449
CSR Group
56.5

Lacks near-term catalysts. In Aug 2014, China Railway Corporation
(CRC) announced the first round of tender for this year’s multiple units
(MUs) of high-speed railway train at total volume of 232 sets. We
forecast full-year multiple unit tender volume to reach 400 sets, which we
believe is within market expectations and has been reflected in
consensus forecasts. Therefore, we see limited new catalysts for 2H14
even if the second round of MU tender takes place in 2H14, which is well
expected. CSR has a relatively bigger share in the 250km/h MU market
compared to China CNR Corp (CNR) (6199 HK, BUY, TP: HKD8.47).
Mild outlook for 2015. In 2014, China has planned CNY143bn in fixed
asset investment (FAI) for railway equipment, representing a 37.5%
y-o-y increase and a new high. We expect 2015F railway equipment FAI
to remain at high levels but the growth to ease. This is because going
th
into 2015 – ie the last year of China’s 12 Five-Year Plan (2011-2015) –
we believe the Government will likely accelerate railway construction in
order to achieve the opening target of its new railway lines, and this
should channel the majority of railway FAI to construction rather than
equipment procurement. As a result, we have a mild forecast for CSR’s
2015 revenue and earnings at single-digit growth.
Initiate coverage with NEUTRAL call and HKD7.47 TP. Our TP is
based on a FY15F P/E of 12x, which is about 1SD below its past five
years’ forward P/E average of 17.0x. Although we are bullish on China's
railway sector in the long term, we are less bullish on the rolling stock
segment in the near term, as we see cyclical flat demand for rolling
stocks over FY15-16F. Moreover, we deem CSR fairly valued at an
11.0x FY15 P/E, after its share price rallied by around 27% in the last 12
months. We prefer CNR over CSR, given the former’s relatively cheap
valuation (9x FY15F P/E) and the narrowing financial gap between the
company and the industry leader CSR for 2014-2016.
YTD
1m
3m
6m
12m
Absolute
7.9
(3.9)
10.8
2.8
26.8
Dec-12
Dec-13
Relative
9.5
5.5
13.4
1.2
28.0
90,456
97,886
131,051
148,279
155,020
4,009
4,140
5,940
6,802
7,402
4,009
4,140
5,940
6,802
7,402
3.8
3.3
43.5
14.5
8.8
Shariah compliant
Winston Cao +852 2103 9414
Recurring EPS (CNY)
0.31
0.30
0.43
0.49
0.54
DPS (CNY)
0.09
0.09
0.13
0.15
0.16
Recurring P/E (x)
17.4
18.1
12.6
11.0
10.1
P/B (x)
2.29
2.05
1.84
1.65
1.48
P/CF (x)
29.1
13.8
25.4
9.5
6.8
1.7
1.7
2.4
2.7
3.0
EV/EBITDA (x)
12.6
13.3
10.0
8.9
8.1
14.5
11.9
15.4
15.8
15.4
20.5
20.0
31.1
31.5
26.8
11.5
10.0
8.1
Dividend Yield (%)


3

.
1
0
.
2
0
0
.
2
0
0
We initiate coverage on CSR Corp (CSR) with NEUTRAL and TP of .
0
HKD7.47 set at a 12x FY15F P/E, representing a limited upside of 8.9%. 0
CSR together with CNR dominate China's rolling stock industry. 0
However, we believe CSR has limited upside potential as it is fairly
valued. We are more conservative than street on its FY15-16F sales and
earnings. We prefer CNR over CSR, given the former’s relatively cheap
valuation and improving financial performance.

40




10
Company Update, 7 October 2014
Buy (Maintained)
Industrial - Misc. Manufacturer
Market Cap: USD567m
Target Price:
Price:
IDR1,135
IDR940
Macro
Risks
Headwinds From Rising Inventory Levels
Growth
Value
Price Close
Relative to Jakarta Composite Index (RHS)
1,060
114
1,010
110
960
105
910
101
860
97
810
93
760
88
710
35
84

25

10
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
5
Oct-13
Vol m
15
Source: Bloomberg
Avg Turnover (IDR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (IDR)
Free float (%)
Shareholders (%)
4,172m/0.36m
22.7
20.7
745 - 1,020
39
7,341
Credit Suisse AG Trust
UBS AG Singapore
Suprakreasi Eradinamika
24.9
11.4
13.9
YTD
1m
3m
6m
12m
Absolute
14.6
(7.4)
(5.1)
(3.1)
10.6
Relative
(2.4)
(3.1)
(7.4)
(5.3)
(2.6)

