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21 November 2012
Source: US Census, China National Bureau of Statistics and J.P. Morgan calculations.
(852) 2800-8599 adrian.mowat@jpmorgan.com Bloomberg JPMA MOWAT <GO> J.P. Morgan Securities (Asia Pacific) Limited
(44-20) 7134-5887 david.aserkoff@jpmorgan.com Bloomberg JPMA ASERKOFF <GO> J.P. Morgan Securities plc
For a full list of authors please refer to the list on the back page
* Registered/qualified as a research analyst under NYSE/FINRA rules. See page 589 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. In the United States, this information is available only to persons who have received the proper option risk disclosure documents. Please contact your J.P. Morgan representative or visit http://www.optionsclearing.com/publications/risks/riskstoc.pdf. www.morganmarkets.com
What to avoid
Banks: Indonesia*, Thailand* Autos: Low-to-mid-range car segment Infrastructure: SA construction Insurance: South Africa Real Estate: China Materials: Brazil steel-makers Energy: Oil, refining and petrochemicals Utilities: Asian power equipment makers, Brazil Telecom: LatAm, Central Europe
66 stocks to avoid
(See pages 429 to 557)
Examples of stocks to avoid
Stocks to avoid examples HTC Corp DongFeng Motor Co., Ltd. Catcher Technology Yanzhou Coal Mining - H Marfig Ecopetrol ADR Country Taiwan China Taiwan China Brazil Colombia Return to our PT (%) (59) (23) (23) (20) (11) (11)
Source: J.P. Morgan estimates. Note: To PT = Returns to analyst price target as at 16 Nov 2012. Stocks with 3m average trading value greater than US$20 million.
Source: J.P. Morgan estimates. Note: To PT = Returns to analyst price target as at 16 Nov 2012. Stocks with 3m average trading value greater than US$20 million.
Table of contents
Investment strategy ............................................................ 4 Potential Surprises for 2013............................................. 48 Economic outlook ............................................................ 59 Economic forecasts .......................................................... 87 Country strategy .............................................................. 93 Sector strategy ............................................................... 133 Summary tables of stock ideas ...................................... 173 Top picks ....................................................................... 191 Stocks to avoid .............................................................. 429 Strategy dashboards ....................................................... 559
Potential returns
MSCI EM end-2013 target 1150 (+15%) Forward P/E of 11x, a 10% re-rating from 10x. Consensus 2014E MSCI EM EPS is 110. We fear downgrades for metal and energy companies. To be conservative we assume no EPS growth in material and energy companies. The resultant 2013 and 2014 EPS forecasts are 96 and 105 respectively. (See page 10 for range of potential returns)
Investment themes/baskets
1. Dividend aristocrats (JPGIEMDA <Index>): Analysts top picks with consistent DPS track record and yield >2%. 2. Dividend pretenders (JPGIEMDP <Index>): Highyield (> 2%) stocks to avoid with a poor dividend track record 3. Rotation riders (JPGIEMRL <Index>, JPGIEMRS <Index>): Around year-end low-P/BV and rotation quant factors outperform. Underperforming top picks with low P/BV, and the opposite for stocks to avoid. 2. Nifty Fifty (JPGINIF2 <Index>): Outperforming growth stocks with a bias for domestic growth + some global leaders. 3. ASEAN growth story (JPHASGRW <Index>) 4. China growth debate (JPGICHGL <Index>, JPGICHGS <Index>): Now that the market is cheap, and confidence in growth model more realistic, be prepared to adjust exposure as confidence in growth changes. 5. Policy risk (JPGIEMPL <Index>, JPGIEMPS <Index>): Top picks and stocks to avoid in highpolicy-risk sectors. (See page 26 for thematic baskets)
Risks
US fiscal cliff 3Q capex slowdown becomes 2013 recession Higher headline inflation Large Chinese stimulus India slips on policy implementation, including fiscal consolidation, credit rating downgraded to junk China economic debate (between easier money and lower profits) New Korean president policy is pro-consumer, Won appreciates Malaysian election outcome disrupts policy continuity Fast solution of labor and politics in South Africa Carry trade continues, REAL appreciates Governance and political tension in LatAm Geopolitical risk (maritime sovereignty disputes) (See page 46 for details)
Market performance
Figure 1: MSCI EM and MSCI World performance
1400 1200 1000 800 600 400 200 0 88 90 92 94 96 98 00 02 04 06 08 10 12 MSCI EM MSCI World
Technical strategy
Technical analysis forecasts: 1. Asian outperformance of EM 2. EM outperformance of global equities (MSCI World) 3. BRIC underperformance of EM 4. India preferred BRIC 5. Risk of China and Russia underperformance 6. End of Brazilian underperformance (See page 51 for details)
switching into domestic sectors, including low growth cheap banks (see page 84 for more on Korean politics). The financial teams Korean top pick is KB Financial. With exporters two-thirds of the benchmark, the market is likely to underperform. The technical risk is that the Vanguard EM ETF is switching from MSCI EM to the FTSE Emerging benchmark. The result is a potential US$10billion of outflows from Korea in 1H13. We downgrade Korea to UW. Taiwan lacks domestic drivers and concern on China import substitution makes us suspicious that the high EPS growth forecast for this market is optimistic. Similar to Korea this is an la carte market in that relative performance is driven by a few stocks. We downgrade Taiwan to UW. Our China UW was successful until early September. In 3Q12 monetary conditions improved. More recently activity data stopped deteriorating. We remain modestly UW China. For more on our China views please see China: Monetary policy vs. profits on page 8. Our key concern is profits as capacity continues to grow faster than demand. We are also worried that more than 45% of MSCI China EPS is from one sector, banks. Another concern is the 10% underperformance of A-shares versus MSCI China in the last three months. What do the locals know that H-share investors do not? Finally stock performance is polarized with key stocks including Tencent (700 HK, OW) considerably outperforming. Selling winners is typical in 4Q. Brazil GDP growth is accelerating from 1.4% in 2012 to 4.1% in 2013. But industrial policy favors the smaller sectors in the market, manufacturing and retail, which outperformed in 2012. The key sectors of energy and mining remain vulnerable to the China growth debate. Finally an overvalued Real adds currency risk. We remain UW Brazil. In CEEMEA, only in Turkey is growth forecast to accelerate into 2013. Improving current account deficit and reasonable valuations result in a Turkey OW. Improving dividends in Russia are offset by corporate governance issues and monetary policy tightening cycle. We remain N Russia. Weak commodity prices, labor strife and ZAR weakness keep us UW South Africa. We however like retailers in South Africa. In Central Europe, lower growth is compensated by high dividend yields. We remain N CE3. Please see the country section for more details (page 93 to 131)
Source: J PRC NBS, Ministry of Education PRC, US Census, J.P. Morgan calculation. Note: Growth Centered on peak of each equity market; Japan December 1989, Taiwan February 1990 and China October 2007.
-10y -9y -8y -7y -6y -5y -4y -3y -2y -1y 0y 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y
Absolute change (millions) 250 57 43 38 35 28 25 23 19 19 17 16 212 782 Contribution to growth in working age population (%) 32.0 7.3 5.6 4.8 4.5 3.5 3.2 2.9 2.5 2.4 2.1 2.1 27.1 100.0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047
QE and PE inflation
The powerful medium term force on equity markets is US and EU QE. The scale of monetization and commitment to maintain low rates until unemployment falls is unprecedented. Savers are cornered. If the Fed is successful bond investors may face a capital loss within three years. There is no momentum or fundamental bid in commodities, unlike during QE2. Equities, particularly developed, are already performing well. This is primarily a function of PE expansion. With common ownership across EM and DM valuation are likely to be correlated. Decisions based on valuation relative to history may prove expensive. QE distorts asset valuation. Based on the history of the risk reward trade off line it is possible to argue that both DM and EM PEs exceed 50 with current bond yields. MSCI World PE is 12. There is plenty of head room. It is possible that companies perceived to offer 'sustainable growth' may rerate considerably. Our EM Nifty Fifty theme is based on this concept. We believe that PE inflation will continue but expect volatility. Although ECB purchase of peripheral bonds decreases financial event risk it does not make markets immune to political events in Europe. J.P. Morgans economists forecast 1.2% developed economies GDP growth in 2012 and 13. With no change in full year growth, it is tempting to underplay the significance of economic data. We have two concerns. The first is consensus forecast of a sharp recovery in profits for cyclical sectors (see dissection of EPS on page 12). Economic data will remain a major driver of the volatility. With economies flying so close to zero any evidence that there is a small loss in altitude will continue to unnerve investors driving up risk premiums. Most years in Asian and EM equities suffer a 15%+ fall within a four weeks period. We are buyers on these dips. Currently the US fiscal cliff is an excuse for a buyers strike. As Michael Feroli notes in Six more weeks of fiscal cliff if you dont jump off one first (see page 80) the fiscal cliff is the predominant issue for the economy. Compromise is likely, but may not occur soon. In Europe policy makers struggle with rules that are inconsistent with reality in that Greeces fiscal debt is unsustainable.
Source Datastream, MSCI, Bloomberg, 13 November 2012. Note: The chart represents yields of the asset classes.
Source: J.P. Morgan. Global Asset Allocation, 13 November 2012. IRRs are calculated as current yield, minus expected default or downgrade losses in the case of credit. The IRR for equities is earnings yield, based on trend earnings for either operating earnings, plus the expected long-term rate of inflation. The x-axis is historical vol. The slope is calculated by applying a linear regression of the IRR of various assets against their historical vol.
Source: J.P. Morgan. Global Asset Allocation, 13 November 2012. IRRs are calculated as current yield, minus expected default or downgrade losses in the case of credit. The IRR for equities is earnings yield, based on trend earnings for either operating earnings, plus the expected long-term rate of inflation. The x-axis is historical vol. The slope is calculated by applying a linear regression of the IRR of various assets against their historical vol.
Source: MSCI, Datastream, 13 November 2012. Note: Indices rebased to 100 as of 13 November 2010.
Steel Production (3mmva, %oya) Commercial vehicles (3mmva, %oya) Clinker Production (3mmva, %oya) Retail Sales (3mmva, %oya)
Source: CEIC, IBES, MSCI, October 2012. Industrial profits as of September 2012. Note: The axis range is from -25 to +50. The maximum and minimum growth for industrial profits is 598% and -37% in January 99 and January 2009 respectively. The maximum and minimum growth for MSCI China EPS is 71% and -61% in June 2001 and June 2000 respectively.
Twn. Financials Twn. Mater. Twn. Others Korea China Mater. India Energy Financials India China Banks India Others Financials Korea India IT Industrials
Indonesia Philippines
Malaysia
CE3
Source: J.P. Morgan. Red indicates UW positions and green indicates OW positions.
EM China China Financials** China Energy China Telecom China Industrials China CS China Materials China CD Brazil Brazil Financials Brazil Materials Brazil Energy Brazil CS Korea Korea IT Korea Financials Korea Industrials Korea Materials Korea CD Taiwan Taiwan IT Taiwan Financials Taiwan Materials India India Financials India IT India Energy South Africa SA Materials SA Financials South Africa CD SA Telecom Russia Russia Energy Mexico Mexico Telecom Mexico CS Malaysia Indonesia Turkey Turkey Financials Thailand Chile Poland Philippines Hungary Czech Republic
100.0 18.6 7.0 3.3 2.3 1.2 1.0 0.9 1.0 12.3 3.1 2.4 2.3 1.7 15.4 5.6 2.0 1.9 1.6 2.6 10.7 6.0 1.6 1.3 6.8 2.0 1.0 0.8 7.6 1.4 2.0 1.4 1.0 5.6 3.3 5.0 1.3 1.5 3.7 2.8 1.8 1.0 2.2 1.8 1.5 0.9 0.3 0.3
-UW N N N n/a N UW N UW OW UW UW N UW N N N UW N UW N UW UW OW OW N N UW UW UW N N N N OW N N N N OW OW OW N N OW N N
DD
Performance P/E (x) EPS Growth (%) (US$ Returns) Jan 06 to EM low 12M YTD 12E 13E 12E 13E date to date 39 116 0 7 11.4 10.0 1.1 13.3 100 115 4 11 10.1 9.3 -1.9 9.5 131 100 7 13 7.3 7.0 5.3 8.0 120 204 -5 6 9.9 9.2 -8.9 -1.5 118 58 3 5 12.2 11.6 0.9 3.7 16 67 0 7 12.2 10.2 -14.2 22.0 228 164 1 6 25.5 21.6 6.0 22.6 43 169 -11 4 13.4 9.9 -36.0 39.4 52 142 -8 1 14.0 11.6 -9.4 10.1 62 91 -15 -10 12.2 10.2 -15.3 20.2 63 127 -14 -11 10.3 9.2 0.6 11.9 65 74 -25 -13 9.4 7.5 -40.1 25.3 24 22 -27 -21 11.2 8.3 -21.5 34.5 232 281 14 10 27.3 21.0 4.3 30.1 31 168 4 11 9.4 8.0 21.5 17.6 64 275 32 31 9.9 8.0 80.2 29.9 -35 50 -5 2 7.1 7.3 -3.0 -10.4 25 138 -10 -2 10.8 9.3 -2.0 6.5 111 168 -18 -8 11.9 9.1 -30.7 20.7 65 306 -8 1 6.5 5.9 20.3 11.3 5 79 0 5 17.4 13.8 2.0 27.0 -8 75 4 10 17.6 13.1 11.3 36.9 -8 87 -2 2 12.3 12.2 4.5 -2.2 49 71 -17 -10 26.6 18.4 -51.8 49.6 56 100 0 18 15.3 13.5 11.3 14.4 79 119 11 34 16.3 13.7 15.1 21.0 34 96 -12 -7 16.0 14.5 17.3 8.8 82 44 -15 8 11.4 10.8 1.7 0.3 39 156 2 4 13.4 11.4 11.7 17.1 -16 95 -28 -21 11.5 8.7 7.7 32.3 33 150 13 12 12.3 10.7 11.7 14.6 150 409 32 38 19.7 16.8 17.4 17.1 62 150 10 7 13.9 12.5 13.4 11.3 -11 115 -12 -2 4.9 4.8 -12.9 1.5 -25 100 -13 -4 3.9 3.9 -15.6 0.1 65 147 12 16 18.6 16.0 36.6 15.8 48 72 -10 3 11.6 10.9 24.9 5.8 167 226 29 22 27.2 22.9 10.3 18.5 118 118 10 8 15.1 13.9 4.9 7.4 240 274 1 4 15.5 13.6 1.0 16.9 18 148 27 46 11.5 10.3 10.3 12.0 24 190 33 60 10.6 9.4 5.1 12.7 115 247 20 19 12.6 10.8 8.3 13.9 96 119 -5 2 17.9 15.2 -5.9 17.7 -13 42 0 15 10.2 10.9 -11.2 -7.1 168 212 32 34 18.0 16.1 12.7 14.9 -30 62 23 23 10.0 8.2 -17.9 21.4 0 22 -7 -6 10.1 10.2 0.5 -1.2
EPS CAGR (07-13E) 8.9 11.3 19.0 10.9 8.0 -5.9 8.9 0.7 8.5 3.5 6.3 0.1 3.5 21.5 12.7 27.1 -3.0 2.7 4.7 34.8 -4.0 -3.9 1.4 -13.3 10.1 18.4 14.5 7.6 9.1 12.1 3.1 15.6 10.5 6.0 6.8 4.5 8.9 13.1 3.2 13.3 6.4 9.4 28.0 9.8 -1.8 9.3 -2.5 1.4
EPS CAGR by SD 0.7 0.7 1.7 0.5 1.0 -0.1 0.5 0.0 0.4 0.2 0.4 0.0 0.1 0.4 0.3 0.1 -0.1 0.1 0.3 0.6 -0.1 -0.1 0.0 -0.2 0.8 2.7 1.7 0.7 0.5 0.2 0.2 1.9 1.0 0.2 0.3 0.2 0.7 0.4 0.2 1.6 0.7 0.7 2.2 0.7 -0.1 0.6 -0.1 0.1
PEG Ratio 1.4 0.9 0.4 0.9 1.5 -2.5 3.2 18.7 1.6 3.7 1.6 74.8 NM 1.6 0.9 0.5 -2.5 4.8 3.0 0.2 -5.3 -5.2 10.2 -2.6 1.6 0.8 1.1 1.9 1.7 1.1 4.6 1.6 1.4 0.9 0.6 5.2 1.8 2.2 5.0 1.3 1.9 1.2 0.6 2.0 -4.4 2.0 NM 7.4
DY (%) 13E 3.1 3.4 4.4 3.2 3.7 2.9 2.1 2.3 2.2 4.0 3.9 4.0 3.6 3.0 1.0 0.7 2.5 1.3 0.9 1.0 3.6 3.5 3.0 3.7 1.7 1.7 1.7 2.1 4.0 3.1 4.7 2.3 6.2 4.1 4.5 2.0 2.5 1.9 3.3 2.7 3.1 2.2 3.9 3.1 4.8 2.7 4.4 7.2
ROE (%) 13E 13.4 0.5 0.2 13.4 15.6 9.6 15.0 11.9 15.1 12.7 15.0 13.1 9.7 18.8 13.6 18.3 8.5 10.3 9.1 16.8 11.6 13.6 8.1 8.0 15.0 16.0 22.9 13.7 17.8 17.0 14.2 19.7 26.6 11.4 10.8 15.8 28.0 14.8 14.0 21.8 15.1 13.9 17.0 12.0 10.6 15.7 10.6 15.2
Source: MSCI, IBES, Bloomberg, 14 November 2012. Note: Outperformance of more than 2% vs. MSCI EM. Underperformance of more than 2% vs. MSCI EM. DD=Domestic Demand, GPT=Global Price Takers, GC/C=Global Capex/Consumer, GC=Global Capex, GCO=Global Consumer..
4. Current forward PE multiplied by 2014 EPS forecast 5. Three year average PE multiplied by 2014 EPS forecast 6. Gordon Growth model theoretical PE multiplied by 2014 EPS. This generates PE in excess of 30 for six markets as local bond yields in these countries are very low relative to nominal GDP growth and RoE.
Table 4: Current forward P/E with standard deviation ranges
Index EM EM Asia Latam EMEA Brazil Chile China Czech Hungary India Indonesia Korea Malaysia Mexico Philippines Poland Russia S Africa Taiwan Thailand Turkey Current Fwd PE 10.0 10.4 11.3 7.9 9.8 15.5 9.3 10.3 8.2 13.5 13.8 8.2 14.1 16.2 16.2 10.6 4.7 11.7 14.0 10.7 10.5 Avg 10Y 10.7 11.4 10.2 9.6 8.5 15.8 12.1 12.6 9.4 14.6 11.1 9.4 13.9 13.0 13.6 12.0 7.9 10.3 13.8 10.2 9.3 +1 SD 12.2 13.2 11.9 11.3 10.9 17.8 14.9 15.3 11.0 17.5 13.9 11.0 15.1 14.8 15.3 14.0 10.3 11.7 17.1 11.4 11.1 -1 SD 9.2 9.6 8.6 7.9 6.2 13.9 9.2 9.9 7.8 11.7 8.3 7.7 12.7 11.1 11.9 10.0 5.5 9.0 10.5 9.1 7.5 Top Decile 12.6 14.0 12.5 11.8 12.0 18.3 15.4 16.4 11.1 18.0 14.2 11.8 15.3 15.0 16.1 14.4 11.5 11.7 16.2 11.5 11.2 Bottom Decile 8.8 9.3 8.1 7.6 5.4 13.3 8.9 9.8 7.3 10.9 7.3 7.1 12.3 10.3 11.6 9.2 4.8 8.3 11.6 8.7 6.8
Table 6: Pick your methodology and thus your return: Percentage return to end 2013 targets based on multiple methodologies
Index Level EM Brazil Chile China India Indonesia Korea Malaysia Mexico Philippines Poland Russia South Africa Taiwan Thailand Turkey 44274 204680 4879 59 730 5242 544 585 38422 899 1607 727 968 262 479 1029288 (1) Current EY/BY 17 69 11 3 24 19 26 1 24 26 65 (1) 8 (16) (2) 29 (2) 5yr avg EY/BY 42 37 26 27 27 61 129 12 26 49 48 26 23 15 5 42 (3) FWD PE 2014 EPS = GDP 12 11 10 14 14 13 10 10 8 11 5 10 10 10 8 14 (4) Current FWD PE 12 13 13 10 21 19 14 12 15 18 5 1 13 22 11 15 (5) 3year average FWD PE 17 15 12 22 26 11 25 13 2 9 9 28 3 16 7 3 Median Max Min Range of returns 30 58 16 24 13 50 120 12 25 40 60 29 20 38 13 39 (6) Gordon Growth PE 168 (28) 3 244 135 152 310 137 1 122 30 543 31 162 195 175
17 15 12 14 24 19 25 12 15 18 9 10 10 15 7 15
42 69 26 27 27 61 129 13 26 49 65 28 23 22 11 42
Source: MSCI, IBES, Datastream, Bloomberg, J.P. Morgan. 12 November 2012 Note: All returns and index levels are in local currency; please email EM_Equity_Strategy@jpmorgan.com for the assumptions
Table 7: Consensus EPS estimates and revisions since the beginning of 2012
Index EM (US$) EM EM Asia Latam EMEA Brazil Chile China Czech Hungary India Indonesia Korea Malaysia Mexico Peru Philippines Poland Russia S Africa Taiwan Thailand Turkey 10 83 3622 48 582243 43 20990 313 5.11 34 114 41 270 51 32 1536 91 43 146 131 51 20.3 29 86348 Actual 11 85 3800 48 585630 54 21446 275 5.69 30 130 45 319 43 35 1513 120 44 181 178 62 15 34 80178 Current Consensus EPS 12E 13E 14E 89 100 110 3952 4462 4913 54 61 68 533559 631533 697561 52 54 58 17700 21195 23466 274 318 353 5.80 6.34 7.01 30 30 30 108 131 157 49 56 64 338 384 445 58 68 76 39 42 45 2055 2401 2702 115 129 134 50 56 62 160 151 160 155 154 156 70 82 91 15 19 22 38 45 50 88173 98750 111362 Consensus EPS beginning of this Year 12E 13E 14E 99 111 129 4447 4983 5571 59 68 78 687705 755884 840726 55 58 59 23621 25519 25885 354 375 406 6.34 7.21 7.72 31 32 34 127 155 187 52 60 58 373 431 503 61 70 81 39 43 45 2236 2611 4734 137 137 109 52 57 56 167 169 171 162 163 165 81 90 94 19 24 24 40 46 49 90640 102086 109240 Revision in Consensus EPS (%) 12E 13E 14E (10.7) (10.0) (14.5) (11.1) (10.5) (11.8) (9.2) (9.7) (12.4) (22.4) (16.5) (17.0) (6.7) (5.9) (2.3) (25.1) (16.9) (9.3) (22.7) (15.1) (12.9) (8.5) (12.1) (9.1) (3.5) (8.2) (10.9) (14.4) (15.4) (15.7) (5.2) (6.5) 9.9 (9.3) (10.8) (11.5) (5.8) (3.3) (6.5) (0.3) (2.9) 0.9 (8.1) (8.0) (42.9) (15.5) (5.6) 23.4 (3.0) (1.6) 9.2 (4.0) (10.8) (6.4) (4.2) (5.5) (5.5) (13.4) (8.5) (3.7) (21.2) (19.0) (11.1) (5.7) (0.7) 2.8 (2.7) (3.3) 1.9
11
Note that the weighted 2013 EPS growth for EM Materials is high at 24% (primarily due to expected losses or low profits at ArcelorMittal SA, Sider, Mfrisco, Northam platinum, China Steel and Hyosung, among others, in 2012). The median EPS growth is 20%.
Dataset IBES EPS forecasts for MSCI EM constituents. Calculation The index's calendar year EPS is calculated using the profit-weight of the constituents. Index EPS = I x ( (C-EPS x FFS) / (FFS x P)) Where C-EPS = Index constituents EPS, FFS = free float shares for the constituents, I = index level and P = current market price The check Median EPS growth of the index constituents: Reviewing the median helps identify sectors in which a single stocks impact on weighted EPS growth is large. This could be due to its large weight in the index or moving from loss to profit.
Source: IBES, Datastream, J.P. Morgan calculation. Note: Sorted by 2013 earnings growth contribution.
12
Source: IBES, Datastream, J.P. Morgan calculation. Note: Sorted by 2013 earnings growth contribution.
Source: IBES, Datastream, J.P. Morgan calculation. Note: Sorted by 2013 earnings growth contribution.
13
Valuations analysis
The objective of this section is to highlight cheap and expensive sectors in countries. Sectors are split into five groups based on what drives their long term growth (see page 17 to 25 for details): Valuations conclusions The domestic growth basket PE at 14 is 40% premium to MSCI EM. In China the domestic growth premium is 94%. The premium has been stable since 2010. Where banks are included in domestic growth the valuations are flattered. This is particularly true in Russia where consumer stocks PEs exceed 20. Over the last 12 months the global demand basket had the largest derating (-6%, see Figure 10). But this is due to earnings upgrades in tech. The P/B of all baskets except domestic growth declined over a year ago. The largest de-rating (14%) was the China growth concerns basket (see Figure 11) ex -China. The China growth concerns basket is more expensive today than 12 months ago. Its underperformance was insufficient to offset EPS downgrades. The policy risk baskets in all countries except Russia are at a discount. The PB discount is larger than the forward PE discount (see Table 13 to Table 16 ). Chinese banks PE and PB are more than one standard deviation cheap relative to history. This sector is likely to enjoy tradable rallies when policy fears ebb. The China growth concerns baskets forward PE appears cheap. We have little confidence in the forecast of high EPS growth in 2013 for these stocks (see Table 23). Policy risks, China growth concerns and global demand baskets are trading close to their GFC P/B lows. Exposure groups or baskets Policy risk: Sectors which de-rated owing to actual or fear of government policy; i.e. China financials, Brazil banks, India materials, India energy, utilities in numerous countries. Domestic growth: Sectors perceived as beneficiaries of domestic growth stories; i.e. consumer discretionary, select financials including India, Turkey and ASEAN financials. Global demand: Sectors sensitive to global demand; i.e. Korea and Taiwan IT and industrials, Korea CD. China growth concerns: Sectors dependent on Chinese investment demand; i.e., materials in Brazil, China, Korea and Taiwan. Others: Sectors that do not fall into any of the above categories such as telecoms, utilities without perceived policy risk. Index composition observations: Policy risk exposure is the largest in China at 40% market cap and 53% earnings. Domestic growth is more than half the index value and earnings in India, Mexico, Turkey, South Africa and ASEAN. Korea, Taiwan and Russia have more than half their index value and earnings from global demand.
Table 11: Free float market cap weight of each country sector
Policy Risks 40 23 NA 10 14 NA NA NA 6 NA 4 NA NA NA China growth concerns 34 NA 7 11 NA NA 13 NA 18 12 6 17 NA 15 Others 6 NA 17 5 25 28 23 7 3 27 13 16 24 56 Domestic Growth 20 57 76 9 53 72 6 68 31 53 19 57 76 29 Global Demand NA 20 NA 64 9 NA 59 NA 20 8 59 9 NA NA
China India Indonesia Korea Malaysia Philippines Taiwan Thailand Brazil Mexico Russia SA Turkey Poland
Source: MSCI, IBES, Datastream, 6 November 2012. Note: For Korea, there has been a change from Korea GAAP to IFRS; the growth number of global demand basket is enhanced as a result of that. The year ending for Australia is June.
China India Indonesia Korea Malaysia Philippines Taiwan Thailand Brazil Mexico Russia SA Turkey Poland
Source: MSCI, IBES, Datastream, 6 November 2012. Note: For Korea, there has been a change from Korea GAAP to IFRS; the growth number of global demand basket is enhanced as a result of that. The year ending for Australia is June.
14
Nov 04
Nov 06
Nov 08
Nov 10
Nov 12
Source: MSCI, Datastream, J.P. Morgan calculations, 9 November 2012. Note: Weighted average forward PE is calculated as total FF market cap of respective basket divided by total free float 12 month forward earnings. Note CEMEX and Korea utilities are omitted from calculations due to their volatile EPS.
China India Indonesia Korea Malaysia Philippines Taiwan Thailand Brazil Mexico Russia South Africa Turkey Poland MSCI EM
Others 11 NA 14 11 17 14 13 10 13 12 10 12 10 11 12
Source: MSCI, IBES, Datastream, 9 November 2012. Note: Weighted average is calculated as total market cap of respective country basket divided by total free float forward earning
China India Indonesia Korea Malaysia Philippines Taiwan Thailand Brazil Mexico Russia South Africa Turkey Poland MSCI EM
Others 10 NA 14 11 18 14 16 11 13 12 10 11 10 11 12
Others (13) NA (6) 5 12 (26) (4) (21) (7) (26) (1) (10) (17) 3 (9)
Source: MSCI, IBES, Datastream, 9 November 2012. Note: The market multiple is calculated as simple average of all the sector valuations. 15
Trailing PB of EM baskets
Figure 11: Trailing PB of each basket (weighted average) note de-rating of sectors dependent on Chinese growth
4.0 3.5 3.0 2.5 2.0 1.5 1.0 Oct 02 Policy Risks China grow th concerns Others Domestic Grow th Global Demand
Oct 04
Oct 06
Oct 08
Oct 10
Oct 12
Source: MSCI, Datastream, J.P. Morgan calculations, 9 November 2012. Note: Weighted average trailing PB is calculated as total FF market cap of respective basket divided by total free float trailing book value. CEMEX and Korea utilities ar e omitted from calculations due to their volatile EPS
China India Indonesia Korea Malaysia Philippines Taiwan Thailand Brazil Mexico Russia South Africa Turkey Poland MSCI EM
Source: MSCI, IBES, Datastream, 9 November 2012. Note: weighted average is calculated as total market cap of respective country basket divided by total free float trailing book value
China India Indonesia Korea Malaysia Philippines Taiwan Thailand Brazil Mexico Russia South Africa Turkey Poland MSCI EM
Source: MSCI, IBES, Datastream, 9 November 2012. Note: The market multiple is calculated as simple average of all the sector valuations.
16
Table 17: EM expensive sectors (valuations more than one standard deviation above their 10 year average)
FF market cap weight 6 10 3 1 2 16 12 8 1 1 7 12 2 7 3 16 13 6 14 30 18 7 4 5 1 13 4 EPS Weight 2012 Growth 2013 Growth 12M fwd PE # of st.devs. from long term average
Domestic growth
Valuations Trailing PB # of st.devs. from long term average 3.5 11.8 4.1 5.0 7.5 4.9 5.5 5.5 3.0 2.7 12.6 5.6 14.9 3.6 5.4 4.0 2.2 2.5 4.3 4.0 4.3 7.2 5.1 2.2 1.8 5.4 3.0 0.7 1.7 0.5 (0.0) 2.8 1.5 1.2 1.6 1.0 2.5 2.4 1.3 2.4 0.7 1.4 1.7 1.4 1.3 1.7 1.5 1.6 1.3 0.1 1.8 2.3 1.2 1.1
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB 134 121 33 31 72 7 32 15 104 39 43 89 100 27 69 63 (4) 14 117 38 47 67 54 2 12 137 31 36 46 (7) (12) 14 (7) 29 24 45 13 36 22 61 3 31 48 3 31 58 31 5 18 12 (16) 46 114 (17) 120 361 62 97 91 26 41 41 161 26 449 144 547 58 83 36 (24) (15) 212 30 70 187 104 (13) (1) 193 41 26 170 1 62 17 (11) 18 (4) 53 (38) 127 58 205 46 44 11 (23) (8) 83 16 20 113 89 (33) (52) 135 3
China Consumer Staples India Consumer Staples Construction Materials Chemicals Indonesia Health Care Consumer Discretionary Consumer Staples Construction Materials Korea Health Care Malaysia Construction Materials Thailand Telecommunication Services Consumer Staples Consumer Discretionary Construction Materials Philippines Consumer Discretionary Real Estate Banks Diversified Financials Brazil Consumer Staples Mexico Consumer Staples South Africa Consumer Discretionary Consumer Staples Health Care Insurance Turkey Real Estate Consumer Staples
2 5 2 1 1 15 9 7 0 1 6 5 1 5 2 10 13 5 6 21 13 4 2 6 1 6 3
6 23 15 22 12 7 9 20 12 18 61 (8) 34 (7) 11 16 14 41 5 11 21 11 18 16 99 42 11
18 19 17 19 17 16 17 18 42 15 9 39 17 30 15 15 12 20 29 19 18 18 19 8 24 20 23
22 29 18 17 24 15 18 16 17 20 15 20 21 14 27 26 15 18 21 23 17 19 18 12 12 25 19
1.8 2.2 1.6 1.4 2.1 1.2 1.1 1.0 0.7 1.2 0.7 2.1 1.7 1.8 1.8 1.3 1.0 0.2 1.6 2.1 2.8 2.3 2.1 1.8 (0.4) 1.0 1.9
15 35 19 23 27 29 25 27 16 13 90 26 67 20 18 14 12 13 20 15 21 30 24 16 13 28 15
2.1 1.9 1.4 1.6 2.1 3.0 2.6 2.3 0.5 4.2 7.0 3.2 4.7 3.7 1.2 1.6 1.6 0.9 3.1 2.0 2.3 2.9 2.4 4.4 2.8 2.2 1.8
Global demand
Malaysia Energy
17
Table 18: EM expensive sectors (valuations more than one standard deviation above their 10 year average) (contd)
FF market cap weight 3 12 6 1 13 1 11 5 3 EPS Weight 2012 Growth 2013 Growth 12M fwd PE # of st.devs. from long term average
Global demand
Mexico Chemicals
Valuations Trailing PB # of st.devs. from long term average 4.8 3.8 2.8 4.0 4.9 3.0 4.0 2.8 1.5 1.9 1.1 2.0 1.0 2.6 3.2 1.4 1.6 1.1
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB 5 (22) 23 115 51 21 (19) (9) (20) 5 (24) (6) 30 14 (9) (29) (12) 8 58 24 58 130 129 31 35 53 (20) (53) (12) 6 92 33 (17) (19) 13 (36)
3 16 5 0 9 1 14 5 3
19 12 8 160 14 45 9 6 24
17 13 17 30 21 13 13 10 8
23 26 16 13 24 21 24 25 15
Others
Taiwan Telecommunication Services Energy Malaysia Telecommunication Services Thailand Utilities Philippines Utilities Turkey Energy Metals & Mining
Source: MSCI, Datastream, 9 November 2012. Note: Trailing PB is used for capital intensive sectors such as energy, metals and mining, telecom, financials and utilities. For other sectors fwd PE is used.
Table 19: EM value sectors (valuations more than one standard deviation below their 10 year average)
FF market cap weight 8 3 3 2 15 16 25 20 EPS Weight 2012 Growth 2013 Growth 12M fwd PE # of st.devs. From long term average
Domestic Growth
Valuations Trailing PB # of st.devs. From long term average 3.4 1.2 1.4 2.4 4.7 1.3 1.7 0.9 (0.5) (1.3) (1.8) (0.4) (1.0) (0.7) (1.0) (1.5)
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB (25) 27 15 15 10 (20) (20) (14) (9) 31 42 73 31 (9) (10) (11) 33 6 (21) 85 85 12 (25) (35) 17 38 32 73 101 2 20 (1)
India Consumer Discretionary Korea Insurance Taiwan Insurance Poland Consumer Discretionary
11 3 3 2 14 24 32 20
(3) 10 37 76 15 87 3 (22)
15 12 (8) 9 9 12 16 36
10 10 16 12 15 6 9 9
27 11 8 16 25 19 18 10
Global demand
India Information Technology Korea Consumer Discretionary Thailand Energy Brazil Energy
18
Table 20: EM value sectors (valuations more than one standard deviation below their 10 year average) (contd)
FF market cap weight 59 9 2 5 3 18 17 24 5 12 8 1 20 4 10 3 9 3 5 2 11 EPS Weight 2012 Growth 2013 Growth 12M fwd PE # of st.devs. From long term average
Global demand
Russia Energy South Africa Energy
Valuations Trailing PB # of st.devs. From long term average 0.6 1.9 1.2 0.7 1.4 1.2 1.9 1.2 0.9 1.7 0.6 0.8 1.5 0.4 1.5 1.1 1.0 1.0 1.2 0.6 0.7 (1.3) (1.0) (1.0) (1.5) (1.0) (1.5) (1.0) (1.5) (1.4) (1.0) (1.6) (1.2) (1.2) (1.2) (1.0) (1.2) (1.1) (1.2) (1.7) (1.3) (1.1)
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB (18) (27) 31 5 86 (31) (21) (37) (49) (16) (24) 6 (16) 129 (5) (8) (18) 28 71 (15) (10) (12) (15) (6) (18) (15) (6) 27 (6) (45) (18) (17) (4) 18 135 0 4 (4) 30 23 27 (6) (22) (24) (28) (37) (20) (16) (24) (26) (64) (35) (49) (27) 9 (51) (31) (39) (45) (29) (3) (50) (47) (13) 7 (12) (21) (6) 35 7 (4) (39) (22) (20) 1 23 (23) (13) (25) (32) (29) (8) 16 (32)
74 14 1 5 1 26 18 41 10 15 13 0 25 2 10 3 12 3 3 2 15
(15) 21 (37) (9) (56) (41) (0) 10 10 3 (7) (19) (2) (33) 39 (29) 17 (1) (47) (12) 2
4 8 12 9 25 7 9 6 7 11 6 9 8 11 14 13 11 13 18 9 10
(1.2) (0.4) 0.2 0.4 2.8 (0.4) (1.3) (1.3) (0.8) (0.3) (1.0) (0.2) (0.7) (0.3) (0.3) (0.6) (0.8) 1.3 1.5 (1.1) (0.4)
13 20 9 9 5 16 18 18 12 13 9 10 17 3 10 8 9 8 7 6 7
4.6 4.6 2.1 2.3 2.6 4.4 2.8 5.5 1.8 1.9 2.9 4.9 4.2 1.0 2.6 3.1 3.0 10.7 9.4 5.3 4.6
Policy Risks
China Banks India Metals & Mining Energy Korea Banks Telecommunication Services Brazil Banks Russia Utilities
Others
Malaysia Utilities Taiwan Diversified Financials Banks Brazil Telecommunication Services Poland Telecommunication Services IT Utilities
Source: MSCI, Datastream, 9 November 2012. Note: Trailing PB is used for capital intensive sectors such as energy, telecom, metals and mining, financials and utilities. For other sectors fwd PE is used.
