Updated research report: PTT Global Chemical, Skyworth and MAS

7/28/2019 Updated research report: PTT Global Chemical, Skyworth and MAS

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Regional Daily, 27 June 2013

Regional Daily

Ideas Troika

Leng Seng Choon CFA 65 6232 3890 The recent weakness in MAS share price provides tradingopportunities, and our analyst has upgraded MAS to trading BUY.Although 2Q is a seasonally weak quarter for most airlines and MAScould potentially incur 2Q losses, the positive y-o-y trend for MAS' May2013 operating statistics is a big plus.

[email protected]

PTT Global Chemical Pcl. (PTTGC TB) PTTGC has announced that its wholly owned subsidairy PTT Phenol

(PPCL) will invest a total of THB10bn into capacity expansion, withcommercial operations targeted to begin in 2015. Funding will be viaTHB7bn in loans and THB3bn from equity injection. PTTGC aims tohave PPCL expand further downstream, such as into polycarbonate orepoxy resins, which should boost its value in the future. Given its recentshare price decline, we believe now is a good time to BUY into thestock. We value PTTGC at THB82/share based on 1.5x 2013P/BV. Webelieve that this is a reasonable valuation given regional peers aretrading at an average of 18x P/E and 2.2x P/BV. Whilst PTTGC's shareprice performance has been in line with regional peers over the past12months, its share price has lagged behind in the past six months.PTTGC is currently trading at 9x P/E and 1.2x P/BV. We upgrade from

NEUTRAL to BUY, with our TP maintained at THB82 (base on 1.5xP/BV).

Basic Material Chemicals

BUY THB67.8 TP: THB82.1

Mkt Cap : USD 9.8bn

Analyst: Kannika Siamwalla

Email: [email protected]

Skyworth Digital (751 HK) Skyworth reported its FY3/13 annual results last night with revenue and

net profit of HKD37.8bn (+34% y-o-y) and HKD1.50bn (+20% y-o-y)respectively. Recurring net profit, which excludes FX gain/losses,impairment and fair value changes came in at HKD1.54bn (+20% y-o-y)and was 7% above RHB OSK forecasts. The strong top line wassupported by solid demand for TVs and Skyworth's improving productmix which is shifting to higher end smart and cloud TVs. In addition,sales of set top boxes which accounted for 10% of revenue remainedsolid despite a competitive and commoditised market. Outlook remainssolid as TV sales for 2MFY3/14 are up 33% y-o-y vs. our currentforecasts of 14% full year growth. We believe the market is likely to reactpositively to the results and analyst upgrades are likely after the resultsmeeting at 9:30 (Hong Kong time) today. Shares of Skyworth arecurrently trading at 5.6x FY3/14F PE vs. Peers of 10x FY14F.

Consumer - Household Goods

BUY HKD4.00/ TP HKD 7.05 (under review)

Mkt Cap : USD 1.4bn

Analyst: Billy Leung


Malaysian Airline System (MAS MK) We see trading opportunities in Malaysian Airline System (MAS) in view

of the recent weaknesses in its share price. The airline continues toreport positive growth in its operating stats, which shows that it ismoving on the right track. Nonetheless, we do see embedded risks as itsdepressed yield may dampen Managements turnaround efforts.Nonetheless, with a 38% potential upside, we upgrade MAS to TradingBUY, with FV unchanged at MYR0.43.

Consumer Cyclical - Airlines

TRADING BUY MYR0.31/TP MYR0.43

Mkt Cap : USD 1.6bn

Analyst: Jerry Lee



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27 June 2013

See important disclosures at the end of this report 2

Table of ContentsHong Kong China South City (BUY, HKD1.70, TP:HKD2.26) 3

Stelux Holdings International Ltd (BUY, HKD2.07, TP:HKD2.93) 4

Malaysia Malaysian Airline System (TRADING BUY, MYR0.30,

TP:MYR0.43)

5


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Company Update, 26 June 2013

China South City (1668 HK) Buy (Maintained)Property - Real Estate Target Price: HKD2.26

Market Cap: USD1,333m Price: HKD1.70

Strong Results Trump Expectations

Macro

Risks

Growth

Value

73

81

89

97

105

113

121

129

137

145

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

China South City Holdings (1668 HK)