Oversupply of ceramic tiles. Our channel checks suggest that
Indonesia’s ceramic tiles capacity utilization declined to 60% in Sep 2014
from 70% in 2013, driven by additional capacity from Mulia Ceramics, a
subsidiary of Mulia Industrindo (MLIA IJ, NR) and Platinum Ceramics.
Given the rising capacity, Arwana Citra (Arwana)’s closest competitor
Mulia Ceramic increased its sales discount. As a result, its average
selling price – which was previously higher than Arwana’s – is now
almost on par with the latter’s.
Still better off than its peers. Arwana is the only ceramic tile maker
which has plants that are still running at maximum capacity, thanks to its
strong sales which are supported by wider distribution channels and
strong ties with its distributors. Although its inventory days increased to
five days in Sep 2014 from just two days in 2013, we believe the
company is still better off than its competitors, which hold inventory
volumes that are equal to 2.5 months of Arwana’s sales volume.
Rising costs. Although Arwana’s new Mojokerto plant – scheduled to
begin operating in mid-2015 – may improve its cost efficiency, we still
expect costs to rise from higher subsidised fuel prices and the weaker
IDR. Higher fuel prices would increase trucking costs, which include the
transportation of raw materials like clay as well as finished products like
ceramic tiles. Arwana estimates costs to increase by IDR700/sqm (or
~20% of 1H14 operational expenses) if subsidised fuel prices rise by
IDR3,000/litre. The weaker IDR also pushes production costs up, as
c.60% of production costs are related to IDR/USD fluctuations. We cut
our earnings estimates by 9.3%/9/0% to IDR301bn/IDR370bn for
FY14F/FY15F, and trim our TP to IDR1,135 (from IDR1,250) – based on
a 22.5x FY15F P/E and implying a 20.7% upside. Maintain BUY.
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
923
1,114
1,418
1,704
2,007
Reported net profit (IDRbn)
95
156
235
301
370
Recurring net profit (IDRbn)
93
155
234
300
369
3.4
66.6
50.3
28.3
23.3
12.7
21.2
31.8
40.8
50.3
3.8
5.0
10.0
16.0
20.5
18.7
Total turnover (IDRbn)
Shariah compliant
Recurring EPS (IDR)
DPS (IDR)
Andrey Wijaya (6221) 2598 6888
Recurring P/E (x)
74.0
44.4
29.5
23.0
andrey.wijaya@rhbgroup.com
P/B (x)
14.5
11.6
9.1
7.3
5.9
P/CF (x)
48.0
29.6
25.4
25.8
17.6
Dividend Yield (%)
0.4
0.5
1.1
1.7
2.2
EV/EBITDA (x)
36.0
25.1
17.4
14.6
11.9
21.4
29.2
34.7
35.4
34.4
9.8
3.5
1.3
1.3
35.3
net cash
1.9


2

.
1
0
.
3
0
0
.
2
0
0
Although Arwana’s plants are running at maximum capacity, .
0
Indonesia’s utilization of ceramic tiles capacity fell to 60% in Sep 2014 0
(2013: 70%) as other companies increased their capacity. This may 0
trigger higher sales discounts in the industry, which would temporarily
dampen Arwana’s sales. As we expect its costs to increase, we cut our
FY14F/FY15F earnings estimates by 9.3%/9/0% to IDR301bn/IDR370bn.
Our TP dips to IDR1,135 from IDR1,250 (22.5x FY15F P/E). BUY.
30
20




11
AP (Thailand) Public Company Limited (AP TB)
Market Cap: USD613m
Neutral (Maintained)
Target Price:
Price:
THB8.00
THB6.95
Macro
Risks
Record High 3Q14 Presales From JV Condo Projects
Growth
Value
Asian Property Dev (AP TB)
Price Close
Relative to Stock Exchange of Thailand Index (RHS)
8.70
128
8.20
123
7.70
118
7.20
113
6.70
108
6.20
103
5.70
98
5.20
93
4.70
88
4.20
83
3.70
70
78

50
40
30

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Vol m
20
Source: Bloomberg
Avg Turnover (THB/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (THB)
Free float (%)
Shareholders (%)
148m/4.61m
8.6
15.1
4.18 - 8.00
61
2,860
Anuphong Assavabhokhin
Thai NVDR
Pichet Vipavasuphakorn
23.2
15.3
7.9