19
China Insurance Information Technology Consumer Staples India Diversified Financials Consumer Discretionary Industrials Banks Chemicals Construction Materials Consumer Staples Korea Insurance Consumer Staples Health Care Taiwan Insurance Consumer Staples Indonesia Banks Industrials Consumer Discretionary Construction Materials Consumer Staples Health Care Malaysia Diversified Financials Real Estate Consumer Discretionary Banks Consumer Staples Construction Materials Thailand Banks Construction Materials Telecommunication Services Consumer Staples Consumer Discretionary
Valuations Trailing PB # of st.devs. From long term average 2.4 4.8 3.5 1.9 3.4 2.5 2.8 5.0 4.1 11.8 1.2 2.3 3.0 1.4 4.1 3.2 3.0 4.9 5.5 5.5 7.5 1.7 1.8 1.9 2.1 2.6 2.7 2.0 3.6 12.6 5.6 14.9 (0.9) 0.6 0.7 (0.7) (0.5) (0.9) (0.1) (0.0) 0.5 1.7 (1.3) (0.0) 1.0 (1.8) 1.9 0.5 (0.0) 1.5 1.6 1.2 2.8 0.4 0.7 (0.2) (0.1) (0.4) 2.5 0.9 0.7 2.4 1.3 2.4
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB 56 125 134 (18) (25) 8 2 31 33 121 27 92 104 15 39 (13) 2 7 15 32 72 (23) 39 (15) (14) 16 39 (8) 27 43 89 100 69 55 36 4 (9) 11 3 (12) (7) 46 31 39 45 42 35 (4) 16 (7) 24 29 14 (4) 11 (3) (5) 10 13 1 3 36 22 61 50 200 120 (26) 33 (4) 9 97 62 361 6 101 161 (21) 132 (19) (23) 26 41 41 91 (22) (14) (9) (0) 20 26 (14) 58 449 144 547 53 73 26 (17) 17 26 (17) 62 1 170 38 58 53 32 37 (23) (22) (11) (4) 18 17 (29) (28) (2) 6 37 (38) (20) 46 127 58 205
4 3 2 5 11 5 22 1 2 5 3 3 0 3 2 36 5 15 7 9 1 3 1 12 32 10 1 43 5 6 5 1
35 30 18 15 15 14 20 19 17 19 12 14 42 (8) 11 14 8 16 18 17 17 11 16 8 10 17 15 18 30 9 39 17
14 21 22 11 10 14 13 17 18 29 10 16 17 16 19 12 14 15 16 18 24 11 20 12 12 16 20 10 14 15 20 21
15 20 15 15 27 15 19 23 19 35 11 12 16 8 34 22 19 29 27 25 27 14 9 14 16 15 13 18 20 90 26 67
1.7 0.9 2.1 1.9 1.8 1.3 1.8 1.6 1.4 1.9 2.8 1.5 0.5 1.7 2.8 2.0 2.9 3.0 2.3 2.6 2.1 4.1 1.9 2.4 4.4 3.4 4.2 3.4 3.7 7.0 3.2 4.7
20
Philippines Banks Diversified Financials Industrials Consumer Staples Consumer Discretionary Real Estate Brazil Diversified Financials Insurance Real Estate Consumer Discretionary Information Technology Industrials Consumer Staples Mexico Banks Industrials Consumer Discretionary Diversified Financials Consumer Staples Russia Banks Consumer Staples South Africa Banks Diversified Financials Insurance Industrials Construction Materials Consumer Discretionary Health Care Consumer Staples Turkey Diversified Financials Industrials Real Estate Consumer Discretionary Consumer Staples Poland Energy Consumer Discretionary Insurance
Valuations Trailing PB # of st.devs. From long term average 2.2 2.5 2.5 3.3 5.4 4.0 1.5 1.5 1.6 2.5 13.3 3.6 4.3 2.5 2.6 3.2 4.1 4.0 1.3 6.4 1.7 1.8 2.2 2.2 22.5 4.3 5.1 7.2 1.3 1.4 1.8 2.5 5.4 0.8 2.4 2.6 1.4 1.3 1.4 2.9 1.4 1.7 (0.4) (0.6) (0.7) (0.1) (0.1) 0.1 1.7 0.2 2.9 0.2 0.4 1.5 (0.9) 0.8 (0.7) (0.5) 1.8 (0.4) 0.4 1.6 0.1 1.3 (0.3) (0.3) 2.3 2.0 1.2 (0.8) (0.4) 0.8
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB (4) 14 (12) 19 69 63 43 4 127 31 50 76 117 (10) (5) 5 (22) 38 15 326 (14) (10) 2 (6) 12 47 54 67 (13) (12) 12 0 137 (6) 15 7 3 31 (4) 50 31 48 42 6 88 41 48 60 58 (10) 2 24 (8) 31 50 244 (14) (15) (16) (9) 19 5 12 18 5 (7) 46 (4) 114 (10) 73 6 (24) (15) (15) 11 83 36 8 8 15 79 854 159 212 (19) (15) 6 34 30 61 713 (32) (28) (13) (14) 799 70 104 187 (29) (25) (1) 34 193 (41) 85 104 (23) (8) (17) (14) 44 11 21 (2) 30 29 596 81 83 (16) (50) 14 9 16 63 215 (14) (12) (33) (4) 533 20 89 113 (9) (7) (52) (17) 135 (41) 73 68
13 5 39 4 2 10 2 0 1 2 2 3 6 12 6 7 1 21 14 1 10 10 6 5 1 13 2 4 7 11 1 3 6 12 2 11
12 20 13 18 15 15 13 14 51 63 12 23 29 19 4 23 16 19 1 18 15 15 8 28 15 18 19 18 17 13 24 11 20 11 9 (0)
15 18 14 19 27 26 14 10 23 13 15 17 21 15 16 17 13 23 6 21 10 10 12 11 13 17 18 19 9 9 12 11 25 10 12 11
12 13 16 18 18 14 11 13 8 15 71 26 20 15 14 15 25 15 21 20 15 16 16 17 78 21 24 30 12 13 13 21 28 7 16 21
1.6 0.9 2.0 2.3 1.2 1.6 4.2 3.5 1.3 2.4 4.8 3.3 3.1 1.3 1.6 1.2 2.1 2.0 2.9 2.1 4.9 3.8 4.4 3.8 5.9 2.3 2.4 2.9 1.5 2.2 2.8 5.9 2.2 2.4 1.7 7.3
21
China Industrials Metals & Mining Real Estate Chemicals Energy Construction Materials Korea Metals & Mining Energy Chemicals Taiwan Metals & Mining Construction Materials Chemicals Indonesia Metals & Mining Energy Brazil Metals & Mining Mexico Metals & Mining Russia Metals & Mining South Africa Metals & Mining Poland Metals & Mining
Valuations Trailing PB # of st.devs. From long term average 1.1 1.2 1.3 1.5 1.6 1.7 0.7 1.2 1.3 1.4 1.5 1.8 1.6 3.0 1.2 3.8 1.6 1.9 1.6 (0.8) (1.0) (0.4) (0.4) (0.9) (0.8) (1.5) (0.7) (0.3) (1.0) 0.5 (0.5) (0.7) (0.5) (1.5) 1.1 (0.6) (1.0) (0.5)
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB 11 31 (19) (3) 1 (5) 5 (2) 17 86 7 20 (20) (20) (31) (22) 68 (21) (24) 11 (6) (10) 2 (15) 14 (18) (6) (14) (15) (0) (11) (14) (18) (6) (24) 15 27 (36) (29) (28) (19) (9) 2 8 (37) 5 14 (20) (16) 0 (60) (24) (16) 24 103 (24) 20 (25) (12) (29) (25) 1 39 (21) 7 2 (6) (31) 3 (19) 34 35 (12) 47 7 5
5 1 7 0 18 2 5 3 4 1 2 5 1 8 26 16 3 18 22
(10) (37) 9 (31) (5) (36) (9) (43) (23) (56) (13) (47) (48) (24) (41) (2) (30) (0) (43)
20 41 12 60 7 24 16 33 28 55 12 59 43 5 19 12 6 33 (19)
10 12 7 9 9 9 9 8 10 25 15 16 11 11 7 13 8 9 8
10 9 15 15 15 17 9 13 13 5 10 10 13 20 16 26 20 18 16
2.8 2.1 3.3 3.8 3.6 1.8 2.3 2.5 1.3 2.6 5.0 4.1 4.2 4.4 4.4 3.3 1.7 2.8 5.9
22
India Information Technology Health Care Korea Consumer Discretionary Information Technology Industrials Taiwan Information Technology Industrials Malaysia Chemicals Energy Thailand Energy Brazil Energy Chemicals Mexico Construction Materials Chemicals Russia Energy South Africa Energy
Valuations Trailing PB # of st.devs. From long term average 4.7 4.4 1.3 1.6 1.0 2.0 1.3 2.7 3.0 1.7 0.9 1.3 0.8 4.8 0.6 1.9 (1.0) (1.0) (0.7) (0.9) (0.6) (0.4) 0.1 (0.7) 1.1 (1.0) (1.5) (0.3) (0.6) 1.9 (1.3) (1.0)
2013 ROE
2013 DY
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB 10 53 (20) 1 7 (6) (3) (11) 31 (20) (14) 92 NM 5 (18) (27) 31 37 (9) 19 1 8 2 2 (17) (10) (11) 233 75 5 (12) (15) 85 74 12 38 (9) 14 (26) 25 41 (25) (35) (6) (74) 58 (22) (24) 101 67 2 37 (6) 14 (33) 45 3 20 (1) (20) (55) (53) (13) 7
14 4 24 33 11 56 3 5 3 32 20 (0) (6) 3 74 14
9 8 12 23 16 31 7 23 16 36 (217) NM 19 (2) 5
15 20 6 8 9 13 13 13 19 9 9 19 NM 17 4 8
25 15 19 19 12 14 9 18 15 18 10 8 NM 23 13 20
2.0 0.9 1.0 0.6 1.4 3.6 3.4 4.0 1.8 4.4 3.6 0.8 0.0 0.6 4.6 4.6
23
China Banks Utilities Telecommunication Services Health Care India Real Estate Metals & Mining Energy Utilities Telecommunication Services Korea Banks Industrials Telecommunication Services Utilities Brazil Utilities Banks Russia Utilities
41 2 10 0 1 10 15 5 1 13 14 0 (1) 9 25 2
Valuations Trailing PB # of st.devs. From long term average 1.9 0.2 1.2 (1.5) 1.7 (0.5) 1.8 (0.8) 2.6 0.0 1.9 0.2 1.0 (0.7) 0.9 (1.4) 1.7 (1.0) 1.5 (0.8) 1.3 (0.3) 0.6 1.6 0.8 0.4 0.9 1.5 0.4 (1.6) (1.2) (1.2) (0.7) 0.7 (1.2) (1.2)
2013 ROE 16 18 13 14 12 16 6 12 13 12 8 9 12 10 2 9 17 3
2013 DY 3.1 5.5 2.9 3.7 1.3 3.1 1.0 1.8 1.9 2.0 0.5 2.9 3.1 4.9 0.6 5.8 4.2 1.0
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB (37) 22 26 102 27 (49) (16) (9) 26 (24) (4) 6 181 (10) (16) 129 (6) 11 8 44 6 (45) (18) (10) (9) (17) 2 (4) 168 2 18 135 (26) 5 9 60 (62) (64) (35) (40) (50) (49) (25) (27) (67) (37) 9 (51) (4) (14) 16 19 44 (39) (22) (38) (55) (20) (6) 1 (69) (62) 23 (23)
Valuations Trailing PB # of st.devs. From long term average 1.0 1.1 2.2 0.8 1.0 1.1 2.1 1.8 4.0 2.8 (0.6) (0.4) (0.2) (0.9) (1.1) (1.2) 1.0 0.4 1.0 2.0
2013 ROE
2013 DY
China Diversified Financials Paper & Forest Products Consumer Discretionary Korea Diversified Financials Taiwan Banks Diversified Financials Consumer Discretionary Real Estate Energy Telecommunication Services
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB 9 6 23 40 (18) (8) 3 (35) 115 23 58 6 10 20 (4) 4 7 (21) 30 (6) (37) (30) 40 (27) (45) (39) 21 4 130 58 (34) (17) 7 (15) (32) (25) (4) (15) 92 6
0 0 4 2 12 3 5 1 0 5
10 10 11 11 11 13 14 9 30 17
9 10 17 7 9 8 15 12 13 16
2.8 2.7 2.1 2.5 3.0 3.1 3.6 6.1 2.7 5.6
24
Valuations Trailing PB # of st.devs. From long term average 6.7 3.7 1.5 4.9 1.5 3.0 4.0 3.7 1.0 3.1 4.3 1.3 2.3 2.9 1.0 1.6 4.1 1.5 2.8 2.4 2.7 0.6 2.2 0.7 1.8 1.2 (0.1) (0.1) (1.0) 2.6 (0.1) 3.2 1.4 (0.0) (1.2) 0.6 (0.3) (0.5) (0.5) (0.8) (0.8) 1.0 0.9 1.1 1.6 (0.6) 0.1 (1.3) 1.6 (1.1) (0.9) (1.7)
2013 ROE
2013 DY
Indonesia Utilities Telecommunication Services Malaysia Utilities Telecommunication Services Thailand Chemicals Utilities Philippines Utilities Telecommunication Services Brazil Telecommunication Services Mexico Telecommunication Services Russia Real Estate Telecommunication Services Chemicals South Africa Paper & Forest Products Real Estate Telecommunication Services Turkey Metals & Mining Energy Telecommunication Services Poland Chemicals Information Technology Consumer Staples Utilities Banks Telecommunication Services
Relative Valuations to respective market Premium 10Y Premium 10Y to 12M Average to trailing Average fwd PE premium to PB premium fwd PE to PB 2 2 (5) 51 (17) 21 (19) (10) 28 (29) 66 91 143 (41) 25 3 (20) (9) 2 (16) (15) (14) (10) 17 71 14 3 0 14 (16) (9) (29) (21) 30 (5) 122 49 108 132 16 (0) 8 (12) 13 (16) 27 (25) (6) 19 23 72 (6) (31) 129 (33) 31 35 25 (29) 40 71 197 273 (61) (37) 63 (20) 53 30 109 (50) 71 (47) 40 (3) 92 12 (13) 33 (26) (17) (19) 64 (29) 70 60 109 492 (41) (52) 26 (36) 13 91 20 16 (20) (32) 46 (8)
5 12 10 9 7 1 14 13 3 41 0 4 2 1 2 13 3 5 11 2 2 4 15 26 3
14 14 14 21 9 13 13 14 13 17 12 8 9 12 7 14 12 8 10 11 9 9 9 10 12 18
36 22 10 24 15 21 24 27 8 17 30 8 25 23 13 9 27 15 25 22 23 6 21 7 13 7
3.9 4.6 2.6 4.9 4.6 3.8 3.0 6.8 10.7 2.0 2.5 0.2 5.1 5.2 2.0 6.7 6.3 3.0 8.3 7.3 4.5 5.3 1.3 4.6 4.4 9.4
25
Asia Pacific ex-Japan Equity Derivatives & Delta One Strategy Tony SK Lee AC
(852) 2800-8857, tony.sk.lee@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
We have divided a shortlist of stocks in the Year Ahead into 10 thematic baskets 1. Dividend aristocrats (JPGIEMDA <Index>): Analysts top picks with the best DPS track record and yield greater than 2%. The criteria for a good track record are no cut in dividend over the last decade except 2008 and 2009. Even if dividend was cut in the recession, last dividend should be greater than or equal to the 2007 peak. Stocks with a dividend history of less than two years are omitted. 2. Dividend pretenders (JPGIEMDP <Index>): High-yield stocks (yield greater than 2%) to avoid with a poor dividend track record. 3. Nifty fifty or running the winners (JPGINIF2 <Index>): Outperforming growth stocks with a bias for domestic growth and few global leaders. The criteria for winners are outperformance in the last 12 months and price Q-score above 50%. 4. Rotation riders (JPGIEMRL <Index>, JPGIEMRS <Index>): Underperforming top picks with low P/BV and the opposite for stocks to avoid. 5. China growth debate (JPGICHGL <Index>, JPGICHGS <Index>): Now that the market is cheap, and confidence in the growth model more realistic, be prepared to adjust exposure as confidence in growth changes. Two baskets of top picks and stocks to avoid. 6. ASEAN growth story (JPHASGRW <Index>): Indonesia and the Philippines enjoy a significant demographic dividend. Thailands economic momentum is strong and policy very pro-growth. Beyond the political risk Malaysian investment cycle is picking up. For more on ASEAN please see the country pages. 7. Policy risk (JPGIEMPL <Index>, JPGIEMPS <Index>): Top picks and stocks to avoid in high-policy-risk sectors. The aim is to provide baskets of stocks to manage your exposure to policy risk. See valuation basket section on page 14. The tables on the following pages summarize the basket constituents. Basket short-selling capacity will depend on borrow availability at the time of execution. Investors can track the performance of these J.P. Morgan Thematic Baskets on Bloomberg using the tickers in brackets above. For more information, please contact your J.P. Morgan salesperson or Equity Derivatives & Delta One Strategy team.
26
Table 28: J.P. Morgan 2013 Dividend Aristocrats Basket (JPGIEMDA <Index>)
Name Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 11500 34.0 221 13.5 88.0 85.0 5050 29.0 35.0 45700 6.3 37.0 155 43.0 180 110.0 35.0 147.3 260000 18000 7.1 34100 220 5.0 2.9 139 48.0 (1.5) 44.4 11.9 32.3 17.7 23.2 39.6 30.3 18.0 22.6 23.5 11.8 21.1 30.3 12.5 22.2 13.6 69.9 79.9 20.0 17.9 (3.4) 32.5 40.8 38.8 0.9 17.1 VOD SJ APPC AB SAFCO AB FGB UH EEC AB 2382 TT CML SJ SIIG AB OMAB MM SOL SJ 1398 HK TBLE3 BZ EGCO TB CPF TB PTTEP TB 2330 TT 1088 HK SBER RX 028050 KS SMGR IJ KPJ MK EXITO CB SESA IN 3336 HK IJMLD MK BAP US TOTS3 BZ JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW Mkt Cap, US$ MM 19629 1030 13166 8331 13953 9103 1286 2670 903 27204 218889 10358 2193 8315 17286 80020 71050 59295 5320 9239 1260 8666 2622 518 958 10990 3176 P/E (X) 2012E 14.6 12.3 12.6 7.6 9.1 10.8 18.5 13.3 17.3 8.8 8.0 12.8 6.5 11.6 10.2 14.2 13.4 5.3 9.2 19.2 23.1 33.6 8.0 7.5 15.0 14.8 24.4 P/E (X) 2013E 13.7 8.4 12.7 6.7 8.9 8.5 12.0 8.3 16.3 8.6 7.6 13.1 9.9 12.7 10.0 13.5 12.7 5.0 8.4 15.9 18.9 29.5 6.2 5.7 12.8 12.6 20.8 Payout Dividend Yield (%) Ratio CAGR ROE (%) 2013E FY0 (%) 2007-11 (%) 2013E 8.0 7.4 7.1 6.7 6.0 5.9 5.8 5.4 5.0 4.7 4.2 4.2 4.1 3.9 3.4 3.3 3.0 3.0 2.8 2.6 2.6 2.6 2.4 2.3 2.2 2.0 2.0 104 55.1 79.1 40.5 44.8 66.5 94.8 85.2 65.0 49.3 34.0 98.7 55.4 50.4 120 57.9 39.2 6.3 23.3 50.0 48.8 50.0 12.9 34.9 28.7 21.9 58.9 57.8 41.4 34.3 55.1 69.4 4.4 45.5 18.9 3.6 14.2 11.7 9.5 2.5 93.8 13.3 0.0 49.5 42.1 25.7 21.9 42.7 21.4 26.2 17.0 100 10.7 29.5 62.6 20.0 41.5 15.8 27.7 22.3 70.1 17.4 12.0 19.5 19.6 30.3 10.0 17.9 20.8 22.4 17.9 21.9 32.8 30.3 18.1 7.2 15.6 10.7 9.2 19.9 27.3
Top Picks Vodacom Group 11681 Advanced Petrochemical 23.6 Saudi Arabian Fertilizer Co. 198 First Gulf Bank 10.2 Mobily 74.8 Quanta Computer Inc. 69.0 Coronation Fund Managers 3617 Saudi Industrial Investment 22.3 Grupo Aeroportuario 29.7 Sasol 37289 ICBC - H 5.1 Tractebel Energia 33.1 Electricity Generating Co 128 Charoen Pokphand Foods 33.0 PTT Exp & Production 160 TSMC 90.0 China Shenhua Energy - H 30.8 Sberbank 86.7 Samsung Engg 144500 Semen Gresik 15000 KPJ Healthcare 6.0 Almacenes Exito 35300 Sesa Goa 166 Ju Teng International 3.6 IJM Land 2.1 Credicorp 138 Totvs 41.0
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in descending order of 2013E dividend yield
Table 29: J.P. Morgan 2013 Dividend Pretenders Basket (JPGIEMDP <Index>)
Name Stocks to Avoid CSN Globe Telecom ELETROBRAS (ON) HTC Corp Bank Pekao SA Mobile Telesystems Group 5 Thai Oil Public Company Liberty Holdings Ltd S-Oil Corp China Minsheng Bank - H IOI Corp. PetroChina Petkim Hong Leong Bank Bank of Baroda Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 4.7 1150 9.3 244 157 17.2 2500 63.3 10163 97100 7.2 4.9 10.2 2.1 14.4 729 5.0 1000 10.0 100 179 20.5 2941 53.0 8400 78000 6.8 4.6 8.3 1.7 11.7 600 5.9 (13.0) 8.1 (58.9) 14.0 19.3 17.6 (16.2) (17.3) (19.7) (5.6) (6.7) (19.3) (18.2) (18.8) (17.7) SID US GLO PM ELET3 BZ 2498 TT PEO PW MBT US GRF SJ TOP TB LBH SJ 010950 KS 1988 HK IOI MK 857 HK PETKM TI HLBK MK BOB IN JPM Rating UW UW UW UW N UW UW UW UW UW UW UW UW UW UW UW Mkt Cap, US$ MM 6882 3697 6298 7118 12663 17750 313 4199 3285 10062 27409 10352 250297 1160 8841 5188 P/E (X) 2012E NM 17.1 2.2 12.4 13.6 10.9 NM 9.8 9.2 13.0 7.0 17.7 14.5 NM 14.5 6.0 P/E (X) 2013E 11.0 15.9 35.3 33.8 11.3 10.3 11.2 13.7 10.7 11.9 7.4 16.3 14.1 15.8 15.7 6.7 Payout Dividend Yield (%) Ratio CAGR ROE (%) 2013E FY0 (%) 2007-11 (%) 2013E 11.3 7.3 7.2 6.4 6.3 5.8 5.6 5.4 5.0 4.2 3.9 3.6 3.2 2.9 2.1 2.1 32.4 83.8 47.5 54.1 0.0 73.9 22.8 45.3 44.8 46.0 28.7 49.0 45.0 NA 23.0 17.0 (16.1) (1.6) 20.6 15.4 (13.5) (4.4) (12.9) (7.5) 5.0 (22.7) 74.8 (9.0) (2.6) NA 21.7 23.2 8.5 20.0 0.5 6.8 16.6 46.7 13.0 10.8 16.1 15.6 16.3 14.9 12.0 7.7 14.4 15.7
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in descending order of 2013E dividend yield
27
Table 30: J.P. Morgan 2013 Nifty Fifty / Running the Winners Basket (JPGINIF2 <Index>)
Name Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 40.8 62.6 12.2 20.8 14.4 24.4 20.9 5.9 5.3 32.3 20.0 37.7 28.2 27.8 21.1 22.3 18.0 12.4 14.8 15.4 24.4 31.3 17.7 17.9 78.8 35.1 29.6 39.6 13.8 5.8 (8.0) 7.0 25.7 9.8 32.3 41.1 16.2 27.7 22.0 16.0 14.6 18.4 22.2 35.3 26.1 17.8 38.1 20.4 30.9 8.4 16.6 (1.5) 13.9 (1.2) 55.4 3336 HK 175 HK PS TB 001800 KS MGNT LI 700 HK AC PM AC* MM 1177 HK SMRA IJ SMGR IJ 2866 HK VAKBN TI SCB TB EGCO TB EBS AV OMAB MM DTEX3 BZ LAME3 BZ 034220 KS 3034 TT ALI PM EEC AB KPJ MK 694 HK 005930 KS 1766 HK CML SJ 135 HK HCLT IN KCHOL TI CCRO3 BZ EMAAR DB NATU3 BZ FGB UH AEDU3 BZ 992 HK TUF TB 506 HK ITC IN 4904 TT IGTA3 BZ 2330 TT 3673 TT 066570 KS ICICIBC IN TMKS LI 015760 KS LWB PW RENT3 BZ OBER IN VOD SJ 2343 HK FIBR3 BZ 032830 KS JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW N OW OW OW N OW Mkt Cap, US$ MM 518 3564 1410 5909 16733 58731 6558 11611 2301 1416 9239 3790 5951 17283 2193 10299 903 3752 8455 11412 2244 7630 13953 1260 2905 180599 10640 1286 15968 7751 11370 15828 5937 11670 8331 2228 9281 2633 2958 40030 7803 1926 80020 4311 11945 21274 3225 16191 1350 3478 1689 19629 987 5109 17176 P/E (X) 2012E 7.5 14.1 12.4 33.2 24.6 36.1 22.5 24.8 24.2 25.2 19.2 NM 8.3 13.1 6.5 24.0 17.3 19.9 48.4 44.2 15.0 33.3 9.1 23.1 16.2 9.6 21.4 18.5 15.9 17.5 10.3 27.6 10.8 26.6 7.6 28.7 19.3 13.5 24.5 35.7 19.8 23.6 14.2 10.0 16.2 18.8 9.4 NM 12.6 30.1 42.7 14.6 NM NM 17.5 P/E (X) 2013E 5.7 10.5 9.7 28.5 21.2 26.7 17.4 19.2 20.4 19.1 15.9 33.7 7.2 11.0 9.9 10.6 16.3 17.8 31.4 7.4 11.8 27.5 8.9 18.9 13.3 7.6 16.5 12.0 14.3 13.2 9.6 22.2 11.0 23.3 6.7 16.8 15.7 11.8 18.2 30.3 16.0 20.9 13.5 8.0 7.0 15.2 8.2 49.7 9.0 18.0 18.8 13.7 30.4 264.2 14.7 Yield (%) ROE (%) 2013E 2013E 2.3 0.7 3.6 0.4 na 0.4 0.9 2.5 3.8 0.0 2.6 0.0 0.0 3.0 4.1 0.8 5.0 1.8 1.1 1.4 5.0 1.5 6.0 2.6 1.1 0.3 1.2 5.8 2.0 0.8 na 4.1 1.3 3.6 6.7 0.1 0.3 4.2 2.0 2.0 6.9 1.2 3.3 4.2 0.0 1.9 na 0.0 4.9 0.0 0.0 8.0 0.2 0.1 2.4 10.7 20.4 21.5 17.6 23.3 35.6 13.0 18.8 21.9 16.7 30.3 2.7 12.9 21.1 10.0 5.9 12.0 10.0 39.6 15.0 22.2 13.4 27.7 18.1 10.3 21.9 15.3 70.1 17.6 27.4 13.1 41.4 5.9 73.1 15.8 11.1 26.0 18.0 16.4 36.5 18.9 9.9 22.4 38.5 12.7 12.2 17.2 0.7 19.5 24.5 12.5 62.6 2.4 0.3 5.9 Price Q-Score 99% 92% 75% 100% 84% 93% 73% 87% 76% 84% 91% 65% 55% 58% 58% 51% 63% 92% 82% 94% 93% 69% 97% 91% 94% 97% 51% 83% 80% 81% 89% 90% 72% 85% 64% 86% 70% 58% 84% 82% 91% 95% 85% 61% 86% 70% 78% 79% 70% 74% 62% 77% 59% 98% 74% 12M Relative Perf (%) 168 90.9 75.6 69.6 62.5 60.3 56.9 56.9 55.5 54.4 49.9 49.8 45.8 44.8 43.8 43.8 43.1 42.9 42.9 42.2 42.0 41.8 41.6 41.6 40.9 40.8 38.5 38.0 37.8 37.3 36.6 35.6 34.4 33.8 32.2 32.1 30.9 30.8 30.4 25.1 24.2 23.1 21.8 19.6 19.5 19.1 18.6 17.7 16.8 16.5 16.1 15.8 14.2 13.9 13.3
Top Picks Ju Teng International 3.6 5.0 Geely Automobile Holdings 3.7 6.0 Pruksa Real Estate Pcl 19.6 22.0 Orion 1076000 1300000 Magnit 35.4 40.5 Tencent 246 306 Ayala Corporation 455 550 Arca Continental 94.4 100.0 Sino Biopharmaceutical 3.6 3.8 Summarecon Agung 1890 2500 Semen Gresik 15000 18000 China Shipping Container 2.1 2.9 Vakifbank 4.3 5.5 Siam Commercial Bank 157 200 Electricity Generating Co. 128 155 Erste Bank 20.4 25.0 Grupo Aeroportuario 29.7 35.0 Duratex 14.2 16.0 Lojas Americanas) 17.0 19.5 LG Display 34650 40000 Novatek Microelectronics 109 135 Ayala Land 22.9 30.0 Mobily 74.8 88.0 KPJ Healthcare Berhad 6.0 7.1 Beijing Capital International 5.2 9.3 Samsung Electronics 1332000 1800000 CSR Corp Ltd. 6.8 8.8 Coronation Fund Managers 3617 5050 Kunlun Energy Company 15.4 17.5 HCL-Technologies 614 650 Koc Holding 8.1 7.4 CCR 18.7 20.0 Emaar Properties 3.6 4.5 NATURA 56.5 62.0 First Gulf Bank 10.2 13.5 Anhanguera 31.9 45.0 Lenovo Group Limited 7.0 8.1 Thai Union Frozen Products 70.5 90.0 China Foods Ltd 8.2 10.0 ITC Limited 280 325 Far EasTone Telecom 69.8 80.0 Iguatemi 25.3 30.0 TSMC 90.0 110.0 TPK Holding Co., Ltd. 407 550 LG Electronics 79300 100000 ICICI Bank 1019 1200 TMK 13.8 19.0 KEPCO 27400 33000 LW Bogdanka 129 169 Localiza 36.0 39.0 Oberoi Realty 283 330 Vodacom Group 11681 11500 Pacific Basin Shipping 4.0 4.5 Fibria 19.2 19.0 Samsung Life Insurance 93300 145000
28
Table 31: J.P. Morgan 2013 Nifty Fifty / Running the Winners Basket (JPGINIF2 <Index>) (contd)
Name Top Picks Turkcell Quanta Computer Inc. Totvs Saudi Industrial Investment Antofagasta Mega Holdings Industries Qatar Pacific Rubiales Tata Consultancy Services Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 10.8 69.0 41.0 22.3 1210 21.0 149 22.1 1263 14.0 85.0 48.0 29.0 1370 28.6 199 36.0 1400 29.6 23.2 17.1 30.3 13.2 36.2 33.2 62.7 10.9 TCELL TI 2382 TT TOTS3 BZ SIIG AB ANTO LN 2886 TT IQCD QD PRE CN TCS IN JPM Rating OW OW OW OW OW OW OW OW N Mkt Cap, US$ MM 13184 9103 3176 2670 18966 8249 22567 6538 44921 P/E (X) 2012E 21.4 10.8 24.4 13.3 7.6 11.8 9.3 7.8 23.2 P/E (X) 2013E 19.8 8.5 20.8 8.3 6.5 10.9 8.0 6.2 18.2 Yield (%) ROE (%) 2013E 2013E 0.0 5.9 2.0 5.4 3.2 5.9 5.3 2.5 1.1 16.7 22.3 27.3 17.4 22.7 10.1 28.5 29.1 36.4 Price Q-Score 67% 84% 78% 68% 69% 54% 66% 71% 67% 12M Relative Perf (%) 12.9 12.5 11.1 11.0 10.6 8.2 6.8 6.1 4.8
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in descending order of relative performance.
Table 32: J.P. Morgan 2013 Rotation Riders (Top Picks) Basket (JPGIEMRL <Index>)
Name Top Picks FSK HOMEX Sesa Goa Unimicron Technology Sinopec Corp - H Air China IJM Land ZTE Corp Samba Financial Group TIM Participacoes Banco Macro AirAsia BHD ASE Cebu Air, Inc. Banco Bradesco Sasol China Shenhua - H Price Share Target % Change Bloomberg Price (LC) 2013 (LC) to target Code 0.0065 25.7 166 28.4 8.0 5.2 2.1 11.2 45.2 7.6 13.8 2.9 22.8 61.0 32.8 37289 30.8 0.0080 38.0 220 40.0 9.5 7.0 2.9 15.0 63.0 11.0 21.0 4.0 28.0 90.0 37.0 45700 35.0 22.9 47.7 32.5 40.8 19.0 35.9 38.8 33.9 39.4 44.5 52.4 38.9 23.1 47.5 12.9 22.6 13.6 FEES RX HOMEX* MM SESA IN 3037 TT 386 HK 753 HK IJMLD MK 763 HK SAMBA AB TIMP3 BZ BMA US AIRA MK 2311 TT CEB PM BBDC4 BZ SOL SJ 1088 HK JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 7811 659 2622 1499 85288 9141 958 4532 10848 8820 791 2615 5925 898 56337 27204 71050 P/E (X) 2012E 11.0 2.7 8.0 11.4 11.0 15.2 15.0 237.4 9.3 12.4 2.7 5.2 13.2 14.9 10.9 8.8 13.4 P/E (X) 2013E 10.2 4.1 6.2 8.8 9.2 13.7 12.8 15.6 7.9 10.3 2.6 13.3 10.3 12.4 9.7 8.6 12.7 Yield (%) ROE (%) 2013E 2013E 0.0 0.0 2.4 5.2 3.3 2.8 2.2 1.6 4.0 1.8 0.0 0.0 2.9 0.0 3.6 4.7 3.0 2.6 12.0 15.6 9.4 14.4 9.5 9.2 10.0 15.6 11.9 24.7 10.1 14.4 13.3 17.9 19.5 17.9 Trailing P/B (X) 0.3 0.6 1.0 1.0 1.2 1.2 1.2 1.3 1.3 1.3 1.4 1.5 1.6 1.8 1.9 2.0 2.1 12M Relative Perf (%) (43.1) (14.7) (20.0) (20.7) (3.7) (18.4) (9.6) (57.4) (7.5) (24.9) (33.7) (22.8) (6.4) (14.3) (8.5) (12.7) (15.6)
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of trailing PB.
Table 33: J.P. Morgan 2013 Rotation Riders (Stocks to Avoid) Basket (JPGIEMRS <Index>)
Name Stocks to Avoid ASUSTek Computer China Shineway Pharma. Liberty Holdings Ltd Hong Leong Bank Longfor Properties Co. Ltd. Discovery Holdings Limited Globe Telecom Ecopetrol ADR Weg Manila Electric Company Mobile Telesystems OdontoPrev Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 308 11.9 10163 14.4 14.3 5743 1150 58.1 25.3 254 17.2 11.0 300 12.0 8400 11.7 11.7 5100 1000 52.0 18.0 225 20.5 12.0 (2.4) 0.7 (17.3) (18.8) (18.2) (11.2) (13.0) (10.5) (28.7) (11.5) 19.3 9.6 2357 TT 2877 HK LBH SJ HLBK MK 960 HK DSY SJ GLO PM EC US WEGE3 BZ MER PM MBT US ODPV3 BZ JPM Rating N UW UW UW N UW UW UW UW UW UW UW Mkt Cap, US$ MM 7941 1272 3285 8841 10013 3596 3697 119444 7516 6957 17750 2789 P/E (X) 2012E 10.3 13.6 9.2 14.5 13.5 13.6 17.1 13.7 24.1 16.4 10.9 33.9 P/E (X) 2013E 10.3 12.3 10.7 15.7 12.6 12.0 15.9 10.8 19.8 15.4 10.3 29.8 Yield (%) ROE (%) 2013E 2013E 5.2 2.4 5.0 2.1 1.6 2.1 7.3 4.9 1.4 3.0 5.8 3.4 16.7 17.6 16.1 14.4 19.5 58.2 20.0 54.7 16.8 24.6 46.7 26.3 Trailing P/B (X) 1.9 2.1 2.1 2.1 2.4 2.9 3.3 3.8 4.0 4.4 4.7 8.2 12M Relative Perf (%) 53.5 16.5 15.1 36.8 68.0 23.3 20.6 36.5 16.3 8.3 18.8 8.0
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of trailing PB.
29
Table 34: J.P. Morgan 2013 China Growth Debate (Top Picks) Basket (JPGICHGL <Index>)
Name Top Picks Antofagasta Skyworth Digital Holdings Saudi Industrial Investment Advanced Petrochemical Yanbu National Petrochem. Metalurgica Gerdau Sinopec Corp - H Geely Automobile Holdings Gerdau S.A. China Shenhua Energy - H Saudi Arabian Fertilizer Co. Beijing Capital Intl Airport Air China CSR Corp Ltd. Brilliance China Automotive China Shipping Container Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 1210 4.4 22.3 23.6 43.9 22.0 8.0 3.7 17.3 30.8 198 5.2 5.2 6.8 8.8 2.1 1370 6.0 29.0 34.0 53.0 32.0 9.5 6.0 21.0 35.0 221 9.3 7.0 8.8 11.0 2.9 13.2 35.7 30.3 44.4 20.7 45.3 19.0 62.6 21.2 13.6 11.9 78.8 35.9 29.6 25.3 37.7 ANTO LN 751 HK SIIG AB APPC AB YANSAB AB GOAU4 BZ 386 HK 175 HK GGBR4 BZ 1088 HK SAFCO AB 694 HK 753 HK 1766 HK 1114 HK 2866 HK JPM Rating OW OW OW OW OW OW OW OW N OW OW OW OW OW OW OW Mkt Cap, US$ MM 18966 1576 2670 1030 6585 4096 85288 3564 13470 71050 13166 2905 9141 10640 5692 3790 P/E (X) 2012E 7.6 9.5 13.3 12.3 9.9 12.1 11.0 14.1 13.3 13.4 12.6 16.2 15.2 21.4 20.0 NM EPS EPS P/E (X) Growth Growth Yield (%) 2013E 2012E (%) 2013E (%) 2013E 6.5 7.1 8.3 8.4 8.8 9.2 9.2 10.5 12.5 12.7 12.7 13.3 13.7 16.5 17.1 33.7 (0.2) 4.8 42.6 (47.1) (21.7) (2.5) (14.2) 26.0 11.1 0.4 (4.5) 25.1 (41.8) (2.8) 21.3 NM 19.6 34.9 59.3 47.1 13.3 31.7 19.5 34.0 6.5 5.3 (0.9) 21.3 10.5 30.0 16.9 NM 3.2 4.3 5.4 7.4 1.1 0.0 3.3 0.7 2.2 3.0 7.1 1.1 2.8 1.2 0.0 0.0 ROE (%) 2013E 22.7 19.0 17.4 20.0 18.0 12.0 14.4 20.4 8.0 17.9 41.5 10.3 9.5 15.3 24.6 2.7
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013 PE.
Table 35: J.P. Morgan 2013 China Growth Debate (Stocks to Avoid) Basket (JPGICHGS <Index>)
Name Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 4800 90.0 180000 5.0 13.0 78000 11.7 24832 2600 8.3 1.7 210 9.0 1.9 70.0 8.2 (8.2) 5.9 5.7 (19.7) (18.2) 4.1 9.5 (19.3) (18.2) (12.1) (20.4) (5.5) ACL SJ JSW PW 011170 KS SID US KAYAN AB 010950 KS 960 HK AGL SJ INCO IJ 857 HK PETKM TI NWR LN 1171 HK MTL/P US JPM Rating UW UW UW UW N UW N UW N UW UW UW UW UW Mkt Cap, US$ MM 1422 3001 5748 6882 4920 10062 10013 37475 2451 250297 1160 1006 10713 558 P/E (X) 2012E 467 8.7 10.9 NM NM 13.0 13.5 14.9 43.8 14.5 NM 49.2 10.3 NM P/E (X) 2013E 7.9 10.2 10.7 11.0 11.5 11.9 12.6 13.6 14.0 14.1 15.8 22.1 24.2 NM Payout Dividend Yield (%) Ratio CAGR ROE (%) 2013E FY0 (%) 2007-11 (%) 2013E NM (45.6) (41.5) NM NM (28.2) (13.1) (56.9) (83.3) (3.0) NM NM (39.7) NM NM (14.1) 2.4 NM NM 9.1 6.9 9.3 NM 3.0 NM 122.6 (57.4) NM 0.0 5.4 0.9 11.3 0.0 4.2 1.6 1.7 0.0 3.2 2.9 na 1.2 11.2 2.7 10.8 9.3 8.5 10.4 15.6 19.5 5.1 9.6 12.0 7.7 3.8 5.0 4.7
Stocks to Avoid ArcelorMittal South Africa 2824 JSW 83.2 Honam Petrochemical Corp 196000 CSN 4.7 Saudi Kayan Petrochemical 12.3 S-Oil Corp 97100 Longfor Properties Co. Ltd. 14.3 Anglo American 23858 Vale Indonesia 2375 PetroChina 10.2 Petkim 2.1 New World Resources 239 Yanzhou Coal Mining - H 11.3 Mechel (Preference) 2.0
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013 PE.
30
Table 36: J.P. Morgan 2013 ASEAN Growth Story Basket (JPHASGRW <Index>)
Name Top Picks Pruksa Real Estate Pcl Electricity Generating Co. CIMB Group Holdings Siam Commercial Bank Erajaya Swasembada Tbk Cebu Air, Inc. Charoen Pokphand Foods IJM Land AirAsia BHD Bank Central Asia (BCA) Metro Pacific Investments Semen Gresik (Persero) Ayala Corporation KPJ Healthcare Berhad Summarecon Agung Jollibee Foods Corp. Ayala Land Dialog Group Bhd Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 19.6 128.0 7.6 157 2500 61.0 33.0 2.1 2.9 8600 4.3 15000 455 6.0 1890 104 22.9 2.4 22.0 155.0 8.5 200 3000 90.0 43.0 2.9 4.0 10000 5.0 18000 550 7.1 2500 125 30.0 3.0 12.2 21.1 11.4 27.8 20.0 47.5 30.3 38.8 38.9 16.3 16.3 20.0 20.9 17.9 32.3 20.5 31.3 25.5 PS TB EGCO TB CIMB MK SCB TB ERAA IJ CEB PM CPF TB IJMLD MK AIRA MK BBCA IJ MPI PM SMGR IJ AC PM KPJ MK SMRA IJ JFC PM ALI PM DLG MK JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 1410 2193 18521 17283 753 898 8315 958 2615 22018 2569 9239 6558 1260 1416 2628 7630 1885 P/E (X) 2012E 12.4 6.5 12.8 13.1 15.8 14.9 11.6 15.0 5.2 17.8 17.8 19.2 22.5 23.1 25.2 29.3 33.3 31.5 EPS EPS P/E (X) Growth Growth Yield (%) 2013E 2012E (%) 2013E (%) 2013E 9.7 9.9 10.8 11.0 11.5 12.4 12.7 12.8 13.3 14.5 15.3 15.9 17.4 18.9 19.1 24.2 27.5 28.3 22.7 NM 10.0 12.0 80.2 (30.9) 19.4 (29.3) NM 8.6 11.3 17.9 25.5 7.9 31.4 14.2 24.7 (2.0) 28.2 (34.4) 18.9 18.7 37.0 19.9 (8.9) 17.4 (60.7) 22.6 16.8 21.0 29.0 22.6 32.3 21.1 20.9 11.3 3.6 4.1 3.1 3.0 0.0 0.0 3.9 2.2 0.0 1.5 1.0 2.6 0.9 2.6 0.0 1.5 1.5 1.4 ROE (%) 2013E 21.5 10.0 17.3 21.1 21.6 13.3 17.9 9.2 10.1 24.8 10.3 30.3 13.0 18.1 16.7 20.1 13.4 17.4
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. We removed PTTEP which is global price taker rather than play on domestic demand.
Table 37: J.P. Morgan 2013 Policy Risk (Top Picks) Basket (JPGIEMPL <Index>)
Name Top Picks Sesa Goa E.ON Russia JSC ICBC - H Banco Bradesco FSK Tractebel Energia AirAsia BHD Kunlun Energy Company Mindray Medical Oberoi Realty Sino Biopharmaceutical Dialog Group Bhd KEPCO Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 166 0.081 5.1 32.8 0.0065 33.1 2.9 15.4 32.4 283 3.6 2.4 27400 220 0.138 6.3 37.0 0.0080 37.0 4.0 17.5 39.0 330 3.8 3.0 33000 32.5 70.0 23.5 12.9 22.9 11.8 38.9 13.8 20.3 16.6 5.3 25.5 20.4 SESA IN EONR RU 1398 HK BBDC4 BZ FEES RX TBLE3 BZ AIRA MK 135 HK MR US OBER IN 1177 HK DLG MK 015760 KS JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 2622 5107 218889 56337 7811 10358 2615 15968 3750 1689 2301 1885 16191 P/E (X) 2012E 8.0 7.4 8.0 10.9 11.0 12.8 5.2 15.9 18.8 42.7 24.2 31.5 NM EPS EPS P/E (X) Growth Growth Yield (%) 2013E 2012E (%) 2013E (%) 2013E 6.2 6.8 7.6 9.7 10.2 13.1 13.3 14.3 16.3 18.8 20.4 28.3 49.7 NM NA 6.0 3.4 (37.2) 17.8 NM 23.0 16.6 (57.9) 59.3 (2.0) NM 28.5 9.1 5.4 12.8 8.5 (2.1) (60.7) 11.8 15.9 NM 18.6 11.3 NM 2.4 na 4.2 3.6 0.0 4.2 0.0 2.0 1.4 0.0 3.8 1.4 0.0 ROE (%) 2013E 15.6 16.0 19.6 17.9 2.6 30.3 10.1 17.6 16.1 12.5 21.9 17.4 0.7
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE.
Table 38: J.P. Morgan 2013 Policy Risk (Stocks to Avoid) Basket (JPGIEMPS <Index>)
Name Stocks to Avoid China Minsheng Bank - H China Shineway Pharma Reliance Industries Ltd JSW Energy Ltd. ELETROBRAS (ON) Share Price Price Target % Change Bloomberg (LC) 2013 (LC) to target Code 7.2 11.9 767 60.7 9.3 6.8 12.0 675 54.0 10.0 (5.6) 0.7 (12.0) (11.0) 8.1 1988 HK 2877 HK RIL IN JSW IN ELET3 BZ JPM Rating UW UW UW UW UW Mkt Cap, US$ MM 27409 1272 45634 1809 6298 P/E (X) 2012E 7.0 13.6 12.7 58.5 2.2 EPS EPS P/E (X) Growth Growth Yield (%) 2013E 2012E (%) 2013E (%) 2013E 7.4 12.3 12.7 17.7 35.3 (1.6) (4.1) (6.8) (79.8) 29.6 (6.1) 10.7 0.5 NM (93.9) 3.9 2.4 1.3 0.8 7.2 ROE (%) 2013E 16.3 17.6 13.8 9.5 0.5
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE.
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(55-11) 4950-4121, pedro.x martins@jpmorgan.com Bloomberg JPMA MARTINS <GO> Banco J.P. Morgan S.A
Brazil
Chile
Colombia
Mexico
Peru
Source: J.P. Morgan Economics. Real GDP over previous period, saar. .
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CPI (%oya) 2012E 2013E 6.1 6.6 9.5 10.0 5.4 5.5 3.1 3.1 3.3 3.2 4.2 3.8 3.8 2.7 2.7 3.4 2.0 1.5 4.6 4.9 2.5 1.8 0.0 (0.1)
P/E (x) 2012E 12.4 18.8 18.0 3.1 16.8 13.0 14.2 13.0 13.6 11.9 20.2 12.0 8.4 11.4 10.0 5.0 15.7
2013E 10.3 16.2 15.3 2.9 14.7 11.6 12.0 11.7 12.4 10.8 13.8 10.5 7.9 10.0 9.4 4.9 13.8
Current Trailing DY P/B (x) 3.6 1.4 2.1 2.8 3.2 2.0 12.6 0.8 2.9 1.4 2.7 2.7 3.1 1.7 3.1 1.5 2.3 2.0 3.9 1.4 2.7 0.9 2.5 1.6 3.8 1.1 2.9 1.5 3.2 1.5 3.9 0.6 1.6 2.4
EPS Growth Expectations % 2012E 7.2 (15.3) 31.7 13.0 (8.8) (8.7) 12.3 15.7 10.2 3.9 18.8 5.0 5.2 (3.2) 2.2 (18.2) (10.2) (12.2)
2013E 22.2 20.2 18.0 17.9 17.9 17.7 14.4 14.2 13.8 12.9 11.7 11.6 11.4 10.8 9.2 6.3 0.3 (1.4)
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before year-end that would avert most, but not all, of the fiscal cliff. Please refer to Living on the Edge for implications to LatAm equities. Inflation in LatAm. Inflation report close to the top of target inflation bands should (1) restrain LatAm countries latitude to use counter-cyclical monetary policy given the weak G3 growth outlook; and (2) revive the risk of macro prudential measures in 2013. Governance. Government interference and/or political tension across LatAm countries could reduce predictability of cash flow and add risk premia to stock selection in the region. Governance risk can manifest via regulatory agency intervention, changes in import tariffs, and civil protests delaying capital intensive projects, for example.
Figure 15: Brazil: Real interest rates collapsed
30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0%
1Year Rate
Real Rate
After Tax
Net of Fees
Brazil
Colombia
Mexico
Peru
Dividend Yield
and (2) we do not see significant space for re-rating of the market as a whole. Peru is trading at 11.4 times 2013E P/E, in line with historical averages. We remain positive on the internal demand outlook in Peru and consequently recommend exposure to domestic cyclical stocks while avoiding commodities (growth risk on civil protests). Chile UW. The following factors prevent us from holding a more positive view on Chile: (1) downside risk to earnings expectations on higher energy costs in the medium term (there is a lack of approved power generation projects) and regulation, particularly for banks and retailers; (2) issuance pipeline; and (3) valuation, to a lesser extent, not compelling versus LatAm but in line with historical trends.
Figure 17: LatAm Model Portfolio - Countries
3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% MEX COL BRA PER CHI
Note. BRA = Brazil, CHI = Chile, COL = Colombia, MEX = Mexico, and PER = Peru. Source: J.P. Morgan.
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UW Telecom. Regulation is going to remain a main driver for the sector: (1) Mexico: increasing competition in mobile segment, including a drastic interconnection cut; (2) Brazil: cuts to interconnection and network unbundling are being introduced to increase competition. UW Energy. We consider pure E&P companies with a solid production growth track record and a disciplined approach to capital usage to be the best options. Our preference within the sector remains on Colombia (strong growth and asset base de-risking). In Brazil we see limited free cash flow visibility and back-end loaded growth. UW Utilities. We recommend no exposure to Utilities, particularly in Brazil where government intervention has been intense. We believe utility stocks will continue to reflect (1) the dilutive effect of the regulated tariff resets affecting the downstream distribution segment, which will extend through to the end of 2013, and (2) the concession renewal (or not) for upstream generation and transmission assets, and its negative effect on long-term price expectations.
Figure 19: LatAm Model Portfolio - Sectors
6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0%
CDS
Note. CDS = Consumer Discretionary, CST = Consumer Staples, ENE = Energy, FIN = Financials, IND = Industrials, INT = Technology, HCA = Health Care, MAT = Materials, TEL = Telecom, UTE = Utilities. Source: J.P. Morgan.
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MAT
HCA
ENE
UTE
CST
TEL
IND
FIN
INT
CEMBI Yield
37
SA Materials SA Consumer EMEA consumers EMEA Energy EMEA Materials CE3 Financials TR Financials Telecom EMEA Financials SA Financials
Source: J.P. Morgan research, MSCI, end data 31 Oct 2012 as of 13 November 2012
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Low rates and cheap funding The impact of low rates across CEEMEA is a complex issue. First, we think rates stay low more or less all year in most countries and especially in hard currency corporate bonds this theme will stick around for a while. We find four key beneficiaries. First, we look to Turkey and its current account. We forecast 7.4%/6.6% of GDP for 2012/13. But 10 year USD sovereign bonds yield around 3.5%. And Garantis 5-year bond now yields 3.9% and its 2022 maturity yields 5.1%. We expect EM yields to remain low and for growth stocks (or countries) to be financed. Turkeys investment grade rating from Fitch hints at, but does unleash the waves of financing that may come when a 2nd rating agency upgrade Turkey to IG. On a stock basis, we think Emlak should benefit from lower mortgage rates for its housing market customers. Second, low rates and big EM issuance is pushing down funding costs across the bank sector we saw this in Q3 results in Turkey. Less aggressive competition from DM banks (more pressing problems at home) might boost asset yields too. Third, we see big cap Russian stocks all of which can issue Eurobonds in big size with 10 year issues yielding below 5% and 5-year bonds around 3%. We infer the debate between capex and dividends is moot bond markets will fund both. We think the funding for Rosnefts TNK-BP acquisition could be around 3%. Finally, Dubai and Emaar: the Dubai debt crisis is both small and diminishing in the rear-view mirror. For Emaar, financing its Indian subsidiary is a big deal its loan to Emaar MGF is about 10% of its market cap. However, the Indian business is in decent shape with overall launch to sales ratio currently at 83%.