Pr ic e C lo se R el at iv e to Han g Sen g In dex (R HS)

5

10

15

20

25

30

35

J

un-12

A

ug-12

Oct-12

D

ec-12

M

ar-13

M

ay-13

Volm

Source: Bloomberg

Avg Turnover (HKD/USD) 10.6m/1.35m

Cons. Upside (%) na

Upside (%) 32.9

52-wk Price low/high (HKD) 1.06 - 1.83

Free float (%) 27

Shareholders (%)

Cheng Chung Hing 40.4

Chen Hong Tian 12.4

Leung Moon Lam 10.6

Shariah compliant

Niki Yeung +852 2103 9411

[email protected]

Forecasts and Valuations Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F

Total turnover (HKDm) 2,234 3,671 7,488 10,676 14,627

Recurring net profit (HKDm) 491 692 1,693 2,373 3,638

Recurring net profit growth (%) 33.9 41.0 144.5 40.1 53.3

EPS (HKD) 0.26 0.35 0.45 0.39 0.60

DPS (HKD) 0.02 0.07 0.10 0.12 0.18

Dividend Yield (%) 1.5 4.4 5.9 6.9 10.6

Return on average assets (%) 8.2 8.0 7.5 5.3 7.1

Return on average equity (%) 16.0 17.6 19.1 14.2 19.1P/E (x) 6.55 4.92 3.74 4.34 2.83

P/B (x) 0.97 0.79 0.65 0.58 0.50

Net debt to equity (%) 14.9 21.4 31.6 33.2 33.8

Source: Company data, RHB-OSK HK estimates

China South City (CSC) on Monday evening announced FY13 earnings

of HKD1.7bn (+145% y-o-y), which is 21% above our forecast. The DPSof 10 cent declared represents a 33.3% payout, which is at the high endof its guidance of 30%-33.3% and in line with our estimate. We raise ourFY14F and FY15F earnings forecasts by 2% and 3% respectively, andnudge up our TP by 1% to HKD2.26, based on a 48% discount (vs 45%

previously) to our new end-FY14 ENAV of HKD4.35. Maintain BUY.

Offers attractive 6.9% dividend yield. We raise our FY14F and FY15Fearnings forecasts by 2% and 3% respectively to HKD2.4bn andHKD3.6bn, mainly due to a lower effective income tax rate of 47.5%;which was historically at 50% and dropped to 43.5% in FY13 due to theGroups geographical diversification. Its income tax rate, in turn, wasoffset by higher operating and finance costs. To be prudent, we havelowered our payout ratio estimates to 30% (down from 33.3% in FY13),which is at the lower end of managements guidance of 30%-33.3%.

Contracted sales target of HKD11.0bn for FY14F. According tomanagement, CSCs contracted sales spread for FY14F are likely to besimilar to FY13Fs, with 25% (or HKD2.75bn) in 1HFY14F and the

remaining 75% (or HKD8.25bn) in 2HFY14F. As of June-end, weestimate CSC has 30% of FY3/14F revenue locked in through presalesand believe the sales target is achievable.

HKD10.0bn capex in FY14F. Management intends to completeconstruction of properties with a combined gross floor area (GFA) of3.8m sq m in FY14F (up from 1.9m sq m in FY13). In FY14F, we expectCSC to spend c.HKD7.0bn-HKD8.0bn in construction costs andHKD2.0bn to acquire land, which includes the HKD1.3bn spent in May topurchase land in Hefei with a GFA of 3.94m sq m.

Maintain BUY, with a higher TP of HKD2.26. We continue to like CSCfor its: i) strong earnings growth in FY14F (up 40% y-o-y), ii) attractiveand growing dividend yield of 6.9% for FY14F and 10.6% for FY15F,based on 30% payout, and iii) a 61% discount to end-FY14F ENAV ofHKD4.35/share. Our new TP of HKD2.26 is based on a higher 48%discount to end-FY14F ENAV (previously: 45% discount to end-FY13ENAV of HKD4.07/share) to reflect its peers average P/B of 0.52.Maintain BUY.