3Q14 presales jump to THB8.2bn (+127% y-o-y, 15% q-o-q). Asian
Property’s landed property (single detached houses and townhouses)
sales hit a record high of THB3.5bn (+69% y-o-y, 21% q-o-q).
Condominium (condo) sales skyrocketed to TH4.67bn (+208% y-o-y,
+12% q-o-q), thanks to the successful launch of the THB3.3bn Aspire
Sathorn Thapra (90% sold within two days), which was a joint venture
(JV) project between Asian Property and Mitsubishi Estate (8802 JP,
NR). Asian Property launched four condo projects in 2Q14-3Q14, all
under its JV with Mitsubishi Estate worth a combined THB10.55bn. To
date, the average take-up rate of these four projects is around 80%.
9M14 presales reach THB17.5bn. 9M14 presales accounted for 80% of
the company’s full-year forecast of THB22bn (+45% y-o-y). Landed
property presales have been very healthy over the past three quarters,
growing 17% q-o-q in 1Q14 and 21% q-o-q each in 2Q14 and 3Q14.
9M14 landed property presales and condo sales grew 38% and 53%,
respectively.
Presales momentum may slow in 4Q14. Given no new launches of
major condos in 4Q14, we expect presales to slow in the last quarter.
Asian Property plans to launch only two projects – TH870m District
Sriwara and THB1.25bn Baan Klang Muang Sukumvit 77 – in 4Q14 so
that it will be able focus more on the completion of ongoing projects.
Expects double-digit earnings growth again in 2016. We have a
NEUTRAL rating on Asian Property as we expect its 2014-2015 earnings
to grow at a subpar single-digit rate compared to its peers. This is due to
slow sales and delays in construction of projects launched in 2012-2013.
We believe good presales in 2014-2015F should help drive earnings in
2016-2017F.
YTD
1m
3m
6m
12m
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
Absolute
58.0
(12.0)
8.6
27.5
17.8
Total turnover (THBm)
13,638
17,309
19,988
21,770
23,962
Relative
35.8
(13.2)
2.2
13.8
5.1
Reported net profit (THBm)
1,551
2,186
2,013
2,170
2,326
Recurring net profit (THBm)
1,548
2,097
2,010
2,170
2,326
(28.1)
35.4
(4.2)
8.0
7.2
Recurring EPS (THB)
0.60
0.74
0.70
0.76
0.81
Wanida Geisler +66 2862 9748
DPS (THB)
0.15
0.18
0.25
0.27
0.29
wanida.ge@rhbgroup.com
Recurring P/E (x)
11.6
9.4
9.9
9.2
8.5
P/B (x)
1.83
1.56
1.42
1.28
1.15
Shariah compliant
P/CF (x)
6.63
7.26
2.2
2.6
3.6
3.9
4.2
EV/EBITDA (x)
11.3
10.2
11.7
10.0
8.9
15.4
18.7
15.1
14.7
14.2
129.3
91.0
103.8
Dividend Yield (%)
na
6.37
na
80.6
63.0
(0.2)
(4.3)


3

.
2
0
.
1
0
0
.
2
0
0
Asian Property’s presales hit a record high in 3Q14, thanks to .
0
successful launches of four new condominium projects worth a 0
combined THB10bn under its JV with Mitsubishi Estate, as well as the 0
strong momentum of landed property sales YTD.
We maintain
NEUTRAL since we expect subpar earnings growth for 2014-2015F
compared to its peers. Our THB8.00 is pegged to a 10x 2015F PE.
60
10




12
Buy (Maintained)
Financial Services - Banks
Target Price:
Price:
THB220.00
THB198.00
Macro
Risks
Making Quiet Improvements
Growth
Value
Price Close
220
107
210
104
200
101
190
98
180
95
170
92
160
30
89

20
15
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Vol m

5
Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
Thai NVDR
State Street Bank and Trust
Company
1,063m/32.7m
13.1
11.4
166 - 215
66
1,909
30.8
3.3