Rolling 4Q avg
GTTRY2Y Govt
Source: Bloomberg, 13 November 2012
GTTRY10Y Govt
Figure 27: UAE banks back to book value, but Emaar lags
1.4 1.2 1.0 0.8 0.6 0.4 Apr-10 Oct-10
Dubai Fin. P/BV
Apr-11
Oct-11
May-12
Nov-12
Emaar P/BV
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CEEMEA OW Turkey; N on Russia and Central Europe; UW South Africa. Saudi is our top pick in MENA
Our CEEMEA asset allocation remains: OW Turkey; N on Russia and Central Europe; UW South Africa Why are we OW Turkey? We wrote at length about why we are OW Turkey earlier in November (see Still OW Turkey: Investment grade upgrade provides an excuse, not a reason to reiterate OW dated 6 November) we have four key reasons, : 1) accelerating GDP growth and accelerating EPS growth; 2) reasonable valuations especially where low rates are not priced in; 3) improving current account deficit (CAD); and 4) it looks better than the rest of CEEMEA. Why are we N on Russia? Russia offers juicy potential if it could only re-rate toward the EM average if we had a rouble for every time we heard that lament, we would be an oligarch. Only Magnit (new entrant to the CEEMEA Strategy Top 10 list) offers significant organic earnings growth next year among the big caps; consensus EPS growth at Sberbank is only 3%for 2013. Governance issues have changed little either at the government or the corporate level. Dividends are up at Gazprom, but the stock can not shake the deeper problems brought on by shale gas and falling European pricing. Oil at $110 means Russia is likely to run a budget deficit in 2013 - it would be Russias first deficit in a non-crisis year since the 1998 crisis . Why are we N on Central Europe? The best case for Poland revolves around dividend payout from government-owned companies. PZU is the only Polish name in the CEEMEA Strategy Top 10 list. We continue to struggle to find compelling big cap names, especially as we have pulled down our GDP and bank sector growth forecasts recently. Erste Bank is in the CEEMEA Strategy Top 10 list for its broad-based exposure and low valuation a better environment (or effective self-help) in Romania would unlock a lot of upside. The upside for the Polish market remains the interplay of all-time lowest bond yields and all-time biggest equity underweights. Given the dividend yield on the WIG 20 is above the 10 year bond yield, pension funds seem to believe that dividends will shrink in nominal terms over the next decade
Figure 29: Earnings yield v bond yield lower rates not priced into Turkish equity
2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7
Earn Yld / Bond yld Avg. Turkey -1sd +1sd
Equity cheap
Bonds Cheap
May-12
Aug-12
85 Nov-12
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Why are we UW on South Africa? But still enthused about retailers? South Africa, EMEAs biggest market, always has something that we want to own. For now, it remains the retailers which offer solid dividends (JSE retail yields 3% v EM consumer staples 1.9%) and dependable growth. But, we find cheaper banks (lower P/BV) with better EPS growth elsewhere in EMEA (Turkey, Saudi, some Russian names). SA telecoms (MTN and Vodacom) offer good yield and dividend growth. Naspers (still in the CEEMEA Strategy Top 10 list) and Aspen (a former resident on the list until performance took it too close to our analyst TP) have demonstrably strong track records and big off-shore earnings. Sasol is in the CEEMEA Strategy Top 10 list for its ZAR-hedge and 5% yield. If it green-lights it its multi-year/multi-billion Louisiana GTL plant, we think that would be a positive catalyst. But we remain wary of ZAR weakness until mining output and exports pick-up (mid-Q1 seems likely). And we remain wary of the mining sector given weak commodity prices and the labour strife. Saudi Arabia top pick in MENA MENA remains mostly off-benchmark for EM investors. The strong growth stories in the region are in the GCC where big fiscal packages continue to keep non-oil GDP growth at or above 5%. Saudi is our favorite market and not just because it has 90% of the trading volume. Saudi banks are just beginning to growth bank lending again about two years behind the rest of the world. SAMBA would be our top pick in the banks. Mobily offers excellent dividend growth as the relatively young 2nd entrant to the Saudi mobile market is seeing its debt load fall and payout ratio rise. We would avoid the big cap Saudi petchem names we do not think the pricing environment will be helpful, preferring Industries Qatar. For Egypt, a MSCI EM bench mark country, we prefer to stick to our N rating; we see value in names like COMI, but we have fears over devaluation and the still-steep budget deficit. Its big gains this year have eroded potential upside.
Figure 31: Poland: weight of equity in Polish pension funds v equity ownership of the free float
43% 38% 33% 28% 23% 18% Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11
As % of total assets (LHS) as % of WIG mkt cap (RHS)
Source: J.P. Morgan research, Polish Financial Supervision Authority, End-Oct data as of 7 November 2012
May-07
May-08
May-09
May-10
May-11
May-12
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CEEMEA Strategy Top 10 list Magnit and Emlak in; Sberbank and Ko Holding out
CEEMEA Strategy Top 10 list. Its performance since we started it February of last year has been strong - we are up 21.0% to 9 November from 12 February inception, well ahead of the -1.1% MSCI EMEA index performance. Our asset allocation OW South Africa from April to June; OW Turkey since June; UW Russia since March has done well. Most of our stock picks have done well (Emaar, Koc Holding, Erste), but not all (Gazprom, Sberbank). Our goal remains the same: find 10 big cap, liquid stocks that we think will outperform MSCI EMEA; asset allocation should broadly reflect our country weights; our stock selection should mostly marry to our analysts views as well. Whos in? The new additions are: Magnit is the best big cap earnings growth story in Russia, and one of the best in CEEMEA. We have long admired it and wanted a pullback to jump in. We have given up waiting. We expect more margin expansion in Q4 and further consensus upgrades.
We also add Emlak. We think its new projects being released in Q4 could be a positive catalyst. Also, falling rates should trigger a re-acceleration in the mortgage market, a key to Emlak selling more mass-market housing. Who's out? We remove Sberbank. Its 2103 growth profile does not justify its inclusion. We have been surprised and disappointed by its lackluster performance after the SPO. It merits inclusion in a CEEMEA Strategy Top 25 list for its long-term upside (strong market share, high ROE, low P/BV.) Also, we remove Koc Holding. It is above our analyst's target price. It has outperformed the market by more than 10% in the last month a lot for a diversified holding company with strong index-tracking properties. We have found nothing wrong other than the stock price went up.
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Portfolio as on 12th Feb 2012 (Top 10 CEEMEA Picks) - Sberbank, Gazprom, Lukoil, AFK Sistema, Halkbank, Yapi Kredi, Woolworths, PZU, SABIC, Emaar
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Industrials, 3.7%
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The Saudi market is our favorite MENA market. The governments stimulus package of last year continues to filter into the local economy, keeping non-oil GDP around 5%. The key beneficiary of the growth story, among the big caps should be the banks where our top pick is SAMBA (also in the CEEMEA Strategy Top 10 list). We should see private sector loan demand pick up with the non-oil economy; Saudi bank lending growth has been slowed by the local name-lending crisis in 2009-10 which meant the Saudi financial sector came out of the GFC later than the rest of the world. The petchem sector offers good value and good dividend yield; its low-cost feedstocks are an enduring cost advantage. But we don't see much upside given the flaccid product pricing environment. Our top picks within the sector are Advanced Petrochemicals. SIIG, Yansab and SAFCO. Mobily is also a top pick the #2 entrant to the mobile telecom market offers of strong growth in combination with good FCF yields and healthy dividend yields.
Table 46: JPM Saudi Coverage
Company Name Advanced Petrochemical Al Rajhi Bank Banque Saudi Fransi Dar Al Arkan Real Estate Mobily NIC (Tasnee) Riyad Bank SABB SABIC Sahara Petrochemical Samba Financial Group Saudi Arabian Fertilizer Co. Saudi Industrial Investment Group Saudi International Petrochemical Company Saudi Kayan Petrochemical Company Saudi National Petrochemical Company Saudi Real Estate Company STC Yanbu National Petrochemical Company Zain KSA BBG Ticker APPC AB RJHI AB BSFR AB ALARKAN AB EEC AB NIC AB RIBL AB SABB AB SABIC AB SPC AB SAMBA AB SAFCO AB SIIG AB SIPCHEM AB KAYAN AB PETROCH AB SRECO AB STC AB YANSAB AB ZAINKSA AB Price 24.0 69.8 30.8 8.6 74.3 26.5 22.9 31.0 90.3 12.5 46.9 199.5 22.9 18.8 12.3 19.7 25.0 41.4 43.9 8.6 JPM Rating OW N OW N OW N N OW OW N OW OW OW N N N OW OW OW N
The reform process in Saudi has been slower than many investors have hoped. For instance, the law had been ready for signature by the king for several years. When it was signed earlier this year, the banks complained that SAMA had not yet prepared the regulatory detail. Some investors are reading across from the mortgage law and concluding that a more full market opening may not be as fast as we expect. The oil and gas sector is of global importance. It also accounts for roughly 45% of budget revenues, 55% of GDP and 90% of export earnings. It is the worlds largest net oil exporter. Saudi Arabia contains approximately 260 billion barrels of proven oil reserves, amounting to around one-fifth of proven, conventional world oil reserves. Its gas reserves are the 4th largest in the world. It has kept the gas price low for many parts of its economy, including some supplies to SABIC and the petrochemical industry which give it a competitive advantage.
Mkt. Cap. ADTV (USD mn) (3M) USD 1049 2.5 27897 21.3 7425 1.8 2477 59.4 13859 14.6 4727 6.9 9139 2.6 8266 1.2 72193 122.4 1457 5.2 11255 2.0 13299 5.4 2742 2.6 1833 2.0 4900 9.0 2515 4.3 800 1.5 22078 12.1 6584 5.8 2477 34.5
EPS (LC) 2012E 2013E 1.92 2.82 5.20 6.08 3.37 4.02 1.18 1.15 8.18 8.43 3.01 3.27 2.27 2.60 3.21 3.81 8.54 10.52 0.64 1.36 4.88 5.71 15.69 15.55 1.68 2.67 1.87 2.10 -0.47 1.07 0.21 1.86 1.25 1.32 4.88 4.93 4.42 5.00 -1.35 -1.07
Div. Yield PE 2012E 2013E 2012E % 12.5 8.5 7.2% 13.4 11.5 5.5% 9.1 7.7 3.5% 7.3 7.5 0.0% 9.1 8.8 6.1% 8.8 8.1 5.6% 10.1 8.8 6.4% 9.7 8.1 2.8% 10.6 8.6 4.6% 19.5 9.2 0.0% 9.6 8.2 4.0% 12.7 12.8 7.1% 13.6 8.6 5.3% 10.0 8.9 5.7% -25.9 11.4 0.0% 95.1 10.6 0.0% 20.0 18.9 4.0% 8.5 8.4 4.7% 9.9 8.8 1.1% -6.4 -8.0 0.0%
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Carry trade continues, REAL appreciates Carry combined with a bull market in commodities drove the appreciation in the Brazil currency. Flows into EM fixed income are strong. There is a risk that these flows push the REAL higher Governance and political tension in LatAm Government interference and/or political tension across LatAm countries reduce predictability of cash flow and add risk premia to stock selection in the region. Governance risk can manifest via intervention via regulatory agencies, changes in import tariffs, civil protests delaying capital intensive projects, for example. LatAm reforms to boost economic growth Government pragmatism in LatAm could foster investments and boost sustainable GDP growth in the
Figure 37: Corrections in MSCI Emerging Markets US dollar index
16 Feb 94, 563 24 Aug 94, 454 Decline 19% Duration 59 day s Fed tightening 1 Aug 90, 257 16 Jan 91, 175 Decline 32% Duration 121 day s Iraq inv ades Kuw ait 10 Jul 97, 571 5 Oct 98, 241 Decline 58% Duration 323 day s Asian Crisis
region: (1) The newly elected president in Mexico, Enrique Pea Nieto could advance on the long-awaited economic reforms (labor, energy and fiscal, as indicated by Gabriel Lozano, JPM chief Mexico economist in Mexico: setting the pipelines for economic reforms 31August, 2012); and (2) Dilma Roussef in Brazil appears more focused on boosting infrastructure investment via partnerships with the private sector to eliminate growth bottlenecks, as discussed in Brazil 101, 15 August 2012, Shayo et al. Lower energy prices, lower taxes and a more balanced social security system could add to the wish list.
10 May 06, 879 10 Feb 00, 531.0 13 Jun 06, 665 3 Oct 01, 247 Decline 24% Decline 54% Duration 25 day s Duration 430 day s Fear 2000 Global Correction 12-April-04, 497 of Fed ov ertightening 17-May -04, 396 Decline 20% Duration 26 day s Start of Fed tightening
19 Feb 90, 239 9 Apr 90, 198 Decline 17% Duration 36 day s
22 Apr 92, 353 24 Aug 92, 286 Decline 19% Duration 89 day s Brazilian Fall
22 Sep 94, 586 9 Mar 95, 396 Decline 33% Duration 121 day s Mex ican Tequila Crisis
26 Feb 07, 940 5 Mar 07, 844 Decline 10% Duration 8 day s A-shares fall, US profit fears
4July 2011, 1169 4 October 2011, 824 Decline 29% Duration 91 day s S&P dow ngrade of US credit outlook, heightened Euro sov ereign stress and China hardlanding fears 31 October 2007, 1338 27 October 2008, 454 Decline 66% Duration 268 day s Credit Crisis and EM Inflation
25% rally
23 July 07, 1163 16 August 07, 957 Decline 18% Duration 19 day s US sub-prime and global credit market concerns
4.4 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
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None of these events reflect an official J. P. Morgan view; they are intended to stimulate discussion Strong developed world growth Bursting of the EM bond bubble
M&Apple
US politicians dare each other off the fiscal cliff; US enters recession Monetary ladder before the over-investment snake
China's trend growth falls significantly as demographic change bites. Add a profit recession.. South China Seas territorial disputes intra-Asian trade falls
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3 Real/ 1 US dollar. Micro managing industrial policy is not enough. Brazil central bank buys dollars. Government encourages capital flight. IFO tax raised to punitive levels. Real depreciates to 3 Real/US$. Industry recovers. Investors rotate into exporters. Big Mac cheaper but still expensive vs. US! Reforms in Mexico. Advances on structural reforms in Mexico prove protracted given lack of convergence between PRI, PAN and PRD. An improving sustainable GDP growth outlook fails to materialize lending to valuation multiple de-rating. Andean Rotation. Popularity increases for President Ollanta Humala and civil protests abate paving the way for major natural resources expansion projects in Peru. This and further development of the integrated stock market in the Andean (MILA) leads to major rotation of funds from Colombia and Peru. Growth surprises in Brazil. Government activism in Brazil reduces, real interest rates reach new record lows and more competitive currency leads to massive capex cycle. Brazil sustainable GDP improves fostering domestic institutional and retail investors to relocate their assets towards equities. Riding to Riyadh. Its open to all. Overnight Saudi regulators open capital markets to all intentional investors. Locals and foreigners rush in. Myanmar adds to ASEAN appeal. ASEAN nations agree on a free trade zone with a population 20% larger than the European Union. Sensibly they do not experiment with a currency union. Foreign direct investment into ASEAN expands rapidly
Burma is back
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EM Nifty Fifty
Winners, value and hedge bets The US Nifty-Fifty was a group of stocks that outperformed through to the 1973 stock market crash. Strangely there is no official list of the Nifty-Fifty but investors recall a small group of stocks that one had to own despite their price. These stocks outperformed the market through the 1960s. The stocks included Avon, Disney, McDonalds, Polaroid, and Xerox, among others. The P/E ranged from 49x to 91x. We screened for an EM Nifty-Fifty. To be consistent with history we do not have 50 stocks. Track JPGIENIF Index on Bloomberg for the J.P. Morgan EM Nifty-Fifty. The other baskets to monitor are The J.P. Morgan Underappreciated Growth (JPGIEDNM Index) and The J.P. Morgan Deep Value (JPGIEVAL Index). The case for a narrow group of expensive stocks leading the market: Very low risk-free rates. Equities are cheap relative to bonds. Investors confidence in economic growth is low and thus their confidence in the ability of the whole market to grow is low. The companies/ countries that investors believe can generate consistent growth will be limited. These growth companies develop a growth premium. Key large sectors in EM have growth and policy risk i.e. materials, energy, banks in Brazil and China, government linked companies etc. This further limits the attractive long-term investments adding to the scarcity premium. The case against the Nifty-Fifty is simply that high growth stocks eventually slow and their P/Es fall. The other factor is that cyclical rallies result in rotation from growth. Methodology Filter for top-quartile risk-adjusted six-month-return stocks. Risk-adjusted is return divided by one weeks standard deviation of returns. Filter for stocks with negative EPS growth in 2011/2012/2013. The exceptions are Telekomunikasi Indonesia, Axiata group, Maxis, Arca, Samsung Electronics and Uni President Enterprises. Remove stocks in sectors with policy risk or structural issues, i.e. materials, energy, Chinese property and banks. Delete stocks with single-digit ROEs. Apart from the winners, we also have a list of stocks that were not a part of the top quartile.
Figure 38: Risk-return trade-off line
25 20 15 10 5 0 0 Cash 5 CEMBI EMBI IRR % Mar 09 Jun-09 Nov-12 MSCI EM Jun-11 60 year average HG S&P500 EM Theoritical PE: 69 H USTs SPX Theoritical PE: 62 10 15 20 25 Historic vol %
Source: J.P. Morgan. Global Asset Allocation, 8 November 2012. IRRs are calculated as current yield, minus expected default or downgrade losses in the case of credit. The IRR for equities is earnings yield, based on trend earnings for either operating earnings, plus the expected long-term rate of inflation. The x-axis is historical vol. The slope is calculated by applying a linear regression of the IRR of various assets against their historical vol.
Source: J.P. Morgan. Global Asset Allocation, 8 November 2012. IRRs are calculated as current yield, minus expected default or downgrade losses in the case of credit. The IRR for equities is earnings yield, based on trend earnings for either operating earnings, plus the expected long-term rate of inflation. The x-axis is historical vol. The slope is calculated by applying a linear regression of the IRR of various assets against their historical vol.
Dec-10
Apr-11
Aug-11
Dec-11
May-12
Sep-12
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MSCI EM (MXEF) is decidedly more bearishly positioned vs. Asia, distinctly below the down-trendline from Apr/May11. A bearish stochastics x-over and a potential bearish MACD x-over will increase downside break risks. While we expect EM to outperform MSCI World (MXWO), we expect Asia to outperform EM. BRIC View MSCI BRIC, while range bound in sync with MSCI EM, has a bearish bias on moving averages, stochastics and potentially on MACD. Within BRIC, a small possibility of upside exists in India. We are bearish SHCOMP. Brazil risks a downside break from trading range. Russia remains sideways. BRIC Relative View BRIC under-performance (vs. EM) should continue. India is expected to outperform. Brazil under-performance appears to be bottoming out. China/ Russia continue to run under-performance risks.
MXEF View
Similar to MXAPJ, MSCI EM is stuck in a trading range but is somewhat more bearishly positioned with down-trendline from Apr11 acting as a solid resistance. Stochastics recently delivered a bearish x-over and MACD runs a similar risk. Daily charts have a channel breakdown led risk. MXEF still needs to establish clear direction 1018/1085 are resistance levels and 877 is support. On a relative basis (vs. MXWO), MXEF long-term outperformance is supported on monthly charts following a 2-year under-performance. A rise above the 12mth mov. avg. looks likely and would be accompanied by a positive MACD x-over.
Source: Bloomberg.
Asia vs. EM
Asias outperformance (MXAPJ vs. MXEF) since May10, accelerated from Feb12 and remains solidly in place. Clearly the drag from BRICs as well as the likes of Kospi and TWSE weighs more on MXEF. Our relative preference for HK tilts the balance in favor of Asia vs. EM.
Source: Bloomberg.
51
DAILY CHARTS MXEF broke down from early Jun12 up-channel. KST and MACD are positioned in a bearish mode.
Similar to S&P, MXEF has broken down from an upchannel, increasing risks of deeper pullbacks
MXEF vs. MXWO MXEF under-performance contained in a down-channel since late 2010. Recent rally from lower channel bound facing short-term resistance on 40wma MACD in a buy mode
Source: Bloomberg.
MXEFs 2-year underperformance found support on the long-term uptrend line (monthly charts) and is supported by moving averages and MACD on weekly charts. While the 40wma does provide a headwind, we remain biased in favor of EM outperformance
Source: Bloomberg.
Source: Bloomberg.
52
Source: Bloomberg.
Source: Bloomberg.
China vs. BRIC MSCI Chinas year-long outperformance vs. BRIC is facing a bearish RSI divergence and an end of outperformance for now While a clear sell signal is yet to be given, we see MSCI China outperformance difficult in an Asian context and hence would look at India as the preferred BRIC market
Source: Bloomberg.
53
Robert SmithAC
(852) 2800 8569, robert.z.smith@jpmorgan.com Bloomberg JPMA RSMITH<GO> J.P. Morgan Securities (Asia Pacific) Limited
Trends in alpha in more recent years Quality is up and Value flat compared to their long term performance history (the chart is showing average monthly LS returns)
Q-Score, 2,368 1,000 Earnings, 1,431 Valuation, 981 Price, 425 Index, 305 Quality, 173 100
10
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: J.P. Morgan, MSCI, IBES, Reuters, Factset, Barra; Universe MSCI GEM
Beta Value spreads are wide and closing still with upside. A high beta basket has been getting more expensive for the last 2 months now (note the very last data point is for mid-November)
High vs Low spread Low Beta, Cap wght P/Efwd High Beta, Cap wght P/Efwd
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: J.P. Morgan, MSCI Barra, Thomson Reuters; Universe MSCI GEM
Safer to come out and play? Beta volatility peaked earlier this year. This is the 12-mth trailing volatility of L/S returns to Barra Beta. It was its highest in August and has been falling since.
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Apr-03
Feb-02
Sep-02
Feb-09
Sep-09
Apr-10
Jun-04
Mar-06
Dec-00
Aug-05
Dec-07
Oct-06
Jun-11
Jul-01
Jul-08
Jan-12
Nov-03
54
May-07
Nov-10
Aug-12
Jan-05
Jan-12
Seasonality favors P/B in January average L/S return of over 5% and ICs around 10% (over the last 17 years)
3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Jan Feb Mar Apr May Jun Jul -0.9% Aug Sep Oct Nov Dec 0.6% 0.7% 0.2% 0.4% 1.3% 0.6% 1.0% 0.2% 0.5% 2.5% 6% 2.2% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4%
but not Price Momentum (12mths) January has been its biggest underperforming month on the averages by far (17 years of history)
1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -1.2% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -0.6% -0.6% 0.1% 0.0% 0.7% 1.3% 0.9% 0.5% 0.3% 1.4% 1.2% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3%
A solid strategy for all year long is P/B + ROE We do take the point that playing deep value on seasonality basis is a very front loaded approach to next year. For a longer term view, a strategy that has been consistently a good solid performer of alpha is PB ROE (ROE Is it useful for stock picking, Sep 2010). This is a bit like sitting on the risk-fence, as its a broad blend of deep value AND quality. But traded at the start of each year and held for 12 months it is a very solid performer in GEM. With a slow turnover and long alpha horizon it is more than suitable for a year long view. It wont do as well in a risk rally as pure P/B, but if things take a turn for the worse then a PB ROE blend will be more robust.
The L/S cumulative performance of a PB + ROE composite factor blend over the last decade (rebalanced every month end starting Dec '93) the strategy is remarkably consistent with turnover averaging only 14% per month.
1,200 1,000 800 600 400 200 0 0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -100%
Base
Nov-94
Nov-95
Nov-96
Nov-97
Nov-98
Nov-99
Nov-00
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Source: J.P. Morgan, MSCI Barra, Thomson Reuters; Universe MSCI GEM
Nov-11
55
Country Matrix
When comparing factor performance by country, we notice a few interesting points: Malaysia has the highest risk-adjusted returns for quant and Korea has the highest absolute long-short returns for quant (although shorting is a problem) Quant models with a Value Bias generally performed better outperforming in 6 out of 10 countries Earnings factors that worked well were those related to Net Earnings Revisions to FY1 and FY2 and Change in Consensus Recommendations, although they have quite high turnover For a simple composite, P/B ROE performed consistently across geographies, and was even the best performing factor in Korea 1-mth Price Momentum and RSI 10-day taken as contra-indicators (e.g. 1-mth Price Reversion) worked fairly consistently across geographies Historical Dividend Yield worked best in the more developed markets of Hong Kong, Singapore, Korea, and China (with the exception of Malaysia where many systematic strategies worked)
0.45 0.48 0.18 0.13 -0.19 0.76 0.67 0.44 0.45 0.45 0.48 0.12 0.10 0.03 -0.16 -0.40 -0.41 -0.31 -0.44 -0.38 -0.10 -0.07
0.46 0.01 0.47 0.19 0.23 0.35 0.18 -0.03 -0.10 0.41 0.41 0.32 0.25 -0.28 -0.11 -0.32 -0.84 0.26 0.53 -0.24 -0.32 -0.09
0.80 0.23 0.83 0.29 0.16 0.78 0.34 0.08 -0.25 -0.02 0.56 0.61 0.61 -0.18 0.05 -0.05 -0.58 0.07 -0.11 -0.54 -0.37 -0.07
0.21 0.40 1.00 -0.34 -0.44 0.47 0.49 0.24 0.28 0.00 0.44 0.50 0.35 -0.06 -0.54 -0.60 -0.59 0.00 0.05 0.19 0.54 -0.51
1.05 0.33 0.95 -0.22 -0.22 1.25 0.79 0.54 0.33 0.63 0.91 1.33 0.37 -0.30 0.00 -0.28 -0.62 -0.09 -0.07 -0.15 -0.16 -0.13
Source: J.P. Morgan, MSCI, IBES, Reuters, Factset, Barra. For Sharpe Ratio calculation, the risk-free rate is assumed to be 0%.
56
ala ys ia Ph il ip pi ne Si s ng ap or e Ta iw an Th ai lan d
0.80 0.47 0.50 -0.13 0.00 0.74 0.43 0.40 0.23 -0.19 -0.49 0.58 -0.10 -0.29 0.00 0.00 -0.70 0.00 -0.22 0.22 -0.07 -0.48 0.43 0.16 0.48 -0.29 -0.01 0.43 0.59 0.40 0.17 0.40 0.34 0.56 0.31 -0.14 -0.34 -0.14 -0.64 -0.25 -0.28 -0.14 -0.13 -0.33 0.87 0.66 0.61 0.18 0.51 1.19 0.41 0.73 -0.08 0.26 0.51 0.50 0.32 -0.25 0.18 -0.06 -0.13 0.23 -0.14 -0.16 -0.22 -0.04 0.30 0.58 0.83 0.00 -0.14 0.79 0.17 -0.08 0.17 -0.06 0.69 0.49 0.37 -0.44 -0.27 -0.07 0.10 0.00 -0.24 -0.21 -0.06 0.00
As ia
Sector Matrix
When comparing factor performance by sector, we notice a few interesting points and key takeaways: Consumer Discretionary, Industrials, Information Technology, and Industrials had the best risk-adjusted long-short returns for our Q-Score, indicating that these sectors are relatively more quant friendly Sectors that are more homogeneous such as Utilities and Energy or sectors with fewer companies such as Health Care may do less well on a standalone basis due to a lack of diversification Our Q-Score with a Value Bias (and underweight Price/Technical and Quality) outperformed our regular Q-Score in 7 sectors Earnings/Sentiment was the best performing factor family for 6 sectors (particularly for Financials and Information Technology), and the Value factor family was the best performing for 4 sectors 1-mth Price Momentum was a strong contra-indicator for Materials (or as a strong positive indicator as 1-mth Price Reversion) The best overall sector specific Sharpe ratio was for the Q-Score in Consumer Discretionary and Composite Earnings/Sentiment for Financials
Factor Factor Family C C C C C C C V V V ES ES ES ES PT PT PT Q Q R R R Name Q-Score Composite Composite Value (w ith Grow th) Composite Earnings / Sentiment Composite Price / Technical Composite Quality Q-Score Composite (Value Biased) Composite Price to Book ROE P/E (1-y ear forw ard) P/B (1-y ear trailing) Div idend Yield (1-y ear trailing) Net Earnings Rev isions FY1 FY2 (rel. to total changes) Change in Consensus Recommendations (1-mth chg.) Forw ard Earnings Momentum (1-month change) Forecast Earnings Grow th FY1 to FY2 Price Momentum 12-month Price Momentum 1-month RSI 10-day Return On Equity (1-y ear trailing) Sales Grow th (1-y ear trailing) Beta (Barra) Volatility (Barra) Size (Barra) 1.80 1.13 1.84 0.35 0.11 2.40 1.37 1.17 0.61 0.86 1.20 1.59 0.80 -0.17 -0.12 -0.55 -0.85 0.04 0.12 -0.19 -0.07 -0.29
Source: .P. Morgan, MSCI, IBES, Reuters, Factset, Barra. For Sharpe Ratio calculation, the risk-free rate is assumed to be 0%.
As ia
57
58
Emerging Markets Fixed Income Outlook .............. 60 Emerging Markets Corporate Outlook 2013 ........ 62 Asia Credit Outlook ................................................ 64 Asia FX in 2013: Recovering and rebalancing ....... 66 Asian Economic Outlook ........................................ 68 LatAm Economic Outlook ...................................... 69 CEEMEA Economic Outlook ................................. 71 CEEMEA FX Strategy ............................................ 72 China Economic Outlook ........................................ 73 India Economic Outlook ......................................... 74 Korea Economic Outlook ....................................... 75 Taiwan Economic Outlook ..................................... 76 ASEAN Economic Outlook .................................... 77 Brazil Economic Outlook ....................................... 78 Mexico Economic Outlook ..................................... 79 Economic Forecasts ................................................ 87 Interest Rate Forecasts ............................................ 90
Table of Contents
Treasury yields end 2013 20-40bp higher than current levels, our spread forecasts would imply 7-8% returns for the EMBIG and CEMBI. For NEXGEM markets, we expect a stronger return of 8.5-9.5%.
Figure 49: EM hard currency debt outperforms other asset classes in 2012
%YTD return 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -13.9% 21.2% 16.4% 15.4% 13.1% 12.6%
Holly HuffmanAC
holly.s.huffman@jpmorgan.com J.P. Morgan Securities LLC
EM fixed income could deliver 6% to 10% total returns in 2013 EM fixed income substantially outperformed our base case scenario for 2012, with EM credit emerging as a flight-to-quality trade. USD-denominated sovereign (+16.4%) and corporate (13.9%) debt emerged as the top-performing asset classes across both DM and EM fixed income (Figure 49). EMBIG and CEMBI spreads are 120bp and 105bp tighter, respectively, than a year ago. Although EMBIG yields have fallen to an all-time low of 4.66%, US Treasuries have declined by 30bps in 2012 and also are near record lows. The high yield and "NEXGEM" components of the EMBIG were the star performers, up over 20% on the year, matching European high yield returns, even accounting for major corrections in Argentina (-15%) and Belize (-28%). The strong performance in EM corporates in 2012 has occurred despite estimated record supply of US$310 billion for the year, which has matched US high yield issuance (US$305 billion YTD). EM local currency bonds (GBI-EM) have also posted double-digits this year despite a 6% EM F/X correction during 2Q12. Though EM F/X remained volatile and only added 1% in spot terms for the GBI in 2012, carry and duration provided steady returns through the year (11.5% total; Figure 50). GBI-EM GD yields have declined by 100bp to 5.60%, the lowest level since 2003, the period for which we data. Relative to US rates, however, EM local yields offer over a 4% pick-up to US yields on a nominal basis and 2% on a real basis (Figure 51). Total returns for EM credit products in 2013 are likely to be more moderate relative to 2012 given lower carry and less attractive valuations. However, the supply-demand imbalance from QE3 provides continued support for the EMBIG and CEMBI, which have more room to tighten than other USD credit products such as US high grade and CMBS. We forecast EM sovereign and corporate spreads will tighten approximately 25bp-50bp each in 2013 relative to current levels of 306bp and 363bp, respectively. Assuming
60
Source: JPMorgan
Figure 50: Local markets carry and duration were steady; FX volatile
14 12 10 8 6 4 2 0 -2 -4 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 GBI-EM local YTD returns GBI-EM FX spot return
Figure 52: GBI-EM performance varied in 2012, a trend that should continue in 2013
%YTD return 35 30 25 20 15 10 5 12.6 28.8 28.3 24.8 23.6 21.5 19.8 19.1 18.7
Czech Republic
Colombia
Malaysia
Russia
Thailand
South Africa
GBI-EM GD
Mexico
Nigeria
Turkey
Brazil
Chile
Philippines
Indonesia
Hungary
Peru
Poland
If de-risking remains a broader theme across markets as the US fiscal cliff weighs on markets, EM fixed income remains a defensive asset class to hold due to relatively stronger growth, continued ratings upgrades and low financing needs. EMBIG technicals remain positive with cash flows of US$68 billion next year versus projected sovereign issuance of only US$77 billion. We expect EM corporate issuance to moderate somewhat to US$281 billion versus US$123 billion of CEMBI cash flows. Whereas local currency sovereign debt lagged in 2012, we expect local debt to outperform in 2013; bottomsup estimate for the GBI-EM suggests gains of 11%. With FX volatility having declined, liquidity high, and the global backdrop more stable heading into 2013 given the G-3 policy stance, carry and F/X spot should be the dominant factors, with each contributing 5.5-6% to total returns. This would be a shift from 2012, when duration was a key contributor to performance and EM F/X spot was close to flat on the year. For 2013, we look for duration overall to drag 2013 performance by approximately 1%. We anticipate comparable returns across regions in 2013, with Latin America outperforming marginally with 12.4% return relative to 10% for EMEA EM and 9.4% for Asia. At the country level, we expect the continued variance as was the case in 2012 (Figure 52). Top performers in 2013 should include South Africa, Brazil, Mexico and Indonesia, though we are bearish on South Africa from a near-term perspective. EM inflows reach record pace in 2012 We expect EM inflows to reach a record US$85 billion in 2012, or nearly double the US$46.8 billion that EM fixed income attracted in 2011. Next year, we forecast a more moderate US$70 billion of inflows, but this would be still well above the historic average inflows of US$40-50 billion that the asset class has attracted annually over the past decade. Hard currency flows have dominated this year, but local flows have picked up in the past two months. EM growth to increase to 5.1% in 2013, maintaining significant margin versus DM growth We expect EM growth to increase to 5.1% in 2013 from 4.7% (over-year-ago). EM Asia should remain the key driver (6.4%), and we expect China to grow by 8.0%. EMEA EM is likely to be remain the laggard (2.7%), and we expect Latin America to post the most notable improvement from (3.9% from 2.9%), led by the
projected rebound in Brazil, which should grow by 4.1% in 2013. Global fiscal policy tightening in the US and Europe will remain a meaningful drag on DM growth, and J.P. Morgans forecast incorporates a drag of 1.5% in 2013, even if the worst of the US fiscal cliff is avoided. J.P. Morgan looks for developed market growth to remain weak at 1.0% in 2013 from 1.2% in 2012 (Figure 54). Policy rates overall in EM should be relatively steady in 2013. On a weighted-average basis, we forecast rates to increase to 5.60% from 5.55% currently (Figure 55). We expect moderate easing in EMEA EM and in EM Asia and moderate tightening towards the end of next year in Latin America.
Figure 53: EM inflows likely to surpass US$80 billion record
90 80 70 60 50 40 30 20 10 0 -10 Jan Feb Mar Apr May
2009
80.0
46.8 43.3
Aug
Sep
2011
Oct
Nov
Dec
2012
2008
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
61
may keep spreads from tightening in the near term, but we think a downward adjustment of investors yield expectations should eventually enable spreads to tighten further. Additionally, we feel crossover investors may continue to find value in CEMBI HY versus US BBs, offering over 200bp pickup.
CEMBI 2013 returns at different UST and spreads
% return to year-end CEMBI Broad (bp) 200 225 250 275 300 325 350 375
Source: J.P. Morgan.
Alisa Meyers
(1-212) 834-9151, alisa.meyers@jpmorgan.com J.P. Morgan Securities LLC
7-year UST yield (%) at year-end 2013 1.05 15.0 13.4 11.8 10.3 8.8 7.3 5.9 4.5 1.18 14.3 12.7 11.1 9.6 8.1 6.6 5.2 3.8 1.30 13.6 12.0 10.4 8.9 7.4 5.9 4.5 3.1 1.43 12.9 11.3 9.7 8.2 6.7 5.2 3.8 2.4 1.55 12.2 10.6 9.0 7.5 6.0 4.5 3.1 1.7 1.68 11.5 9.9 8.3 6.8 5.3 3.8 2.4 1.0 1.80 10.8 9.2 7.6 6.1 4.6 3.1 1.7 0.3
We expect EM corporates to maintain the tightening trend in line with other credit asset classes, and introduce a 2013 year-end spread target of 275-300bp for the CEMBI Broad. Our spread targets for CEMBI IG and HY are 210-235bp and 500-525bp, respectively. The main drivers that have been supporting credit from the middle of 2012 should remain in place, with inflows leading to robust demand while low rates and QE3 foster a favorable environment. We expect CEMBI total return of 7-8% for 2013 based on our spread target and 7-year UST forecast of about 1.4%. This is lower than the 2012 year-to-date return of 13.7% as we assume less spread compression of 55-80bp (versus 88bp so far in 2012) and a rise in UST yields (versus a 37bp decline). Should growth surprise on the upside, CEMBI spreads could move closer to the post-crisis tight of 246bp, but returns likely offset by higher UST yield. In an adverse scenario with downside growth surprise and lower UST yield, spreads could move back to 375bp, reducing total return to about 4%. Our base case CEMBI target implies about 50bp spread pickup to EMBIG, which is in line with the average during 2012. While CEMBI should normally outperform when spreads tighten, we maintain some reservations on further compression over EMBIG due to the large difference in the supply dynamic. Although there should be enough support to digest the supply as long as inflows continue, vulnerability against an overall market selloff would still be higher. That said, we do see more valuation cushion compared to the JULI and EMBIG given that current CEMBI spread is a fair bit higher than the post-crisis tight of 246bp. In addition, the 116bp spread of CEMBI IG over JULI (ex-EM) is towards the wider end of the recent range. A variable for spread performance is likely to come from HY, which may be seeing some resistance currently given the yield of 7.4% is close to the all-time low (7.3%). Thus, such stickiness in yield expectation
62
Yields are near record lows for HY, providing some resistance to spread tightening
CEMBI HY YTM
(%) 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 Jan-10 Apr-10
Jul-10
Oct-10
Jan-11 Apr-11
Jul-11
Oct-11
Jan-12 Apr-12
Jul-12
Oct-12
Compressed valuations keep us more selective in Asia and Latin America, and we see better relative value in EM Europe and the Middle East. The strong credits within the IG and HY (mainly BB) segments in Asia and Latin America have continued to receive strong support, with spread and yields at or close to the post-crisis tights. In addition, we see the good quality HY credits more as carry plays with stable income rather than large capital appreciation. A potential upside surprise for HY credits would be if the market perception around the yield floor shifts downward, enabling more spread compression. The Middle Easts average rating of A2/A- with maturity of 6.7 years makes the 259bp spread still look attractive against the 218bp spread for CEMBI single A. We think further lifting of the geo-political risk should enable spreads to continue rerating. Although EM Europe is the lowest rated region at Baa3/BB+, we think major corporates and banks in the BBB rating range offer value given the solid fundamentals and spread pick-up over the quasi-sovereigns. We would note, however, that the region is also more vulnerable to renewed risk aversion out of Europe, which would be a variable. We expect new issuance activity to remain strong going into 2013, although volumes are likely to be below the record set in 2012. Our 2013 forecast of US$281 billion would be roughly 10% lower than our full year 2012 forecast of US$310 billion. This is partially a reflection of the moderate amount of maturities that need to be refinanced next year and strong opportunistic issuances that have already taken place in 2012. Another factor for the lower issuance expectation is the decline in the spillover effect from reduced syndicated loan availability, which was driven by the pullout of European banks from the second half of 2011. Based on our estimated 2013 reinvestment cash flows of US$128 billion, we forecast net issuance (gross supply net of maturities) at US$227 billion and net financing (net issuance minus coupons) at US$153 billion. EM corporates have further cemented their position as a mainstream investment, with the debt stock exceeding US$1 trillion. This is an important milestone as it is now similar to the US HY bond market size. We think the EM corporate asset class will mature further in 2013, with fundamentals overall remaining comfortable and default rates expected at a low level of 1.7% versus 3.0% in 2012 and long term average of 3.7%. The steady growth in funds benchmarked to the CEMBI indices also provides a more stable investor base. At US$44 billion, benchmarked funds are up 45% year-to-date, and more than doubled over the past two years.
700
600
500
400
300
Jul-10
Jul-11
Jul-12
Oct-12
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
YTD
2012F
2013F
keep the central bank's liquidity tap flowing. With default rates expected to stay low, the market should continue to attract investors that are looking for yield pick-up over near zero deposit rates.
J.P. Morgan Asia Credit Index Total return
28.3%
A good rally in 2012 The Asian credit market had a good run in 2012. As measured by J.P. Morgan Asia Credit Index (JACI), the market has chalked up a 13.5% total return till November 9, 2012 as credit spreads tightened by 106bp and US treasury yields also moved marginally lower by 7bp. We expect that the full year return should come in around the 14% level, which would make 2012 the second best performing year for Asian credit since 2006. An essentially liquidity-driven rally The Feds QE3 and other major central bank easing programs are flushing the economy and financial system with ample liquidity. As the tail-end risk of the European sovereign crisis subsided after the ECB took several decisive actions such as OMT, this liquidity has found its way into the credit market to search for yield. This is exemplified by the large inflow into EM hard currency fixed income funds, totaling US$56 billion year to date, setting up 2012 as a record year for inflow. Importantly, we believe that inflow from strategic accounts is structural in nature as EM corporate is gaining recognition as a separate asset class. Record new supply in 2012 Record new supply has been well absorbed by the market, showing that such liquidity inflow is not being captured only by EM fixed income funds. Asia has already seen around US$105 billion of new issuances year-to-date and would likely end the year with US$110115 billion of new supply, which is more than double the 2011 amount and 70% higher than the previous record in 2010. Low default rate One key attraction of the Asia credit market is that the default rate of Asia HY remains low at 1.4%, as we only had two defaults totaling US$1.4 billion in 2012, due to only marginal weakening in credit fundamentals. We expect HY default rates to stay low in 2013 given low refinancing requirements and a more conducive economic backdrop. Similar forces should continue to play out in 2013 We believe that credit markets should continue to be a sweet spot for investors going into 2013. While we see some gradual pickup in growth in Asia, global economic growth rates are likely to remain subpar, which should
64
7.3%
13.5%
2006
2007
2012 YTD
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Asia high yield default rate (as % of prior year total HY stock)
16.8% Defaulted Forecast 9.1%
1.6%
1.3%
1.5%
0.0%
1.4% 1.2%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E2013E
Source: J.P. Morgan.
Total return should ease back to single-digits That said, we expect total return to moderate to around the 6-7% range as valuations have tightened noticeably after the rally in 2012. Yield for JACI is now at a record low of 3.95%. However, we still see some room for further tightening in the credit spread, which at 269bp is just marginally lower than the historical average of 286bp and is far wider than the low of 110bp recorded in mid-2007. We see potential for the spread to tighten by around 40-50bp in 2013, which together with the carry should put total return at the high single-digit level. Key risks One key risk to our sanguine view of the market is the movement in US treasury yields. If the US economy grows at a faster pace than our expectation, leading to a change in the interest rate outlook (notwithstanding the anchoring by the Fed at the short-end), rising treasury yields could pare down total return on credit. We would also be vigilant in watching tail risks of the European sovereign crisis and the US fiscal cliff. While we believe that policy makers will eventually make some hard decisions to tackle those issues, any prolonged dithering could create volatility. Top picks Our overall theme of investment in Asia is to stay with some good quality names for carry, and selectively go down the capital structure or credit curve to pick up some yield. For banks, we remain broadly comfortable with fundamentals in the region, and like owning names that are well positioned to benefit from stable economic outlooks in countries such as Malaysia (CIMB) and Thailand (SCB). Down the capital structure, old style lower Tier 2 bonds offer good value, as they trade at attractive discounts and will likely benefit from scarcity value going forward. In the high grade space, we prefer land lords in Hong Kong (Sun Hung Kai and Hang Lung) and consumption story plays (Tingyi and Tencent) in China, and would also reach down the capital structure for yield in those well structured hybrids (Hutch 6%perps and CKI 7% perps) that incentivize issuers to call on the first call date. In the Chinese property sector, we are recommending a barbell strategy, i.e. sticking to some high-quality BB names (Country Garden 18s and Agile 17s new) for carry and dipping selectively into single-B credits (KWG 17s new and Kaisa 15s) to improve overall yield. We are staying light in Indonesian corporates given that the sector is rather bifurcated, with good quality names trading at tight levels and high yielding bonds come with some idiosyncratic risks that may not appeal to some investors.