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Results Review, 26 June 2013

Stelux Holdings International Ltd (84 HK) Buy (Maintained)Consumer Cyclical - Retail Target Price: HKD2.93

Market Cap: USD279m Price: HKD2.07

Numbers Tick Up

Macro

Risks

Growth

Value

68

96

124

152

180

208

1.1

1.6

2.1

2.6

3.1

3.6

Stelux Holdings International (84 HK)

Pr ic e C lo se R el at iv e to Han g Sen g In dex (R HS)

5

10

15

20

25

J

un-12

A

ug-12

O

ct-12

D

ec-12

M

ar-13

M

ay-13

Volm

Source: Bloomberg

Avg Turnover (HKD/USD) 4.69m/0.60m

Cons. Upside (%) 78.7

Upside (%) 41.3

52-wk Price low/high (HKD) 1.38 - 3.32

Free float (%) 31

Shareholders (%)

Joseph C. C. Wong 57.8

Boyu Capital Holdings Ltd. 18.2

Kanjanapas Sakorn 7.0

Shariah compliant

Eugene Mak +852 2103 9202

[email protected]

Forecasts and Valuations Mar-12 Mar-13 Mar-14F Mar-15F Mar-16F

Total turnover (HKDm) 3,331 3,647 4,104 4,634 5,235

Reported net profit (HKDm) 250 233 306 408 456

Recurring net profit (HKDm) 250 233 306 408 456

Recurring net profit growth (%) 91.3 (7.0) 31.5 33.4 11.7

Core EPS (HKD) 0.24 0.22 0.29 0.39 0.44

DPS (HKD) 0.09 0.07 0.09 0.12 0.13

Dividend Yield (%) 4.3 3.5 4.2 5.7 6.3

Core P/E (x) 8.65 9.30 7.08 5.30 4.75

Return on average equity (%) 23.2 18.1 17.4 17.8 17.2

P/B (x) 1.68 1.55 1.02 0.88 0.76

P/CF (x) 13.1 9.3 6.7 3.5 4.3EV/EBITDA (x) 5.62 6.20 3.90 2.57 2.10

Net debt to equity (%) 24.3 30.1 0.5 net cash net cash

Our vs consensus EPS (%) (10.3) (2.0) 0.0

Source: Company data, RHB estimates

This report marks the transfer of coverage on Stelux to Eugene Mak.

Steluxs FY3/13 recurring net profit slid 7% y-o-y to HKD233m, missingRHB-OSK and consensus estimates by 14% and 10% respectively,mainly due to higher-than-expected rental costs. We cut our FY14/15net profit forecasts by 14%/2% and our TP to HKD2.93 from HKD3.40.Maintain BUY call based on a target FY14F P/E of 10x (0.5 SD above the

stocks past 5-year forward mean P/E) and FY14F EPS of HKD0.29.

FY13 results miss estimates. Turnover grew 9.5% y-o-y toHKD3,647m, which was largely in line. The Groups gross margin (GPM)improved by 0.8ppt due to the companys stable pricing strategy andimproving product mix, with a higher contribution from house brands,which now account for 40%-45% of sales (GPM 70%-80% vs distributedbrands GPM of 50%-65%). However, operating margin dipped 0.9ppt,mainly due to increased losses from Optical 88s China operations in2H13 as a result of high rental costs and overheads in Guangzhou andfour new shops in Shanghai that opened in 2H13. This brings thenumber of China City Chain and Optical 88 shops to 88 (net drop of 13)and 40 (a net increase of 5) respectively. In FY13, the China operationreported a total turnover of HKD277m (FY12: HKD237m) and operatingloss of HKD81m (FY12: loss of HKD67m).

Revamping China operations. The Group has stepped up theoperational revamp in its China operation by putting in a newmanagement team with vast local retail experience in China with the aimof re-establishing Steluxs position as a key retail player in China. TheGroup has changed its Optical 88 strategy to focus more on recurringcustomers rather than one-off tourists, with Optical 88 and City Chainfocusing on lower tier cities going forward. The Group has also closeddown around 20 non-performing stores in China, which significantlyimprove operating efficiency and SSSG. In line with this strategy, it willshut two of its four Shanghai stores once their rental contracts end.