Expects rebound in private investments from 2Q15. Bangkok Bank
believes that the approved USD75bn 8-year transport plan would not
have a significant direct impact on system loan growth, given the long
gestation and plans to partly finance the projects via bond issuances.
Still, management is hopeful the transport plan would re-ignite private
investments and boost the value of properties along the rail routes –
which should lead to a pick-up in loan demand from 2Q15. Loans are
expected to be flattish in 3Q14 due to weak demand from corporations,
while growth for the full year would be at c.3%.
Modest improvements in operations. For 3Q14, management guided
for slight improvements in: i) net interest margin (NIM) helped by lower
funding costs and better loan yields, ii) non-interest income supported by
income from bancassurance and mutual funds, and iii) a lower cost-toincome ratio (CIR) following the bump-up to 45.2% in 2Q14.
NPLs remain benign. The bank is expected to post higher nonperforming loans (NPLs) in 3Q14. Management is not worried as the
increase is manageable and not systemic in nature. Loan loss coverage
is also high at 216% in June 2014.
Maintain BUY and a THB220.00 TP. Bangkok Bank’s share price has
been a laggard, being the only large bank stock to underperform the SET
Index. Its 1.1x FY15F P/BV and 9.5x P/E are undemanding vs the
sector’s 1.6x P/BV and 9.5x P/E respectively. We reiterate our BUY call
with a TP of THB220.00. Re-rating catalysts, in our view, would come
from the expected recovery in private investments and a further rebound
in property sales. The bank, which has the smallest retail loan book
among large banks, would also be a preferred pick for investors who are
concerned about rising household leverage.
12m
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
(0.8)
Net interest income (THBm)
54,952
55,879
59,500
62,500
67,500
(10.7)
31,847
35,906
36,837
40,607
45,708
16.5
12.7
2.6
10.2
12.6
31,847
35,906
36,837
40,607
45,708
Recurring EPS (THB)
16.7
18.8
19.3
21.3
23.9
Fiona Leong +603 9207 7638
DPS (THB)
6.50
7.52
7.80
8.49
9.49
fiona.leong@rhbgroup.com
Recurring P/E (x)
11.8
10.5
10.2
9.3
8.3
P/B (x)
1.39
1.27
1.18
1.09
1.01
YTD
Absolute
Relative
11.0
(9.9)
1m
(6.8)
(5.9)
3m
(0.3)
(5.2)
6m
5.9
(6.9)
Net profit growth (%)
Shariah compliant
Dividend Yield (%)
3.3
3.8
3.9
4.3
4.8
12.3
12.6
12.0
12.2
12.7
Return on average assets (%)
1.4
1.4
1.4
1.5
1.5
(2.1)
(3.7)
(2.8)


2

.
2
0
.
1
0
0
.
3
0
0
Bangkok Bank expects to report modest improvements in 3Q14 NIM, .
0
non-interest income and CIR. NPLs are expected to rise but remain 0
manageable. Maintain BUY and a THB220.00 TP (11.4% upside), as its 0
corporate lending and home mortgage businesses ought to benefit
from the expected pickup in private investments from 2Q15. Valuations
(FY15F: 1.1x P/BV, 9.5x P/E) are undemanding vs the sector’s 1.6x P/BV
and 9.5x P/E.
25
10




13
Neutral (from Sell)
Consumer Cyclical - Retail
Target Price:
Price:
THB46.00
THB45.80
Macro
Risks
Good Looking But Expensive
Growth
Value
Price Close
60.0
120
58.0
116
56.0
112
54.0
108
52.0
104
50.0
100
48.0
96
46.0
92
44.0
88
42.0
84
40.0
14
80

10
8

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
2
Oct-13
Vol m
4
Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
TCC Holding Co Ltd
DBS Vickers (Singapore)
Thai NVDR
134m/4.17m
8.1
0.5
42.3 - 58.5
25
1,592

70.1
4.9
2.5

YTD
1m
3m
6m
12m
Absolute
(5.2)
(3.7)
(2.7)
(8.1)
(1.1)
Relative
(27.3)
(5.0)
(9.4)
(22.4)
(13.7)
Shariah compliant
Chalie Kueyen 66 2862 9745
chalie.ku@rhbgroup.com
To anchor its footprint in Vietnam’s consumer business. We are
positive on Berli Jucker’s move to acquire Metro AG’s (MEO GR, NR)
cash-and-carry business in Vietnam (Metro Vietnam) because of several
factors. Firstly, Metro Vietnam has a good platform with a fully-integrated
retail supply chain, and sizeable market presence (19 stores nationwide)
and 22.2% market share, second only to Saigon Union of Trading
Cooperatives’ (Saigon Co-op) 34.3%. Secondly, there is plenty of room
to grow modern trade in Vietnam, given the low 4% penetration rate vs
Thailand’s 44%. Lastly, Metro Vietnam’s retail supply chain can create
substantial synergies with its existing consumer businesses there.
Cost reduction to boost growth in 2H15. Metro Vietnam has operated
at losses of THB340m (2011), THB660m (2012) and THB394m (2013),
mainly on high sales, general and administrative expenses (SG&A) – this
includes high fixed costs for new store expansions, advertising costs and
loyalty fees – and huge THB7.2bn debt due to steep finance costs (4.74.9%), Post acquisition, we expect Berli Jucker’s finance costs to drop by
1%, and lower opex on less loyalty fees and the replacement of the
German management by an all-Thai team. All-in, we assume Metro
Vietnam’s margins to improve by 100bps (2H15) and 70bps (2016). In
terms of sensitivity, its 100bps margins would boost absolute EBIT by
~THB240m, ie ~6-7% of group EBIT.
Key risks. Regulations not yet enacted in Vietnam could interrupt future
store expansions while high inflation may add pressure to costs.
Downside/upside will also depend on how quickly Berli Jucker turns
Metro Vietnam profitable.
Raise to NEUTRAL (from Sell). Assuming Berli Jucker is to take fullyear consolidation next year, we see Metro Vietnam contributing losses
of ~THB150m in 2015 before turning to a THB170m profit in 2016.
Beyond that, we expect earnings to grow 7% (2015) and 29% (2016).
Taking a bullish sector P/E of 35x of 2-year forward earnings, we reach a
fair price of THB46.00 (vs THB31.00) and a NEUTRAL call (from Sell).

Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
37,429
42,226
42,459
69,157
74,681
2,415
2,426
1,823
1,946
2,505
2,415
2,426
1,823
1,946
2,505
10.9
0.5
(24.8)
6.7
28.7
Recurring EPS (THB)
1.52
1.53
1.15
1.23
1.58
Recurring P/E (x)
30.1
30.0
39.9
37.3
29.0
P/B (x)
5.29
4.93
4.92
4.54
4.17
P/CF (x)
17.3
14.7
12.3
24.7
23.0
EV/EBITDA (x)
20.9
19.6
21.9
29.1
26.3
18.4
17.0
12.4
12.7
15.0
68.5
84.2
72.2
121.6
109.3
0.0
0.0
0.0


3

.
3
0
.
1
0
0
.
1
0
0
Post visits to many Vietnam retailers last week, we see Metro as well- .
0
managed and -positioned to capture a different retail segment. Given 0
modern trade’s low 4% penetration rate there, from top-down and 0
bottom-up approaches, Metro looks interesting and a possible longterm growth driver. Yet, assuming cost synergies in FY16, demanding
valuations limit upside despite a bullish 35x P/E. Upgrade to NEUTRAL.
12
6




14
LPN Dev (LPN TB)
Buy (Maintained)
Market Cap: USD980m
Target Price:
Price:
THB27.00
THB21.60
Macro
Risks
3Q14 Numbers May Rebound Q-o-q
Growth
Value
L.P.N Dev (LPN TB)
Price Close
25.0
108
23.0
101
21.0
95
19.0
88
17.0
81
15.0
75
13.0
35
68
25

20
15
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
5
Oct-13
Vol m
10
Source: Bloomberg

Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
126m/3.91m
8.8
25.0
14.3 - 23.5
77
1,476
Thai NVDR
Chase Nominees
Mr. Sumeth Thechakraisri
22.2
6.1
4.6
YTD
1m
3m
6m
12m
Absolute
39.4
(1.4)
2.9
27.1
(1.4)
Relative
18.5
(0.5)
(2.2)
14.3
(11.2)
Shariah compliant
Wanida Geisler 66 2862 9748

3Q14 presales at THB2.9bn (flat y-o-y, -58% q-o-q). As LPN Dev (LPN)
did not launch any new condominium project in 3Q14, its 9M14 presales
were at THB13bn (-30% y-o-y), or 65% of its full-year target of THB20bn.
The company’s backlog at end-3Q14 stood at THB21.35bn, of which
THB3.46bn would be realised this year and approximately THB16bn in
2015F.
3Q14 forecast. We estimate LPN to book revenue of THB3.2bn, mainly
from the ownership transfer of three newly-completed condominiums –
the THB1bn Lumpini Ville On Nut Ladkrabang, THB1.98bn Lumpini Ville
Prachachuen Pongpetch 2 and THB1.4bn Lumpini Ville On Nut 46.
Assuming a net margin of 17%, we expect 3Q14 earnings to come in at
THB544m (+48% q-o-q, -11% y-o-y). Thus, its 9M14 earnings should be
at THB1.26bn (c.-30% y-o-y), which is 63% of our full-year forecast of
THB2bn (-14% y-o-y).
Numbers may peak in 4Q14. LPN is looking to launch up to seven
condominium projects, which are valued in total at c.THB9bn. Also,
three condominium projects (ie the THB1.28bn Lumpini Seaview
Jomtien, THB2bn Lumpini Place Udon-Posri and THB1.8bn Lumpini Ville
Onnut-Pattanakarn) are due to be completed then – which would help to
drive 4Q14 earnings. We note that the result of the long-awaited
environment impact assessment (EIA) license application for its THB6bn
Rangsit development could be known by end-October.
2015 set to be a record year. We estimate LPN’s 2015 condominium
revenue at almost THB19bn, of which 84% is already in hand as
backlog. Key growth drivers next year would come from the THB3bn
Lumpini
Place
Srinakarin-Huamark,
THB4bn
Lumpini
Park
Ratanathibeth-Ngamwongwan, THB2.6bn Lumpini Park Rama 9 and
THB3bn The Lumpini 24, which are almost sold out. We estimate LPN’s
2015F earnings growth of 58% y-o-y to be the best in the sector.
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
12,335
13,325
14,346
12,682
19,876
1,917
2,229
2,328
2,006
3,172
1,911
2,192
2,328
2,006
3,172
19.5
14.7
6.2
(13.8)
58.1
Recurring EPS (THB)
1.30
1.49
1.58
1.36
2.15
DPS (THB)
0.65
0.76
0.84
0.69
1.09
Recurring P/E (x)
16.7
14.5
13.7
15.9
10.0
P/B (x)
4.47
3.76
3.31
3.06
2.54
3.0
3.5
3.9
3.2
5.0
29.0
28.6
25.7
20.0
27.6
19.2
18.9
14.8
10.8
15.1
4.3
19.6
42.4
60.1
48.3
(10.5)
0.0
Dividend Yield (%)