6.0x 2.4x
5.4x
4.3x
2008
2009
2010
2011
LTM
3-Oct-11
3-Oct-12
Current: 269
3-Oct-06
3-Oct-07
3-Oct-08
3-Oct-09
3-Oct-10
3-Oct-11
3-Oct-1
Top Picks
Issuer Ratings PX Yield SOT Z-spread 195 190 195 154 231 163 218 363 342 683 692 904 CIMB 2.375% 17 22/17c% 17 A3/A-/BBB+ 100.44 2.27%ytm 163 Siam Commercial 3.375% '17 A3/BBB+/BBB+100.66 3.23%ytm 199 DBSSP 3.625% 22/17c Sun Hun Kai 3.5% 16s Hang Lung 4.75% 22s Tingyi 3.875% 17s Tencent 4.675% 16s Hutchison 6% perp old CKI 7% perps Cogard 11.125% 18s Agile 9.875% 17s KWG 13.25% 17s Kaisa 13.5% 15s Weschi 7.5% 16s Shanshui 10.5% 17s Aa2/A+/A+ 104.25 2.68%ytc 204 A1/A+ NR 105.21 2.11%ytm 164 107.32 3.83%ytm 229
Baa1/BBB+ 106.74 2.32%ytm 174 Baa1/BBB+ 107.10 2.77%ytm 227 Baa2/BBB/BBB105.25 4.09%ytc 376 NR/NR/BBB 104.00 3.74%ytc 355 Ba3/BBBa2/BB B1/B+ B1/B+ B1/B+/BB112.75 7.21%ytc 693 108.50 7.54%ytc 700 112.50 9.65%ytc 911
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The backdrop in 2013 for Asian currencies is a constructive one In contrast to the sharp fall in growth momentum of 2012, Asia in 2013 should see a modest cyclical lift, supported by tailwinds from leaner inventories, while inflation should gradually track higher. Meanwhile, global policy continues to be exceptionally easy, notably with the Feds open-ended quantitative easing likely to be an enduring part of the global backdrop for the duration of the year. This will keep the USD under broad pressure, and reinforce ongoing diversification flows into stronger macro balance sheets in Asia. Moreover, along with the ECBs OMT, such global central bank policy should provide a better backstop against cascading global systemic contagion. More permissive FX policy encouraging better rebalancing Importantly, the recent FX policy permissiveness in the absence of particularly robust external demand or inflationary pressure is a new FX policy paradigm to track in 2013. If this shift in FX policy approach proves enduring, it will allow Asian currencies to perform better in the earlier part of the cycle, and if combined with, inter-alia, easier domestic policy, will encourage ongoing growth rebalancing. Continued evolution of the RMB exchange rate regime The mature stage of China external rebalancing (C/A surplus only e2.3% of GDP in 2012) has allowed China to shift its focus away from managing RMB revaluation and more towards exchange rate regime liberalization, with the regime delivering relevant trading band widening, true two-way flexibility, and significantly less FX market intervention in 2012. Going forward 2013 this gradual liberalization should continue, with increased two-way flexibility of both the fixings and spot trading, ongoing capital account opening (both through US$ and cross-border RMB channels), and some possibility of further band widening. Meanwhile, besides showing more two-way flexible, these changes mean the RMB will also become more cyclical to both global and domestic market developments. Still, with broad USD weakness and better foreign portfolio inflows due to an opening capital account, the RMB should end the year around 2% stronger.
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Global Mfg PMI (LHS) Ave JPM Investor survey AFX position
Source: Bloomberg, J.P. Morgan
% USD-CNY spot deviation from SAEC central parity rate Trading band
-1.5 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
Source: Bloomberg, J.P. Morgan
Trading band
More classical revaluation trades elsewhere in N. Asia, tracking state of rebalancing in S/SE. Asia The classical high-surplus revaluation theme still persists in TWD and KRW, where FX policy will determine the amount of USD weakness realized in 2013 we are more constructive on FX policy permissiveness in KRW than TWD. Meanwhile in S/SE Asia we have already seen examples of currency overshoots and depreciation adjustment cycles occur in INR and IDR. INR is a
constructive, if challenging currency, but we are more constructive on IDR, where relative devaluation vs the region, an ongoing current account adjustment, should make the currency much more attractive on a valuation and carry basis in early 2013. Elsewhere in SE Asia currencies have richened considerably and current account surpluses narrowed, but this should not impede further cyclical strength, especially in the PHP, SGD, and THB. INR should see better stability, but a recovery? INR in 2013 looks considerably less vulnerable than in 2012. The adjustment in the earlier overshoot looks complete, and a calmer global backdrop should limit the extent of any further weakness. In the longer term the impact of recent reform measures, if fully implemented, will be important for more stable current account deficit financing. In the nearer term, however, two risks linger. The first risk is an S&P downgrade, which may come back in focus after the budget in March 2013, with implementation a key hurdle. Second, there are risks of a mid-term general election in 2013, with politics potentially undermining the recent reform initiative. We like the better value and remain constructive on the INR in the medium term, but the near term through mid-2013 will likely present a more volatile and tactical environment for the INR.
Increasingly diverse drivers of relative performance Themes and drivers of Asian relative currency performance will become increasingly diverse in 2013, in our view. Our top longs are the KRW due to FX policy permissiveness and IDR on a recovery from the 2012 reversal. SGD, THB, and PHP should form core solid SE Asian performers on resilient currency fundamentals (flows, surpluses, and policy). MYR has the greatest risk of underperformance, in our view, with an idiosyncratic political event risk pitted against particularly large foreign portfolio investor allocations. We remain constructive on the INR in the medium term, but it will likely remain a volatile trading currency until more stabile long-term capital flows from recent reform initiatives reassert themselves later in 2013.
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Rotating into better growth in 2013 Economic activity in EM Asia has taken a turn for the better as we end 2012 and will lead to better headline GDP growth in 2013. We expect regional GDP growth to pick up to 6.5% in 2013 from 6.1% in 2012. Importantly, China and India are both forecast to see growth improve next year to 8.0% and 6.0%, respectively, after a very disappointing 2012. For Asian policymakers, improved growth data will clearly be good news, but it is not clear they will be satisfied with the pace of recovery, especially coming after this year's disappointments. Inflation no longer falling, but yet a threat After falling continuously in 2012, inflation in EM Asia is expected to turn higher. We forecast regional inflation to rise 3.7% in 2013 from 3.5% in 2012. China inflation should rise to 3.4% from 2.7%, but below the official target of 4%. In India, we expect inflation will finally soften in 2013. Indeed, for most countries in the region the turn to higher monthly inflation, in our base case of moderate GDP growth, will not be seen as a threat. Drip, drip, drip of policy support In base case for growth and inflation, bits of rate cuts may still occur in 2013, with the Reserve Bank of India expected to cut in January. For most of Asia, fiscal policy also has the policy space to do more, and we expect budgets to be growth supportive, but not massively so. Inflows and current accounts to be FX supportive After phases of depreciation in 2012, we expect EM Asian balance of payments to be stronger in 2013. Current accounts are forecast to hold steady at around $380 billion, while capital inflows should remain robust. With inflation no longer falling, policymakers should be more tolerant of Asian FX appreciation. A few risks to note Our baseline forecast assumes no major DM events and only moderate growth. In a scenario where DM surprises on the upside, Asian growth and inflation would both be higher. Policymakers have only dripped out support in 2012, partly because they never fully dismissed inflation risks. If growth and inflation see upside surprises, this could produce tightening in 2013. India poses a countryspecific risk, where market expectations on how quickly reforms can be implemented may be too aggressive.
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2011
2012 2013F
EM Asia
China
India
2012 2013F
Latin Americas growth fell below potential in 2012, as expected, but Brazil explained much of the slowdown in the regional average. Our current forecast for Latin Americas 2012 growth of 2.9% is similar to the 3.0% projection made at the end of 2011 for this year. However, the performance across countries this year has been quite uneven. Brazil accounts for 47% of the regions nominal GDP and the full-year growth rate of 1.4%oya expected for this yearwhich stands well below Brazils estimated potential pace of 4.0%has dragged down the regional average. Brazils underperformance is partly explained by the tightening measures adopted in 1H11, the currency appreciation and the slowdown in China. However, most other countries in the region are expected to grow largely in line or even above potential this yearincluding several that are quite exposed to China like Chile (5.4%) and Peru (6%), where growth will far exceed the projections made late last year. Another notable case is that of Mexico (3.9%), where the economy is expected to grow above potential once again this year despite the lackluster performance of the US. One common explanation for the growth resilience of many Latin American economies this year is the strength of domestic demand, which has compensated for the weakness of the external drag coming from slower global growth and lower commodity prices. Latin Americas local market returns were dominated by duration and carry during 2012. The GBI-EM Latin America subindex has returned 13.7% in local terms and 13.4% in USD terms so far in 2012. F/X in the region had a stellar start to the year returning 8.7% over the first two months, before declining trough the end of 1H12 as central bank increased activism. The growth bias in Brazil was behind the large swing in the regions currency performance, while the reversal of tightening done by the BCB was favorable to our long duration call as GBI-EM Brazil yields have declined 223bp YTD, equivalent to a return of 15.2%. However, Peru Soberanos outperformed in the region, returning 17.5% YTD in local terms and over 21% in USD terms. Foreign inflows into Peruvian bonds have reached US$1.6 billion so far this year, bringing the share of foreign ownership from 48% in December 2011 to 58% in September 2012. Returns in Mexico and Colombia were more balanced
between duration and F/X. Mexicos duration performance was in line with US treasuries returning nearly 12%, while F/X added another 5.5%. In Colombia, duration returned 12% and F/X added 6.6%. While Soberano bonds were the best performers in the region, Peru has a weight of only 5% in the regional subindex, while Brazilian local bonds represent a third.
Table 49: Latin America: Growth near potential
Real GDP (%oya) 2011 2012 2013 4.2 2.9 3.8 8.9 2.7 3.6 2.7 1.4 4.1 6 5.4 4.5 5.9 4.3 4.5 8 5 4 3.9 3.9 3.6 6.9 6 6 5.7 3.5 4 4.2 5 0 Potential GDP 3.9 3.5 4 4.5 5 3 3.3 6 4 3
Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela
Source: J.P. Morgan.
Latin America is expected to reaccelerate back to potential in 2013. The recovery under way in Brazil, which is projected to grow 4.1%oya in 2013, will help to bring the regions average close to its estimated potential pace of 3.9% despite some moderation expected in Chile (4.5%) and Mexico (3.6%), and a significant drop in Venezuela (0%) as the economy absorbs the impact of the needed post-election fiscal tightening and F/X devaluation. Colombia (4.5%) and Peru (6.0%) should maintain their current cruising speeds amid strong FDI, while Argentina (3.6%) should recover with the help of Brazil and a better agricultural crop that was affected by a draught earlier this year. This baseline scenario assumes that the US avoids a sharp deceleration or recession due to the fiscal cliff (which would affect Mexico, in particular) and that Chinas gradual recovery consolidates (preventing a further drop in prices and volumes of commodity exports). Faster growth will help to improve fiscal accounts (Latin Americas average fiscal deficit is expected to shrink to 2.1% of regional GDP from a 2.4% gap this year), but current accounts will likely deteriorate a bit (the current account deficit is projected to reach 1.3% of GDP in 2013 versus 1.2% this year). The good news is that countries with external gaps should be able to finance them easily with FDI inflows and/or long-term external borrowing. With growth near potential and inflation within target ranges, Latin American central banks will have little reason to adjust policy rates in 2013. Among the six inflation targeters in Latin America, this years
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inflation is expected to fall within target ranges in Brazil, Chile, Colombia and Peru, and to exceed them in Mexico and Uruguay. For 2013, only Uruguay is expected to miss its inflation target once again, although the trend will point south. Given these growth and inflation dynamics, our monetary policy forecasts pencil in no interest rate moves in Chile, Colombia, Mexico and Peru in the remainder of 2012 and the whole of 2013. The only changes are expected in Brazil (where the forecast assumes that the Copom hikes the Selic by 75bp in 4Q13) and Uruguay (where we expect a 50bp rate cut in 2Q13). The risks around these forecasts are for Brazil to stay on hold throughout 2013 if growth disappoints again and if inflation expectations remain well-anchored; for Colombia to cut its repo rate once again if the 2Q12 recovery proves short-lived; for Chile to hike if inflation finally accelerates amid strong domestic demand and tight labor markets; and for Mexico to follow its recent hawkish rhetoric with a hike if its currently high inflation fails to converge back to target. F/X dynamics will also play a role in driving monetary policy decisions. We think Brazil will likely remain the most interventionist in F/X markets and may adopt macro-prudential measures to help maintain a low Selic rate amid potential inflation pressures, while trying to prevent BRL appreciation. Mexico will likely remain on the other extreme and display the most tolerance to F/X volatility. The other central banks will be somewhere in between we think .
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Other 2013 macro forecasts We project fiscal surpluses (or growing reserve funds) in all major energy exporters, and moderate deficits in most other countries (except Egypt, South Africa and Ukraine). With regard to the current account, we see surpluses for energy exporters plus Hungary, and narrowing deficits in all other EMEA EM countries (especially important for Turkey and South Africa)
Table 50: GDP Forecasts
2011 5.3 1.7 1.8 1.7 4.8 7.5 7.8 4.3 18.6 2.5 4.3 7.1 3.1 8.5 4.2 5.2 Real GDP (%oya) 2012 2013 3.1 2.9 -1.1 0.9 2.2 2.6 -1.2 0.5 3.0 3.1 4.7 4.5 6.5 6.7 2.3 1.6 5.4 4.6 0.0 0.8 3.6 3.0 5.6 3.5 2.2 2.7 2.8 3.7 3.8 2.8 0.3 1.0 Potential Growth 4.1 3.5 5.0 3.0 4.0 6.0 7.5 3.5 4.8 4.0 3.5 3.3 3.3 5.0 3.9 4.5
EMEA EM growth to slow in 2013 J.P. Morgan forecasts that 2013 EMEA EM growth will be 2.9%, slightly less than in 2012 and 30% lower than the regions potential growth. Assumptions driving this view are: stagnation of Euro area growth; tepid German economic expansion; stable oil prices; declining/stable oil production among most of the regions oil producers (except for Angola and Ghana); and continued fiscal consolidation (or a decreased fiscal stimulus in the GCC). Five of the 15 countries in Table 50 are projected to grow within 20% of potentialNigeria, Saudi Arabia, Qatar, Russia and South Africa. Countries just below that growth metric are: Israel, Kazakhstan, Turkey, and UAE. Poland and Egypt are forecast to expand at 40-50% of potential. The biggest laggards are projected to be: Czech Republic, Hungary, Romania, and Ukraine. Risks to 2013 EMEA EM growth forecasts For 2013, upside risks to our growth forecasts revolve around the worlds two largest economies. Suppose in the USA the executive and legislative branches reach some sort of grand bargain (this is not our base case) about both the 2013 budget/fiscal cliff and medium-term entitlement programs. Such a grand bargain would, in our view, include a path to comprehensive tax reform, which in turn would likely stimulate US growth and positively affect investor sentiment globally. In China, it is possible that the new leadership (again not our base case) will engage in much more fiscal stimulus than we have projected. That would be positive for Euro area growth. On the downside, we see three risks. Risk 1 is a military confrontation involving Iran, which would be negative for global growth and risk appetite. Given that the EMEA EM has many energy producers, risk 2 to our regional growth forecast is substantially lower oil prices than we have assumed, which would be more likely if the first risk does not materialize because oil production in so many of this regions oil-exporting countries is currently close to all time highs. Risk 3 is that one or more of the populations in peripheral Euro area force a change in government, with the new one unwilling to support the regions commitment to fiscal consolidation. Such unanticipated political upheaval could cause a Euro area member to exit EMU.
EMEA EM1 Czech Republic Egypt Hungary Israel Kazakhstan Nigeria Poland Qatar Romania Russia Saudi Arabia South Africa Turkey UAE Ukraine
Source: National statistics offices and J.P. Morgan estimates. 1. GDP-weighted average for entire EMEA EM region. Fiscal year for Egypt data.
EMEA EM1 Czech Republic Egypt Hungary Israel Kazakhstan Nigeria Poland Qatar Romania Russia Saudi Arabia South Africa Turkey UAE Ukraine
Source: National statistics offices, IMF and J.P. Morgan estimates. 1. GDP-weighted average of 15 countries in table. Fiscal year for Egypt data.
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CEEMEA FX Strategy
Emerging Markets Strategy George Christou
AC
EMEA EM peers. . These rate cuts are likely as central banks respond to the weaker growth in CEE where we forecast Polish real GDP growing in 2013 just 1.6%, Hungary 0.5% and the Czech Republic 0.9%. These compared to forecast growth rates of 3.7% in Turkey and 3.0% in Russia. This will likely lead to CEE underperformance against RUB and to a lesser extent TRY, where we see policy rates on hold. Balance of payment dynamics will marginally deteriorate for major CEEMEA currencies in 2013 but this will be a lower concern given reduced tails risks. The regions current account dynamics will marginally deteriorate in 2013, with the regional current account deficit for major CEEMEA currencies widening from -0.2% to -0.6% of GDP on JPM forecasts. Among the surplus countries, we see a deterioration in Russia (from 4.4% in 2012 to 2.6% in 2013) and Nigeria (6.6% to 5.7%) and an improvement in Hungary (1.5% to 2.8%). In the deficit countries, we expect a narrowing from this year to next year in Turkey, Poland, Czech Republic and South Africa but not Romania. Overall, we do not expect current account /external financing to be a major concern given the reduction of negative regional tail risks. However investors are likely to pay closer attention to South Africa (given the recent strikes), Poland (given the increasing negative net errors and emissions data) and Turkey (given the risks of a slower pace of external rebalancing for what is still a large current account deficit). In 2013, the ZAR has room to outperform over the course of the year, but is likely to start out as an underperformer. We think the ZAR could outperform in 2013, though negative country specific factors are likely to lead to underperformance to start the year. More specifically, the weaker trade balance from the recent strikes will peak in January/February. After that, we think the market would have fully priced in the mining strikes. Post Q1, there is also a greater chance for a resolution on the fiscal cliff and stronger evidence of a global macro lift, which should benefit the ZAR given its high beta to global risk and commodity prices. In addition, the currency is already among the cheaper currencies in EMEA EM on a short term (financial fair value model) and medium term (JPM equilibrium exchange rate model) horizon, giving further reasons for outperformance. There will likely be a time to favour ZAR in 2013, but we expect depreciation first.
Jonny Goulden
(44-20) 7134-4470, jonathan.m.goulden@jpmorgan.com J.P. Morgan Securities plc
2013 likely to see greater divergence between FX of CEEMEA countries, with Central & Eastern Europe (CEE) underperforming in H1. 2012 has seen FX for CEEMEA markets perform well, excluding South Africa, with RUB, PLN, TRY and HUF all making over 7% in total returns. For 2013 we expect CEE FX (PLN and HUF) to underperform RUB and ZAR, particularly in 1H. ZAR has been the clear underperformer so far this year, with a total return of -3.0%, driven by mining strike disruptions and the subsequent drag on economic performance and sentiment. The top performer has been the HUF, yielding a total return of 15.4%, though this is to some extent biased by the significant underperformance of the currency towards the end of the last year. Other currencies in the region also performed well, TRY (11.1%), PLN (11.5%) and RUB (6.9%). 2013s outlook for the regions currencies is driven by the macro themes of liquidity versus growth. The prospect of abundant liquidity should benefit the regions FX (vs USD) more so than other EM regions due to the higher global beta of CEEMEA FX (vs USD). In addition, there are weaker incentives for central banks (v other regions) to stem appreciation pressures through FX intervention given concerns over already close to or above target CPI. However the low regional growth trend coupled with continued fiscal cliff concerns have, so far, not allowed much of this liquidity effect to feed through ; CEEMEA total returns since OMT/QE3only amount to 3%. The hopes for a resolution to the fiscal cliff by 1Q13, as well as stronger evidence of a lift in global growth will be critical for CEEMEA FX performance for the remainder of the year. Until then, idiosyncratic factors are likely to drive relative value performance. We discuss these factors below. Monetary policy easing and lower growth will weigh on CEE currencies versus RUB and TRY in 1H13. Monetary policy and growth differentials will be an important driver in H1 particularly for CEE currencies. Monetary policy easing in Poland (-100bp of cuts forecast), Hungary (-75bp cuts forecast) and the Czech Republic (possible extraordinary measures) will likely weigh on these currencies relative to
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Moderate recovery in 2013 Chinas economy started to turn higher in mid-2012 as the impact of moderate easing measures gradually gained traction. We expect quarterly real GDP to 2012 at a stillsubdued 7.4%oya, but to rise moderately to an average of 7.9% during 1H13 and 8.1% in 2H13. Our full-year GDP forecast stands at 8.0% for 2013 compared to 7.6% in 2012. Net exports still a drag, but FAI slightly stronger In our view, external headwinds will remain the major drag on Chinas growth in the coming quarters. We expect net exports to subtract 0.8%-pt from Chinas headline GDP growth next year, similar to its impact in 2012. On the domestic side, consumption will remain supportive, with employment holding up and wage gains solid. Fixed asset investment (FAI) growth is likely to turn up to 22.4% in 2013 from 21.0%oya this year. Our view on FAI is that China's moderate policy easing since mid-2012 has supported a pick-up in public investment such as infrastructure, railways, and environment protection and clean energy sectors, and that this trend is likely to carry on into 2013. Meanwhile, private investment should also do better next year, with the stabilization in real estate investments and easing pressure on manufacturing sector's de-stocking. Inflation will pick up, but still not a threat Headline inflation in China is likely to turn up moderately towards end of 2012, as favorable base effects disappear, and this uptrend is likely to continue into 2013. However, we expect inflation to remain well below the government's 4% target. On the J.P. Morgan forecast, headline CPI inflation should end 2013 at 3.6%oya, with the full-year average at 3.3%. New leadership, but no big policy changes The 18th CPC National Congress will announce the new leadership for the next decade. Despite the change in leadership, we do not expect substantial changes in economic policy. The new leaders are expected to continue the economic agenda as outlined in the 12th five-year plan. As such, the primary economic policy objective for China will remain to transition toward a more sustainable, consumption-driven growth model. In our view, this implies there will not be a significant ramping up of policy easing in 2013. The new
government is likely to continue to adopt the mix of proactive fiscal policy and prudent monetary policy. Fiscal policy will continue to support infrastructure investment, improve the social safety network and facilitate income redistribution. On the monetary policy, we expect PBOC will keep interest rates unchanged throughout 2013 and will continue to focus on liquidity management via open market operations (especially reverse repos) and RRR cuts.
China: real GDP growth
% change, both scales
16 14 12 10 8 6 04 05 % oya JP Morgan forecasts % q/q, saar 20 15 10 5 0
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Jahangir Aziz
(1-202) 585-1254, jahangir.x.aziz@jpmorgan.com J.P. Morgan Securities LLC
Reforms and FX
After procrastinating for 2 years, the government has embarked on a strong policy offensive over the last two months (fuel price hikes, FDI in multi-brand retail and other sectors, reduction in capital market frictions, cabinet approval of FDI in pension and insurance reform) boosting investor sentiment and causing the Rupee to appreciate and equities to strengthen. In recent weeks, however, some of this positive sentiment has worn off, as markets worry about whether the government will succeed on the game-changing reforms that could arrest the structural deterioration in investment and the deficit: creation of a National Investment Board, passage of a land acquisition bill, and political agreement on the GST. If the government can succeed on these initiatives capital and currency markets will likely get a significant boost, and the recent pick-up in leading indicators is likely to sustain and accelerate. Absent another reformist thrust, however, sentiment and the INR are likely to drift downwards.
India: Growth has moderated sharply but could be bottoming
%oya
12 10 8 6 4 2 0
00Q1
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Mild growth recovery, but risks still lurk We expect Korea real GDP to recover to 3% in 2013, with exports to rise and fiscal policy to turn more supportive. On a quarterly basis, real GDP growth has slowed for three straight quarters since 1Q12, but demand side conditions now look aligned to support an improvement in manufacturing output which should lift the overall GDP growth modestly starting this quarter. The key risks to our growth view are external demand, especially in DM countries, and any possible policy interruptions after the Presidential election in December. Export gains likely to broaden After suffering through most of 2012, Koreas exports have turned up since mid-3Q (by our estimate, which controls for seasonal and irregular factors). Price effect played an important role in improving nominal performance, but even in volume-terms exports have improved thanks to better demand from China and other Asian countries. By product, export gains have been narrowly based in electronics and oil products, but there are signs of those improvements broadening. Vessel exports are an exception, with deliveries having peaked in 2011 (recall the orders-to-production lag is 2~3 years). In 2013, we expect non-vessel exports to see a more meaningful recovery. Domestic demand mixed, calling for more policy help On Korean domestic demand, private consumption has been volatile, but through the noise has been modestly trending higher. However, the gain in consumers real purchasing power appears to have slowed recently, despite a rise in employment. One impediment may be the debt servicing burden of Korean households, but we note that the Bank of Korea and the government have the policy room to move to ease the debt servicing burden (Korea: micro policy to ease household debt servicing burden, GDW, Aug 31). In 2013, the key wild card will be if financial and real estate asset values would rise to generate positive wealth effect. The former requires the improvement of Euro areas debt problem and the latter calls for further deregulation of housing markets where potential buyers have delayed housing purchase (pulling down housing prices, but driving up rents). Meanwhile, corporate sector has been reducing inventory and business equipment investment. Importantly, monthly data show that manufacturers destocking
appears be almost over, with high-tech sectors inventory ratio to shipment down and the ratio for the non-tech sector stabilizing. However, business sentiment remains depressed, so it seems premature to expect an upturn. Indeed, while the demand for replacement investment has been rising, campaign calls for stricter regulations on large conglomerates may be holding back investment. Macro policy to be more supportive in early 2013 On this backdrop, the Bank of Korea will maintain an easing bias for some more quarters. We do not exclude the possibility that the BoK would take rate cut action in 1H13, but this will require further deterioration of growth environment, enough to threaten the forecast of 3%-level GDP growth for the full 2013. Instead, fiscal policy will be more of the focus. Going by the governments proposed 2013 budget, fiscal policy is not expected to turn supportive, with the consolidated surplus targeted to rise from W18.1 trillion (or 1.4% of GDP) in 2012 to W30.6 trillion (or 2.2% of GDP) in 2013. However, we expect the fiscal plan to change in the process of getting the National Assemblys approval. In addition, there is a strong possibility of a supplementary budget. In the medium-term, though, the government will eventually neutralize the positive impact of spending increase by hiking tax burden in latter part of 2013, with the rise in taxes mostly concentrated in relatively high-income group households and larger sized firms.
Consumption good sales and exports
%3m/3m sa (not annualized)
16 12 8 4 0 -4 -8 2010 Customs exports (latest data are Oct) 2011 2012 Consumption good sales (latest data are Sep)
%3m/3m sa
15 10 5 0 -5
-10 -15
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growth-inflation dynamics, the Taiwan central bank will likely keep major policy rates on hold in coming quarters.
Global manufacturing PMI and Taiwan real export growth
Index, sa
60 55 50 45 40 35 30 25 Global manufacturing PMI - output
%3m/3m, saar
50 25 0 -25 -50 -75 -100 -125
Better growth in 2013 Taiwan had a very challenging year for growth in 2012, but we expect a better outlook next year. Our forecast anticipates a steady growth pace in the range of 3.5-4.0% at the turn of the year, which would be a substantial improvement over early 2012. Overall, our GDP growth forecast is 3.4% for 2013 compared to 1.2% in 2012. Trade with mainland China more supportive Taiwans exports to China/Hong Kong, which had been on a consistently weakening trend from mid-2011 through May this year, seemed to have stabilized and recover at a decent pace in recent months. Our forecast calls for China growth to show some moderate recovery in the coming quarters on the back of macro policy support. This will likely feed through to some further, gradual uplift in Chinas trade activity with Taiwan. But G3 demand outlook still lacks clarity On the other hand, demand conditions from the advanced economies remains challenging for Taiwan, as fiscal policy will remain quite restrictive going into 2013. In addition, the lack of signs on near-term pickup in global business capex spending is also worrying (which has been reflected in the weakness in Taiwans metal and machinery manufacturing activity in recent months). ... and that uncertainty is affecting domestic demand Taiwans domestic economy appears to have been dragged down by the lingering uncertainty on global demand, as private consumer expenditure and gross capital formation lost some momentum recently. For 2013, some gradual recovery in industrial and export sectors, as well as steady growth in tourism activity (led by mainland tourists), will likely lead to a moderate recovery in domestic demand. Policy rates on hold barring worsening global risks The Taiwan central bank continues to worry about global economic uncertainty and the risk that higher commodity prices could pose for inflation. In this regard, the easing in Taiwans WPI and import prices recently suggests that import inflation pressure will be contained in the near term. Notably, the central bank has also openly worried that QE3 could lead to renewed capital inflows and raise inflation expectations. Overall, we expect Taiwans CPI inflation to average at 2.0% for 2012, potentially easing to an average 1.5%oya in 2013. Given the overall
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Matt L Hildebrandt
(65) 6882-2253, matt.l.hildebrandt@jpmorgan.com JPMorgan Chase Bank, N.A., Singapore Branch
A pause that refreshes ASEAN domestic demand has been surprisingly resilient, despite poor external demand. This reflects the impact of still-low rates on strong financial and household balance sheets, sprinkled to varying degrees with supportive fiscal policy. This resilience should continue in 2013 and help buffer any further slowing in external demand. Nevertheless, softening external demand over the course of this year combined with slower growth in 2H12 leaves the region set to post lower average annual growth figures in 2013. The main driver of lower growth in 2013 reflects some payback in domestic demand following a year of firm investment in the face of weak export growth and lower commodity prices during 2H12. Of the three key commodities most relevant to the region - coal, crude palm oil and natural gas - only natural gas has experienced any form of recovery. In manufacturing, ASEANs electronics sector tends to be more leveraged to corporate PC rather than Smartphone/tablet demand and has thus been slower to experience the modest lift seen in the larger North Asian producers in late 2012. However, as the global CAPEX cycle recovers in 2013, this should exert a positive demand impulse for the ASEAN producers as well. This improvement in exports, combined with softer investment growth, should lead to improvement in external balances around the region. The clearest flip will occur in Indonesia, with the current account expected to return into the black in 1H13. Inflation still soft into early 2013 With commodity prices expected to remain flat through 1H13 before rising in 2H13, the inflation trajectory is expected to remain benign, with headline inflation expected to ease in over-year-ago terms. This will provide some space for further policy easing should the external environment deteriorate further. For the time being, we expect most central banks in the region to be on wait-and-see mode with the exception of the Philippines where we expect 50bp of rate cuts penciled in through 1H13. Singapore stands out on the opposite side of the spectrum with the least flexibility, where domestic rather than external price pressures are driving central bank action.
Commodity prices
%-pt. contribution to yoy GDP growth 2009 2010 2011 Indonesia 4.6 6.1 6.5 Consumption 4.1 2.7 3.0 Gross -0.7 2.7 2.0 investment Net trade 1.2 0.8 1.5 Malaysia -1.5 7.2 5.1 Consumption 0.8 3.6 5.4 Gross -2.2 5.0 0.8 investment Net trade -0.2 -1.4 -1.1 Philippines 1.1 7.6 3.8 Consumption 2.7 2.8 4.1 Gross -1.6 5.4 2.5 investment Net trade 0.1 -0.6 -2.9 Singapore -1.0 14.8 4.9 Consumption 0.4 3.7 1.6 Gross -6.8 0.0 2.1 investment Net trade 5.4 11.1 1.2 Thailand -2.3 7.8 0.1 Consumption 0.1 3.2 0.8 Gross -5.8 5.1 -0.1 investment Net trade 3.4 -0.5 -0.7
Source: J.P. Morgan estimates 1. 2013 less 2012c
2012F 5.7 3.1 3.4 -0.8 4.7 3.8 3.5 -2.5 5.3 4.8 -2.4 2.9 1.5 0.7 3.9 -3.2 4.6 2.2 5.2 -2.8
2013F 3.7 2.5 0.6 0.6 3.7 1.9 2.0 -0.2 3.5 4.4 1.2 -2.2 2.5 0.8 1.5 0.2 4.5 1.7 2.5 0.4
Change1 -2.0 -0.5 -2.8 1.4 -1.1 -1.9 -1.5 2.4 -1.8 -0.4 3.6 -5.1 1.1 0.1 -2.4 3.4 -0.1 -0.5 -2.7 3.2
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sources of uncertainty that could significantly impact inflation in 2013. We are forecasting this years IPCA at 5.5%, and next years at 5.3%, assuming that local gasoline prices will increase further this year, and only part of the electricity price decline expected by the government will be implemented. Rates low for long, and F/X locked in a range; at least reforms are moving. Following a period of hyperactive economic policy actions, we expect less activism in 2013. As such, monetary authorities should keep the Selic rate at 7.25% for a prolonged period, starting a tightening cycle only in 4Q13. Eventual inflationary pressures should initially be contained using macroprudential instruments, and even some F/X appreciation could be allowed, provided the manufacturing industry and exports are in good shape. In the near term, the BRL range of 2.0-2.1 versus USD should preserve, without relying on changes to capital controls as flows are relatively neutral. Now that the worst has passed in terms of cyclical trends, BRL is less overvalued in our view, and the real interest rate is at a historically low level. The government is finally focusing more on improving the supply side of the economy, after spending much of its efforts on demand-boosting initiatives. The supply side agenda is dedicated to accelerating infrastructure investment, promoting a broad-based tax relief, implementing a pension reform, and overhauling private capital markets. However, at the same time, the government threatens the market and entrepreneurs with protectionist measures, as well as unilateral shifts in the regulatory environment that reduce the visibility of investment and overshadow most of the structural improvements of late.
Less policy activism, more reforms Growth is accelerating in 2H12, but sustainability through 2013 is the main challenge. Inflation well behaved on regulatory factors, keeping rates and F/X unchanged. With the worst behind us, government is becoming more focused on supply-side reforms. Fundamentals and politics in 2013 Growth back to potential in 2013, following two years of underperformance. After posting a 7.5% GDP growth rate in 2010, Brazils performance has been disappointing, slowing to 2.7% in 2011, and to an expected 1.4% this year. Last years deceleration was self-inflicted, but it was aggravated by negative global factors and a downward credit cycle. These factors also delayed the effects of the broad policy easing implemented since August 2011, but we are starting to see the economy gaining traction, and Brazils growth pace finally rebounded to around 4.5% in 2H12. An improvement in consumption is leading the initial recovery, but we are looking for the resumption of capex and infrastructure to provide more sustainability to the growth outlook in 2013. The recovery in investments amid a murky global scenario is the main challenge ahead. We forecast real GDP growth at 4.1% next year, with investment expansion improving from -2.6% this year to 6.0% in 2013. Another important assumption is a normalization in credit markets. It seems credit is now growing at a more sustainable pace of 16% (from 25%p.a. between 2005 and 2011), and NPL rates are stabilizing after spiking over recent quarters. 2013 IPCA will juggle upward cyclical pressures and downward regulatory factors. Labor markets remained tight during the soft patch, keeping wage pressures and inflation risks high, as well as depressing corporate profits. Inflation declined from the September 2011 peak of 7.3% to 4.9% last June, but has already accelerated to 5.5%. Slow global growth helps to anchor inflation, but domestic pressures are a source of concern. While fresh food and agricultural commodities prices will play an important role in inflation dynamics ahead, gasoline, energy prices and transportation fees will also be key
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A brave new year We expect the economy to expand 3.6% in 2013 However, downside growth risks from the US fiscal cliff remain Reforms are expected to continue next year, as the new government gains traction Fundamentals and politics in 2013 Domestic demand should offset moderation in external demand. The Mexican economy expanded solidly during most of 2012, supported by broad-based growth in services and industrial activities. While the external sector has been the main engine of economic growth on the back of a vigorous manufacturing boom, consumer credit, employment and investment continue to show positive rates of expansion. Such conditions have supported Mexicos resilience to the moderation in the US, despite their important economic and financial ties. Looking toward 2013, several risks are starting to take shape, particularly challenges affecting the global economy and the prospects for structural reforms in Mexico. First, the uncertainty behind the US fiscal cliff could dent consumption and investment confidence worldwide, which would impact the Mexican economy in spite of its recent over-performance. Hence, while we are maintaining our 3.6% annual growth forecast for next year, we acknowledge that risks remain to the downside. It is time for reforms. Indeed, the second challenge facing Mexico stems from the potential scope for reforms. As was the case recently with the approval of labor reform, we anticipate domestic politics to take center stage in 2013 as the incoming administration looks set to push further on structural reforms. In this context, we believe the recent approval of labor reform, proposed by President Caldern under the new fast-track status, reflects the political willingness amongst lawmakers. Such collaboration suggests the PRI can count on the opposition (mainly the PAN) to support Pea Nietos plans to open the energy sector and simplify the tax code, particularly as both reforms are not likely to differ much from what the outgoing administration proposed. Hence, the prospects of such reforms remain better positioned than they have looked for years.
Tackling fiscal and energy reforms. The fiscal reform will intend to increase tax revenues by raising the value added tax (possibly by including food and medicine), and close loopholes and simplify collection in payroll and income tax schemes. We are penciling in that an increase in the VAT in food and medicines from 0% to 10% would increase tax collection by 1.6% of GDP, which could have a one-off effect on consumer prices of around 100bp in 2014E. The other important fiscal challenge will be to reduce states dependence on federal participations by enforcing local governments to collect taxes. On the energy front, it is not clear yet if the reform will be intended to further increase private participation in the crude oil industry, or if natural gas and electricity will be favored instead. Even though the road for reforms is likely to be bumpy, we believe both bills will go through Congress. We should also keep in mind that a broader proposal to allow for further private sector participation in key sectors such as transportation and telecommunications cannot be discarded. Banxico to hold rates but keep a hawkish bias. While we expect monetary policy to remain on hold in 2013, the sustained economic expansion, combined with potential second-round effects (i.e., stemming from higher public-price adjustments), could push the central bank to hike its policy rate sooner rather than later. Overall, we remain reasonably optimistic. Next year should confirm that the external sector is witnessing a structural change driven by further investment in manufacturing. In addition, we think sound fundamentals, healthy growth and the prospects for reforms, should favor a stronger peso, potentially reaching 12.00 by yearend.
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Six more weeks of fiscal cliff if you dont jump off one first
Michael FeroliAC (1-212-834-5523) With the election behind us, the fiscal cliff is now the predominant issue for the US economy The fate of the upper-income Bush tax cuts remains the key stumbling block to reaching a broader deal There are several paths to compromise, none of which would matter much for the economy or the deficit The election has settled one source of uncertaintywho will set policybut another source of uncertainty remainshow will the fiscal cliff be resolved. Unless the President and Congress reach an agreement, almost $600 billion of fiscal tightening is set to hit the economy on January 1, 2013. Out of this $600 billion, about is higher taxes, and about is reduced federal spending. Should all of this tightening be realized, the economy would almost certainly sink back into recession. In principle, avoiding the fiscal cliff is simple; in practice, there are sharp ideological differences that complicate the issue. Among these differences, none is greater than the fate of the upper-income Bush tax cuts. These cuts amount to around $50 billion per year of extra federal revenue. Compared to the $600 billion fiscal cliff, or the more than $1 trillion annual deficit recently recorded, $50 billion may appear to be a relatively trivial reason for holding up the entire cliff deliberations. Even so, small disagreements can have large consequences. Both Democrats and Republicans have vowed to block the extension of the Bush tax cutsfor both lower- and middle-income taxpayers as well as upper-income taxpayersif they dont get their way on the upper income portion of the tax code. Thus, the resolution of the $50 billion in upper income revenue has implication for the larger $300 billion sum associated with the entirety of the Bush tax cut package. And since the resolution of the Bush tax cuts is likely to be central to any larger deal on the fiscal cliffand on the debt ceiling for that matterthe fate of the upper-income tax cuts is a small but critical keystone in any deal to construct a bridge over the fiscal cliff as a whole. There are essentially three ways this could be resolved. First, either one side or the other completely concedes the issue. This seems somewhat unlikely given that each side has legislation-blocking power. Second, neither side concedes anything on the issue, and we go over the cliff
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entirely. This is possible but certainly not appealing. Third, some middle ground is found.
Table 52: Income tax rates for 2012
Taxable income Single Married, filing jointly Up to $8,700 Up to $17,400 $8,701 to $35,350 $17,401 to $70,700 $35,351 to $85,650 $70,701 to $142,700 $85,651 to $178,650 $142,701 to $217,450 $178,651 to $388,350 $217,451 to $388,350 Over $388,351 Over $388,351
Source: J.P. Morgan economics
Tax debate heats up The origin of the current dispute lies with the 2001 and 2003 tax cuts, which reduced tax rates across the board and also made the tax code less onerous through several non-rate provisions, such as increased generosity of certain deductions and credits. Those two tax acts, which had the legislative acronyms EGTRRA and JGTRRA but are more commonly known as the Bush tax cuts, were both set to expire at the end of 2010, and the tax code would revert to its pre-2001 status. In late 2010 President Obama pushed to extend only the lower- and middleincome portion of the Bush tax code, but this policy preference was blocked in the Senate. A deal was reached in early December 2010 to extend the Bush tax cuts for two years, and a 2%-pt reduction in the payroll tax was added as a concession from the Republicans to the President and the Democrats. The two-year extension of the Bush tax cuts is now about to expire, and getting to a compromise extension looks more difficult now than in 2010: the Obama Administration has insisted never again on extending the upper-income provisions of the Bush tax cuts. The Republican majority in the House, which had been elected but not yet seated at the time of the lame-duck deal in December 2010, has vowed that taxes should not be increased at all, hence the current impasse.
House Speaker Boehner recently reiterated his position that he is open to higher tax revenue, not higher tax rates. This would seem to imply that there are a few potential avenues of compromise, whereby each side could claim victory and save face. One compromise would be to allow the upper income, non-rate provisions of the Bush tax code to lapse. Prior to 2001, the personal exemption (which allows taxpayers to reduce their taxable income by $3800 for each member of the taxpayers household) was phased out for upper-income taxpayers. This phaseout was eliminated in the Bush tax cuts. In addition, prior to 2001, the amount of itemized deductions available to upper-income taxpayers was limited (the so-called Pease limitations). This was suspended in the Bush tax cuts. Both of these measures affect upper income tax revenue but not upper income tax rates, and so allowing them to lapse may be an acceptable route to an agreement. A second avenue of compromise would be revenue not directly tied to the expiration of the Bush tax cut. One such source of revenue that became a campaign topic is carried interest. Compensation of fund managers tied to the profit of the fund is currently taxed as capital rather than ordinary income. Taxing such compensation as ordinary income would produce relatively small revenue, about $2 billion per year, but could be on the table nonetheless. Similarly, there are numerous elements of the corporate tax code that could generate some revenue while allowing Congressional Republicans to have kept their promise on not allowing individual income tax rates to have increased. A third compromise approach would see the Republicans yield some on upper income tax rates, but only provided that the definition of upper income is revised higher. For example, House Minority leader Pelosi and Senator Schumer have proposed a millionaires tax. The Administration hasnt thrown its support behind this proposal, perhaps because it wouldnt do much to raise revenue. While an official score is not available, the revenue raised would obviously be significantly less than the $32 billion that would be raised by increasing marginal rates for those making over $200,000.
An important point to note about all three of the potential compromises mentioned above is that they each raise a fairly small amount of revenue. Indeed, even if all of the upper income measures expired they would only address about one twentieth of the deficit. At this point, however, the fiscal cliff debate is more about fulfilling campaign promises and parrying the opposition than about making a serious dent in the deficit. It is also worth noting that the status of dividend and capital gains tax rates is especially murky. It is unclear whether the Republican opposition to higher tax rates applies to these forms of income as well. However, the prior warning applies here as well: a reversion to higher dividend and capital gain rates will make only a minor impact on the deficit. (See The impact of higher dividend and cap gains taxes, GDW, Oct 5, 2012.)
Table 54: Fiscal cliff and upper-income tax provisions
Fiscal cliff Bush tax cuts Upper-income (>$200k) Bush provisions Upper-income rates (36% and 39.6%) Pease deduction limitation Personal exemption phase-out Treat dividends as ordinary income Tax long-term capital gains at 20% Memo: FY12 federal deficit
Source: J.P. Morgan economics.
0 1
0.33 0.5
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Myths of leadership change The last leadership change was in March 2003. The economy was suffering from deflation and the shock of SARs. These events were more important for the market and economy than leadership change. Events in 1989 led to Deng Xiaopings go for growth policies. In the early 1990s growth and inflation was high. In 1993 the PBoC eventually tightened policy and devalued the Renminbi by a third. We find it shocking that, based on historical records, commentators claim that leadership change will result in specific economic or market events. The two events are not statistically significant and past conditions were very different.
Figure 56: China CPI and Nominal GDP
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Figure 58: Members of Standing Committee of Political Bureau of the China Communist Party (CPC)
Name September 2002 Jiang Zemin Li Peng Zhu Rongji Li Ruihuan Hu Jintao Wei Jianxing Li Lanqing October 2007 Hu Jintao Wu Bangguo Wen Jiabao Jia Qinglin Zeng Qinghong Huang Ju * Wu Guanzheng Li Changchun Luo Gan November 2012 Xi Jinping Li Keqiang Zhang Dejiang Yu Zhengsheng Liu Yunshan Wang Qishan Zhang Gaoli
Source: Baidu website, * Huang Ju died in June 2007.