Brighter outlook ahead.We expect recovery in the Groups earningsgrowth and margin improvement. SSSG in 1Q14 was reassuring, with

HK SSSG at double digits and China at high-single digits. Stelux isaiming for its China operation to break even before 2015.


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Company Update, 27 June 2013

Malaysian Airline System (MAS MK) Trading Buy (From Neutral)Consumer Cyclical - Airlines Target Price: MYR0.43

Market Cap: USD1,591m Price: MYR0.30

Still In a Rough Patch

Macro

Risks

Growth

Value

40

49

58

66

75

84

93

101

110

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.55

0.60

Malaysia Airlines (MAS MK)

Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)

50

100

150

200

250

300

350

J

un-12

A

ug-12

O

ct-12

D

ec-12

F

eb-13

A

pr-13

Volm

Source: Bloomberg

Avg Turnover (MYR/USD) 14.5m/4.73m

Cons. Upside (%) 29.0

Upside (%) 41.0

52-wk Price low/high (MYR) 0.30 - 0.54

Free float (%) 85

Shareholders (%)

Khazanah 69.4

Shariah compliant

Jerry Lee 603 9207 7622

[email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F

Total turnover (MYRm) 13,873 13,566 14,340 15,192 15,941

Reported net profit (MYRm) (2,524) (377) (248) 164 541

Recurring net profit (MYRm) (1,816) (748) (248) 164 541

Recurring net profit growth (%) (3274.2) (58.8) (66.9) na 229.8

Core EPS (MYR) (0.54) (0.22) (0.01) 0.01 0.03

Core P/E (x) na na na 31.1 9.4

Return on average equity (%) (110.5) (45.2) (8.2) 3.0 9.3

P/B (x) 0.98 1.63 0.95 0.92 0.84

P/CF (x) na na 26.9 5.8 3.6

EV/EBITDA (x) na 103 12 8 6

Net debt to equity (%) 440.8 346.1 73.4 87.6 90.5Our vs consensus EPS (%) 85.2 (57.3) (32.6)

Source: Company data, RHB estimates

We see opportunities to trade in Malaysian Airline System (MAS) shares

given the recent price weakness. The airline continues to post positiveoperating stats that show that it is on track to a recovery, but we stillsee embedded risks as the groups depressed yield may dampenManagements turnaround efforts. In view of the 38% potential upside,we upgrade MAS to Trading BUY, with our FV unchanged at MYR0.43.

Positive growth trend continues. MAS May 2013 operating statsshowed continuing positive growth, as revenue passenger kilometers(RPK) surged 21.3% y-o-y while available seat kilometers (ASK) jumped13.9% y-o-y and overall load factor inched up 3.7% y-o-y. We believe theimprovements were mainly attributed to the benefits arising from theairlines participation in the oneworldalliance.

Macro factors may continue to pressure yield. Although the positivegrowth in MAS operating numbers reflects Managements turnaroundefforts, the group is also experiencing the yield compression now beingfelt by full-service carriers (FSCs). Many airlines generally price takersby nature - are under mounting pressure to slash airfares to stimulatetheir load factor and compete with the regions low -cost carriers (LCCs).

MAS is no exception, as the national carriers RPK, ASK and load factorgrowth has been insufficient to offset its shrinking yields. This led to anegative surprise in its 1QFY13 results.

A trading opportunity. We are keeping our assumptions for MAS at thisjuncture. We had earlier trimmed our yield assumption to a conservative1% growth y-o-y to incorporate a negative macro outlook for the FSCsmarket. While MAS current share price appears attractive, we wouldadvise investors to remain cautious on potential losses in 2Q, which is aseasonally weak quarter for most airlines. Our MYR0.43 FV providesinvestors with a potential capital gain of 38%, but with embedded risks.All said, we upgrade MAS to TRADING BUY.


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RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 monthsTrading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertainNeutral: Share price may fall within the range of +/- 10% over the next 12 monthsTake Profit: Target price has been attained. Look to accumulate at lower levelsSell: Share price may fall by more than 10% over the next 12 monthsNot Rated: Stock is not within regular research coverage

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Updated research report: PTT Global Chemical, Skyworth and MAS

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Transcript of Updated research report: PTT Global Chemical, Skyworth and MAS