3

.
3
0
.
2
0
0
.
2
0
0
LPN’s 3Q14 presales were unexciting given the lack of new launches. .
0
Its upcoming 3Q14 results, on the other hand, are likely to rebound 0
sharply q-o-q. We believe 9M14 presales and earnings may represent 0
around 63-65% of our full-year forecasts before numbers peak in 4Q14.
LPN is one of our Top Picks as its 2015 earnings growth may be the
strongest in the sector. Maintain BUY, with our THB27.00 pegged to a
12.5x P/E (0.5SD above its long-term mean), implying a 25% upside.

30




15
Buy (Maintained)
Target Price:
Price:
THB43.00
THB33.80
Macro
Risks
Record High Total Presales In 3Q14
Growth
Value
Price Close
39.0
185
34.0
165
29.0
145
24.0
125
19.0
105
14.0
25
85


Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
5
Oct-13
Vol m
10
Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
141m/4.38m
7.1
27.4
16.6 - 37.0
26
2,227
Vijitpongpun family
UBS AG Singapore
66.0
4.5
YTD
1m
3m
6m
12m
Absolute
85.4
(3.6)
13.4
67.9
66.3
Relative
63.2
(4.8)
7.0
54.2
53.6
Shariah compliant
Wanida Geisler 66 2862 9748


3Q14 presales surged to THB13.3bn (+21% y-o-y, +37% q-o-q).
Pruksa Real Estate (Pruksa)’s quarterly landed property (single
detached homes and townhouses) sales were THB7.97bn (+29% y-o-y, 2% q-o-q) while condominium (condo) sales were THB5.32bn (+10% yo-y, 242% q-o-q). However, we noted that its landed property sales
slipped slightly q-o-q from 2Q14’s record high of THB8.1bn, although
presales momentum over the past three quarters has been impressive,
with q-o-q growth of 9% (1Q14), 19% (2Q14) and 37% (3Q14).
9M14 presales stood at THB31bn (-7% y-o-y). Despite a strong pick
up in 3Q14 presales, YTD it remained weak when compared to the same
period last year. This was attributed to the political and economic
problems seen during the first five months of 2014. However, we note
that landed property presales for 9M14 have been resilient, with 8%
growth y-o-y, while condo sales collapsed 30% to THB9bn vs THB13bn
in 9M13. Also, 9M14’s presales of THB31bn accounted for 70-75% of
Pruksa’s full-year target of THB41bn-45bn.
Strong momentum to continue in 4Q14. Pruksa plans to launch
another 34 new projects with a combined value of THB30bn in 4Q14.
This should help drive its presales to meet its full-year target mentioned
earlier. After seeing a strong pickup in 2Q14 presales, Pruksa said it
would increase its number of new launches to more than 50 with a
combined worth of around THB50bn-55bn. The company had earlier
planned to launch between 40-50 projects only. Pruksa is also targeting
for its 2014 presales numbers to grow up to 10% y-o-y.
Our 2014 earnings forecast remains on the low side. Pruksa’s 1H14
earnings of THB2.93bn (+34% y-o-y) accounted for 52% of our full-year
forecast. Given its strong presales, there is a high possibility of another
round of earnings adjustments going forward.
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
23,263
27,024
38,848
37,532
49,010
2,835
3,898
5,801
5,682
7,379
2,835
3,898
5,801
5,682
7,379
(18.7)
37.5
48.8
(2.0)
29.9
Recurring EPS (THB)
1.28
1.76
2.62
2.56
3.32
DPS (THB)
0.40
0.50
0.85
0.77
1.00
Recurring P/E (x)
26.3
19.1
12.9
13.2
10.2
P/B (x)
4.39
3.72
3.01
2.61
2.18
1.2
1.5
2.5
2.3
3.0
17.6
21.0
25.8
21.2
23.4
7.5
9.1
11.6
9.7
11.6
107.4
79.4
76.7
70.8
56.1
(8.1)
3.1
Dividend Yield (%)