Positions General Secretary of the CPC, President of PRC, Chairman of the Central Military Commission Chairman of the Standing Committee of the National People's Congress NPC Premier of the State Council Chairman of the National Committee of the Chinese People's Political Consulative Conference (CPPCC) Vice President of PRC, General Secretary of the CPC, Vice Chairman of the CPC Central Military Commission Member of the Secretariat of the CPC Central Committee, Secretary of the Central Commission for Discipline Inspection Vice Premier of the State Council General Secretary of the CPC, President of PRC, Chairman of the Central Military Commission Chairman of the Standing Committee of the NPC Premier of the State Council Chairman of the National Committee of the Chinese People's Political Consulative Conference (CPPCC) Vice President of PRC, General Secretary of the CPC, President of the Party School of the CPC Central Committee Vice Premier of the State Council Secretary of the Central Commission for Discipline Inspection State Councilor, Secretary of the Political and Legislative Affaires committee of the CPC Central Committee General Secretary of the CPC, President of PRC, Chairman of the Central Military Commission Member of the standing committee, Premier of the State Council Member of the standing committee (Chongqing Party Secretary) Member of the standing committee (Shanghai Party Secretary) Member of the standing committee (senior propaganda official) Secretary of the Central Commission for Discipline Inspection (Vice Premier in charge of economic affairs) Member of the standing committee (Party Secretary in Tianjin)
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Outperformers Materials, telecom IT Materials, telecom CD, CS, industrials, IT, utilities CD, CS, industrials, IT CD, CS, industrials, IT
Underperformers Utilities CS, financials, utilities Financials, IT, utilities Financials Financials, telecom Financials, telecom, utilities
Table 57: Korea politicsPolicy directions regarding the chaebol reform of each presidential candidate
Chaebol Cross-shareholding Park Geun-hye (SNP) Establishment of the fair trade, and regulation on circular-shareholding structure Ban on new circular-shareholding. Seems to be under a discussion about what should be done to the existing circularshareholding structure, but leaning towards no regulation on already existing circular-shareholding structure Under a discussion Will prudently review. Against the reinforcement on the nonmonetary institutions Will lower corporate tax rate. Reviewing increasing tax for financial income Moon Jae-in (DUP) Establishment of the fair trade, regulation on the chaebol's corporate governance and ownership structure Ban on both new and existing circularshareholding structure altogether Ahn Cheol-soo (Independent) Establishment of the fair trade, internally reform the chaebol's corporate governance Ban on the circular-shareholding structure after some grace period
Reintroduction Will lower the ceiling of non-financial companies investment on banks to 4% from the current 9% Will create new marginal tax rate bracket of both income tax and corporate tax for high income group. Tax increase for financial income
It is important to be consistent. Hence, against the reintroduction Will lower the ceiling of non-financial companies investment on banks to 4% from the current 9% Will increase effective corporate tax rate. Gradual increase in financial related tax
Source: Hankyung
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Source: Election Commission, J.P. Morgan estimates. Note: BN seats reduced to 137 after the withdrawal of the Sabah Progressive Party (SAPP) from BN and the defeat in the Kuala Terengganu byelection. However, PKR is now holding only 77 seats after the withdrawal and dismissal of four members, as well as the defeat in the recent Hulu Selangor by-election.
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but most of the new voters are registered in Johor, Selangor and Perak, where seats are already lost to the Opposition, where 4) More votes do not necessarily mean more seats for BN/PR (opposition alliance). J.P. Morgan analyses market impact. 1) Scenario A (BN wins 61% of seats, status quo), Scenario B (BN wins >61% but short of a two thirds majority), Scenario C (BN wins two thirds majority); all suggest policy continuity and an expected short term relief rally (big rally for outcome C). Sectors that benefit the most longer-term should include: Construction and Oil & Gas directly, and Banks, Property and Media indirectly. Top picks in these sectors include: IJM, Dialog, CIMB, IJM Land and Media Prima. Scenario D (BN wins 50-61%). Negative for market if <55%. >55% to 61% (provided PM Najib is not challenged from within) neutral for market given policy continuity, hence similar picks as above. Scenario D (PR wins): Sell and stay away, potential policy changes breed uncertainty, potentially for 9-12 months. Most impacted sectors: construction, property, transportation, gaming and stocks with perceived government linkages. Key stocks affected include: Tenaga, YTL Power, MMC, Gamuda, IJM, WCT, MRCB, UEM Land, SP Setia, IJM Land, Genting Malaysia and MAHB. Timing wise, given the monsoon season, it is not likely for elections to be held in Nov-Dec 2012. Given the extent of delays, there is likelihood that BN will go full term, ie dissolve parliament in Apr 2013.
Figure 61: 13th General Elections: Possible outcomes for BN (222 Parliament seats)
Source: CENSE.
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Economic Forecasts
GDP and CPI growth forecasts
The Americas United States Canada Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela Asia/Pacific Japan Australia New Zealand Asia ex Japan China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Africa/Middle East Israel South Africa Europe Euro area Germany France Italy Spain United Kingdom Emerging Europe Bulgaria Czech Republic Hungary Poland Romania Russia Turkey Global Developed markets Emerging markets Memo: Global PPP weighted Real GDP % over a year ago 2011 2012E 2013E 1.8 2.6 4.2 8.9 2.7 6.0 5.9 8.0 3.9 6.9 5.7 4.2 -0.7 2.1 1.3 7.4 9.3 5.0 6.5 6.5 3.6 5.1 3.8 4.9 4.0 0.1 4.6 3.1 1.5 3.1 1.7 0.6 0.4 0.9 4.8 1.7 1.7 1.6 4.3 2.5 4.3 8.5 3.0 1.3 6.1 3.8 2.2 2.2 2.9 2.7 1.4 5.4 4.3 5.0 3.9 6.0 3.5 5.0 1.7 3.5 2.6 6.1 7.6 1.2 5.6 5.7 2.3 5.0 5.3 1.5 1.2 5.8 3.0 2.2 -0.4 1.0 0.1 -2.3 -1.3 0.0 2.6 1.0 -1.1 -1.2 2.3 0.0 3.6 2.8 2.4 1.2 4.7 3.0 1.7 2.1 3.9 3.6 4.1 4.5 4.5 4.0 3.6 7.0 4.0 0.0 0.1 2.5 2.9 6.4 8.0 3.2 6.0 3.5 3.2 3.7 3.5 2.5 3.4 2.7 3.1 2.7 0.1 1.1 -0.1 -0.6 -1.6 1.8 2.6 1.5 0.9 0.5 1.6 0.8 3.0 3.7 2.5 1.0 5.1 3.1 1Q12 2.0 1.8 2.8 2.4 0.5 5.1 0.9 4.2 4.9 8.3 11.8 10.1 5.3 5.6 4.1 7.2 6.6 2.4 6.1 4.7 3.5 5.8 12.6 9.5 1.6 50.8 3.1 2.7 0.0 2.0 0.1 -3.2 -1.3 -1.2 2.4 -3.1 -3.5 2.4 0.5 3.7 3.0 1.7 5.4 3.6 Real GDP % over previous period, saar 2Q12 3Q12 4Q12E 1Q13E 2Q13E 1.3 1.9 2.4 -3.2 1.6 7.1 6.7 4.8 3.5 6.0 2.1 0.6 0.7 2.6 2.3 5.8 7.1 -0.4 5.3 6.0 1.1 5.9 0.9 -0.7 2.2 13.9 3.4 3.2 -0.7 1.1 -0.1 -3.3 -1.7 -1.5 1.3 -0.8 -0.9 1.6 1.9 1.5 1.8 0.4 4.3 2.4 2.0 1.9 3.9 5.0 4.8 3.0 2.8 3.0 2.1 5.5 9.0 3.5 -3.5 1.5 1.5 5.7 7.7 2.0 5.2 4.9 0.6 2.5 1.2 -3.9 3.5 2.0 2.0 1.6 0.0 1.0 0.0 -1.5 -1.2 4.1 0.4 -1.2 -1.0 0.5 -2.4 1.0 2.0 0.6 4.5 2.6 2.0 2.0 4.5 10.0 4.6 4.0 3.8 5.5 3.5 6.0 -9.0 0.0 -2.0 1.8 3.5 6.2 8.2 2.5 5.0 3.0 3.5 3.5 1.2 3.2 3.8 1.5 2.8 -1.3 -1.5 -1.0 -1.5 -2.0 -2.5 0.5 1.8 -1.3 -1.0 0.5 -1.2 3.0 1.9 0.2 5.0 2.6 1.0 2.1 3.4 2.0 3.8 4.0 4.2 5.0 4.0 8.0 12.0 -4.0 1.0 3.8 3.7 6.3 8.0 3.5 5.8 3.0 3.0 3.5 4.5 4.9 3.5 1.5 4.9 5.4 0.0 1.0 -0.5 -0.5 -2.5 1.5 2.7 2.1 1.0 1.3 1.2 3.5 2.4 0.9 5.1 3.0 1.5 2.1 3.7 2.5 4.0 5.0 5.5 3.0 3.2 8.0 7.0 0.0 1.6 2.5 3.3 6.5 8.2 3.5 6.0 4.0 4.0 3.0 4.5 1.6 3.5 2.0 6.1 3.3 0.8 2.0 0.5 0.5 0.0 2.0 2.4 1.0 1.5 2.3 -0.4 3.0 2.7 1.4 5.2 3.3 3Q13E 2.5 2.2 4.0 2.0 4.3 5.0 5.5 3.0 3.3 7.0 9.0 3.0 1.3 1.8 2.0 6.8 8.2 5.0 6.8 4.0 4.5 3.5 4.5 4.1 3.8 2.0 6.1 3.6 1.3 2.5 1.0 1.0 0.0 2.5 3.7 4.3 1.8 3.0 3.2 4.0 3.2 1.9 5.6 3.8 Consumer Prices % over a year ago 4Q11 2Q12 4Q12E 2Q13E 3.3 2.7 7.2 9.6 6.7 4.0 3.9 5.5 3.5 4.5 8.3 28.5 -0.3 3.1 1.8 4.9 4.6 5.7 8.4 4.1 4.0 3.2 4.7 5.5 1.4 4.0 2.5 6.1 2.9 2.6 2.6 3.7 2.7 4.6 6.4 2.4 4.1 4.6 3.4 6.7 9.2 3.8 2.7 5.7 4.2 1.9 1.6 6.0 9.9 5.0 3.1 3.4 5.1 3.9 4.1 8.0 22.3 0.2 1.2 1.0 3.9 2.9 4.2 10.1 4.5 2.4 1.7 2.9 5.3 1.7 2.5 1.6 5.7 2.5 2.1 2.3 3.6 1.9 2.8 5.0 3.4 5.5 4.0 1.9 3.8 9.4 2.8 1.8 4.6 3.3 1.9 2.4 6.0 10.0 5.5 2.5 3.1 5.1 4.4 3.0 7.6 18.5 0.0 1.7 1.4 3.4 2.2 3.4 9.8 3.9 1.9 1.1 2.3 4.5 2.1 3.3 1.3 5.6 2.5 2.1 1.9 3.2 3.4 2.6 6.0 2.9 5.8 3.1 4.7 6.8 7.3 2.8 1.9 4.4 3.2 1.7 2.0 6.8 11.0 5.6 3.1 3.2 5.4 4.1 2.8 7.2 30.2 -0.2 2.7 1.5 3.9 3.3 3.4 9.0 2.2 3.0 1.2 2.3 4.0 1.8 3.0 1.5 5.8 1.9 1.8 1.3 2.3 2.9 2.5 6.3 2.4 4.7 2.5 6.4 7.4 7.5 2.8 1.6 5.0 3.3
Source: J.P. Morgan economics, 9 November 2012. Note: For some emerging economies, 2012-2013 quarterly forecasts are not available and/or seasonally adjusted GDP data are estimated by J.P. Morgan. On July 6 we shifted to using concurrent nominal GDP weights in computing our global and regional aggregates from a static 5-year average GDP weight. We maintain the use of current FX rates but still report PPP-based aggregates. For details, see research note "Global economic aggregates get new weights in July 6, 2012 GDW.
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2.8
2.7
2.6
2.5
0.8
1.2
1.2
1.1
-2.2
-2.1
-0.8
-0.3
5.3
4.2
0.1
2.5
8.2
7.0
5.2
6.0
6.8
8.2
4.0
4.5
17.9
17.8
11.9
12.9
0.2
3.7
2.5
3.0
3.1
3.3
3.5
3.0
9.6
8.4
7.5
7.5
8.2
8.3
6.5
6.5
3.6
1.7
2.0
2.5
4.1
5.5
2.0
4.0
3.9
5.4
4.2
3.6
88
2010 79.2 20.8 0.0 79.1 23.7 -2.8 68.9 18.1 13.1 46.3 19.6 34.1 85.1 20.1 -5.3 65.0 19.7 15.3 61.3 22.3 16.4 79.8 24.1 -3.9
Share of Real GDP 2011 2012E 80.3 22.5 -2.7 77.4 24.8 -2.2 69.5 21.7 8.8 45.7 20.7 33.6 86.6 19.9 -6.4 64.2 17.4 18.4 62.1 22.2 15.7 78.9 26.1 -5.0 79.9 24.1 -4.0 77.6 23.5 -1.0 70.2 22.7 7.1 45.8 25.1 29.1 87.7 20.8 -8.5 64.2 16.8 19.0 60.7 25.9 13.4 77.9 26.6 -4.5
2013E 80.9 24.6 -5.5 78.1 22.5 -0.6 70.4 23.8 5.8 46.3 25.3 28.4 88.7 21.1 -9.8 63.4 16.8 19.8 60.7 27.7 11.6 77.8 27.7 -5.6
Contribution to Real GDP growth 2010 2011 2012E 2013E 7.6 3.8 5.3 3.5 2.8 4.1 3.9 3.8 5.4 2.5 2.9 1.4 -0.6 -2.9 -1.4 -1.7 3.9 4.3 2.3 1.6 2.7 1.7 1.9 1.8 2.1 2.1 -0.8 -0.6 -0.9 0.5 1.1 0.4 4.3 4.3 3.6 3.0 2.3 3.6 3.3 2.3 4.1 4.6 1.7 1.9 -2.0 -3.9 -1.4 -1.2 14.8 4.9 1.5 2.5 3.7 1.6 0.8 1.6 0.0 2.1 4.8 0.8 11.1 1.2 -4.1 0.1 2.9 3.1 2.2 2.7 3.4 4.1 3.1 3.4 1.0 0.4 1.4 0.9 -1.5 -1.4 -2.2 -1.6 10.7 4.0 1.2 3.4 2.2 1.8 0.8 1.3 6.2 -1.5 -0.4 0.6 2.4 3.8 0.8 1.5 7.8 0.1 5.8 2.7 3.2 0.8 2.2 1.6 5.1 -0.1 5.2 2.5 -0.5 -0.7 -1.6 -1.4 9.2 8.5 2.8 3.7 4.9 5.8 1.2 2.8 8.6 4.2 1.3 2.1 -4.4 -1.5 0.3 -1.2
2010 4.2
2013E 4.0
1.4
3.2
3.0
2.5
11.6
15.8
6.3
5.7
0.1
0.5
3.0
3.0
7.9
8.0
5.5
5.5
-1.5
-2.9
1.0
1.5
3.3
3.0
1.0
3.0
5.7
8.9
8.7
6.5
89
Fed funds O/N rate SELIC O/N Repo rate Disc rate Repo rate Reference Reference Refi rate Bank rate 2-wk repo 2-wk dep Base rate 7-day interv Base rate Repo rate Repo rate Effective rate Cash rate Cash rate O/N call rate Disc. wndw 1-yr working Base rate BI rate Repo rate O/N rate Rev repo 1-day repo Official disc.
16 Dec 08 (-87.5bp) 8 Sep 10 (+25bp) 10 Oct 12 (-25bp) 17 Jul 09 (-25bp) 12 Jan 12 (-25bp) 24 Aug 12 (-25bp) 12 May 11 (+25bp) 28 Sep 12 (+25bp) 5 Jul 12 (-25bp) 5 Mar 09 (-50bp) 1 Nov 12 (-20bp) 30 Oct 12 (-25bp) 29 Oct 12 (-25bp) 7 Nov 12 (-25bp) 29 Mar 12 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) N/A 2 Oct 12 (-25bp) 10 Mar 11 (-50bp) 5 Oct 10 (-5bp) 17 Dec 08 (-100bp) 7 Jul 12 (-31bp) 11 Oct 12 (-25bp) 9 Feb 12 (-25bp) 17 Apr 12 (-50bp) 5 May 11 (+25bp) 25 Oct 12 (-25bp) 17 Oct 12 (-25bp) 30 Jun 11 (+12.5bp)
6 Dec 12 On hold 6 Dec 12 On hold 19 Dec 12 On hold 27 Nov 12 4Q 12 (-25bp) 26 Nov 12 On hold 5 Dec 12 5 Dec 12 (-25bp) 7 Jan 13 Feb 13 (+25bp) Dec 12 On hold 22 Nov 12 On hold 20 Nov 12 N/A
3.71 3.67 3.67 3.67 3.67 4 Dec 12 4 Dec 12 (-25bp) 3.00 2.75 2.75 2.75 2.75 5 Dec 12 Sep 13 (+25bp) 2.50 2.50 2.50 2.75 2.75 30 Oct 12 On hold 0.05 0.05 0.05 0.05 0.05 13 Dec 12 On hold 0.50 0.50 0.50 0.50 0.50 On hold 6.00 6.00 6.00 6.00 6.00 13 Dec 12 On hold 2.75 2.75 2.75 2.75 2.75 12 Dec 12 On hold 5.75 5.75 5.75 5.75 5.75 18 Dec 12 Jan 13 (-25bp) 8.00 7.75 7.75 7.75 7.75 Jan 13 On hold 3.00 3.00 3.00 3.00 3.00 13 Dec 12 13 Dec 12 (-25bp) 3.25 3.00 3.00 3.00 3.00 28 Nov 12 On hold 2.75 2.75 2.75 2.75 2.75 4Q 12 On hold 1.875 1.875 1.875 1.875 1.875
Source: J.P. Morgan economics, 9 November 2012. Note: *Refers to trough end-quarter rate from 2009-present Effective rate adjusted on daily basis. Aggregates are GDP-weighted averages
90
Commodity Forecasts
Energy WTI crude (US$/bbl) Brent Crude (US$/bbl) Natural gas (US$/mmbtu) Precious Metals Gold (US$/oz) Silver (US$/oz) Platinum (US$/oz) Palladium (US$/oz) Base Metals Aluminum (US$/metric ton) Copper (US$/metric ton) Nickel (US$/metric ton) Zinc (US$/metric ton) Lead (US$/metric ton) Tin (US$/metric ton) Agriculture Corn (US$/bushel) Wheat (US$/bushel) Soybeans (US$/bushel) Soybean Oil (US cents/lb) Soybean Meal (US$/short ton) Sugar (US cents/lb) Current 85.6 109.1 3.57 1728 32.4 1564 608 1951 7635 16036 1906 2177 20408 7.2 8.6 14.1 47.4 431.4 19.4 4Q12E 87.0 105.0 3.25 1725 30.0 1500 650 2075 8300 17750 2000 2050 20750 8.8 9.5 16.6 53.0 515.0 18.0 1Q13E 95.0 112.0 4.25 1750 30.0 1575 700 2100 8500 18500 2050 2100 21500 8.5 9.3 15.8 51.5 482.0 18.5 2Q13E 90.0 105.0 4.00 1775 30.0 1650 750 2200 8700 19000 2100 2250 22000 8.3 8.8 14.1 48.8 420.0 20.0 3Q13E 111.0 120.0 4.25 1800 30.0 1725 800 2250 9000 19500 2150 2300 22500 7.0 7.5 14.0 53.1 393.5 20.0 4Q13E 106.0 115.0 4.50 1775 30.0 1800 825 2300 9200 20000 2200 2375 23000 6.5 7.0 13.0 50.9 366.1 20.0 2011 95.1 110.9 4.03 1572 35.3 1721 733 2400 8816 22866 2193 2398 26000 6.8 7.1 13.2 55.1 343.6 27.1 2012E 94.0 110.0 2.75 1670 30.5 1528 643 2040 8054 17720 1961 2024 20880 7.3 7.8 15.1 53.1 445.2 21.2 2013E 100.5 113.0 4.25 1775 30.0 1688 769 2213 8850 19250 2125 2256 22250 7.6 8.1 14.2 51.1 415.4 19.6
Source: Bloomberg, Exchanges, J.P. Morgan Commodities Research. Note: Forward prices are the average of the contracts in the quarter. Current as of 12 November 2012.
91
92
Table of Contents
Argentina .................................................................94 Brazil........................................................................96 Chile .........................................................................98 China ......................................................................100 Colombia................................................................102 India .......................................................................104 Indonesia ................................................................106 Malaysia .................................................................108 MENA....................................................................110 Mexico ...................................................................112 Peru ........................................................................114 Philippines .............................................................116 Poland & Central Europe .......................................118 Russia .....................................................................120 South Africa ...........................................................122 South Korea ...........................................................124 Taiwan ...................................................................126 Thailand .................................................................128 Turkey ....................................................................130
Argentina
Argentina micro investment case Trading at 3.1x 2013E P/E, Argentina in the most derated EM YTD and also the cheapest. Unfortunately, policy risk remains high, and heterodox macro policy is expected to continue. Recent noise regarding a potential pesofication of US debt has boosted country risk, placing Argentine CDS below only Greece. However, our economists believe that a pesofication of US debt held by foreigners is unlikely, while economic activity should benefit in 2013 from higher soy prices and crops, stronger activity in Brazil (one of the main trade partners of Argentina) and increased reserves after the strong decline in capital outflows YTD. In our view, the release of better economic figures and the potential payments in US dollar of debt coupons could act as a driver for the equity market in the short term. In addition, after weak earnings this year, we expect Argentine companies to post 6.3% earnings growth in 2013. Implications of anemic global growth Argentina is the cheapest EM equity market, and its trading at historical lows. In our view, the market is highly sensitive to any signs of policy change. While a structural long-term change is still highly unlikely, our view is that at current levels the market is incorporating an excessively negative scenario. In this sense, any confirmation of less extreme measures (for example if the US debt is finally not pesofied) could create space for some multiple re-rating. What are we tracking? Unfortunately, here is where the main question mark remains on Argentina. While in terms of reserves, capital outflows, and economic activity Argentina is currently standing in a better position, the most relevant factors that could make this recovery different, which are policy risk and heterodox macro policy, dont seem to have changed significantly. Stock recommendations While macro risks remain high, key proxies for an improved top-down environment would be financials, such as the ADR of Banco Macro. The bank is still posting strong results and has lower risk of political intervention than other sectors, in our view.
Diego CeledonAC
(56-2) 425 5245 diego.celedon@jpmorgan.com Bloomberg JPMA CELEDON <GO> Inversiones y Asesorias Chase Manhattan Ltda
Macro Outlook
Real GDP, % change Consumption Investment Net trade Consumer prices, % oya % Dec/Dec Producer prices, % oya Government balance, % of GDP Exchange rate, units/$, eop Merchandise trade balance (US$ bn) Exports Imports Current account balance % of GDP International reserves, (US$ bn) Total external debt, (US$ bn) Short term Total external debt, % of GDP Total external debt, % of exports Interest payments, % of exports
2005-09
6.7 4.8 2.3 -0.4 8.8 9.1 9.7 0.6 3.3 14.9 53.7 38.8 7.7 3 39.9 144.2 31.2 57 211 8.0
Average
2010
9.2 7 4.2 -2.1 10.5 10.9 14.6 -1 3.97 14.3 68.1 53.9 2.9 0.8 53.1 146.1 33 41 181 5.0
2011
8.9 8.3 2.5 -1.9 9.8 9.5 12.9 -1.5 4.3 13.5 84.3 70.7 1.5 0.3 44.3 146.5 35.9 33 145 5.0
2012f
3.3 4.7 -1 -0.4 9.5 9.6 10 -2 4.8 10.2 80.7 70.6 -0.5 -0.1 41.3 146.9 37.8 33 148 4.0
2013f
2.2 2.3 0.8 -0.9 10 11 15 -0.5 5.7 4.1 88.1 84 -4.5 -1 39.3 147.8 39.7 34 135 2.0
Source: J.P. Morgan Economics, 1. Contribution to growth of GDP 2. Debt with original maturity of less than one year 3. Exports of goods, services, and net transfers.
Key Financial Data EPS Growth 2010 20.3 2011E 50.1 2012E -18.2 2013E 6.3
+1SD
-1SD
98 99 00 01 02 04 05 06 07 08 09 11 12
94
Top pick
Top picks Banco Macro Price (US$) $13.81 Ticker BMA Rating OW
13E 2.6
13E 2.92
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
(375824002)
DY
300000
2013
95
Brazil
Brazil micro investment case 2013 will be all about the confirmation of a V-shape recovery for Brazil. J.P. Morgan expects growth to pick up from 1.4% in 2012 to 4.1% in 2013, the largest change (+2.7 p.p.) in all EM (ex-Taiwan). Investors have been frustrated with the wait for a recovery ever since the start of 2012, and activity data will be center stage. Specifically, industrial production and credit releases tend to be key, as are the most laggard indicators. The first will show if investment is picking up after the slew of industrial stimulus measures implemented in 2013. The latter will have to show an improvement in trends for NPL and credit growth. Implications of anemic global growth Brazils P/E at 10.7x is cheaper than the LatAm average, cheaper than Global, and in line with EM. The multiple is also in line with Brazils average. However, we believe there is room for re-rating considering that interest rates are at a historical low and that Brazil is far from the peak multiple of 13.7x reached in 2Q09, exactly at the time when a V-shape recovery was starting to materialize. What are we tracking? We expect the recovery will be atypical as it will have many different push factors. In the past, recovery has relied mostly on monetary policy. This will continue to be key, especially now that real rates are ~2%, a record low. Now, however, both fiscal policy and regulatory issues should help. On the fiscal side, the government enacted a R$45 billion tax cut. On the regulatory side, government actions have led to lower banking spreads, a reduction in energy cost starting in 2013, and overall stimulus for the industrial side. Stock recommendations We are OW the industrial side, which gets the largest government stimulus. We do that through CCR. To engage in the cyclical recovery, we like consumer discretionary names Lojas Americanas, AEDU, and Totvs. Growth should also benefit financials, where Bradesco and BVMF are our vehicles. We like earnings visibility, and both Natura and Iguatemi offer that. We get exposure to the global recovery through Gerdau, which has exposure to the U.S. On the other hand, we dont like the flat steel business in Brazil and would avoid CSN. Recent regulatory changes have impaired Eletrobas.
Source: J.P. Morgan. 1. Contribution to growth of GDP; 2. Debt with original maturity of less than one year. 3. Exports of goods, services and net transfers.
Macro Outlook
2010 2011E 2012E 2013E
.
96
Mkt cap (US$MM) 2,294 55,126 12,271 15,888 13,775 2,012 8,253 11,605 3,199 7,159 6,671
12E 29.3 10.8 14.6 27.3 13.4 24.2 45.3 26.1 24.2 NM 2.8
P/E (x)
13E 17.1 9.5 12.9 21.9 12.6 21.5 29.4 23.0 20.6 23.3 2.3
12E 1.1 3.0 0.9 0.7 1.3 1.1 0.4 2.1 1.7 (0.6) 3.4
EPS (LC)
13E 1.9 3.4 1.0 0.8 1.4 1.2 0.5 2.4 2.0 0.4 4.1
Div. yield 13E (%) 0.1 3.6 0.0 4.1 2.2 1.2 1.1 3.6 2.0 11.2 7.2
ROE 13E (%) 11.1 17.9 NA 41.4 8.0 9.9 39.6 73.1 27.3 8.5 5.8
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
+1SD
-1SD
06
08
10
12
97
Chile
Chile micro investment case In our view, the recent underperformance of the Chilean market has not been related to macroeconomic issues (economic activity is still robust and has surprised on the upside YTD) or valuations (which despite not being compelling are practically in line with history) but to an aggressive equity issuance pipeline and a more complicated political and regulatory scenario, which has translated into negative news flow in sectors such as utilities, retail, and banks. Looking forward, and considering that we expect a positive economic scenario for 2013 (GDP growth of 4.5% and low inflation of 3.1%), we believe that a market recovery would probably be driven more by micro than macro events, such as (1) the approval of new power generation projects, likely to happen during 1H13; (2) a normalization of the rainy season, which starts in April/May; (3) the definition of ongoing projects to change maximum interest rates and credit regulation for retailers, and (4) the execution of important market events that are pressuring certain stocks, such as Enersis and Cencosuds capital increases. Implications of anemic global growth We see little room for a multiple rerating. The market is trading at 15.4x 2013E P/E, practically in line with history, being the second most expensive market in LatAm (after Mexico), while the valuation premium to the region, at 40%, is also in line with history. EPS growth estimates have corrected significantly (mainly in the utilities sector), so we now see limited downside risk. What are we tracking? The current account deficit has widened significantly, which could lead monetary authorities to consider FX intervention or introduce macroprudential measures, creating significant currency risk. On the other hand, the $160bn AUM pension fund system has also not been as active in equities as historically. Stock recommendations We remain positive on domestic consumption, for which we recommend CCU. Retail stocks that have underperformed could also benefit after the capital increase of Cencosud. On the other hand, we believe that Antofagasta is a good way to get exposure to stillsupportive copper prices. We would avoid Banco Santander as it trades at a premium to the rest of the Andean banks in a context of increased regulation (authorities are proposing to reduce the maximum interest rate) and lower-than-expected profitability (2012E ROE of 20% vs. prior levels above 25%).
98
Diego CeledonAC
(56-2) 425 5245 diego.celedon@jpmorgan.com Bloomberg JPMA CELEDON <GO> Inversiones y Asesorias Chase Manhattan Ltda
Macro Outlook
Real GDP, % change Consumption Investment Net trade Consumer prices, % oya % Dec/Dec Producer prices, % oya Government balance, % of GDP Exchange rate, units/$, eop Merchandise trade balance (US$ bn) Exports Imports Current account balance % of GDP International reserves, (US$ bn) Total external debt, (US$ bn) Short term Total external debt, % of GDP Total external debt, % of exports Interest payments, % of exports
2005-09
3.4 3.6 0.8 -1.0 3.9 3.6 7.1 6.9 538 16.0 58.0 42.0 3.0 1.9 20.3 58.0 11.9 35 73 3.0
Average
2010
6.1 6.6 8.1 -8.6 1.4 3.0 -2.0 -1.0 468 15.3 70.9 55.6 3.4 1.6 27.7 85.7 21.6 37 85 3.0
2011
6.0 6.0 4.0 -4.0 3.3 4.4 5.9 1.0 520 10.8 81.4 70.6 -5.4 -2.2 39.7 90.7 21.6 35 85 1.0
2012f
5.4 4.3 2.8 -2.1 3.1 2.6 2.8 1.0 490 4.3 80.4 76.1 -12.9 -4.6 39.7 94.7 21.6 33 87 1.0
2013f
4.5 3.2 5.5 -4.3 3.1 3.2 4.0 1.0 500 1.8 88.6 86.8 -19.6 -7.0 39.7 101.7 21.6 35 85 1.0
Source: J.P. Morgan Economics, 1. Contribution to growth of GDP. 2. Debt with original maturity of less than one year. 3. Exports of goods, services, and net transfers.
Key Financial Data EPS Growth 2010 28.3 2011E -7.2 2012E -7.1 2013E 16.2
+1SD
-1SD
95 97 00 02 04 06 08 10 12
Top picks
Top picks Antofagasta CCU Price (US$) GBp1,243 70.67 Ticker ANTO.L CCU Rating OW OW
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
PER
(3816) (3216)
(6267)
PBR
(5305)
DY 1000
J.P. Morgan forecast: end Dec12: 475 end Mar 13: 475 end Jun 13: 475 J.P Morgan
2013
2012
99
China
China micro investment case The economic debate in China for 2013 is polarized between: 1) the notable pick-up in social financing statistics in 3Q12 signals that monetary stimulus will support accelerating growth into 2013. Better PMIs is consistent with this. 2) The decline in profits results in a decline in capex. With fixed capital formation 47% of GDP the cut back in capex leads to a weaker labor market. As wage inflation falls from mid teens, todays high retail sales growth moderates. This is likely to result in lower growth. The polarization is also evident in the divergence between macro data-points (PMI, GDP growth, FAI) that suggest bottoming out vs. bottom up demand metrics (loans, car sales, SSSG, gaming revenues, advertising etc) which display momentum weakness. Out investment view is biased in favor of EPS revisions, making us overweight on China banks. Implications of anemic global growth Trade weakness is a concern particularly on trade with Europe, in turn impacting SME/ trade/ container shipping. Cheaper imports of coal (also reflecting global slow growth) hurt domestic players. In contrast, global weakness benefits China through lower prices of coking coal, iron ore and oil these not only help the steel sector but also cap inflation. Chinas slowdown is largely driven by its own imbalances and overcapacity, rather than solely a trade issue What are we tracking? Weak domestic demand, partially a function of overcapacity is impacting sales and margins. We therefore track (1) capacity utilization, (2) margins, (3) corporate cash flows, and (4) bank loans as key sector specific metrics. On the macro front, we focus on FAI. Stock recommendations Our key sector call is Banks (underperformed on NIM and asset quality fears). ICBC is our top pick. We like Geely due to a structural SUV demand uplift, Skyworth and Lenovo on volume expansion. Sinopec is a play on lower oil prices (which in turn explains our top avoids classification for Petrochina). BCIA is our pick on new terminal led growth, and CSCL on a freight rate rebound. An emerging dispersion between the haves and have nots in banking makes smaller banks, such as Minsheng challenged for capital and liquidity, least preferred. Lower oil prices impact Petrochina and lower coal prices weigh on Yanzhou Coal.
100
Sunil GargAC
(852) 2800 8518, sunil.garg@jpmorgan.com Bloomberg JPMA GARG<GO> J.P. Morgan Securtieis (Asia Pacific) Limited
99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Bloomberg, CEIC, October 2012. Note: Industrial profits as of September 2012.
M1 yoy growth
Source: CEIC.
Top picks ICBC- H Geely Automobile Holdings Ltd Lenovo Group Limited Skyworth Digital Holdings Beijing Capital Intl Airport Sinopec Corp - H China Shipping Container Lines Stocks to avoid China Minsheng Banking - H PetroChina Yanzhou Coal Mining - H
0.63 0.26 0.05 0.46 0.32 0.72 (0.02) 1.03 0.70 1.15
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 November 2012.
Newcastle Coal price (6600Kc, USD/t, LHS) Export growth (% oya, RHS)
Source: Bloomberg and CEIC.
Source: Bloomberg.
Absolute view (SHCOMP): SHCOMP remains one of the most challenged indices in our coverage. While treading bottom, we see substantial resistance on every rise (2100/2132/2164). Recent bearish stochastics cross-over also does not bode well.
May-11 Nov-11 May-12 Nov-12
Relative view (MSCI China vs. MXAPJ): Similar to the long-standing decline for SHCOMP, MSCI Chinas underperformance post early 2009 peak is continuing apace. An attempted breakout of this under-performance trend channel has been invalidated for now. We see little merit in being on the long side of SHCOMP either absolute or relative. We see considerable headwinds for SHCOMP on every rise and we see MSCI China's under-performance to remain in place for now. Up until recently, HSCEI had been outperforming SHCOMP, but this is over for now.
101
Colombia
Colombia micro investment case Colombia has been the best-performing LatAm market YTD given solid earnings growth and positive long-term outlook driven by a strong macro reform agenda and high growth potential. Nonetheless, economic activity has been somewhat disappointing, showing a faster-thanexpected deceleration. In our view, this is transitory and our economists expect a slight acceleration in growth next year to 4.5%. In our view, the release of more positive macro data, mainly IP and retail sales, could drive further appreciation of the market. On the other hand, we believe that the outcome of the ongoing peace talks with the FARCs could be a structural change for Colombia, and particularly positive for the oil companies, which have suffered from increased attacks this year. Implications of anemic global growth In our view, the attractive upside potential in Colombia comes mainly from earnings growth, as valuation multiples show little space for a re-rating. After the recent downward revisions to estimates, the Colombian market is trading slightly above the historical average, at 14.2x 2013E P/E. What are we tracking? The country should be more resilient to any economic downturn given the macro reform progress made in recent years, including the new fiscal rule and FTA with the US. On the other hand, it shows a higher dependence on oil prices. Stock recommendations We remain very positive on the medium-term Colombian macro outlook and capital markets intermediation potential but recognize that stock-picking is difficult due to valuations and liquidity. We concentrate on two stocks, Pacific Rubiales on one side, our top pick among Colombian oils, which should benefit from strong production growth in the medium term (other companies in the sector such as Gran Tierra could benefit from a positive outcome of the peace conversations with the FARCs), and Almacenes Exito, as a way to gain exposure to internal demand and low retail penetration. We believe Exitos rich valuationis justified considering its strong growth outlook. On the other hand, we would avoid Ecopetrol, as it is trading at a significant premium to its peers and we have a negative view on short-term production.
Diego CeledonAC
(56-2) 425 5245 diego.celedon@jpmorgan.com Bloomberg JPMA CELEDON <GO> Inversiones y Asesorias Chase Manhattan Ltda
Macro Outlook
Real GDP, % change Consumption Investment Net trade Consumer prices, % oya % Dec/Dec Producer prices, % oya Government balance, % of GDP Exchange rate, units/$, eop Merchandise trade balance (US$ bn) Exports Imports Current account balance % of GDP International reserves, (US$ bn) Total external debt, (US$ bn) Short term Total external debt, % of GDP Total external debt, % of exports Interest payments, % of exports
2005-09
4.7 3.6 2.2 -1.1 5.2 4.9 3.5 -0.1 2154 1.0 30.0 29.0 -4.6 -2.3 19.8 44.6 3.5 22 108 8.0
Average
2010
4.0 4.2 1.9 -2.0 2.3 3.2 1.7 -3.2 1920 2.1 40.8 38.6 -8.9 -3.1 28.0 57.7 4.4 19 109 7.0
2011
5.9 4.8 4.2 -3.1 3.4 3.7 5.5 -2.1 1939 0.8 54.9 54.1 -10.4 -3.1 31.8 61.9 4.9 18 89 5.0
2012f
4.3 3.8 2.8 -2.2 3.3 3.0 3.0 -0.8 1775 -1.1 57.1 58.1 -10.6 -2.9 36.8 62.6 4.9 17 88 4.0
2013f
4.5 3.7 1.5 -0.7 3.2 3.0 5.0 -1.0 1775 -2.5 64.7 67.2 -11.9 -3.0 40.8 64.3 4.9 16 80 4.0
Source: J.P. Morgan Economics, 1. Contribution to growth of GDP 2. Debt with original maturity of less than one year. 3. Exports of goods, services, and net transfers.
Key Financial Data EPS Growth 2010 2011E 25.1 2012E 15.7 2013E 14.2
+1SD
-1SD
97 99 01 03 05 07 10 12
102
Top picks
Top picks Pacific Rubiales Almacenes Exito Stocks to avoid Ecopetrol Price (LC) C$22.00 $56.46
Col$33,700.00
Rating OW N UW
12E
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
PER
(1252)
(2089) (3272)
1500 1000 500 0 Dec-02 Jan-04 Feb-05 Mar-06 Apr-07 May-08 Jun-09 Jul-10 Aug-11 Sep-12
Source: MSCI, Bloomberg, Datastream, J.P. Morgan.
PBR
(1161)
DY 0 500 1000
J.P. Morgan forecast: end Dec 12: 1775 end Mar 13: 1775 end June 13: 1775
J.P. Morgan
170 160 2013 150 140 130 120 2012 110 100 90 80 70 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12
103
India
India micro investment case We remain constructive on Indian equities as we go into 2013. The policy environment is improving, as evidenced in a series of announcements from the Government over the last two months. Growth appears to be troughing and inflation is expected to roll over into 1Q. The RBI has guided towards further monetary easing early next year. Additionally, likely increased commitment to public investments ahead of elections should support growth recovery. A substantial political calendar however implies volatility, both in terms of policy making and the markets likely reaction to these. Implications of anemic global growth A weak global growth outlook at this stage should be good for domestic demand led, current account deficit and capital deficit economies like India. Lower global commodity prices not only help lower inflation and anchor inflationary expectations, but also help address the twin deficits problem. Global Central Banks likely policy response of keeping liquidity easy should also be supportive of a recovery in the capex cycle. Such an environment should help Indian equities in relative terms. What are we tracking? We believe the most important indicators to track for next year from a domestic perspective are 1) Inflation the trajectory herein will determine the extent of monetary easing 2) Fiscal consolidation important not only to free up resources for the investment cycle, but also to stave off a sovereign rating downgrade and support the currency 3) Momentum in the Investment cycle - necessary to alleviate supply side pressures, cool down inflation structurally and elevate growth. On the international front, the fiscal cliff in the US and Chinas growth momentum will play a key role in shaping investors portfolio choices. Stock recommendations Our key stock recommendations are a combination of 1) secular growth stories linked to the consumer, with a defendable competitive position and expanding product suites i.e. ITC and M&M and 2) likely policy beneficiaries of monetary easing, fiscal consolidation and steps taken to kick-start the investment cycle Axis in Financials and Adani Ports in Infrastructure.
Bharat IyerAC
91-22 6157 3600, bharat.x.iyer@jpmorgan.com Bloomberg JPMA IYER<GO> J.P. Morgan India Private Limited
Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
3.0 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13
Source: J.P. Morgan Economics.
104
09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4
7.5 7.4 7.3 7.0 6.7
CY 12 (L)
Top picks Axis Bank ICICI Bank ITC Mahindra & Mahindra Adani Ports and SEZ Stocks to avoid Reliance Industries Hero Motocorp Bank Of Baroda
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of November 02, 2012.
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Source: Bloomberg.
Absolute view (NIFTY): Niftys rally since Dec11, contained in an up-channel, remains in place although does face short-term pressures (negative x-over on stochastics in overbought territory). On monthly charts, NIFTYs uptrend from late 2008 remains in place. Relative view (MSCI India vs. MXAPJ): A positive monthly MACD x-over along with a possible golden cross supports an outperformance view. On weekly charts, underperformance ended in Sep12 and recent outperformance continues to build after a recent pullback. India is one of the two markets in Asia (along with Hong Kong) where we are positive on a relative basis. Arguably a bullish case for absolute upside can be made technically for Nifty, but that will probably come post a consolidation/ correction. The relative view is clearly positive with a bottoming out process underway and visible on both weekly and monthly relative charts.
105
Indonesia
Indonesia micro investment case Stable real growth and double-digit nominal GDP growth, translating into strong and stable EPS growth (18% CAGR over the last five years) are Indonesias core attractions for us. Domestic demand, fuelled by healthy demographics, is now being supplemented by a strong investment cycle (FA Investment/GDP 32%). These longer-term structural strengths are somewhat tempered by nearer-term concerns about the transmission of lower commodity prices into domestic demand and currency weakness. Longer-term risks include weak infrastructure and dithering over reforms as political posturing rises in the run-up to 2014s election. Implications of anemic global growth Indonesian growth is largely domestic focused and hence resilient to global weakness. However, the implications of weaker Coal and Palm Oil prices are negative for domestic demand and the current account. What are we tracking? Car sales remain at record levels (over 100,000 units pm) and are a barometer of middle class consumption. We are also looking for signs of inflection in the trade balance and current account (-2.4% of GDP in 3Q). We are also watching the setting of minimum wage increases in Jakarta for 2013 (up 18.5% in FY12). This will offer cues on low-end purchasing power, FDI competitiveness, as well as the investment climate and decision making of the administration in the face of union pressures. Stock recommendations Our top picks are BBCA, a beneficiary of rising domestic interest rates (overnight rates up 25bp since June). We also pick two stocks as plays on the emergence of the affluent Indonesian consumer class SMRA, a property developer and Mall Operator, and ERAA, a rapidly growing handset distributor and Apple Reseller. Our key avoids are UNTR, on a deteriorating mining capex outlook, ISAT on weak data economics, and INCO, on a subdued outlook for nickel.
Aditya SrinathAC
Phone, aditya.s.srinath@jpmorgan.com Bloomberg JPMA SRINATH<GO> PT J.P. Morgan Securities Indonesia
8% 7% 6% 5%
12/2008
9/2009
6/2010
3/2011
12/2011
4% 9/2012
Source: CEIC.
106
Top picks Bank Central Asia Semen Gresik Erajaya Swasembada Summarecon Agung Stocks to avoid United Tractors Indosat Vale Indonesia
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 8 Nov 2012.
15 10 5 0
Source: Bloomberg.
Absolute view (JCI): JCIs solid rally since 2008/09 lows is now faltering with clear bearish RSI divergences on monthly charts pointing to distribution at the top. Nov is looking to potentially form a bearish harami candlestick pattern. Weekly charts show a negative stochastics x-over and failure to reach upper channel bound as signs of fading momentum.
J-05 O-05 J-06 A-07 J-08 O-08 J-09 A-10 J-11 O-11 J-12
Source: Bloomberg.
Relative view (MSCI Indonesia vs. MXAPJ): MSCI Indonesias 44-year outperformance up-trend has recently been broken on the downside although needs some conviction given that the breakdown from a symmetrical triangle is through the apex. Indonesias stellar absolute performance is now under threat, following a solid 7% pt underperformance. We see continuing risks to relative performance and are increasingly cautious on absolute performance. We recommend selling.
107
Malaysia
Malaysia micro investment case Positive structural changes are underway with economic rebalancing through the M$1.4T Economic Transformation Programme. The upcoming general elections (28 April 2013 will be the last day for parliament dissolution) is the biggest market risk, which has so far paved the way for the opportunity to accumulate quality growth stocks with visible domestic drivers. We expect a profitable trade in rotation from safe sectors (telcos; safe banks and consumers outperformed YTD) to the underperforming construction, oil and gas, property, gaming and selected banks (with ETP exposure), if no regime change. Implications of anemic global growth Domestic-led growth (private and public) is fueling the economy, offsetting the weak external sector. Domestic demand contributed 10.9%-pts to Y/Y growth in 2Q while net exports subtracted 4.9%-pts. Government infrastructure spending (estimated M$160B in railrelated projects, and various growth corridors e.g. Iskandar Malaysia) and Petronas M$300B oil and gas capex spending lends support to the capex cycle uplift. What are we tracking? Political certainty post elections (depending on outcome). Key data points driving our view are continued growth in private investments evident by 25% Y/Y private fixed capital formation growth in 2Q12. We are also on the lookout for job creation numbers, driving wages higher, positive for consumption. We view government fiscal consolidation positively, estimated at 4% of GDP in 2013. Subsidy cuts in petrol prices at the pump and natural gas will signal further reforms. Gradual CPI rise expected as subsidy cuts are likely to be in small bites. Hence, earnings momentum likely to be positive as divergence between CPI and PPI continues, driven by lower input prices (mainly commodity). Stock recommendations Relatively safe sectors (mainly yielders) telcos, safer banks and consumers are becoming a crowded trade. Hence, we think staying in apolitical stocks with visible growth drivers will generate outperformance. Key picks: AirAsia, Dialog and KPJ Healthcare. We add YTD underperformers CIMB and IJM Land, both indirect ETP beneficiaries, to our top picks as a positive elections hedge (assuming no regime change).
Source: Bank Negara. Note: Correlation of private investments vs FBMKLCI: 0.9x (Total investments vs FBMKLCI: 0.95x)
108
Top picks AirAsia CIMB Group Dialog Group IJM Land KPJ Healthcare Stocks to avoid Genting Plantations Hong Leong Bank IOI Corporation
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 Nov 2012.
FMBKLCI P/E
20.0 18.0 16.0 14.0 12.0 10.0 8.0 Jan-06 Jan-07 Jan-08 +2SD = 18.1x +1SD = 16.5x Mean = 14.8x -1SD = 13.1x -2SD = 11.4x 9.3x Jan-09 Jan-10 Jan-11 Jan-12 12.8x 12.9x
Source: Bloomberg.
Absolute view (KLCI): Bearish monthly RSI divergence is followed by a bearish engulfing line candlestick, which bodes poorly for KLCI. Index threatening to break below Sep11 up channel while stochastics are already in sell mode. Relative view (MSCI Malaysia vs. MXAPJ): Negative moving average x-overs on weekly relative index along with declining trendline are a negative set up and headwinds for MSCI Malaysias relative performance. The weakness in the KLCI monthly chart is alarming, pointing to the potential for a large correction. We recommend selling.
109
MENA
MENA micro investment case MENA remains a variegated, mostly off-benchmark investment case for EM investors. The big fiscal packages from Saudi and Qatar will keep non-oil growth strong in these countries a key positive when global growth is poor. We think banks are the best big-cap way to play the growth angle. Political uncertainty and policy risk in Egypt keep us wary on that stock market. Also dividends are quite high in the GCC, another key positive. Implications of anemic global growth Sluggish global growth is an opportunity and a threat to GCC markets. The opportunity is that domestic growth (ex-oil) should remain around 5% in Saudi and Qatar and that looks better and better as the rest of the world slows. But the risk is the oil price - if slower global growth pushes the oil price down more, then the regions upside is limited. Also, lower oil prices will hurt petchem margins. We will not worry, though, until Brent trades below US$100/bbl. What are we tracking? Keys to watch are dividends in Saudi and Qatar after the promptly reported 4Q results. Better dividends could drive yield-hungry locals into more equities. The dividend story underpins FGB in UAE as a top pick. And oil prices/petchem demand/petchem margins remain key drivers for Saudi petchems. In Egypt, the stock market has re-rated this year despite the policy vacuum we want to see progress on issues like the tax system and subsidy reform; concluding an $5bn IMF loan would involve answering a lot of medium-term policy and reform questions. Stock recommendations We want to tap the Saudi growth story via the banks: SAMBA is our top pick. Mobily offers a rapidly rising dividend. Industries Qatar offers dividend and volume growth even if the global growth and petchem pricing remain weak. Emaar is the best <1x book value asset in Dubai, in our view; our price target of AED 4.5 (25% upside) uses a 15% cap rate on the Dubai Mall (more visitors than Manhattan) which is way too low. The stock is below book and book value may be too low. Stocks to avoid: Palm Hills, Riyad Bank (a good pair trade with SAMBA), and Saudi Kayan (little growth and weak pricing) and Zain KSA.
AC
(44-20) 7134-5887 david.aserkoff@jpmorgan.com Bloomberg JPMA ASERKOFF<GO> J.P. Morgan Securities plc
Christian Kern
(971) 4428-1789 christian.a.kern@jpmorgan.com Bloomberg JPMA KERN <GO> JPMorgan Chase Bank, N.A., Dubai Branch
Egypt
Qatar 2013
U.A.E.
Global
110
Top picks Emaar Properties First Gulf Bank Industries Qatar Mobily Samba Stocks to avoid Palm Hills Riyad Bank Saudi Kayan Zain KSA
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 November 2012
May-07
May-08
May-09
May-10
May-11
May-12
Feb-09
Feb-10
Feb-11
Feb-12
111
Mexico
Mexico micro investment case Despite current valuations, we expect further outperformance of the Mexican equity market on the back of economic growth upside from the structural reform agenda. We are confident on the approval of reforms, starting with labor, followed by fiscal, and finally energy reform. Consumer demand should remain strong, mostly fueled by credit growth, but beware of signs of deteriorating asset quality. Finally, keep an eye out for the manufacturing industry, particularly the auto sector, as this is the spark that keeps the economic engine running. Implications of anemic global growth High valuations in Mexico have been the main pushback from investors for at least two years now. Though the companies have been delivering on earnings growth, lofty P/Es imply there is little room for disappointment. Delivery of the much-awaited structural reforms could prove to be a catalyst for sustained high multiples as companies earnings growth is expected to remain healthy. What are we tracking? Key to economic recovery after the crisis has been the strength of the domestic consumer. This has been fueled both by the dynamism in the manufacturing industry, as Mexico gains competitiveness vs. China, and rising consumer credit availability, especially considering the low penetration of formal financial services among the Mexican population. These two should remain the key drivers for growth. For the former it will be important to focus on US industrial production performance and consumer confidence. For the latter, it is fundamental to remain vigilant on loan book quality. The main difference in expected growth pickup for next year from previous economic recoveries is the additional boost from possible reforms. The question is how much politicians can deliver. Stock recommendations We focus on Arca and Televisa to get exposure from the Mexican consumer. Furthermore, the regulatory context is favorable for TV, while there is upside to earnings growth in Arca. We include OMA as a beneficiary of the recovery in the Mexican business environment, plus it has a very attractive valuation vs. peers. We would avoid NIHD on slowing growth coupled with increasing leverage.
112
Macro Outlook
AVG 2005-09
Real GDP, % change Consumption Investment Net trade Consumer prices, %oya % Dec/Dec Producer prices, %oya Government balance, % of GDP Merchandise trade balance (US$ bn) Exports Imports Current account balance % of GDP International reserves, (US$ bn) Total external debt, (US$ bn) Short term Total external debt, % of GDP Total external debt, % of exports Interest payments, % of exports 1.3 1.4 -0.1 -0.1 4.4 4.2 5.0 -0.4 -9.1 251.4 260.6 -8.2 -0.9 78.1 186.5 38.6 19.1 61.5 4.5
2010
5.5 3.7 1.8 0.0 4.2 4.4 3.8 -2.8 -3.0 298.5 301.5 -5.6 -0.5 113.6 211.6 58.9 19.6 59.8 3.7
2011
3.9 3.2 0.9 -0.1 3.4 3.8 4.9 -2.5 -1.5 349.4 350.8 -5.7 -0.5 142.6 218.4 65.7 18.6 54.4 3.8
2012f
3.9 2.8 1.2 -0.1 4.2 4.2 5.2 -2.4 -1.6 382.6 384.2 -5.2 -0.4 164.6 219.3 66.6 18.6 51.1 2.6
2013f
3.6 2.7 1.2 -0.3 3.8 3.6 4.4 -2.4 -4.1 412.2 416.3 -10.1 -0.7 184.6 221.7 69.1 15.7 48.0 2.8
Source: J.P. Morgan Economics. 1. Contribution to growth of GDP. 2. Debt with original maturity of less than one year. 3. Exports of goods, services, and net transfers.
Valuation Metrics
EPS Growth 2010 2011E 2012E 2013E 12.5 18.6 12.5 P/E 25.6 26.1 19.2 16.5 ROE 14.6 11.7 14.8 15.9 Yield 0.6 3.3 1.8 1.9
+1SD
-1SD
95 97 99 01 03 05 07 10 12
13E
(1.5)
0.0
(10.4)
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
(24226) (19021)
Jul-10
Aug-11 Sep-12
15000
J.P. Morgan forecast: end Dec12: 12.50 end Mar 13: 12.20 end Jun 13: 12.0
170
J.P. Morgan
2013
Consensus
90 70 Feb-11
113
Peru
Peru micro investment case Both the equity market and the economy in Peru show a high dependence on commodities, particularly metals prices. 65% of MSCI Peru is related to copper, gold, and zinc, while 80% of exports are commodities. If commodities prices were to post a positive surprise, it could be a relevant driver for the equity market, although that is not our base-case scenario (in particular these three metals are trading well above our long-term estimates). We are more positive on internal demand and domestic stocks, where the confirmation of positive consumption figures (we expect that 70% of the strong 7% growth next year will be derived from consumption) could act as a driver for these sectors. Implications of anemic global growth As with the rest of the Andean region, we do not see significant space for a re-rating of the market as a whole. Peru is trading at 11.4x 2013E P/E, in line with its historical average. Nonetheless, we believe that certain sectors such as financials are currently showing attractive valuations. What are we tracking? Peru has strengthened its macro position significantly in recent years, leading economic growth in the region, showing one of the lowest debt burdens in LatAm, and posting a solid fiscal position (it is the only country in LatAm with a fiscal surplus). This provides a strong position from which to continue leading growth and stronger protection in the case of an external downturn. Stock recommendations We remain positive on the internal demand outlook in Peru and consequently recommend exposure to domestic cyclical stocks while avoiding commodities. Our top pick in Peru is Credicorp, which should benefit from a leading competitive position in the country and one of the lowest (close to 25%) banking penetration rates in the region. In addition, it is trading below historical multiples and at a discount to the rest of Andean banks.
Diego CeledonAC
(56-2) 425 5245 diego.celedon@jpmorgan.com Bloomberg JPMA CELEDON <GO> Inversiones y Asesorias Chase Manhattan Ltda
Macro Outlook
Real GDP, % change Consumption Investment Net trade Consumer prices, % oya % Dec/Dec Producer prices, % oya Government balance, % of GDP Exchange rate, units/$, eop Merchandise trade balance (US$ bn) Exports Imports Current account balance % of GDP International reserves, (US$ bn) Total external debt, (US$ bn) Short term Total external debt, % of GDP Total external debt, % of exports Interest payments, % of exports
2005-09
6.8 4.7 2.6 -0.5 2.8 2.7 3.0 0.9 3.1 6.3 25.5 19.2 0.1 0.1 23.9 32.1 4.6 30 98 6.0
Average
2010
8.8 4.9 8.2 -4.3 1.5 2.1 1.8 -0.6 2.8 6.7 35.6 28.8 -2.4 -1.5 43.0 38.9 6.8 24 84 8.0
2011
6.9 4.7 2.8 -0.6 3.4 4.7 6.3 1.5 2.7 4.4 44.5 40.1 -7.6 -4.3 47.7 41.3 6.8 23 74 7.0
2012f
6.0 4.5 3.9 -2.4 3.7 3.1 3.5 0.5 2.6 3.5 48.4 45.0 -9.5 -4.7 64.2 43.3 6.8 21 72 6.0
2013f
7.0 4.9 3.1 -1.0 2.7 3.0 4.0 0.8 2.6 4.4 61.3 56.9 -9.4 -4.1 71.2 45.8 6.8 19 61 5.0
Source: J.P. Morgan Economics, 1. Contribution to growth of GDP. 2. Debt with original maturity of less than one year. 3. Exports of goods, services, and net transfers.
Key Financial Data EPS Growth 2010 2011E 31.0 2012E -3.2 2013E 10.8
24.00
+1SD
16.00
8.00
-1SD
0.00 95 97 99 01 03 05 07 10 12
114
Top pick
Top pick Credicorp Price (US$) $136.56 Ticker BAP Rating OW
13E 12.5
13E 10.94
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
PER
(2272)
PBR
(1542)
(3947)
DY 0
(1744)
(5373)
500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000
0 Source: MSCI, Bloomberg, IBES, Datastream, J.P. Morgan. Dec-02 Jan-04 Feb-05 Mar-06 Apr-07 May-08 Jun-09 Jul-10 Aug-11 Sep-12
Source: MSCI, Bloomberg, Datastream, J.P. Morgan.
3.5 3.3 3.1 2.9 2.7 J.P. Morgan forecast: end Dec 12: 2.57 end Mar13: 2.56 end June 13: 2.56 Sep 07 Dec 08 May 10 J.P. Morgan Consensus Sep 11 Dec 12
110 105 100 95 90 85 80 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12
Source: MSCI, Bloomberg, IBES, Datastream, J.P. Morgan.
2013 2012
115
Philippines
The Philippines micro investment case The Philippines stands out as a country with improving economic growth, with consumption picking up (retail same store sales at c10%) along with a new-found investment upcycle. The pervasiveness of record-low interest rates is a key driver of these positive trends, with policy rates of 3.5% forecast to come off further in 1Q13. This should help drive a further re-rating in corporate earnings, which we forecast to accelerate to 17% growth in 2013E. Implications of anemic global growth As a mostly domestic-demand-driven economy with attractive demographics, The Philippines should perform well even amid anemic global growth. Remittances, which have proven their resiliency in previous adverse global economic conditions, should remain a key driver and account to close to 10% of GDP. What are we tracking? We will continue to track government progress on its infrastructure program, after an uneven year (only a single project worth US$238MM). We will also be looking at increased expenditures in the fiscal programme as a preferred way to exhibit fiscal gains (underspending covering up for rather tepid 15% tax revenue increases). Disappointments in these two data points may not necessarily result in a markedly worse macro, but could potentially reverse the positive sentiment. Stock recommendations Our top picks in the Philippines are composed of companies with impressive earnings growth. Ayala Land leads the pack, with 21% EPS growth in 2013E. Noteworthy too is Cebu Air, as next year should reverse the 2012E share underperformance by refuting overblown competition concerns. Jollibee, on the other hand, would be the best consumption proxy, in our view. Finally, Metro Pacific and Ayala Corporation are our top infrastructure-driven-growth picks.
Gilbert LopezAC
(632) 878 1188, gilbert.y.lopez@jpmorgan.com Bloomberg JPMA LOPEZ <GO> J.P. Morgan Securities Philippines, Inc.
Loan growth
30% 25% 20% 15% 10% 5% 0% -5% -10% 14%
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-11
GDP
Source: National Statistical Coordination Board
PCE
Growth by decade
7.0 6.0 5.0 4.0 3.0 2.0 1.0 1951-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2011 Private consumption (%)
Source: CEIC .
4.5 4.7
GDP (%)
116
Jan-12
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Top picks Ayala Land Cebu Air Jollibee Foods Corp. Metro Pacific Investments Ayala Corp. Stocks to avoid Globe Telecom Meralco Union Bank of the Phils.
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 31 October 2012.
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Remittances
2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 -
Remittances (RHS)
Jan-12
Y/Y % (LHS)
Source: Bloomberg.
Absolute view (PCOMP): Bearish monthly RSI divergence + bearish weekly RSI divergences suggest increasing risks to Sep11 uptrend-line. We should note however that stochastics are not in a sell mode, unlike Asean peers. Relative view (MSCI Philippines vs. MXAPJ): Relative performance is holding up better than Asean peers and remains above the long-term uptrend. We find MSCI Philippines index substantially better positioned than other ASEAN markets. While we are concerned about absolute performance for PCOMP, we do see merit in holding long relative positions in the Philippines given substantially better indicator/ trend positioning.
Source: CEIC
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
117
AC
Michal Kuzawinski
(48-22) 44 19534 michal.kuzawinski@jpmorgan.com Bloomberg JPMA KUZAWINKSI<GO> J.P. Morgan Securities plc
Poland: weight of equity in Polish pension funds v equity ownership of the free float
43% 38% 33% 28% 23% 18% Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11
As % of total assets (LHS) as % of WIG mkt cap (RHS)
Source: J.P. Morgan research, Polish Financial Supervision Authority, End-Oct data as of 7 November 2012
118
Top picks Erste Bank PZU LW Bogdanka Stocks to avoid JSW Bank Pekao SA New World Resources
Source Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 November 2012..
119
Russia
Russia micro investment case We retain our constructive view on Russia translating into a neutral position within the CEEMEA universe. Russias economy is a leveraged play on the global macro where grounds for optimism look thin. However, the anemic earnings outlook now appears to be adequately priced in while the concerted stimulus efforts by G7 central banks should see a reduction of abnormally high risk premium. Implications of anemic global growth Weak global macro directly affects demand for pivotal export commodities. Oil price could be supported by the secular uptrend in Asia, with the US intake likely flat, however the EU recession is a headwind. Gas remains hostage to the rising threat from the shale and LNG front while feeling the heat from structural changes in Europe. Outlook for materials is a hostage to the pace of slowdown in China. By implication, in 2013, Energy and Materials sectors are unlikely to show meaningful growth. What are we tracking? Fading risk aversion may be compensating for the lack of growth, yet going for high beta segments outright could still be too risky. We consider that growth may remain the scarcest commodity, a bad omen for many Russian stocks. With stimulus likely weakening the USD, we would overweight domestic growth stories over exporters. Rising share supply is another consideration with the additional freefloat potentially reaching $20 bn level, or 8% of MSCI Russia free-float; correspondingly tactical allocations need to slalom around the major liquidity events (Megafon, Rosneft, VTB, to name a few). While things are quiet on the political front, we are watching the confusing reform in Electrical Utilities as well as the ongoing tag-of-war between the government and RNG. Stock recommendations The above-mentioned general themes coupled with name-specific attractions leads to our top-pick short-list: Sberbank, Rosneft, TMK, Globaltrans, E.ON Russia, Yandex and Magnit. We recommend avoiding MTS, Alliance Oil, Mechel prefs and X5.
AC
(7-495) 967-3172 alex.kantarovich@jpmorgan.com Bloomberg JPMA KANTAROVICH<GO> J.P. Morgan Bank International LLC
Source: Bloomberg.
P/E 2013
20.6
20.1
10.3 5.3
10.1
8.9
10.0
EN
FN
MT
UT
TC
CS
Aggt
Source: Bloomberg.
RU 17%
EM 20% 14%
1%
Aggt
Source: Bloomberg.
Source: Bloomberg.
120
Top picks Sberbank Rosneft TMK Globaltrans E.ON Russia Yandex Magnit Stocks to avoid MTS Alliance Oil Mechel prefs X5
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 November 2012.
$/bbl
May-07
May-08
May-09
May-10
Apr-11
Apr-12
35
Source: Bloomberg.
Source: Bloomberg
Materials, 10%
Financials, 15%
Source: Bloomberg.
Energy, 59%
Source: Bloomberg.
121
South Africa
South Africa micro investment case South Africa is a defensive emerging equity market, but given that we are adding more beta to the portfolio, our EM Strategy team is UW. MSCI SA has outperformed MSCI EM by 6.5% in local currency terms year-to-date in 2012. However, MSCI SA has underperformed MSCI EM by 1.7% in dollar currency terms over the same time period, given significant rand weakness. The rand remains a wildcard, but has already been sold-off quite significantly (-6.3% against the dollar), and appears fairly valued at current levels, in our view. While record portfolio bond inflows of R85.4bn ($10.6bn) year-to-date in 2012 have been the largest financing item for the current account deficit in recent quarters, we believe that further rand weakness is unlikely, unless we see bond investors switching out of credit into equities in an environment of strong global macro economic growth. Meanwhile, the SA equity market is currently trading at a premium to the MSCI EM with the MSCI SA forward P/E for 2012 at 11.5x vs 10.3x for MSCI EM. Implications of anemic global growth Given our concerns about the global macro backdrop, we stay defensively positioned in proven SA growth sectors with solid earnings growth records. As such, we remain constructive on domestic demand sectors in SA given extremely high real wage settlements in the mining industry, which are likely to permeate through to other sectors, as well as a very accommodative monetary policy environment domestically. Earnings for Food Retailers, Mobile Telecoms, Beverages, and Food Producers have been the most resilient even in recessionary scenarios, falling by 5.3%, 6.1%, 9.4% and 10.7% on average respectively during the previous recessions in 2003 and 2009. We reiterate our preference for quality companies, with strong balance sheets, improving margins, and high dividend yields in a soft economic patch over the next few years. What are we tracking? If the globe tips into recession then SA will move back into favour. We continue to monitor global growth for a strong rebound would drive us back into SA resources.
Deanne Gordon
AC
(27-21) 712-0875 deanne.gordon@jpmorgan.com Bloomberg JPMA GORDON<GO> J.P. Morgan Equities Ltd.
Stock recommendations While value stocks have lagged in year-to-date in 2012, we still continue to favour growth stocks in an environment of relative growth paucity. Our top stock picks include: Naspers, Aspen, and Vodacom.
Ranked Betas of emerging markets to MSCI EMF
1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0
SA policy rate
25 15 5 -5 -15 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Nominal
Source: SARB.
SA CPI inflation
14 12 10 8 6 4 2 0 01 02 03 04 05 06 07 08 09 10 11 12 Inflation target band Estimate 13
122
Israel Czech Chile India Malaysia Philippines SA Hungary Poland Taiwan Indonesia Argentina China Thailand Korea Turkey Mexico Russia Brazil
Real
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 Nov, 2012.
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Bloomberg.
Source: Datastream
Source: Datastream
HUF CLP PLN MXN PHP NZD SGD KRW TRY NOK TWD GBP CAD THB RUB AUD CZK CHF EUR DKK INR ILS JPY IDR ZAR BRL
123
South Korea
Korea micro investment case We are generally cautious about the Korea equity market in 2013 due mainly to growing macro volatility across the globe as well as local political uncertainties related to the upcoming presidential election. However, we are biased toward a scenario that the equity market is on a gradually rising trajectory in 2013, as we expect Koreas real GDP to recover to above the 3% level next year (from 2.3% in 2012E), with exports to rise and fiscal policy to turn more supportive. Despite vulnerable movements over the progress of global risk aversion, a gradual pace of KRW appreciation should remain intact in 2013, resulting in continuing foreign money inflow into the domestic credit and equity markets. Implications of anemic global growth As a (relatively) small open economy focusing on exports, KRW strength combined with weak spending from DM counties could be negative for Korean exporters, despite their continuing efforts for geographical production diversification during the last decade, resulting in share price corrections in the ST. However, given our macro assumptionmodest lift in global growth taking shape despite wide regional divergences, large exporters such as Samsung Electronics and Hyundai Motor are expected to convey relatively solid earnings in 2013. What are we tracking? The BoKs policy rate direction should be the most critical for fund movements between the credit and the equity market. The valuation of the credit market seems to imply 25-50bp of further rate cuts in 2013, while our economic research team maintains their view of no rate change in 2013. If shipbuilding orders pick up in 2H13, together with the global economy returning to an abovetrend growth, the KRW could appreciate much faster than our estimate. A downward earnings revision for Korean companies should continue for the time being amidst disappointing earnings announcements in 3Q12. However, we expect an upward earnings cycle to kick off from 2Q13 once we have better visibility on KRW movement and policy rate direction. Stock recommendations Our top Korean picks for 2013 are Hyundai Mipo DY, Hyundai Motor, KEPCO, LGE, and Orion. Our top avoids are Honam Petro and S-Oil.
124
Scott SeoAC
(82 2) 758 5759, scott.seo@jpmorgan.com Bloomberg JPMA SEO <GO> J.P. Morgan Securities (Far East) Ltd., Seoul Branch
Oct-12
USD/KRW
800 1,300 1,800
Source: Bloomberg
1Y
2Y 8-Nov-11
3Y
5Y 5-Nov-10
10Y
20Y 6-Nov-09
Financials
Materials
Industrials
Utilities
Energy
Source: IBES, MSCI, J.P. Morgan estimates, Note: Average earnings growth calculated based on earnings aggregate of MSCI constituents. Consensus numbers used for stocks not covered by JP Morgan under J.P. Morgan forecasts calculations
Health Care
Telco.
50 30 10 -10 -30
IT
Top picks Hyundai Mipo Dockyard Orion LG Electronics KEPCO Hyundai Motors Stocks to avoid Honam Petrochem S-oil
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of November 6 2012.
2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 2005 2006 2007 2008 2009 2010 +1 stdev 2011 2012 -1 stdev
MSCI Korea
Source: Datastream.
Average
Source: Bloomberg.
Absolute view (KOSPI): KOSPI appears to be breaking down from its Oct08 uptrend after facing resistance from the May11 downtrend. While the breakdown is not fully confirmed, a weak MACD set up (bearish crossover) suggests room for caution. 38.2% and 50% retracements of the Oct08-May11 rally are at 1774/1633 (6%/14% below).
Mar-12 May-12 2012E Jul-12 2013E Sep-12 Nov-
Relative view (MSCI KR vs. MXAPJ): MSCI Koreas outperformance uptrend, in force since late 2008, is facing a break-down threat with under-performance implications. Both the absolute and relative views on Korea are bearish. We see a potential breakdown from a long-standing uptrend to result in deeper pullbacks and in the process driving under-performance after a sustained four-year outperformance.
125
Taiwan
Taiwan micro investment case As Taiwans economy is highly geared to exports, the equity market is vulnerable to the external environment. The pace of economic recovery in China and the US will be key factors for stock sentiment and performance, in our view, especially in the technology sector, which accounts for 55% of market cap. Implications of anemic global growth Currently, consensus is expecting strong FY13 EPS growth, implying an all-round cyclical rebound. This optimistic bias also occurred at the beginning of 2012, despite weak GDP growth. However, a 43% earnings downward revision YTD indicates to us that the end-ofyear estimates are too optimistic. Now we see the market holding a similarly optimistic view on EPS growth in 2013. This suggests potential downward earnings revisions in the future as we expect anemic global economic growth. Before we see a meaningful economic recovery, the equity market is likely to be less liquid than in 2011/12. As the result, we expect earnings profile to be the sole driver of the stock performance. We recommend focusing on 1) companies with a strong technology edge or exposed to new disruptive products (such as iPad Mini), and 2) companies that can constantly deliver an increasing cash dividend over time. What are we tracking? We will watch the following macro data points to gauge the overall economic outlook and earnings momentum. (1) Global manufacturing PMI indicators as Taiwan is an export-oriented country, the global PMI indicators are a leading barometer for manufacturing sectors. (2) Inventory level inventory is a leading indicator for the technology sector. (3) Energy prices the government raised electricity prices in 2Q12 and current energy prices are closely linked to global prices. Any additional pressure from the global energy market would likely lead to inflation and subsequent monetary policy adjustment. Stock recommendations Our top picks are: TSMC, ASE, Quanta, Far EasTone and Mega Financials. Our top avoids are HTC, Catcher and ASUS as a result of their weak earnings profile.
Nick LaiAC
(886-2) 2725-9864, nick.yc.lai@jpmorgan.com Bloomberg JPMA LAI<GO> J.P. Morgan Securities (Taiwan) Limited
# of reported companies 4 15 13 32
-70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30%
08
10
12
126
Top picks TSMC ASE Quanta Far EasTone Mega Financials Stocks to avoid HTC ASUS Catcher
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 November 2012.
Others Auto Food Construction Rubber Other elect. Semicon Components Biotech Info service Cement Electronics Elec&Machinery Paper Computer Textiles Chemical Elec. Appliances Financials Machinery Tourism Transportation Opto elec. Plastic&Chemical Depart. Steel Energy Plastic Glass&Porcelain Elec. Distribution Communication
Absolute view (TWSE): TWSE is stuck in a triangle on monthly charts, but more importantly id showing an H&S Top on weekly charts (neckline 7000). Stochastics set-up is negative but we need a specific neckline break from the pattern to look for shorts. Relative view (MSCI Taiwan vs. MXAPJ): MSCI Taiwans unerperformance Since Feb'11 remains in place with the downtrend line on the relative index a formidable resistance line. Somewhat similar to KOSPI, the threat of an H&S Top for TWSE is a large concern, with the potential to pullback closer to 5000. We would look for specific neckline break to short meantime, we recommend being underweight.
1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13E 3Q13E
-60%
127
Thailand
Thailand micro investment case We remain positive on Thailand for 2013. Key drivers of this view are a robust domestic macro backdrop, a sustained low-interest-rate environment, undemanding relative valuation, and potential to beat consensus expectations. Risks are: 1) significant acceleration in inflation; 2) rise in political noise; 3) cash calls. We stay OW on Financials (Banks/Property), and are N on Consumer as robust SSSG will be balanced against wage-driven operating margin pressure. We are UW on Energy and Telecom. We are N on Materials as a hedge against a strong global recovery. Implications of anemic global growth Despite being a relatively open economy with exports/GDP of 70%, Thailand has several domestic drivers that can drive growth in a climate of flat global demand growth: 1) rising income from farm output, government subsidies, and higher minimum wages; 2) continued HH savings draw down to fund leveraged spending; 3) accelerating public infrastructure spending on flood protection and transportation; 4) SME capex spending and FDI expansion underpinned by Japanese investment. System liquidity should expand in 2013 as softer imports push the CA back into 1.2% of GDP surplus. This will foster domestic credit growth momentum, against a benign rate backdrop. A second successive corporate tax cut (from 23% to 20%), and possibility of expanded fiscal stimulus provide a unique buffer against weak global growth. What are we tracking? Farm income growth, consumer confidence and ramp-up of public infrastructure spending are key domestic data points, while acceleration of core inflation to 3% would signal tighter monetary policy. Stock recommendations SCB and PS benefit from positive forecast momentum, while CPF is set to o/p as operating pressures abate in 2013. 20% volume growth would propel PTTEP after the completion of capital-raising. EGCO should see consensus earnings upgrades in 2013/14 from underappreciated solar capacity, and new rounds of IPP biddings scheduled for late 2013 where we expect EGCO to win at least two new IPPs. Among our avoids, TISCO may de-rate on slower auto h-p growth after an impressive 2012, while we are cautious on TOP given a bearish outlook on refining margins supported by rising supply relative to demand over the next three years.
128
Sriyan PieterszAC
(662) 684 2670,sriyan.pietersz@jpmorgan.com Bloomberg JPMA PIETERSZ<GO> JPMorgan Securities (Thailand) Limited
Source: National Economic & Social Development Board, J.P. Morgan Economics.
Other loans
Top picks Siam Commercial Bank PTT Exploration & Prod Electricity Generating Pruksa Real Estate Charoen Pokphand Foods Stocks to avoid Thai Oil Tisco Financial Group
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 8 November 2012.
Current 12-month f orward PE = 10.8x +2stdev = 19.1x +1stdev = 15.3x Average = 11.4x -1stdev = 7.5x -2stdev = 3.6x
Source: Bloomberg.
Absolute view (SET): In sync with ASEAN markets, SET is displaying a bearish RSI divergence on monthly charts and in addition also on weekly charts. Stochastics has turned negative and the risk of a downside break from the Oct11 up channel has increased. Relative view (MSCI Thailand vs. MXAPJ): Relative performance for MSCI Thailand is capped by declining Jul12 trendline and potentially testing outperformance uptrend in force since 2010. Negative MACD cross-over for relative index on monthly charts. The Thai story, much like ASEAN peers, is looking tired on absolute and relative charts. We recommend selling.
129
Turkey
Turkey micro investment case Turkey is our sole OW in CEEMEA with three big positives: 1) accelerating GDP growth and accelerating EPS growth; 2) reasonable valuations especially where low rates are not priced in; 3) improving current account deficit (CAD) while its fast-approaching investment grade status will reduce the cost/expand the availability of capital account financing. We are mindful that big SPOs (Halkbank and Turk Telekom) before year-end could slow the rally. Implications of anemic global growth Slower growth hurts Turkey, which needs firm export markets to stop its current account from worsening. But, the strong underlying growth in MENA/GCC (fiscal stimulus and rebuilding) is offsetting weakness in European exports. And the big declines in interest rates (local and USD borrowing) should see domestic growth picking up into 2013. What are we tracking? Domestic growth (IP, consumer confidence and bank lending) and the current account (and the trade balance) are two key indicators. Bank investors have been worried about NIMs we think they nudge up from here on lower funding costs. Turkey has one investment grade rating investors are likely to watch for a second upgrade, which may not come until 2H13 (or later). Stock recommendations Our top picks in Turkey include: two banks (banks are >50% of the market cap and >80% of the trading volume): Vakifbank (still cheap on P/BV) and Yapi Kredi (lower P/BV multiple with upside catalyst form insurance sale); Emlak should benefit from a strong pipeline of new projects and lower mortgage rates; Turkcell is in the middle of a multi-year margin expansion story with upside potential of a dividend; and Koza Gold is one of our favorite gold companies globally given its strong growth profile. Stocks to Avoid: Petkim offers little growth at a high PE multiple; Garanti Bank looks expensive versus Turkish peers on P/BV v ROE; Turk Telekom pays a good dividend yield but lack of top-line growth is a big negative.
XU100 Index
Source: J.P. Morgan Economics
Equity cheap
Bonds Cheap
130
Top picks Vakif Bank Yapi Kredi Koc Holding Turkcell Emlak Konut Stocks to avoid Petkim Turk Telekom Garanti Bank
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 November 2012.
Jun-11
Jun-12 Banks
Oct-12 ex-Banks
Source: DataStream, Bloomberg, updated as of 9 November 2012
Source: J.P. Morgan, ISE, data as of Oct 2012, updated on 9 November 2012.
GTTRY10Y Govt
Source: Bloomberg, updated as of 9 November 2012.
GTTRY2Y Govt
131
132
Table of Contents
Auto and auto parts ................................................134 Banks .....................................................................136 Chemicals ..............................................................138 Consumer ...............................................................140 Education services .................................................142 Healthcare ..............................................................144 Infrastructure, capital goods & construction ..........146 Insurance ................................................................148 Internet ...................................................................150 Metals and mining .................................................152 Oil and gas .............................................................154 Pulp & paper ..........................................................156 Real Estate .............................................................158 Semiconductors ......................................................160 Software IT services ..............................................162 Technology hardware.............................................164 Telecommunications ..............................................166 Transportation ........................................................168 Utilities & power equipment ..................................170
Sector Overviews
133
Nick LaiAC
(886-2) 2725 9864, nick.yc.lai@jpmorgan.com Bloomberg JPMA LAI <GO> J.P. Morgan Securities (Asia Pacific) Limited
Apr-12
Oct-12 Baoxin
Source: Bloomberg.
Source: Bloomberg.
Passenger vehicle penetration by country analysis (car ownership per 1,000 people)
600 500 400 300 200 100 0
Source: CAAM, CEIC, WDI. For India, Indonesia, USA, UK and France, the penetration is based on 2010 statistics and the rest are 2011..
Top picks Geely Brilliance China Baoxin Hyundai Motor Mahindra & Mahindra Stocks to avoid DongFeng Motor Zhongsheng Hero Motorcorp
9,926 2,351
8.0 17.2
7.8 12.6
1.01 0.50
1.04 0.69
2.2% 1.0%
16% 13%
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of November 2, 2012.
Total vehicle penetration (PV+CV) analysis (car ownership per 1,000 people)
700 600 500 400 300 200 100 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Japan
-10% -20%
Japan Korea
Penetration analysis of luxury car vs. per capita GDP (on Purchasing Power Parity basis) in 2011
45,000
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 20,000 40,000 60,000 80,000 PPP Adj. GDP per Capita (USD)
135
Banks
Banks micro investment case We expect a cyclical improvement for volumes & liquidity in China & India. In contrast, we see a cyclical slowdown in Indonesia and Thailand. Policy risk is rising in Indonesia and Thailand and was the key reason for the underperformance of Brazilian banks in 2012. Improving credit quality could help bottom-line momentum for Brazil banks. Less policy pressure to ease pricing on loans could also trigger positive share performance. In Mexico, strong financial performance has resulted from accelerating credit growth and lower credit losses. Bottom-line momentum could suffer if these factors become less supportive. We see only modest positive multiples re-rating in Brazil. Structural dynamics are more favorable in Peru, Colombia, and Mexico, in our view. With average EPS growth of 41% 13/12E and 26% 14/13E for our top picks in CEEMEA; we believe CEEMEA banks are more attractive than their Asian and LatAm counterparts. Implications of anemic global growth Weak external growth is likely to have the biggest impact on North Asia; Korea and Taiwan loan growth is just 4% and 2% Y/Y, respectively. Weaker global growth could lead to further rate cuts in Asia, which would push down NIMs and exacerbate an already weak outlook for loan growth & fee income. India would perhaps be a larger beneficiary in this scenario, should oil prices in particular help set the stage for further rate cuts, which have so far been delayed by persistently high inflation. Anemic global growth does not mean anemic EPS growth for many stocks in CEEMEA. We prefer exposure to growth in Turkey and Russia, NPL stabilization in CEE/SEE, strong deposit franchises with high or improving ROE, banks with improving capital position and diminishing equity dilution risk, and improved market access. What are we tracking? We are tracking loan growth and liquidity measures (M1/M2) in China, inflation and policy rate cuts in India, credit quality and policy risk in Brazil, sustainability of growth momentum in Mexico and Andean markets, NPL stabilization in Romania and Hungary and Russian growth. Stock recommendations We like state banks in China and retail growth stories in India. We are selective in LatAm. Credicorp should benefit from very beneficial structural growth dynamics in Peru while generating high ROEs. We like Erste which has material upside if Romania turns profits from a substantial loss in 12E, market pricing in only value of its Czech/ Slovak business. Insurance disposal and better ROE is likely to drive further re-rating in Yapi Kredi.
136
Josh KlaczekAC
(852) 2800-8534, josh.klaczek@jpmorgan.com Bloomberg JPMA KLACZEK <GO> J.P. Morgan Securities (Asia Pacific) Limited
Saul Martinez
212 62-3602, saul.martinez@jpmorgan.com Bloomberg JPMA MARTINEZ<GO> J.P. Morgan Securities LLC
Paul Formanko
AC
(44-20) 7134-4718 paul.formanko@jpmorgan.com Bloomberg JPMA FORMANKO<GO> J.P. Morgan Securities plc
16.4%
16.3% 12.4%
Source: Banco Central do Brasil, Banco de Mexico, Superintendencia de Bancas, Seguros y AFP (Peru), Superintendencia Financiera de Colombia, Superintendencia de Bancos e Instituciones Financieras, and J.P. Morgan estimates.
Top picks ICBC - H ICICI Bank Erste Bank Yapi Kredi Credicorp Stocks to avoid Bank of Baroda Bank Pekao SA Banco Santander Chile
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
10 5 0 -5 -10 TH 95 HK 69 SG 92 PH 63
-19
-19
-26
ID 85
MY 78
CH 68
IN 74
TW 84
AU 126
US 81
KR 101
Net Foreign Assets Net Domestic Assets RRR-Adj Reserve Money
Jun-12
Source: CEIC.
Source: CEIC.
1.5% -12.3%
n.a.
n.a.
n.a.
n.a.
Source: Company Reports. 2Q data used for mix (ABC, BOC, CCB, ICBC, CITIC) and BOC growth trends.
137
Chemicals
Chemicals micro investment case MENA petchems have gone through a significant capex increase in recent years and companies are benefiting to varying degrees as the additional volumes kick in and plant operating rates improve. In addition, MENA petchems are largely placed near the bottom of the cost curve, providing strong cash generation even in weak pricing scenarios. The addition of volumes at the bottom of the cost curve should hold the sector in good stead. US shale gas is a long-term risk with first project still about five years away. In fertilizers, we like nitrogen fertilizer producers, as we expect solid agri-dynamics, higher planted corn acreage, tight global grain stocks and strong crop prices to support 2012-13 fertilizer demand. Implications of anemic global growth Weak economic growth is clearly negative for Petchems particularly given planned capacity additions of ~ 3-5% in 2013-14. Adjusting for potential delays and commissioning issues with Iranian and Chinese coal to chemical capacity slated to come onstream, the sector needs global GDP to ave ~ 2.7% in five years for the cycle to tighten. If we continue to see anemic demand, chemical spreads over oil will remain depressed. However, those at the top of the curve are likely to be under pressure most and we would suspect Chinese and European naphtha closures/ capacity delays should the current situation continue. With MENA players largely at the bottom of the curve, a period of weak demand may ultimately help by clearing out those at the top of the curve and dissuading Chinese capacity additions. What are we tracking? Demand is key, and there is a strong correlation between PMIs and petchem prices. A pick-up in Chinese PMI could lead to recovery in petrochemical demand. For fertilizers, we look at stock-to-use ratios for key crops and their prices to gauge fertilizer demand. Stock recommendations Our key OWs are stocks with capacity additions kicking in e.g. IQ, SIIG. We like Sasol for GTL/ Ethane cracker project FEED. Within Fertilizers, we like SAFCO with its 7.2% div yield. Our stocks to avoid include costdisadvantaged Petkim in Turkey and Kayan in Saudi which still faces operational issues.
Alex ComerAC
(44-20) 7325-1964, alex.r.comer@jpmorgan.com Bloomberg JPMA COMER <GO> J.P. Morgan Securities plc
Neeraj KumarAC
(971) 4428-1740, neeraj.z.kumar@jpmorgan.com Bloomberg JPMA NKUMAR<GO> JPMorgan Chase Bank, N.A., Dubai Branch
Muneeza HasanAC
(971) 4428-1766, muneeza.z.hasan@jpmorgan.com Bloomberg JPMA HASAN<GO> JPMorgan Chase Bank, N.A., Dubai Branch
Weighted
Condensate
High Cost
Ethane
Ethane
Ethane
Naphtha
Low Cost
KSA
Iran
KSA
US
KSA
US
KSA
WEur
WEur
Asia
WEur
Total Capacity
Total Demand
Oper. Rate
138
Naphtha
Propane
C2/C3
Typical
US
Top picks Industries Qatar Sasol Advanced Petro. SIIG Yansab SAFCO Stocks to avoid Petkim Saudi Kayan
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 02 Nov 2012.
China PMI
65 60 55 50 45 40 35 30
Source: Bloomberg.
Source: Bloomberg.
Mn tons
Soybean ($/mt)
Source: Bloomberg.
Source: Bloomberg.
139
Consumer
Consumer micro investment case We are generally positive on the consumer sector in Asia, particularly on names where we can clearly identify the long-term opportunities along with bottom-up drivers. We like Asian cosmetics plays given their resilient business. We anticipate a solid 2013 economic backdrop in LatAm given record low rates. The key catalysts to watch will be consumer confidence, household debt, inflation and employment. If those variables remain encouraging, we believe same store sales in LatAm will re-accelerate. The poultry, pork and bakery side of the LatAm food sector was severely impacted by a +50% grain cost surge in 2H12. A decline in these key input costs could lead to a reversal of margin compression seen in 2012. On the other hand, if cattle prices rise, beef companies should face declining profitability. Margins for beverage companies could improve from declining commodity costs and expected currency appreciation. In Russia household spending is resilient despite bottomingout inflation starting to eat into real incomes. South African retail spend is holding up reasonably well, as the real wage growth thematic continues. Turkish consumption has slowed in 2012 with the weak TYR and 11-12 rate hikes, but we are still confident that this years lower rates plus stable FX will translate into an acceleration in 4Q12 and 2013. Implications of anemic global growth In the context of sluggish economic activity, quality consumer companies able to deliver above-market growth and sustainable returns should fare relatively well. What are we tracking? We are tracking SSSG by retailer where available, consumer sentiment, wealth effect, pricing trends, discounting trends and input costs. In CEEMEA, space growth, LFL sales trends, progression of gross margins, opex control, working capital management are key data points we follow. LatAm retailers are passing through a strong expansion cycle, and in some cases growing faster than demand. Cannibalization of stores opening may be a key risk for retailers to continue expanding. Stock recommendations We like China Foods, a strong product mix improvement story, and TUF from Thailand given capacity expansion and favorable shift in product mix. We like Magnit as the fastest-growing and most efficient retailer in Russia and see room for re-rating closer to historic highs. Our top picks in LatAm are Natura (strong pipeline of new products) and Ambev, the most profitable beer company in the world.
Alan AlanisAC
(1-212) 622-3697, alan.alanis@jpmorgan.com Bloomberg JPMA ALANIS <GO> J.P. Morgan Securities LLC
AC
(7-495) 967-3888, elena.jouronova@jpmorgan.com Bloomberg JPMA JOURONOVA<GO> J.P. Morgan Bank International LLC
Stephen Carrott
(27-11) 507-0373, stephen.j.carrott@jpmorgan.com Bloomberg JPMA CARROTT<GO> J.P. Morgan Equities Limited
Komal Dhillon
(44-20) 7134-5885, komal.dhillon@jpmorgan.com Bloomberg JPMA DHILLON<GO> J.P. Morgan Securities plc
15%
Source: J.P. Morgan estimates. Wheat, Corn and Soybean in US$/bu. Sugar in US cents/lb (ICE Raw Sugar).