3

.
2
0
.
2
0
0
.
3
0
0
We continue to like Pruksa, the market leader in terms of presales, new .
0
launches and revenue, and maintain BUY as we estimate a 27% upside. 0
This stock is one of our Top Picks with a THB43.00 TP, pegged to 13x 0
2015F P/E, ie +0.5SD to its long-term mean P/E. Pruksa’s presales
momentum has been strong over the past three quarters and we expect
it to continue into 4Q14. We estimate 2015 earnings growth at 30%
y-o-y, one of the sector’s Top 3.
20
15




16
Thai Oil (TOP TB)
Buy (Maintained)
Energy & Petrochemicals - Oil & Gas Services
Target Price:
Price:
THB63.22
THB51.30
Macro
Risks
Stock Loss Takes a Toll On Earnings
Growth
Value
Thai Oil (TOP TB)
64.0
110
62.0
105
60.0
100
58.0
95
56.0
90
54.0
85
52.0
80
50.0
75
48.0
20
18
16
14
12
10
8
6
4
2
70
0
0
.
2
0
0
We expect Thai Oil to report a net loss of THB1.8bn for 3Q14F, resulting .
0
from stock loss (c. THB3bn), lower utilisation rate from major 0
maintenance and higher cost due to major maintenance. We maintain 0
BUY, with our revised TP of THB63.22/share (based on 1.3x 2015 P/BV),
providing a ~23% upside. We have slashed 2014F net profit by 49.7% as
a result of the abysmal 3Q14F results. We expect a better 4Q14.


Aug-14
Jun-14
Feb-14
Apr-14
115
Dec-13
66.0
Oct-13
Vol m
Price Close
Source: Bloomberg
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)
PTT Pcl.
Thai NVDR
State Street Bank Europe
Limited
123m/3.82m
55.2
23.4
49.8 - 65.0
50
2,040
49.1
7.1
3.7


3Q14F net loss of THB1.8bn. We expect Thai Oil to report a net loss of
THB1.8bn for 3Q14. The abysmal earnings, which were within
expectations, were a result of stock loss estimated at THB3bn, lower
utilisation rate arising from major maintenance and higher cost as a
result of major maintenance.
Spreads relatively stable but hit by stock loss. In terms of margin and
spread, aromatics spreads improved from 2Q14, with paraxylene (PX)
spread rebounding to USD372/ton (+68% q-o-q), and benzene (BZ) at
USD328.37/ton (+29% q-o-q). Refined products mostly softened as
3Q14 is seasonally low in demand. Lube base spreads were relatively
stable. The Dubai crude oil price that ended 3Q14 was USD95.51/barrel
(bbl), compared with USD109.00/bbl in 2Q14. Thai Oil usually holds
inventory of around 8m bbl at the end of each quarter. This translates
into a stock loss of around THB3bn for 3Q14F.
2014F earnings slashed by 49.7%. We cut our 2014F earnings
estimate by 49.7% to THB5.1bn, much lower than Bloomberg’s earnings
consensus of THB7bn to THB10bn. We have adjusted our earnings to
reflect the expected 3Q14F earnings impact from stock loss of THB3bn,
while that from the lower spreads and higher maintenance costs totals
around THB1bn. We have lowered 2015F earnings to reflect the softer
product spreads.
BUY maintained. Thai Oil’s share price is trading at distressed levels of
-1SD forward P/BV. We believe that 4Q14 will improve, with the refinery
and aromatics running at full utilisation rate. Product spreads should
improve in 4Q14 as we enter the peak demand period with the festive
season and winter season. We maintain our BUY call, with lower TP of
THB63.22/share (from THB65.60).