140
Top picks China Foods Ltd Thai Union Frozen Magnit AmBev NATURA Stocks to avoid Parkson Retail Group X5 Retail Group Marfrig
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov 15, 2012.
2% 5%
8% 6.5% 10%
11%
14% 13%
20% 19%
avg 16%
9.2% 8.0% 7.6% 7.2% 7.0% 6.5% 5.7% 4.9% 3.9% 3.6% 5.0% 10.0%
11.6%
avg 10.8%
15%
20%
25%
30%
35%
0.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Earnings growth to remain in double digit for AmBev and FEMSA, Marfrigs EPS is coming from a negative 2011 base
40% 35% 30% 25% 20% 15% 10% 5% 0% 38% 32% 19% 11% 12% 20% 10%
18%
2010
2012E
2013E
141
Education services
Education services micro investment case In our view, the main driver of continued growth of the sector is the continued expansion of FIES, a government program that offers subsidized loans to low-income students. Also, maintenance of employment levels is important, as most students from covered companies are working adults that pay for their own studies, although FIES should reduce that exposure. Last, the distancelearning segment should benefit if the government approves its expansion, which is expected for 2013. Implications of anemic global growth We see substantial upside for covered stocks on our expectation for earnings growth in the coming years, which we project to be around 30% y/y. Education companies currently trade at 20x P/E 12m forward, and we do not see significant re-rating potential. What are we tracking? Education is a regulated sector, and a significant part of its growth depends on FIES. Up to now, the government has been very consistent in committing more resources to the program, but that could change. For example, scrutiny on quality could increase, reducing the number of institutions that can participate in FIES, or the program might be modified if default rates are high. However, we do not see a significant risk on this front for the coming years as Brazil lags significantly other peer countries in education and the government has shown firm commitment to the sector. Other regulatory risk would be a delay in the process of granting authorization for expansion of distance learning centers. Stock recommendations Anhanguera is the best vehicle for exposure to the Brazilian higher education segment, in our view as: (1) it utilizes an efficient low-cost model with proven track record; (2) it offers lower risk growth as much of it should come from increasing capacity utilization in its current campuses; and (3) margins should increase as acquired campuses adopt their academic model. We also like Kroton, which is the leading player in the distance learning segment as well as having a strong on-campus operation.
Portugal
Mexico
Colombia
Greece
Germany
Italy
France
Turkey
Bolivia
Venez.
France
Turkey
Portugal
OECD
Japan
Brazil
US
UK
Germany
Greece
142%
45% 3.4% FIES 4.5% Inflation Target 5.5% 7.5% 20% Vehicle General Bank Consumer Revolving Credit Line
142
Italy
Japan
Brazil
Chile
UK
Peru
US
Top picks
Top picks Anhanguera Kroton Price (R$) R$32.55 R$42.70 Ticker AEDU3.SA KROT11.SA Rating OW OW
P/E (x)
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
AEDU3 ESTC3
KROT11 IBOV
29-Feb
30-Apr
30-Jun
31-Aug
31-Oc
4/Oct/08
4/Oct/09
4/Oct/10
4/Oct/11
4/Oct/
20 17 14 11 8 5 4/Oct/07 12m fwd P/E Average 4/Oct/08 4/Oct/09 4/Oct/10 4/Oct/11 4/Oct/
4/Oct/08
4/Oct/09
4/Oct/10
4/Oct/11
4/Oct/
143
Healthcare
Health care micro investment case We believe the worst is likely over for the drug sector in China. The fundamentals of the Chinese healthcare industry are still strong: 1) aging population; 2) increasing government spending on healthcare; 3) expanding insurance coverage; and 4) rising disposal income. We remain positive in the long term and see 2013 as a solid year for industry growth and consolidation. The healthcare market in LatAm decelerated in 2012 driven by slower pace of formal job creation. The main driver in 2013 will be the acceleration of membership growth, and consolidation of the market. Another key change was the sale of AmilPar to United Health Group. Medical inflation, which has outpaced the broad CPI, is leading to lower profitability of medical plans and therefore a tougher landscape for medical labs (Fleury OW, and Dasa, N) to pass on price increases to payers. Implications of anemic global growth Anemic global growth should have a limited impact on Chinas healthcare sector because it is not heavily exportoriented. However, the manufacturers of active pharmaceutical ingredients (API) are expected to be hurt by lackluster global drug demand. What are we tracking? In China, we are tracking monthly healthcare industry output and profit data announced by the NDRC. We monitor some key commodity product prices such as corn, 6-APA, and amoxicillin. Importantly, we keep a close eye on tenders carried out by various provinces throughout the year to gauge pricing trends and the weight on quality vs. prices. The healthcare sector in LatAm is trading at an average 13E P/E of 24.6x, a record high, which provides limited room for re-rating in our view. We are tracking medical costs which are rising. Stock recommendations We are OW on Mindray because its strong global franchise minimizes risks associated with overexposure to one particular market. China growth has been impressive and is expected to continue. We like Sino Biopharma which has the most balanced product portfolio and pipeline. In LatAm our top pick is Fleury (OW) which is trading at a 32% discount to the sector average on 13E P/E. The stock we recommend avoiding is UW-rated OdontoPrev on increased competition and increased regulatory risk (limit on X-rays), as well as pressure from dentists for raising prices.
144
Sean WuAC
(852) 2800-8538, sean.wu@jpmorgan.com Bloomberg JPMA SWU<GO> J.P. Morgan Securities (Asia Pacific) Limited
Source: UN.
359.0 481.6 573.3 737.8 90.9 111.7 129.4 155.3 177.9 229.2
2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Government Social Individual
Source: MOH.
Source: IBGE.
Top picks Mindray Medical Sino Biopharma Fleury Stocks to avoid China Shineway Pharm OdontoPrev
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov 15, 2012.
China: Three different insurance schemes to expand insurance coverage dramatically full coverage planned for 2020
900 800 700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010
19.1%
16.5%
15.3% 41.1%
5.2% 2.8%
New Rural Cooperative Health Care System Basic Medical Insurance System
Jan-05
Jan-08
Jan-11
Source: IBGE
Source: ANS
145
Cassio LucinAC
+55 11 4950 3893, cassio.lucin@jpmorgan.com Bloomberg JPMA HUERTA <GO> Banco J.P. Morgan S.A.
Necessity Ngorima
AC
(27-11) 507-0723, necessity.x.ngorima@jpmorgan.com Bloomberg JPMA NGORIMA<GO> J.P. Morgan Equities Limited
Muneeza Hasan
AC
AC
80
Unprecedented decade long growth in LNG capacity driven by: 1. Environment - society's preference for lower carbon fuels e.g. gas 2. Economics - carbon costing is spreading from OECD to non-OECD 3. Energy security - desire to diversify supply sources i.e. avoid pipelines 4. Geopolitics - some countries will not pipe gas to their neighbours 5. Gas costs - creation of new low cost supply sources e.g. CBM, gas shale 6. Nuclear risks - heightened popular opposition post-Fukushima ------> 7 year 2012-18 +287 MT pa could require $1 trillion investment
600
500
60
400
0 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 Capacity additions (MT pa) Cumulative capacity (MT pa) Cumulative liquefaction trains
Top picks Adani Ports and SEZ CSR Corp Ltd. Samsung Engineering Iochpe-Maxion Stocks to avoid ABB Ltd Group 5 Weg
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
We forecast ethanol demand of 44.2 bln liters by 2020, which should encourage investment in the sector (CAGR 2012-2022 10%)
Bln liters.
50.3
19.7
23.7
27.4
30.1
32.9
35.6
38.4
41.1
44.2
47.2
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
32%
28%
47 40 20 0
Aveng
M&R Commodities
WBHO
Group 5
147
Insurance
Insurance micro investment case We stay neutral on the insurance sector in Asia as a prolonged low-interest-rate environment would hurt the life insurers especially those with high guaranteed legacy insurance policies while underwriting performance for the non-life insurers would continue to deteriorate in view of early signs of deterioration in 2012. We have been overweight on the large South African life insurers for the past year, but these have now strongly rerated to, or above, our SoTP valuations. We expect record-high valuations, low interest rates, Solvency II and other regulatory concerns, tax changes and ongoing savings sector market share losses to depress returns next year. Implications of anemic global growth Investment return achieved by the insurers would reduce should the low interest rate environment sustains on anemic global growth, raising concern on downward revision to reported EV/NBV. One positive development coming out of the weaker global growth would be a stronger focus by the life insurers on higher margin products to mitigate weaker insurance sales. Weak international growth and markets should affect LBH and DSY in SA due to their affluent client focus, developed market equities exposure and cost pressures. What are we tracking? The increase in the number of tied agents is crucial in gauging whether insurers are making headway in selling protection-type products. Rising interest rates or steepening of yield curves across Asia coupled with stronger equity market performance would cause us to turn more positive on the sector, especially the life insurance sector. We are well below consensus for DSY and LBH earnings. We expect embedded value growth at these two companies to be weak as aggressive EV assumptions weigh and weak markets and low yields bite. A strong equity market performance gives upside risk to our LBH view whereas upside risk at DSY comes from its China venture. Stock recommendations We like Ping An (for its profitable life insurance franchise), Samsung Life (benefitting from demographic change), and Fubon FHC (for its diversified operation). We dislike DSY, LBH and Dongbu (for its aggressive underwriting/investment approach.) We like CML's strong growth and the lagged impact of the strong markets through performance fees. PZU's quality and growth also keeps it close to the top of our picks. We like SLM's diversification and strong balance sheet in uncertain times.
148
Francois du ToitAC
(27-11) 507 0378, francois.x.dutoit@jpmorgan.com Bloomberg JPMA DUTOIT<GO> J.P. Morgan Equities Limited
Mar-10
Mar-11
Nov-10
Nov-11
Mar-12
Sep-10
Sep-11
May-11
May-12
May-10
Sep-12
Apr-09
Apr-10
Apr-11
Jan-09
Jan-10
Jan-11
Jan-12
Apr-12
Jul-09
Jul-10
Jul-11
Oct-09
Oct-10
Oct-11
Jul-12
Taiwan (%)
Source: Bloomberg.
SA life insurers have rerated to trade at/near five-year record price-to-EV levels
110% 100% 90% 80% 70% 60% 50% 108.4% 101.1% 98.3% 92.0% 82.4%
Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 DSY LBH SLM OML MMI
Oct-12
Nov-12
6.0 5.0 4.0 3.0 2.0
Jan-10
Jan-11
Jan-12
Jul-10
Jul-11
Jul-12
Mkt cap (US$MM) 52532 16952 9914 10247 1269 3091 3280 3539
P/E (x) 12E 21.9 17.4 11.3 11.3 18.3 7.5 9.2 13.4
EPS (LC) 12E 2.7 5325 2.7 34.2 196 6391 1104 423
13E
Div. yield 13E (%) 0.8 2.4 3.7 7.0 5.8 2.9 5.0 2.1
ROE 13E (%) 18.7 5.9 10.7 21.4 70.1 16.0 16.1 58.2
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
May-11
May-12
Mar-11
Feb-11
Feb-12
Mar-12
Apr-11
Oct-11
Dec-11
Nov-11
Apr-12
Aug-12
Sep-12
Aug-11
Sep-11
Jan-11
Jun-11
Jan-12
Jun-12
Jul-11
Jul-12
50% 0%
Dongbu
Ping An
Cathay
C. Life
Fubon
SFM
AIA
NCL
TPL
TYL
CPIC
HMF
KRE
SLI
KLI
CPIC Life
Source: CIRC.
Source: Company data. Note: 1QFY12 data for the Korean life insurers and group level data unless stated otherwise.
Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
Dongbu
Ping An
Cathay
C. Life
Fubon
CTIH
SFM
AIA
NCL
TYL
SLI
KLI
CPIC
HMF
Samsung F&M
Hyundai F&M
Dongbu Insurance
1.9
1.4
0.9
2007
2008
2009
2010
2011
2012
Life Group and continued margin - LHS Non-life combined Ratio - RHS*
Shinkong
Shinkong
149
Internet
Internet micro investment case We remain positive on internet market development. Transition to mobile internet creates threats and new opportunities for the listed companies. Product development capabilities will be key differentiating factors within the fast moving mobile internet market. In the eCommerce space, we expect more capital market activity, and that could change the competitive landscape, with a few clear winners to emerge. Implications of anemic global growth We expect the structural ad budget shift from offline to online to continue next year, and online media such as search and online video to benefit from the transition regardless of macro situations. However, with anemic global growth, domestic consumer spending could slow, dragging on total ad spending in China. Expect online games market to be stable despite uncertainties in growth. What are we tracking? Mobile internet traffic share and monetization progress will be key to watch next year, in our view. In addition, we will be watching closely for changes in ad sentiment through the year. Stock recommendations We are positive on mobile internet transition - bringing additional search traffic and potential revenue for Baidu. We see investors as overly-skeptical about mobile internet monetization, and this presents a good opportunity to invest in Baidu, which we think is a great consumer stock with dominant market power. Mobile internet also brings additional monetization opportunity to online video company Youku. In addition to ad budget shift from TV to online video, additional content consumption on mobile platform should generate more ad dollar potential to Youku. We think Tencent will continue to stay ahead of its peers, with strong R&D team and good operating capability. Tencents large exposure on mobile internet (via WeChat) and eCommerce (via its various prior investments) should provide valuation support to the name. Tencent game business will be a stable earnings driver, in our view. Next years pipeline include B&S and COD Online.
Dick WeiAC
(852) 2800-8535, dick.x.wei@jpmorgan.com Bloomberg JPMA WEI <GO> J.P. Morgan Securities (Asia Pacific) Limited
43
China
Japan
USA
UK
Australia
Source: Company Earnings Call, JP Morgan estimates. * Number of Mobile Monthly Active Users (MAUs) as a % of total MAUs for Facebook; for others its Mobile Traffic as a % of Total Traffic. (1) 4Q11 numbers. (2) 2Q12 number.
14.9%
11.2%
5.1% 2014E
150
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 2 Nov, 2012.
3,000 2,500 2,000 1,500 1,000 500 0 5 16 26 56 128 263 461 767 1,184 1,569 2,012
2,551
10% 8% 6% 4% 2% 0%
100% 80% 60% 40% 20% 0% Japan 2010 China 2011 2012E 2013E 2014E India 2015E Indonesia 2016E Other 3.7% 6.1% 9.9% 13.7% 18.6% 21.3%
23.4%
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E B2C+C2C, excl. B2B (Rmb B) As a % of Total Retail Sales (%)
Australia
South Korea
Source: iResearch.
Tmall 57%
Source: iResearch. GMV include both B2C marketplaces and B2C retailers.
Source: iResearch, CNNIC, J.P. Morgan estimates. *Note: Growth rates are in Rmb terms.
151
Daniel KangAC
(852) 2800 8570, daniel.kang@jpmorgan.com Bloomberg JPMA KANG <GO> J.P. Morgan Securities (Asia Pacific) Limited
Steve Shepherd
AC
(27-11) 507-0386, steve.a.shepherd@jpmorgan.com Bloomberg JPMA SHEPHERD<GO> J.P. Morgan Equities Limited
Source: Bloomberg.
Global steel overcapacity has averaged 437Mt or ~22.6% of capacity over past 12 months
2,000 1,500 1,000 500 -
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Production
Excess Capacity
Dec-08
Dec-09
Dec-10
Dec-11
Jun-09
Jun-10
Jun-11
Mar-09
Mar-10
Mar-11
Sep-08
Sep-09
Sep-10
Sep-11
Mar-12
Jun-12
FAI - Govt
Source: CEIC
FAI - Private
Sep-12
Top picks China Shenhua Energy - H Sesa Goa LW Bogdanka TMK Metalurgica Gerdau Stocks to avoid Yanzhou Coal - H Anglo American CSN
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Source: Bloomberg.
100000 50000 0
5000 0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Source: Bloomberg.
2012
2013
2012
2013
EV/EBITDA
Source: J.P. Morgan Estimates.
P/E
Note: Diversifieds (BHP and RIO) use a P to NPV as a proxy for PBV. Source: J.P. Morgan estimates
Jan-12
153
Brynjar BustnesAC
(852) 2800 8578, brynjar.e.bustnes@jpmorgan.com Bloomberg JPMA BUSTNES<GO> J.P. Morgan Securities (Asia Pacific) Limited
Caio CarvalhalAC
(55 11) 4950 3946, caio.m.carvalhal@jpmorgan.com Bloomberg JPMA CARVALHAL <GO> Banco J.P. Morgan S.A.
AC
(7-495) 967-1037, andrey.gromadin@jpmorgan.com Bloomberg JPMA GROMADIN<GO> J.P. Morgan Bank International LLC
Artem Konchin
(7-495) 937-7323, artem.v.konchin@jpmorgan.com Bloomberg JPMA KONCHIN <GO> J.P. Morgan Bank International LLC
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E2013E2014E Growth mn BOPD Brent price (US$/bbl)
2009
2010
2011
2012 E
Net demand growth
2013 E
2014 E
Top picks Sinopec Corp - H Rosneft Novatek PetroChina Reliance Industries Ltd S-Oil Corp Alliance Oil Company Ecopetrol
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Jan-10
Jan-11
Jan-07
Jan-08
Jan-09
Jan-12
Oct-12
Source: Bloomberg
0 -5 J F M A M
2011
2012E
2013E
J
2012
5Y average
spread (RHS)
Impact on EPS from 10% oil price increase Impact on EPS from 3.8% RUB appreciation Real impact on EPS from 10% increase in oil price
Impact on EBITDA from 10% oil price increase Impact on EBITDA from 3.8% RUB appreciation Real impact on EBITDA from 10% increase in oil price
2014E
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
$/ton
million tons
10
Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12
Excess crude over ref t'put 12 per. Mov. Avg. (Excess crude over ref t'put)
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
155
Lucas FerreiraAC
(55-11) 4950-3629 lucas.x.ferreira@jpmorgan.com Banco J.P. Morgan S.A. Bloomberg JPMA FERREIRA <GO>
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Mar-12
Latam W. Average
Source: Bloomberg and J.P. Morgan. Market cap weighted average of 32 companies.
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
3.0%
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Latam W. Average
156
Jul-12
Sep-12
Top picks
Top picks Duratex Fibria Price (R$) R$14.11 R$19.24 Ticker DTEX3 FIBR3 Rating OW N
12E
EPS (R$)
0.71 (0.42)
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 November 2012.
157
Real Estate
Real estate investment case QE3 and inflow of liquidity to Asia could provide strong support to companies book values. Asian RE equities are trading below LT average P/BV and hence we expect mean reversion of NAV discounts / P/BV to continue. In Mexico, we could be getting close to an inflection point after significant underperformance. But we rather wait a bit more to see better clarity on housing policy. For Brazil, FCF of the sector starts to be positive in 4Q12. For CEEMEA, UAE (mainly Dubai) is seeing pickup in property prices for select projects. In Russia, fundamental shortage of housing and improved access to mortgages drives demand. In Poland, continued economic slowdown may put pressure on rental rates. Implications of anemic global growth Yield seeking would most likely continue within real estate equities under low-rate environment, and we expect further yield compression among the Asia REITs. A re-rating in BZ and MX HBs would need a higher earnings bottoming and upward revisions to current expectations. In Dubai, new project launches have resumed after 4yrs with improved consumer confidence. In KSA, RE demand will pick up subject to the implementation of mortgage law; less reliant on global macro outlook. In Russia, consumer confidence and spending has been resilient in 12, however a lower commodity prices environment could cloud the picture. What are we tracking? Cap rate moves in the property investment markets provide good indications on book value growth upside. For residential segments, volume pickup will be key share price drivers. We expect a positive cash generation for BZ given the reduction on launches and a greater focus on profitability. In Mexico, after significant deterioration on WC we believe it should stabilize or reduce going forward. MENA developers are trading at ~40% discount. We remain selective and like developers with strong investment portfolios and low ND/E. Russian developers are a source of beta and tend to outperform during market rise and underperform in the downturns. Stock recommendations In Asia, we prefer residential developers in improving markets and strong balance sheets (Summarecon Agung, Oberoi). We avoid China for 2013 as supply growth could limit pricing power towards 2H13. In Mexico, we like Homex as it is trading at less than half of its BV (ex penitentiary business). In Brazil, we like Cyrela and avoid Rossi given the lack of visibility on its results. Emaar in MENA is our preferred play, and avoid LSR in Russia.
158
Adrian HuertaAC
(52-81) 8152-8720, adrian.huerta@jpmorgan.com J.P. Morgan Casa de Bolsa S.A. de C.V., J.P. Morgan Grupo Financiero Bloomberg JPMA HUERTA <GO>
Muneeza HasanAC
+971 4 428-1766, muneeza.z.hasan@jpmorgan.com JPMorgan Chase Bank N.A. Dubai Branch
Elena JouronovaAC
+7 495 9673888, elena.jouronova@jpmorgan.com JPMorgan Bank International LLC
Michal KuzawinskiAC
+48 22 44 19534, michal.kuzawinski@jpmorgan.com JPMorgan Securities Limited
Mean = -14.3%
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Asian real estate: FY12E P/BV and deviations (s.d.) from longterm average
4.00 3.00 FY12E P/BV 0.75 0.82 vs. LT avg 2.04 1.17 1.11 1.11 3.35 2.48 1.43 1.52 2.48 1.45
Top picks Oberoi Realty Summarecon Agung Emaar Properties Cyrela Brazil Realty HOMEX Stocks to avoid Longfor Properties LSR Rossi Residencial
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
PDGR3
GFSA3
RSID3
MRVE3
CYRE3
RDNI3
Source: J.P. Morgan estimates, including Cyrela, Gafisa, Rossi, PDG and MRV
200 150 100 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Jun-12 Moscow
1Q10
3Q10
1Q11
3Q11
1Q12
159
Semiconductors
Semiconductor micro investment case 2012 was a year of mobile computing devices (MCD) with new product launches along with new OS. While stagnant economic growth is likely to continue, we expect smartphone and tablet PC demand growth to remain strong in 2013. Accordingly related key component names (Display, AP) that were able to reshape their business model should continue to outperform in 2013 in our view. We remain positive on winners in respective sectors and expect global brands to outperform on the back of solid customer base and ongoing market share gains. Implications of anemic global growth Most upstream tech companies have expressed concern about global macro conditions and expect this trend to continue into 2013. Accordingly, echoing anemic global consumer spending growth, we expect muted growth from traditional IT products (PC, NB) next year. However, as price erosion for key components stabilizes given supply discipline across the industry, we expect the overall supply-demand conditions to improve on a Y/Y basis. We believe industry leaders with superior cost structure and economies of scale should benefit more and outperform the rest of the pack. What are we tracking? Near-term catalysts we see for the sector are year-end holiday demand, smartphone, tablet and new Win OS related products sell-through. We are also closely watching for a sign of Chinese New Year demand, to see if it can surprise on the upside, as we witnessed in the Golden Week holiday. If results turn out better than expected, we could turn more positive. Stock recommendations We believe major brands such as Samsung and LG will sustain strong growth in handset and TV, which should benefit the relevant supply chains. In the SCM sector, in addition to structural market share gains driven by the mobile computing and IDM outsourcing, we believe robust AP demand will clearly benefit TSMC. In touch panel space, we believes TPK would benefit from tablet PC growth as well as touch panel adoption in NBs/AIOs given its dominant market share on both ends. On the other hand, we recommend investors to stay away from following names: CMI/E-ink in display and Wintek in touch panel space due to poor customer base and weak earnings visibility.
JJ ParkAC
(822) 758-5717, jj.park@jpmorgan.com Bloomberg JPMA JPARK <GO> J.P. Morgan Securities (Far East) Ltd, Seoul Branch
1Q10
4Q10
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013E
Industry Capex
Industry OP
Source: Company data, J.P. Morgan estimates. *Note: Industry OP includes SEC/LGD/AUO/CMI/Sharp while industry capex includes all players
160
Top picks Samsung Electronics LG Display TSMC Novatek TPK Stocks to avoid CMI E-ink Wintek
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of November 6, 2012.
74 26 17 45
20
22 19 13 19 48% 13
65% 19
-40 2008
-56 2010
-29% 2009
Capex Growth (RHS)
-13% 2011
-16% 2013E
2007
1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13E 3Q13E
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10 Y/Y %
1Q11
1Q12
ASE
SPIL
Amkor
STATS-ChipPac
161
Software IT services
India IT services micro investment case Barring hard-to-estimate effects of certain events like the US fiscal cliff, we have good reasons to believe CY13/FY14 will be a better year for Indian IT and the offshore IT industry than the current period (CY12/FY13). The three primary reason for this are (a) We expect discretionary spending to pick up in CY13, (b) CY13 is likely to be a better year for large, legacy contracts/deals opening up for renewal, where Indian IT players will likely win share, and (c) historically there have never been two successive years of anemic growth for Indian IT because not investing in IT might result in competitive disadvantage. However, what we are not clear about is how much better 2013 can be than 2012. Implications of anemic global growth In case of flat or anemic global growth, IT spending might be affected. In such a scenario, we expect continued polarization in the performance of large Indian IT players. If FY14 industry growth is light, it is likely that the usual suspects, i.e. TCS, Accenture, Cognizant and HCLT (particularly in Infra management), will gain market share at the expense of other players. What are we tracking? We believe record consulting bookings registered by Accenture in 4QFY12 (Aug-12 quarter) with book-to-bill of 1.15x point to a pick up in discretionary demand. Management commentary is mixed as TCS points to strong pipeline including discretionary demand. Wipro and HCLT also report increase in deals in pipeline, but Infosys suggests the demand environment remains weak. Our conversations with industry bodies such as TPI also suggest that spending will likely increase (Y/Y) in CY13. Stock recommendations We remain OW on HCLT and Wipro. We believe HCLTs revenue growth momentum will continue with better margins; hence there is a case for re-rating along with earnings roll-over. Wipro is our non-consensus OW as we keep the faith that the new managements structural changes will yield results in CY13 (initial structural positives are already visible). We are Neutral on TCS as valuations preclude us from taking a more favorable view given limited absolute upside potential in the near-term. We see TCS as the best near-term choice for investors wishing to protect against downside. Our long-held Neutral on Infosys stays due to our structural concerns with its business, concerns we dont see receding soon.
162
Viju K GeorgeAC
(91-22) 6157 3597, viju.k.george@jpmorgan.com Bloomberg JPMA VGEORGE<GO> J.P. Morgan India Private Limited
When industry growth noticeably slows down as it is doing now, nearterm outsized growth can be achieved only by eating into each others market share, resulting in polarization in performance
60% 50% 40% 30% 20% 10% 0%
FY04-08 was marked by the polarization between the large-caps and mid-caps FY10-FY14 will be marked by polarization among the large-caps
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Accenture reported the highest ever quarterly consulting bookings in 4QFY12 (quarter ending Aug-12) with book-to-bill ratio of 1.15x, suggesting improvement in discretionary demand
4,500 4,000 3,500 3,000 2,500 2,000
Outsourcing as a % of total Accenture revenues increased from 32% in FY03 to 44% in FY12 pointing to strong growth potential in outsourcing services
75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0%
Three phases of growth in Indian IT Catering to needs of clients beyond cost cutting provides the top-up
30%
Industry growth
Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12
Consulting bookings (in $mn)
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
20% 10% 0%
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov. 5th, 2012.
Expected total contract value (TCV) of the deals coming for renewal in The largest chunk of churn deals is likely to come from infrastructure CY13 is about $120 billion implying ~20% increase from CY12 management and full ITO (IT outsourcing), where certain Indian IT players have good positioning
in USD billion
140 120 100 80 60 40 20 0 41 2012 H1
Source: Company reports, TPI
in USD billion
120 100
63 61 61
111
80 60 40
73 58 31
57
52
20 0 Infrastructure Full ITO BPO ADM Outsourcing management TCV of churn market by service (between Oct 12 - Dec 14)
2013 H2
2014
We expect Indian IT exports to grow at a CAGR of ~10-13% over the next 3-4 years hitting ~$115B mark in FY16 including $9B from innovation-driven revenues
120.0 100.0 80.0 60.0 40.0 20.0 0.0 FY10 FY11P FY12E FY13E FY14E FY15E FY16E Traditional IT exports Innovation led revenues 50 59 69 76 85 95 2 6 4 9
Supply of engineering and non-engineering talent should exceed demand by convenient margin at least in the near-to-medium term
900 800 700 600 500
in '000 800
FY15: 230
106
FY14: 205 750 FY13:185 FY12: 165 Engineer Demand (2012-15) Engineer supply (2012-15)
163
Technology hardware
Technology hardware micro investment case Since August, Asian tech has outperformed US tech by 11%, and we expect this to continue in 2013. Asian tech underperformed US tech in 2011-1H12. We highlighted the shift of value from hardware to OS/ apps in our 2010 Year-Ahead Content Meeting Hardware, and US tech has done very well partly due to an impressive rise in OS market share. Now, we think that the value is moving back to Hardware space (even Apple is focusing on hardware features now). For the first time, Asian companies are grabbing share from the US in processor market, e.g., Samsung outgrowing Apple, Mediatek/ SPRD gains shares from Qualcomm/ Marvell. Implications of anemic global growth/What are we tracking? Despite anemic global growth, Asian tech supply chain has seen a rebound in order rates in 2H12 thanks to a flurry of new products. Admittedly, global growth is still anemic and some new product announcements have been disappointing (Win 8, iPad Mini price point). There are risks of inventory overbuild, and we have to check back the inventory level after the holiday seasons. Stock recommendations The valuation gap between winners and losers is widening. We think money can be made by identifying winners/ losers that are still not expensive/ cheap enough yet. Meanwhile, the biggest alpha comes from picking stocks whose status changes from winners to losers, or vice versa. For status change, MediaTek, Unimicron and ZTE have big new product cycles coming up smartphone inroad, top-2 smartphone substrate design win and China TDLTE equipment respectively, that could revive the decline driven by saturating feature phone/ 3G equipments respectively. While we believe ASUS is a good company, it could face tougher competition from Samsung/ Microsoft Surface. Among winners, Quanta and Ju Teng are still trading at a single-digit P/E, even though earnings growth is strong and underestimated, in our view. Among losers, the earnings cycle for HTC and Catcher could be very weak, as seen from the lessons of LG/ Nokia and Catchers own history in 2007-09 the stocks are still far from any valuation support, in our view.
Alvin KwockAC
(852) 2800-8533, alvin.yl.kwock@jpmorgan.com Bloomberg JPMA KWOCK<GO> J.P. Morgan Securities (Asia Pacific) Limited
Aug12
6%
Apr12
Apr'11 - Jul'12
-7% -12%
13%
18%
2011
2010
-16%
US Tech
Asia Tech
Europe slowdown
Asia strong share gain in AP due to first Samsung Exynos and then Mediatek/ SPRD
164
Top picks MediaTek ZTE Unimicron Quanta Ju Teng Stocks to avoid HTC Catcher ASUStek
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov 13, 2012.
Catchers P/BV
9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 Jan-05 (1.00)
Ju Tengs P/BV
2.50
+2 Stdev
2.00
+2 Stdev +1 Stdev
1.50 1.00 0.50
Jan-06 Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Unimicrons P/BV
3.00 2.50 2.00 1.50 1.00
HTCs P/BV
14.0 12.0 80 70 60 50
10.0 8.0
40 30 20 10 -
-1 Stdev
Still a lot more to go
Jan-09 Jan-10 ROE (%) (RHS) Jan-11
1.7x
Jan-12 Jan-13
(10)
Jan-11
Jan-12
ASUS P/BV
2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
ZTEs P/BV
1.9x
+2 Stdev +1 Stdev Mean
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
1.3x
Jan-12
165
Telecommunications
Telecoms micro investment case The key driver of telecom stocks, in our view, is earnings revisions. We highlight that most telcos are transiting from being voice-only operators to full-scale servicers with increasing data consumption trend. Managing longrun incremental costs will be a key differentiator of performance within the space in Asia. The picture varies greatly in CEEMEA, depending on macro conditions and levels of maturity, regulation, competition and secular growth opportunities. Central Europe looks worse, while Africa and parts of the Middle East look most attractive. The current dynamics in Russia are reasonable, with some downside risk on competition, while we believe Turkey is likely to improve sharply and is structurally attractive. Positively, leverage is generally low and cash flow strong, with scope for growing cash returns in South Africa, MENA and Turkey. For LatAm, regulation is going to remain a main driver. Implications of anemic global growth In Asia, operators are moving into new product segments with different pricing and price elasticity dynamics. In the context of limited top-line growth, a key driver would be on how operators manage their cost structures in the long term through spectrum and asset rationalization. For LatAm, we believe a re-rating could take place only if regulatory environment improves and prices stop declining on competition. In CEEMEA, stronger growth in Africa, the Middle East and Turkey supports the sector and overlaps with stronger secular growth drivers. Central Europe combines the weakest macro and the most difficult secular outlook in telecoms. What are we tracking? Understanding the economics of wireless data through demand/supply forecasting and data pricing analysis would be a key driver in understanding profitability trends. In CEEMEA, secular growth prospects are best measured by demographics/GDP growth, current levels of spend and the level of development of alternative infrastructure. On these, Africa, the Middle East and Turkey look best. A key risk in LatAm is deterioration in the regulatory environment. Stock recommendations In Asia, we prefer integrated DM operators over EM wireless operators based on their better cost structure dynamics, better consumer affordability, low capex risks and lack of strategic wireless asset sales. We like Far EasTone and avoid Globe Tel. We like Tim as a pure mobile play in Brazil. We avoid NIHD given the high expenses and raising leverage. Our picks in CEEMEA are Naspers, Turkcell, Yandex; we would avoid MTS.
166
AC
Most markets show ceiling to voice MOU at 500, will video usage also be capped?
Top picks Far EasTone Telecom Naspers Ltd Yandex Turkcell TIM Participacoes Stocks to avoid Globe Telecom Mobile Telesystems NII Holdings
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
0.45 0.40 0.35 0.30 0.25 0.20 0.15 2011 2012 2013 2014
Honeymoon period Network capacity End of Honeymoon begins close to full period Pricing moves to Rising as Low, based on long term companies begin market expansion incremental cost, goals and very low to look through to implying a differential long term incremental costs between firms incremental costs Varies by pricing Slowing as High, based on elasticity and product user growth strategies, which are rising prices hit and rising ARPU driven by cost base usage High, based on Slowing, based on Varies based on cost revenue growth revenue growth base differentials
2015
One 2005-2007 Voice Period Operators leverage scale-ability of voice to push wireless penetration far above expectations Wireless penetration rates Voice pricing constantly falls as scale drives down cost, increases addressable market CMHK, Bharti
Two 2010-2012 Empty network period Operators leverage empty networks post large CAPEX programs to grow revenue at low incremental cost Open network capacity Data priced off Short Run Incremental Cost (SRIC) given empty networks EXCL previously, Smartone, LGU+, Unicom, FarEastone
Three 2012 Integrated operator period Operators networks fill, move focus to differential cost structure. Spectrum and off-loading capabilities Data priced off Long Run Incremental Costs (LRIC), which will be very different between operators KT Corp, Chunghwa, major integrated operators
167
Transportation
Transportation micro investment case We expect nominal supply to continue to outpace demand. 2013 does not bring much cheer as scheduled aircraft and vessel deliveries suggest another year of industry oversupply if all are fully deployed. However, the airline and container shipping industries have proven that they can manage the effective supply through aircraft/vessel idling and ad-hoc service cancellations. We expect 2014E to be a much better year with demand likely outpacing supply growth. The transportation companies in Latam however are more linked to domestic infrastructure growth. In 2012, Brazilian companies have suffered from regulatory issues and government intervention in other sectors. 2013 should be no different. However, we expect higher returns in Brazil as government is more concerned with players execution and delivery capacity. Implications of anemic global growth The nature of transportation sector varies across regions. The transportation companies in Latam are defensives and a proxy to domestic growth. In Asia, however, transportation is a cyclical sector and slower-thanexpected growth could lead to lower demand and prolong the demand-supply imbalance. Historically, Asian airlines traffic tends to grow 1.6x their economies real GDP growth, container shipping volume 3.0x global real GDP growth, dry bulk shipping 1.9x. What are we tracking? Airlines: Sector still faces oversupply in 2013E, which needs to be effectively managed. The outlook should improve markedly from 2014E as demand will likely outpace supply growth. Bulk shipping: Vessel deliveries should finally moderate in 2013E. The orderbook looks overstated and vessel delivery shortfalls will be significant given financing challenges for many ship owners and builders. Fuel efficiency priorities will drive accelerated scrapping. Container shipping: To sustain/raise rates further, the liners would need to exercise significant capacity rationalization. In Latam, we track the infrastructure developments. Stock recommendations Our top airline picks are Air China and AirAsia. In shipping, we like the bulk shippers with Pacific Basin as our top pick. In Latam, we see CCR as the best vehicle to get exposure to infrastructure in Brazil. Our top avoids are Hanjin Shipping, and ALL.
Corrine PngAC
(65) 6882-1514, corrine.ht.png@jpmorgan.com Bloomberg JPMA PNG<GO> J.P. Morgan Securities Singapore Private Limited
Fernando AbdallaAC
+55 (11) 4950-3463, fernando.abdalla@jpmorgan.com Bloomberg JPMA BBG ABDALLA <GO> Banco J.P. Morgan S.A.
10.0
7.2
5.0
4.0 1.2
(1.5)
(5.0)
(5.6)
(10.0)
(10.0)
(15.0)
2007
2008
2009
2010
2011
2012F
2013F
2014F
2012E
2013E
2014E
Demand Growth
168
Top picks Air China AirAsia BHD Pacific Basin Shipping Localiza CCR Stocks to avoid Hanjin Shipping ALL
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
Asian airlines cargo traffic growth versus US semiconductor book-to- Historical newbuild bulkcarrier delivery slippages bill ratio 120
50% 40% 30% 20% 10% 0% -10% -20% -30% 0.50 1.10 1.50 1.30
100 80 60 40 20 0
0.90
0.70
Nov-91
Nov-96
Nov-06
Nov-01
May-94
May-99
May-04
May-09
Sep-92
Sep-97
Sep-02
Sep-07
Nov-11
Jan-91
Jan-01
Mar-95
Mar-05
Mar-00
Mar-10
Jan-11
Jan-96
Jan-06
0.30
Sep-12
Jul-93
Jul-98
Jul-03
Localiza: Used cars sold volumes vs. prices (car rental division)
15,000 12,000 9,000 6,000 3,000 31 30 29 28 27 26 25 24
Jul-08
2.6x
7.7x
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
2012E
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
169
Boris Kan
AC
(852) 2800 8573, boris.cw.kan@jpmorgan.com Bloomberg JPMA KAN<GO> J.P. Morgan Securities (Asia Pacific) Limited
Sergey V Arinin
AC
(7-495) 967-7031, sergey.v.arinin@jpmorgan.com Bloomberg JPMA ARININ <GO> J.P. Morgan Bank International LLC
Source: Bloomberg, 14 November 2012. Note: Index rebased to 100 as of 31 December 2011
83% 0% 100% 0%
35 30 25 20 15 10 5 -
Top picks KEPCO Kunlun Energy Tractebel Energia FSK Stocks to avoid JSW Energy Ltd. ELETROBRAS (ON)
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 15 November 2012.