2

.
2
0
.
2




Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
446,241
447,432
414,599
394,008
412,003
YTD
1m
3m
6m
12m
14,853
12,320
10,394
5,117
10,198
Absolute
(8.9)
(1.9)
(1.5)
(2.9)
(13.1)
14,853
12,320
10,394
5,117
10,198
Relative
(31.1)
(3.1)
(7.9)
(16.6)
(25.8)
65.8
(17.1)
(15.6)
(50.8)
99.3
Recurring EPS (THB)
7.28
6.04
5.09
2.51
5.00
DPS (THB)
3.30
2.70
2.30
1.13
2.26
7.0
8.5
10.1
20.4
10.3
1.32
1.21
1.15
1.12
1.05
P/CF (x)
6.7
4.8
33.6
8.4
6.5
Dividend Yield (%)
6.4
5.3
4.5
2.2
4.4
EV/EBITDA (x)
4.97
6.55
6.13
7.35
6.49
19.9
14.8
11.7
5.5
10.6
31.0
20.3
32.7
44.5
39.4
0.0
0.0
Shariah compliant
Recurring P/E (x)
Kannika Siamwalla, CFA 66 2862 9744
kannika.si@rhbgroup.com
P/B (x)
17
PTT (PTT TB)
Buy (Maintained)
Energy & Petrochemicals - Integrated Oil & Gas
Target Price:
Price:
THB396.00
THB364.00
Macro
Risks
Energy Minister Lays Out Goals
Growth
Value
PTT (PTT TB)
Price Close
390
106
370
103
350
100
330
97
310
95
290
92
270
89
250
14
86

10
8
6
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
2
Oct-13
Vol m
4
Cons. Upside (%)
Upside (%)
Free float (%)
Shareholders (%)

1,284m/39.9m
8.8
8.8
264 - 369
49
2,856
Ministry of Finance
Vayupak Fund
Thai NVDR
51.1
15.3
4.3
Higher TP, maintain BUY. We expect that the current Government may
likely raise the compressed natural gas (CNG) price by a total of
THB3.00/kg over the next 12 months, ie by THB1.00/kg in each of Oct
2014, Mar 2015 and Aug 2015 time periods. We remain cautious on
petroleum/CNG/liquefied petroleum gas (LPG) price adjustments as
newly-elected governments historically tended to win elections based on
populist policies. We adjust our TP and earnings forecasts for 2015
onwards to capture this potential upside. Our 2014F net profit forecast
remains unchanged as we expect poor 3Q14 earnings from PTT’s
refineries (associated companies), with stock losses set to drag down
their earnings and thus, those of PTT. Maintain BUY, with a revised TP
of THB396.00/share (from THB374.00).
Energy minister lays out goals. At the Energy Ministry’s 12-year
anniversary, the energy minister Narongchai Akrasanee vowed to clean
up the mess left by prolonged energy subsidies by past governments.
The top priorities are to solve LPG and CNG price distortion as well as
find new sources for the power sector. Since 22 May 2014’s coup, the
military regime has pledged to reform energy prices and put all fuel users
on a more equal footing. By 1Q15, the Energy Minister hopes to
conclude regulations for third-party access in the natural gas pipeline
business. By 3Q15, the ministry also plans to take decisions on
production concessions held by petroleum explorers as some
concessions will expire in 2022. Memoranda of understanding with
Myanmar and Cambodia to prepare for the development of future energy
resources are also on the agenda. In this report, we discuss the details
and impact of each issue.
YTD
1m
3m
6m
12m
Absolute
27.3
11.3
14.1
18.2
13.8
Relative
6.4
12.2
9.0
5.4
4.0
Shariah compliant
Dec-11
Dec-12
Dec-13F
Dec-14F
Dec-15F
2,428
2,794
2,843
2,771
2,938
Reported net profit (THBbn)
106
105
95
102
118
Recurring net profit (THBbn)
106
105
95
102
118
23.7
(1.6)
(9.5)
8.2
15.6
Recurring EPS (THB)
37.2
36.6
33.1
35.9
41.4
DPS (THB)
13.0
13.0
13.0
12.5
14.5
9.8
9.9
11.0
10.2
8.8
Total turnover (THBbn)
Kannika Siamwalla, CFA 66 2862 9744
Recurring P/E (x)
kannika.si@rhbgroup.com
P/B (x)
1.87
1.72
1.52
1.39
1.26
P/CF (x)
8.10
6.09
6.63
5.40
5.51
3.6
3.6
3.6
3.4
4.0
EV/EBITDA (x)
5.38
5.53
5.37
4.93
4.05
20.5
18.0
14.7
14.3
15.0
46.9
42.7
39.2
25.1
10.8
0.0
0.0
0.0
Dividend Yield (%)


2

.
2
0
.
2
0
0
.
3
0
0
We lift PTT’s SOP-based TP to THB396.00/share, an 8.8% upside. We .
0
adjust our earnings and TP to factor in a THB3.00/kg CNG price 0
adjustment over the next 12 months. However, we remain cautious on 0
petroleum/CNG/LPG price adjustments as newly-elected governments
tended to win elections on populist policies. Valuation upside may also
come from PTT’s asset divestments over the next 12 months therefore
we maintain our BUY.
12
Source: Bloomberg




18
RHB Guide to Investment Ratings
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