Major European utility companies' asset disposals in 2010 12 YTD & Brazil wholesale power price outlook (R$/MWh) future plans
70,000
140.0
125 60,000 115 117 111 105 50,000 108 108 108 103 101 99 90 85 40,000 85 80.0 120.0
100.0
30,000
60.0
20,000
40.0
2013 E Iberdrola
10,000
20.0
0.0 2017
Bilaterial
2018
2019
Expiring
2020
2021
2022
2023
2024
2025
171
172
174
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
175
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
176
177
34650 40000 1332000 1800000 407 550 109 135 90.0 110.0 614 356 1263 7.6 69.8 21.5 10.8 53576 2.9 5.2 36.0 18.7 4.0 0.0065 33.1 15.4 27400 650 405 1400 11.0 80.0 42.0 14.0 62511 4.0 7.0 39.0 20.0 4.5 0.0080 37.0 17.5 33000
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
178
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
179
180
181
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Large cap are stocks with market cap over US$ 3 billion. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
182
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Mid cap are stocks with market cap between US$1billion & US$3billion. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
183
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Small cap are stocks with market cap less than US$1billion. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
184
2012 losers picked to be 2013 winners (Stocks with relative underperformance end 2011 to date and top pick)
Name Top Picks Banco Macro HOMEX Sesa Goa Antofagasta Samba Financial Group Advanced Petrochemical Samsung Engineering Sasol Unimicron Technology Corp. Yanbu National Petrochemical Sinopec Corp - H Cyrela Brazil Realty Banco Bradesco Novatek PTT Exploration & Production FSK TIM Participacoes ASE CIMB Group Holdings Baoxin Auto Group Limited Fubon Financial Holdings Hyundai Mipo Dockyard Cebu Air, Inc. China Shenhua Energy - H Charoen Pokphand Foods IJM Land Tractebel Energia AirAsia BHD Wipro Ltd. Air China Bank Central Asia (BCA) Baidu.com ZTE Corp Iochpe-Maxion Brilliance China Automotive Tata Consultancy Services Fleury Adani Ports and SEZ Dialog Group Bhd Price % P/E (X) Share Target Change Bloomberg JPM Mkt Cap, Price (LC) 2013 (LC) to target Code Rating US$ MM 2012E 2013E 32.1 14421 20.1 11.9 13.8 21.0 52.4 BMA US OW 791 2.7 2.6 25.7 38.0 47.7 HOMEX* MM OW 659 2.7 4.1 166 220 32.5 SESA IN OW 2622 8.0 6.2 1210 1370 13.2 ANTO LN OW 18966 7.6 6.5 45.2 63.0 39.4 SAMBA AB OW 10848 9.3 7.9 23.6 34.0 44.4 APPC AB OW 1030 12.3 8.4 144500 260000 79.9 028050 KS OW 5320 9.2 8.4 37289 45700 22.6 SOL SJ OW 27204 8.8 8.6 28.4 40.0 40.8 3037 TT OW 1499 11.4 8.8 43.9 53.0 20.7 YANSAB AB OW 6585 9.9 8.8 8.0 9.5 19.0 386 HK OW 85288 11.0 9.2 16.4 18.0 10.1 CYRE3 BZ N 3266 11.3 9.4 32.8 37.0 12.9 BBDC4 BZ OW 56337 10.9 9.7 104 180 73.4 NVTK LI OW 31517 13.4 9.9 160 180 12.5 PTTEP TB OW 17286 10.2 10.0 0.0 0.0 22.9 FEES RX OW 7811 11.0 10.2 7.6 11.0 44.5 TIMP3 BZ OW 8820 12.4 10.3 22.8 28.0 23.1 2311 TT OW 5925 13.2 10.3 7.6 8.5 11.4 CIMB MK OW 18521 12.8 10.8 5.6 7.0 24.1 1293 HK OW 1840 19.0 10.8 31.0 40.0 29.2 2881 TT OW 10049 11.4 10.8 108000 185000 71.3 010620 KS OW 1988 18.4 12.1 61.0 90.0 47.5 CEB PM OW 898 14.9 12.4 30.8 35.0 13.6 1088 HK OW 71050 13.4 12.7 33.0 43.0 30.3 CPF TB OW 8315 11.6 12.7 2.1 2.9 38.8 IJMLD MK OW 958 15.0 12.8 33.1 37.0 11.8 TBLE3 BZ OW 10358 12.8 13.1 2.9 4.0 38.9 AIRA MK OW 2615 5.2 13.3 356 405 13.8 WPRO IN OW 15929 15.7 13.4 5.2 7.0 35.9 753 HK OW 9141 15.2 13.7 8600 10000 16.3 BBCA IJ OW 22018 17.8 14.5 93 170 83.4 BIDU US OW 32400 19.6 15.1 11.2 15.0 33.9 763 HK OW 4532 237.4 15.6 25.2 31.0 23.0 MYPK3 BZ OW 1146 45.9 15.7 8.8 11.0 25.3 1114 HK OW 5692 20.0 17.1 1263 1400 10.9 TCS IN N 44921 23.2 18.2 23.2 31.0 33.6 FLRY3 BZ OW 1739 24.9 19.6 128 155 21.2 ADSEZ IN OW 4655 23.2 21.2 2.4 3.0 25.5 DLG MK OW 1885 31.5 28.3 Performance end 11 to date (%) Yield (%) ROE (%) 2013E 2013E Absolute Rel to Region 2.2 18.0 (8.4) (14.7) 0.0 24.7 (29.3) (35.6) 0.0 12.0 (30.1) (36.4) 2.4 15.6 (1.9) (8.2) 3.2 22.7 3.6 (2.7) 4.0 15.6 (2.8) (9.1) 7.4 20.0 (3.1) (9.4) 2.8 32.8 (23.7) (29.9) 4.7 19.5 (11.8) (18.1) 5.2 9.4 (17.1) (23.4) 1.1 18.0 0.5 (5.8) 3.3 14.4 (2.1) (8.4) 2.2 13.7 (1.0) (7.3) 3.6 17.9 (4.1) (10.4) 1.9 27.4 (17.1) (23.4) 3.4 20.8 (2.4) (8.7) 0.0 2.6 (29.3) (35.6) 1.8 11.9 (25.4) (31.7) 2.9 14.4 4.0 (2.2) 3.1 17.3 6.1 (0.2) 0.0 25.0 (25.1) (31.3) 3.7 10.7 5.4 (0.9) 1.4 5.0 2.6 (3.6) 0.0 13.3 0.2 (6.0) 3.0 17.9 (8.4) (14.7) 3.9 17.9 2.8 (3.5) 2.2 9.2 (6.0) (12.3) 4.2 30.3 (0.7) (7.0) 0.0 10.1 (21.0) (27.3) 2.0 20.8 (13.8) (20.1) 2.8 9.5 (10.1) (16.4) 1.5 24.8 2.1 (4.2) 0.0 40.3 (20.4) (26.7) 1.6 10.0 (53.9) (60.2) 2.3 15.2 (10.2) (16.5) 0.0 24.6 5.0 (1.3) 1.1 36.4 5.8 (0.5) 1.9 10.2 (2.6) (8.8) 1.2 22.9 2.8 (3.4) 1.4 17.4 3.4 (2.8)
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
185
2012 winners picked to be 2013 losers (Stocks with relative outperformance end 2011 to date and stocks to avoid)
Price % Share Target Change Price (LC) 2013 (LC) to target Stocks to Avoid (6.4) China Minsheng Banking - H 7.2 6.8 (5.6) Tisco Financial Group Pcl. 46.0 49.0 6.5 Palm Hills Developments 2.5 2.1 (15.3) Garanti 8.1 9.6 17.9 Union Bank of the Philippines 112 97 (13.0) ASUSTek Computer 308 300 (2.4) Mobile Telesystems 17.2 20.5 19.3 Liberty Holdings Ltd 10163 8400 (17.3) Ecopetrol ADR 58.1 52.0 (10.5) Bank Pekao SA 157 179 14.0 LSR 4.1 5.3 29.3 Discovery Holdings Limited 5743 5100 (11.2) China Shineway Pharmaceutical 11.9 12.0 0.7 Longfor Properties Co. Ltd. 14.3 11.7 (18.2) Reliance Industries Ltd 767 675 (12.0) Thai Oil Public Company 63.3 53.0 (16.2) Manila Electric Company 254 225 (11.5) Hong Leong Bank 14.4 11.7 (18.8) Petkim 2.1 1.7 (18.2) Globe Telecom 1150 1000 (13.0) JSW Energy Ltd. 60.7 54.0 (11.0) Weg 25.3 18.0 (28.7) OdontoPrev 11.0 12.0 9.6 ABB Ltd 720 540 (25.0) Marfrig 11.1 10.0 (9.9) Name Bloomberg JPM Mkt Cap, Code Rating US$ MM 12597 1988 HK UW 27409 TISCO TB N 1090 PHDC EY N 426 GARAN TI N 18971 UBP PM UW 1737 2357 TT N 7941 MBT US UW 17750 LBH SJ UW 3285 EC US UW 119444 PEO PW N 12663 LSRG LI UW 2112 DSY SJ UW 3596 2877 HK UW 1272 960 HK N 10013 RIL IN UW 45634 TOP TB UW 4199 MER PM UW 6957 HLBK MK UW 8841 PETKM TI UW 1160 GLO PM UW 3697 JSW IN UW 1809 WEGE3 BZ UW 7516 ODPV3 BZ UW 2789 ABB IN UW 2773 MRFG3 BZ UW 1840 P/E (X) 2012E 2013E 20.9 15.9 7.0 7.4 8.9 8.0 13.6 8.4 10.0 9.1 9.7 9.9 10.3 10.3 10.9 10.3 9.2 10.7 13.7 10.8 13.6 11.3 17.7 11.7 13.6 12.0 13.6 12.3 13.5 12.6 12.7 12.7 9.8 13.7 16.4 15.4 14.5 15.7 NM 15.8 17.1 15.9 58.5 17.7 24.1 19.8 33.9 29.8 71.3 38.5 78.0 57.3 Performance end 11 to date (%) Yield (%) ROE (%) 2013E 2013E Absolute Rel to Region 3.3 19.6 29.3 23.0 3.9 16.3 6.4 0.2 5.4 21.5 24.4 18.2 na 7.4 125.1 118.9 2.4 17.6 44.3 38.0 2.6 14.1 79.9 73.6 5.2 16.7 48.3 42.0 5.8 46.7 17.0 10.8 5.0 16.1 16.6 10.3 4.9 54.7 31.4 25.1 6.3 16.6 17.7 11.4 na 8.2 21.6 15.3 2.1 58.2 20.4 14.1 2.4 17.6 10.0 3.7 1.6 19.5 63.2 56.9 1.3 13.8 6.8 0.5 5.4 10.8 11.1 4.9 3.0 24.6 9.5 3.2 2.1 14.4 36.6 30.3 2.9 7.7 11.0 4.7 7.3 20.0 8.1 1.8 0.8 9.5 55.2 48.9 1.4 16.8 20.8 14.5 3.4 26.3 11.0 4.7 0.4 13.8 19.0 12.7 0.0 1.2 16.8 10.5
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
186
Running with 2012 winners (Stocks with relative outperformance end 2011 to date and top picks)
Price Share Target % Change Price (LC) 2013 (LC) to target Top Picks 25.5 Sberbank 86.7 147.3 69.9 Rosneft 8.0 10.6 33.1 Ju Teng International Holdings 3.6 5.0 40.8 Hyundai Motor Company 214000 290000 35.5 Pacific Rubiales 22.1 36.0 62.7 Yapi Kredi 4.5 5.7 26.7 First Gulf Bank 10.2 13.5 32.3 Globaltrans 15.8 27.2 71.9 E.ON Russia JSC 0.1 0.1 70.0 LG Electronics 79300 100000 26.1 Skyworth Digital Holdings 4.4 6.0 35.7 Vakifbank 4.3 5.5 28.2 LG Display 34650 40000 15.4 Samsung Electronics 1332000 1800000 35.1 ICBC - H 5.1 6.3 23.5 TPK Holding Co., Ltd. 407 550 35.3 Industries Qatar 149 199 33.2 TMK 13.8 19.0 38.1 Saudi Industrial Investment 22.3 29.0 30.3 Quanta Computer Inc. 69.0 85.0 23.2 Mobily 74.8 88.0 17.7 LW Bogdanka 129 169 30.9 Metalurgica Gerdau 22.0 32.0 45.3 Koc Holding 8.1 7.4 (8.0) Pruksa Real Estate Pcl 19.6 22.0 12.2 Electricity Generating Co. 128 155 21.1 Axis Bank Ltd 1210 1400 15.8 Geely Automobile Holdings 3.7 6.0 62.6 Erste Bank 20.4 25.0 22.3 Mega Holdings 21.0 28.6 36.2 Emaar Properties 3.6 4.5 25.7 Siam Commercial Bank 157 200 27.8 PZU 388 421 8.4 Erajaya Swasembada Tbk PT 2500 3000 20.0 Novatek Microelectronics 109 135 24.4 Thai Union Frozen Products 70.5 90.0 27.7 Coronation Fund Managers 3617 5050 39.6 Gerdau S.A. 17.3 21.0 21.2 Credicorp 138 139 0.9 Saudi Arabian Fertilizer Co. 198 221 11.9 BM&F Bovespa 12.7 14.0 10.2 HCL-Technologies 614 650 5.8 Beijing Capital Intl Airport 5.2 9.3 78.8 TSMC 90.0 110.0 22.2 Vodacom Group 11681 11500 (1.5) CCU 70.3 82.0 16.6 MediaTek Inc. 312 450 44.2 Kunlun Energy 15.4 17.5 13.8 Samsung Life Insurance 93300 145000 55.4 Ping An Insurance Group - H 58.5 70.0 19.8 ICICI Bank 1019 1200 17.8 Metro Pacific Investments 4.3 5.0 16.3 Televisa 22.7 31.0 36.9 Lenovo Group Limited 7.0 8.1 16.2 Semen Gresik (Persero) Tbk 15000 18000 20.0 Far EasTone Telecom 69.8 80.0 14.6 Grupo Aeroportuario 29.7 35.0 18.0 Mindray Medical 32.4 39.0 20.3 CSR Corp Ltd. 6.8 8.8 29.6 Anhanguera 31.9 45.0 41.1 Ayala Corporation 455 550 20.9 Mahindra & Mahindra 907 985 8.6 Duratex 14.2 16.0 12.4 Name Bloomberg JPM Mkt Cap, Code Rating US$ MM 16758 SBER RX OW 59295 ROSN LI OW 84414 3336 HK OW 518 005380 KS OW 43390 PRE CN OW 6538 YKBNK TI OW 10855 FGB UH OW 8331 GLTR LI OW 2824 EONR RU OW 5107 066570 KS OW 11945 751 HK OW 1576 VAKBN TI OW 5951 034220 KS OW 11412 005930 KS OW 180599 1398 HK OW 218889 3673 TT OW 4311 IQCD QD OW 22567 TMKS LI OW 3225 SIIG AB OW 2670 2382 TT OW 9103 EEC AB OW 13953 LWB PW OW 1350 GOAU4 BZ OW 4096 KCHOL TI OW 11370 PS TB OW 1410 EGCO TB OW 2193 AXSB IN OW 9382 175 HK OW 3564 EBS AV OW 10299 2886 TT OW 8249 EMAAR DB OW 5937 SCB TB OW 17283 PZU PW OW 10309 ERAA IJ OW 753 3034 TT OW 2244 TUF TB OW 2633 CML SJ OW 1286 GGBR4 BZ N 13470 BAP US OW 10990 SAFCO AB OW 13166 BVMF3 BZ OW 12055 HCLT IN OW 7751 694 HK OW 2905 2330 TT OW 80020 VOD SJ OW 19629 CCU US OW 4481 2454 TT OW 14443 135 HK OW 15968 032830 KS OW 17176 2318 HK OW 51633 ICICIBC IN OW 21274 MPI PM OW 2569 TV US OW 12938 992 HK OW 9281 SMGR IJ OW 9239 4904 TT OW 7803 OMAB MM OW 903 MR US OW 3750 1766 HK OW 10640 AEDU3 BZ OW 2228 AC PM OW 6558 MM IN OW 10123 DTEX3 BZ OW 3752 P/E (X) 2012E 2013E 18.5 17.9 5.3 5.0 6.2 5.1 7.5 5.7 6.6 6.1 7.8 6.2 10.2 6.2 7.6 6.7 8.6 6.7 7.4 6.8 16.2 7.0 9.5 7.1 8.3 7.2 44.2 7.4 9.6 7.6 8.0 7.6 10.0 8.0 9.3 8.0 9.4 8.2 13.3 8.3 10.8 8.5 9.1 8.9 12.6 9.0 12.1 9.2 10.3 9.6 12.4 9.7 6.5 9.9 11.8 10.0 14.1 10.5 24.0 10.6 11.8 10.9 10.8 11.0 13.1 11.0 11.4 11.3 15.8 11.5 15.0 11.8 13.5 11.8 18.5 12.0 13.3 12.5 14.8 12.6 12.6 12.7 14.5 12.8 17.5 13.2 16.2 13.3 14.2 13.5 14.6 13.7 15.5 13.7 21.9 13.7 15.9 14.3 17.5 14.7 21.5 15.2 18.8 15.2 17.8 15.3 21.8 15.3 19.3 15.7 19.2 15.9 19.8 16.0 17.3 16.3 18.8 16.3 21.4 16.5 28.7 16.8 22.5 17.4 18.6 17.7 19.9 17.8 Performance end 11 to date (%) Yield (%) ROE (%) 2013E 2013E Absolute Rel to Region 2.3 20.0 39.4 33.1 3.0 21.9 11.2 4.9 1.4 18.2 20.7 14.4 2.3 10.7 299.6 293.4 1.1 19.8 6.9 0.7 2.5 29.1 19.9 13.7 0.0 14.8 75.0 68.7 6.7 15.8 32.0 25.8 0.0 27.0 14.9 8.6 na 16.0 22.7 16.5 0.0 12.7 13.5 7.2 4.3 19.0 62.8 56.5 0.0 12.9 82.7 76.4 1.4 15.0 50.5 44.3 0.3 21.9 34.0 27.7 4.2 19.6 10.0 3.7 4.2 38.5 38.7 32.5 5.3 28.5 12.3 6.1 na 17.2 52.9 46.6 5.4 17.4 17.4 11.1 5.9 22.3 12.6 6.3 6.0 27.7 43.1 36.8 4.9 19.5 31.5 25.2 0.0 12.0 10.5 4.2 na 13.1 56.6 50.3 3.6 21.5 73.7 67.4 4.1 10.0 36.7 30.4 1.6 19.5 44.5 38.2 0.7 20.4 117.5 111.2 0.8 5.9 48.5 42.2 5.9 10.1 9.6 3.4 1.3 5.9 39.7 33.4 3.0 21.1 38.1 31.8 7.0 21.4 33.0 26.8 0.0 21.6 137.4 131.1 5.0 22.2 48.5 42.3 4.2 18.0 31.6 25.4 5.8 70.1 45.3 39.0 2.2 8.0 7.4 1.1 2.0 19.9 25.9 19.6 7.1 41.5 13.5 7.2 0.0 na 16.4 10.2 0.8 27.4 52.8 46.6 1.1 10.3 33.6 27.3 3.3 22.4 23.4 17.1 8.0 62.6 19.7 13.4 3.1 22.5 12.3 6.0 3.8 23.6 16.8 10.6 2.0 17.6 39.3 33.0 2.4 5.9 22.8 16.5 0.8 18.7 13.7 7.4 1.9 12.2 43.8 37.5 1.0 10.3 25.1 18.8 1.2 17.1 7.5 1.3 0.3 26.0 34.8 28.5 2.6 30.3 24.4 18.1 6.9 18.9 28.4 22.2 5.0 12.0 51.0 44.7 1.4 16.1 26.4 20.1 1.2 15.3 53.2 46.9 0.1 11.1 42.6 36.3 0.9 13.0 55.8 49.5 1.4 21.1 28.4 22.1 1.8 10.0 43.3 37.1
187
Running with 2012 winners (Stocks with relative outperformance end 2011 to date and top picks) (contd)
Name Top Picks Localiza Yandex China Foods Ltd Aspen Oberoi Realty KPJ Healthcare Berhad Summarecon Agung Arca Continental Turkcell Sino Biopharmaceutical AmBev ADR Totvs Iguatemi Emlak Konut Magnit Naspers Ltd Kroton CCR NATURA Jollibee Foods Corp. Tencent Ayala Land Orion Almacenes Exito ITC Limited Pacific Basin Shipping Lojas Americanas (Voting) China Shipping Container KEPCO Fibria Youku Tudou Inc. Price Share Target % Change Price (LC) 2013 (LC) to target 25.5 36.0 39.0 8.4 21.5 42.0 95.1 8.2 10.0 22.0 15516 17300 11.5 283 330 16.6 6.0 7.1 17.9 1890 2500 32.3 94 100 5.9 10.8 14.0 29.6 3.6 3.8 5.3 40.3 46.0 14.2 41.0 48.0 17.1 25.3 30.0 18.4 2.8 3.1 12.3 35.4 40.5 14.4 53576 62511 16.7 42.5 45.0 5.9 18.7 20.0 7.0 56.5 62.0 9.8 103.7 125.0 20.5 246.0 306.0 24.4 22.9 30.0 31.3 1076000 1300000 20.8 35300 34100 (3.4) 280 325 16.0 4.0 4.5 13.9 17.0 19.5 14.8 2.1 2.9 37.7 27400 33000 20.4 19.2 19.0 (1.2) 17.0 30.0 76.3 Bloomberg JPM Mkt Cap, Code Rating US$ MM 16758 RENT3 BZ N 3478 YNDX US OW 7028 506 HK OW 2958 APN SJ OW 7982 OBER IN OW 1689 KPJ MK OW 1260 SMRA IJ OW 1416 AC* MM OW 11611 TCELL TI OW 13184 1177 HK OW 2301 ABV US OW 115993 TOTS3 BZ OW 3176 IGTA3 BZ OW 1926 EKGYO TI OW 3829 MGNT LI OW 16733 NPN SJ OW 24973 KROT11 BZ OW 2737 CCRO3 BZ OW 15828 NATU3 BZ OW 11670 JFC PM OW 2628 700 HK OW 58731 ALI PM OW 7630 001800 KS OW 5909 EXITO CB N 8666 ITC IN OW 40030 2343 HK OW 987 LAME3 BZ OW 8455 2866 HK OW 3790 015760 KS OW 16191 FIBR3 BZ N 5109 YOKU US OW 2752 P/E (X) 2012E 2013E 18.5 17.9 30.1 18.0 25.3 18.1 24.5 18.2 21.8 18.6 42.7 18.8 23.1 18.9 25.2 19.1 24.8 19.2 21.4 19.8 24.2 20.4 21.8 20.5 24.4 20.8 23.6 20.9 15.9 20.9 24.6 21.2 26.5 21.5 32.0 21.5 27.6 22.2 26.6 23.3 29.3 24.2 36.1 26.7 33.3 27.5 33.2 28.5 33.6 29.5 35.7 30.3 NM 30.4 48.4 31.4 NM 33.7 NM 49.7 NM 264 NM NM Performance end 11 to date (%) Yield (%) ROE (%) 2013E 2013E Absolute Rel to Region 2.3 20.0 39.4 33.1 0.0 24.5 26.2 20.0 na 27.3 9.3 3.0 2.0 16.4 36.2 30.0 na 18.8 47.9 41.7 0.0 12.5 30.2 23.9 2.6 18.1 32.5 26.2 0.0 16.7 44.7 38.4 2.5 18.8 68.4 62.2 0.0 16.7 26.6 20.3 3.8 21.9 56.6 50.3 5.3 49.6 11.7 5.4 2.0 27.3 10.7 4.5 1.2 9.9 31.4 25.1 2.7 7.7 48.0 41.8 na 23.3 67.2 61.0 0.7 16.7 38.3 32.0 1.1 9.7 107.6 101.4 4.1 41.4 37.5 31.2 3.6 73.1 39.9 33.6 1.5 20.1 22.1 15.8 0.4 35.6 57.9 51.6 1.5 13.4 60.5 54.2 0.4 17.6 68.9 62.7 2.6 7.2 47.4 41.1 2.0 36.5 34.4 28.1 0.2 2.4 27.2 21.0 1.1 39.6 51.7 45.5 0.0 2.7 17.2 10.9 0.0 0.7 14.2 7.9 0.1 0.3 24.6 18.4 0.0 1.0 8.6 2.3
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
188
Source: Datastream, MSCI, Bloomberg, J.P. Morgan estimates Note: Prices and valuations as of November 16, 2012. Sorted in ascending order of 2013E PE. Simple average is calculated in grey shaded row.
189
190
Top Picks
191
Overweight
Price: Rs127.45 Price Target: Rs155.00
Abs Rel
1m -0.5% 0.2%
3m 2.7% -5.3%
Source: Bloomberg.
Company Data Shares O/S (mn) Market cap (Rs mn) Market cap ($ mn) Price (Rs) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (Rs mn) NIFTY Exchange Rate Fiscal Year End
2,003 255,333 4,742 127.45 05 Nov 12 22.5% 1.61 194.13 5,697.70 53.84 Mar
192
-20,395 -130,272 -36,838 -6,000 -2,775 1,553 -31 0 0 0 -18,841 -130,303 -36,838 -6,000 -2,775 -6,377 -117,717 -10,212 28,982 35,403 0 -1,138 285 -2,658 -7,481 9,997 2,515 0 0 0 0 139,725 22,163 -20,000 -22,000 -11,303 -9,710 -11,094 -10,238 126,418 9,326 -34,738 -36,492 8,670 -886 -5,756 -1,089 2,515 11,184 10,299 4,542 11,185 10,298 4,542 3,453
FY11 33.7% 37.6% 36.1% 36.1% 65.0% 19.7% 0.24 2.11 0.86 79.7% 24.0% 14.2%
FY12 FY13E FY14E FY15E 63.5% 29.5% 30.3% 21.5% 58.9% 44.7% 27.0% 21.8% 20.0% 20.0% 63.1% 18.2% 9.7% 9.7% 70.6% 25.9% 47.4% 47.4% 68.8% 20.4% 27.4% 27.4% 68.9% 18.7%
0.20 0.17 0.21 0.25 4.97 4.74 3.72 2.92 3.63 3.45 2.49 1.73 339.9% 327.0% 242.2% 169.3% 24.4% 22.9% 27.7% 28.1% 10.6% 10.0% 12.1% 15.6%
193
Advanced Petrochemical
www.appc.com.sa
Company overview Advanced Petrochemical established in 2005 and started commercial operations in 2008. The only products of the company are propylene (455kt), which is internally used to produce polypropylene (450kt). The company receives propane feedstock from Saudi Aramco at a roughly 28% discount to the prevailing naphtha price. Most of the polypropylene is produced for exports primarily to Asia. The company has a free float of more than 85%. Investment case Key points are as follows: i) one of the highest dividend yields in MENA Chemicals coupled with a strong balance sheet: We forecast DPS of SAR1.75/2.0 in 2012/13, which implies a yield of 7.5%/8.5%. Advanced announcement of a dividend of SAR1 for 1H12, gives us comfort in our FY12 forecast. The company has a strong balance sheet with a low net debt/EBITDA ratio (less than 1) and a relatively high free cash flow yield (more than 7%), ii) Access to discounted feedstock: Advanced receives propane feedstock from Saudi Aramco at a roughly 28% discount to the prevailing naphtha price on a long-term basis (more than 5 years), iii) attractive valuation: trades at 8.3x 13e PE vs its peer average of 10.7x. Key attractions in an anemic growth environment One of the highest dividend yields in MENA Petrochemicals, strong balance sheet, high free cash flow and attractive valuation. Earnings risks in 2013 Lower than expected polypropylene, soft end market demand, lower than expected operating rates. Price target, and risks to our investment view Valuation: We have derived our Dec 2013 price target of SAR34 using a DCF based approach. Our key assumptions are a terminal growth rate of 2% and a weighted average cost of capital (WACC) of 10.7%. Risks: Lower-than-expected polypropylene price and volumes, greater-than-expected decrease in propane feedstock price discount from Saudi Aramco, slower-than-expected recovery in key end markets especially Asia, unforeseen technical or operational issues, reinstatement/imposition of an antidumping duty in some of the key end markets particularly in China and India.
Advanced Petrochemical (2330.SE;APPC AB) FYE Dec 2011A Adj. EPS FY (SRls) 3.63 Revenue FY (SRls mn) 2,791 EBIT FY (SRls mn) 534 Net Income (Recur) FY 513 (SRls mn) EV/EBITDA FY 6.2 Adj P/E FY 6.5 Div Yield FY 6.7% FCF Yield FY 15.7%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: SRls23.70 Price Target: SRls34.00
Abs
YTD -3.5%
1m -8.8%
3m -1.3%
12m -2.2%
Source: Bloomberg.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn) ADTV (US$ Mn)
194
FY11 FY12E FY13E FY14E 4,199 3,969 3,969 3,969 449 274 -13 -195 4,664 4,259 4,259 4,259 1.8 8.3 12.8 12.4 8.9% 1.75 7.2% NM 0.5 16.7 13.1% 12.2% 1.6 6.6 8.9 8.4 12.8% 2.00 8.3% 47.1% (0.0) 26.6 -0.6% 17.2% 1.6 6.5 8.5 8.0 12.9% 2.50 10.3% 4.9% (0.3) 33.2 -8.0% 18.0%
1.8 1.7 6.3 6.2 10.0 8.7 10.2 6.5 21.5% 15.7% 1.75 2.00 8.7% 6.7% - 56.2% 1.3 0.6 11.1 23.6 39.4% 22.1% 11.6% 17.5%
195
Air China
www.airchina.com
Company overview Air China is the national flag carrier of China, providing domestic and international passenger and cargo transportation services. It is a member of the Star Alliance group. Its 1H12 revenue breakdown was: passenger: 88%, cargo services: 8% and others: 4%. Air China also owns a 29.9% stake in Cathay Pacific which in turn owns a 19.5% stake in Air China. Investment case We like Air China best LT given its strong organic growth prospects (driven by rising outbound Chinese traffic, premium/transit pax/cargo market share gains), leverage to growing West China market, and low exposure to hi-speed rail competition. Key attractions in an anemic growth environment We expect Air China to benefit from the growing outbound Chinese travel demand and win over the share of Chinese passengers flying via Seoul and Hong Kong to other destinations from competitor carriers as they improve their product and extend their network reach. Air China will likely outperform its regional sector peers given its lower US/Europe exposure and above-sector-average profitability in FY13E. Current valuations are attractive at 1.1x P/BV, 40% below its historical average since listing. Earnings risks in 2013 Key downside risks would be weaker-than-expected economic conditions in China, resulting in industry oversupply, rising competition from high-speed rail expansion, volatile fuel prices and Cathay Pacifics results disappoint. Price target, and risks to our investment view Our Dec-13 PT of HK$7.0 is based on 1.5x P/BV, a 20% discount to Air Chinas average valuation since listing excluding the M&A speculation period given its lower than historical average profitability. Key downside risks: 1) China economy weakens further, resulting in industry oversupply, 2) rising competition from high-speed rail expansion, 3) volatile fuel prices, and 4) weaker-than-expected earnings from Cathay.
Air China (Reuters: 0753.HK, Bloomberg: 753 HK) Rmb in mn, year-end Dec FY10A FY11A Revenue (Rmb mn) 82,488 98,410 Net Profit (Rmb mn) 12,005 7,082 EPS (Rmb) 1.01 0.58 DPS (Rmb) 0.13 0.13 Revenue Growth (%) 60.5% 19.3% EPS Growth (%) 147.3% -42.6% ROCE 10.2% 4.8% ROE 36.7% 16.2% P/E 4.2 7.4 P/BV 1.2 1.1 EV/EBITDA 6.5 8.1 Div Yield (%) 3.0% 2.9%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: HK$5.33 Price Target: HK$7.00
Abs Rel
1m 5.1% -3.4%
3m -0.7% -10.5%
Source: Bloomberg.
FY12E 99,433 4,437 0.34 0.14 1.0% -41.8% 4.6% 9.2% 12.7 1.1 7.8 3.3%
FY13E 107,682 4,905 0.37 0.14 8.3% 10.5% 4.6% 9.5% 11.5 1.1 7.4 3.3%
FY14E 115,529 5,969 0.46 0.18 7.3% 21.7% 4.9% 10.9% 9.4 1.0 6.8 4.1%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) Avg daily volume (mn) Avg daily value (HK$ mn) Avg daily value ($ mn) HSCEI Exchange Rate Fiscal Year End
4,563 19,592 3,138 5.33 07 Nov 12 28.0% 79.35 112.10 14.46 10,734 8 Dec
196
FY10 14,402 5,391 1,609 1,575 22,976 18,140 117,654 158,771 27,706 21,356 3,322 52,385 58,486 6,528 117,398 41,438 3.50
Cash flow statement FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 98,410 99,433 107,682 115,529 EBIT 19.3% 1.0% 8.3% 7.3% Depr. & amortization 15,820 17,317 18,916 20,967 Change in working capital -18.9% 9.5% 9.2% 10.8% Taxes 6,259 6,566 6,971 7,829 Cash flow from operations (42.7%) 4.9% 6.2% 12.3% 6.4% 6.6% 6.5% 6.8% Capex -1,354 -768 -1,291 -1,212 Disposal/(purchase) 9,355 5,956 6,584 8,013 Net Interest -36.9% -36.3% 10.5% 21.7% Other -2,292 -1,459 -1,613 -1,963 Free cash flow 24.5% 24.5% 24.5% 24.5% 7,082 4,437 4,905 5,969 Equity raised/(repaid) -41.0% -37.3% 10.5% 21.7% Debt raised/(repaid) 12,162 13,085 13,085 13,085 Other 0.58 0.34 0.37 0.46 Dividends paid (42.6%) (41.8%) 10.5% 21.7% Beginning cash Ending cash DPS Ratio Analysis FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 15,457 17,757 18,317 19,525 EBITDA margin 5,400 5,456 5,908 6,339 Operating margin 1,810 1,829 1,981 2,125 Net margin 686 686 686 686 23,353 25,728 26,892 28,675 Sales per share growth 18,091 18,599 19,502 20,898 Sales growth 134,406 144,176 152,752 160,135 Net profit growth 175,850 188,503 199,147 209,709 EPS growth Interest coverage (x) 30,825 30,825 30,825 30,825 27,796 28,037 29,985 31,837 Net debt to equity 2,711 2,562 2,562 2,512 Sales/assets 61,332 61,424 63,372 65,175 Assets/equity 58,821 67,371 72,980 77,980 ROE 7,372 7,372 7,372 7,372 ROCE 127,525 136,167 143,723 150,526 46,116 50,066 53,089 56,767 3.79 3.83 4.06 4.34
FY10 FY11 FY12E FY13E FY14E 10,928 6,259 6,566 6,971 7,829 8,569 9,561 10,751 11,944 13,138 678 6,798 167 1,343 1,278 -503 -3466 -1459 -1613 -1963 18,366 19,670 15,108 17,354 19,020 -9,645 -21,147 -20,521 -20,521 -20,521 190 1,106 0 0 0 -1,389 -1,354 -768 -1,291 -1,212 -6,159 -3,330 0 0 0 8,720 -1,477 -5,413 -3,166 -1,501 0 0 0 0 0 22,431 4,165 8,550 5,608 5,000 -15,044 - 1,000 0 -1,524 -1,837 -1,882 -2,291 2,707 14,402 15,457 17,757 18,317 14,402 15,457 17,757 18,317 19,525 0.13 0.13 0.14 0.14 0.18 FY10 23.6% 13.2% 14.6% FY11 FY12E FY13E FY14E 16.1% 17.4% 17.6% 18.1% 6.4% 6.6% 6.5% 6.8% 7.2% 4.5% 4.6% 5.2%
60.5% 16.1% (6.1%) 8.3% 7.3% 60.5% 19.3% 1.0% 8.3% 7.3% 147.3% -41.0% -37.3% 10.5% 21.7% 147.3% (42.6%) (41.8%) 10.5% 21.7% 14.04 11.69 22.55 14.65 17.30 173.2% 160.9% 160.7% 161.0% 157.3% 0.62 0.59 0.55 0.56 0.57 4.44 4.27 3.77 3.75 3.69 36.7% 16.2% 9.2% 9.5% 10.9% 10.2% 4.8% 4.6% 4.6% 4.9%
197
AirAsia BHD
www.airasia.com
Company overview AirAsia is a low-cost carrier operating domestic and international flights from its base in Malaysia and also has joint venture operations based in Thailand, Indonesia, Philippines and Japan. AirAsia Group has a single fleet of 105 A320 aircraft. Investment case We expect AirAsia to achieve c.36% EBITDAR margin on average in 2012-14E, ahead of sector peers. We also expect AirAsias earnings to grow 21% in FY13E. AirAsia is one of our top picks in the transport logistics ecosystem. Key attractions in an anemic growth environment Recovery in its ancillary income per passenger with the increase in excess baggage fees, and the successful listings of AirAsiaX and potentially Indonesia AirAsia (targeted in 1Q13) which will unlock more value for the Group as these JV airlines will be able to fund their own aircraft expansion going forward. AirAsia Japan could potentially be earnings accretive earlier than expected and Malindo may not be as significant a threat to AirAsia Malaysia in the longer term as viewed by the market. Earnings risks in 2013 Key earnings risks would be aggressive fleet expansion plans, rising fuel prices, inability to secure financing for aircraft deliveries at attractive interest rates, rising LCC competition and potential equity-raising. Price target, and risks to our investment view Our Dec-13 PT of M$4.0 is based on 10x 12M fwd Adj. EV/EBITDAR, 1 standard deviation above its historical average valuation as we expect AirAsias 2013E EBITDAR margin of 36% to surpass its historical 10-year average and the global LCC sector average EBITDAR margin forecast. Key risks: 1) substantial aircraft orders and capital commitments, 2) Indo AirAsias proposed listing fails to materialize or raises less capital, making it challenging to fund its own fleet expansion, 3) weaker ringgit, and 4) longer-than-expected losses in JV start-ups.
AirAsia BHD (Reuters: AIRA.KL, Bloomberg: AIRA MK) M$ in mn, year-end Dec FY10A FY11A FY12E Revenue (M$ mn) 3,948 4,495 4,799 Net Profit (M$ mn) 1,061 555 1,533 EPS (M$) 0.38 0.20 0.55 DPS (M$) 0.00 0.00 0.00 Revenue Growth (%) 26.0% 13.9% 6.8% EPS Growth (%) 86.5% -48.0% 175.7% ROCE 9.8% 10.0% 6.6% ROE 33.9% 14.5% 31.6% P/E 7.7 14.8 5.4 P/BV 2.3 2.0 1.5 EV/EBITDA 10.2 9.0 11.5 Div Yield (%) 0.0% 0.0% 0.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: M$2.97 Price Target: M$4.00
Abs Rel
1m -2.0% -1.1%
3m -19.5% -20.4%
Source: Bloomberg.
FY13E 5,225 602 0.22 0.00 8.9% -60.7% 6.8% 10.1% 13.7 1.3 10.2 0.0%
FY14E 5,589 654 0.24 0.00 7.0% 8.6% 6.6% 9.9% 12.6 1.2 9.8 0.0%
Company Data Shares O/S (mn) Market Cap (M$ mn) Market Cap ($ mn) Price (M$) Date Of Price Free float (%) Avg daily volume (mn) Avg daily value (M$ mn) Avg daily value ($ mn) FBMKLCI Exchange Rate Fiscal Year End
2,780 8,256 2,705 2.97 07 Nov 12 17.0% 3,020.30 4.05 1.33 1,646 3 Dec
198
LT investments 0 163 Net fixed assets 9,318 8,586 Total Assets 13,240 13,906 Liabilities Short-term loans 554 632 Payables 913 1,137 Others 377 425 Total current liabilities 1,844 2,194 Long-term debt 7,303 7,187 Other liabilities 453 488 Total Liabilities 9,599 9,869 Shareholders' equity 3,641 4,036 BVPS 1.32 1.45 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY12E FY13E FY14E M$ in millions, year end Dec 4,799 5,225 5,589 EBIT 6.8% 8.9% 7.0% Depr. & amortization 1,478 1,772 1,991 Change in working capital -14.8% 19.9% 12.3% Taxes 874 1,057 1,159 Cash flow from operations (24.8%) 21.0% 9.7% 18.2% 20.2% 20.7% Capex -330 -505 -588 Disposal/(purchase) 1,655 627 681 Net Interest 113.0% -62.1% 8.6% Free cash flow -122 -25 -27 7.4% 4.0% 4.0% Equity raised/(repaid) 1,533 602 654 Debt raised/(repaid) 176.0% -60.7% 8.6% Other 2,780 2,780 2,780 Dividends paid 0.55 0.22 0.24 Beginning cash 175.7% (60.7%) 8.6% Ending cash DPS Ratio Analysis FY12E FY13E FY14E M$ in millions, year end Dec 1,888 1,997 2,133 EBITDA margin 1,185 1,290 1,380 Operating margin 21 23 25 Net margin 559 559 559 3,654 3,869 4,097 Sales per share growth 1,274 1,349 1,459 Sales growth 10,454 12,210 14,250 Net profit growth 16,744 18,790 21,168 EPS growth Interest coverage (x) 1,032 1,032 1,032 1,214 1,322 1,414 Net debt to equity 451 488 519 Sales/assets 2,697 2,842 2,966 Assets/equity 7,887 9,187 10,787 ROE 488 488 488 ROCE 11,072 12,517 14,241 5,671 6,273 6,927 2.04 2.26 2.49
FY10 1,067 520 -96 -12 1,594 -1,903 0 -318 -308 0 249 783 0 746 1,505 0.00 FY10 40.2% 27.0% 26.9%
FY11 FY12E 1,163 874 571 604 9 27 -22 -20 1,404 1,155 -224 388 -312 1,179 0 -38 -278 0 1,505 2,105 0.00 -2,471 -330 -1,317 0 1,100 0 2,105 1,888 0.00
FY13E FY14E 1,057 1,159 715 832 38 32 -25 -27 1,280 1,408 -2,471 -505 -1,192 0 1,300 0 1,888 1,997 0.00 -2,871 -588 -1,463 0 1,600 0 1,997 2,133 0.00
FY13E FY14E 33.9% 35.6% 20.2% 20.7% 11.5% 11.7% 7.0% 7.0% 8.6% 8.6% 3.39
12.1% 13.3% 6.6% 8.9% 26.0% 13.9% 6.8% 8.9% 109.7% -47.7% 176.0% -60.7% 86.5% (48.0%) 175.7% (60.7%) 5.00 5.56 4.48 3.51
174.5% 141.6% 124.0% 131.1% 139.8% 0.32 0.33 0.31 0.29 0.28 3.64 3.45 2.95 3.00 3.06 33.9% 14.5% 31.6% 10.1% 9.9% 9.8% 10.0% 6.6% 6.8% 6.6%
199
AmBev
www.ambev.com.br
Overweight
Price: $39.04 Price Target: $46.00 End Date: Dec 2013
Company overview AmBev (ABV) is regarded as the gold standard in the brewing industry. AmBev should be analyzed like one peels an onion. The outer and most visible layer is the great financial performance. Then the next layer one finds is strong brands. Then one finds unique packaging innovation. Then at the next layer, world class brewing facilities. Then one sees a debt-free balance sheet, high ROIC, and dividends, etc. But at the very core are people with a unique business culture. That culture is the key reason why AmBev is the largest consumer company by market cap in Latin America and the largest company in the MSCI Emerging Markets Consumer Staples Index. Investment case In case of better economic times, AmBev should go from good to great. In 2013 we expect a good balance of mid-single-digit volumes and pricing growth. New roll-outs and packaging innovations should be key volume drivers along with an expected recovery in the Brazilian consumer. Also, pricing power is always valuable but most profitable in economic recoveries. AmBevs market leadership should pave the way for pricing above taxes and inflation and facilitate margin expansion, leading to at least mid-teens earnings growth. How much recovery has already been priced in, what are the key metrics? ABV trades at 23x 2013E P/E, on par with EM peers average. AmBevs earnings growth is more consistent and faster than the EM brewers average. While further rerating is less likely, even with stable multiples, mid-teen earnings and ~5% dividend yield may lead to ~20% total return for 2013E. Earnings risk in 2013 The Brazilian beer division is the prime driver of AmBevs earnings. If volumes grow at a significantly slower than expected pace or operating expenses surge at a rapid pace, this may lead to an earnings shortfall. Also, margin expansion could be hurt if commodity prices rise more than expected for a sustained period of time. We use P/E to set our price target, but conservative DCF shows even more upside Our Dec 2013 PT for AMBV4 is US$46, using 22x P/E multiple, similar to EM average, even with its high-growth/high-dividend profile. Key risks include, along with what is mentioned above, macro and FX risks. Also, a large acquisition that proves to be dilutive for minority shareholders would be a risk.
Companhia de Bebidas das Americas (AmBev) ADR (ABV;ABV US) FYE Dec 2011A 2012E EPS Reported ($) FYI Bloomberg EBITDA FY ($ mn) P/E FY EBITDA FY ($ mn) EV/EBITDA FY 1.65 23.8 7,844 15.9 1.70 7,421 23.2 7,754 15.6 2013E 1.89 8,196 20.8 8,716 14.2 2014E 1.98 -
Source: Bloomberg.
Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date
200
Operating Data, Ratios Capex Change in working capital Free cash flow Cash from Operating Activities Cash from Investing Activities Cash from Financing Activities Net change in cash Net cash at Beginning Net Cash at End Dividends Dividend % of net income Capex/depreciation CAPEX/sales Working capital Working capital/sales
Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec
201
Anhanguera
www.anhanguera.com
Overweight
Price: R$32.55 Price Target: R$45 End Date: Dec 2013
Company overview Anhanguera (AEDU) is the largest player in Brazilian on-campus higher education and one of the largest in distance learning. The company has 71 campuses in 47 cities and has more than 500 associated learning centers. In 3Q12 ~80% of Anhangueras revenue came from traditional on-campus courses, while the remaining came from distance learning activities, including preparatory courses. Investment case Evolution of the FIES program, which offers subsidized loans for low income students, is a key driver for higher education companies in Brazil. Penetration of these loans is still low, with AEDU having 25% of students in the program. Also, maintenance of high employment levels and wage mass growth are important to AEDU as most of its students are working adults who depend on their salaries to pay for education. How much recovery has already been priced in, what are the key metrics? AEDU trades at 19x 12m fwd P/E, slightly below its historical average. We believe most of the upside for the stock should come from earnings revisions. Earnings risk in 2013 We see upside to consensus earnings for 2013 and beyond as we believe consensus does not fully incorporate AEDUs organic growth potential related to increasing capacity utilization as well as margin effects of the implementation of its academic model in acquired campuses. Price target, and risks to our investment view Our Dec 13 PT of R$45 is based on a DCF model with 12.8% WACC and 4.5% terminal growth in R$ nominal terms. At our target, the stock would trade at 17x forward P/E, which is lower than the current 20x multiple. The main downside risks include increasing bad debt, a negative evaluation from the Education Ministry, and restrictions on education funding from the government.
Source: Bloomberg.
Anhanguera Educacional Participaes S.A. (AEDU3.SA;AEDU3 BZ) FYE Dec 2011A 2012E EPS (R$) FY 0.29 1.11 Bloomberg EPS FY (R$) 1.66 2.48 EBITDA FY (R$ mn) 196 337 Bloomberg EBITDA FY (R$ 310 415 mn) P/E FY 119.3 31.4
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
202
Balance Sheet Cash Other current assets Current assets Net PP&E Intangibles Other Non Current Assets Total assets Short-term debt Other Current liabilities Current Liabilities Long Term Debt Other Non Current liabilities Total liabilities Minority interest Shareholders' equity Net debt Net Debt/EBITDA Net Debt, reported Working Capital Working Capital as % of Revenues Fx avg Valuation, Macro EV/EBITDA P/E FCF yield Dividend yield ROE, eop ROE, avg ROIC, eop ROIC, avg Net Debt / Capital (book) Net Debt / Capital (market) Risk Free Rate Country Risk Beta Ke Kd, post tax WACC
217 211 211 211 211 332 382 459 540 629 549 593 670 751 840 759 758 758 758 758 334 340 340 340 340 1,642 1,691 1,768 1,849 1,938 0 0 0 0 0 2,006 2,210 2,483 2,775 3,034 695 537 387 149 (203) 3.5 1.6 0.9 0.4 0.2 695 537 390 249 156 204 242 277 325 378 16.6% 14.7% 14.0% 13.9% 13.9% 1.68 1.94 2.01 2.07 2.14
FY11A FY12E FY13E FY14E FY15E 25.9 14.7 10.8 8.0 5.9 119.3 31.4 18.4 13.0 9.8 (3.0%) 1.9% 4.2% 6.2% 8.8% 0.0% 0.0% 0.1% 1.9% 5.1% 2.1% 7.3% 11.1% 14.1% 17.1% 2.1% 7.3% 11.1% 14.1% 17.1% 4.0% 8.7% 11.1% 13.5% 16.0% 4.1% 8.7% 11.1% 13.5% 16.0% 19.1% 13.8% 9.2% 5.4% 3.1% 26.8% 24.8% 22.8% 21.0% 19.5% 0.0% 7.1% 0.00 10.8% 6.0% 10.3%
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
203
ASE
www.aseglobal.com
Company overview ASE is the worlds largest OSAT, offering chip packaging and testing services to key fabless/IDM customers like QCOM, BRCM, MTK, MRVL, Toshiba and Renesas. Investment case Continued market share gain against overseas peers to cement ASEs leadership should be a structural thesis to support our bullish view on ASE, with growth drivers such as: 1) a multi-year gold-to-Cu WB transition where ASE has been leading (Cu), 2) IDM outsourcing mainly from Japan focusing on discrete business (low pin count), and 3) rising demand for advanced FC technology under mobile computing and leading-edge tech migration at the front-end (high pin count). Key attractions in an anemic growth environment Similar to the foundries/TSMC, we see structural market share gains as a key driver for ASE in an anemic growth environment. ASE has been gaining market share in the global OSAT space with its Cu lead. We expect the resumption of IDM outsourcing, rising demand for advanced FC technology, on top of the continued Cu transition, to help further ASEs market share gains. Earnings risks in 2013 We identify Cu-catch up from OSAT peers, price competition, 2.5D/3D IC packaging threat from foundries, and any macro-driven demand shortfall and/or margin execution risk as earnings risks in 2013. Price target, and risks to our investment view Our Dec-13 PT of NT$28 is based on our ROE-adjusted P/BV of 1.9x, which is derived from our comparison of projected normalized ROE of 13-14% with its historical ROE average of 13.6% since FY94. This comparison yields roughly a 4% discount, and applying the discount to its historical normalized P/BV of 2x yields our target P/BV of 1.9x. Risks are holiday sell-through and margin execution.
Share Price: NT$21.95, Date of Price: (05 Nov 12), Bloomberg 2311 TT, Reuters 2311.TW
(Year-end Dec, NT$ B) Revenue Operating profit EBITDA Adjusted net profit Profit growth (%) EPS (NT$)* BVPS (NT$, yr-end) Cash dividend yield (%) ROE(%) ROIC (net of cash, %) Net debt/equity (%) FY11 FY12E FY13E FY14E 185.3 190.5 215.1 237.0 P/E (x) 16.8 16.9 20.2 22.7 P/B (x) 39.8 40.4 46.4 50.3 EV/EBITDA (x) 13.7 13.1 16.7 18.9 FCF/Mkt cap (%) -25.1 -4.5 27.4 13.3 Price target 1.78 1.73 2.20 2.49 PT (31 Dec 13) 15.14 14.53 16.05 17.78 Diff from consensus 3.0 3.0 3.0 3.4 14.1 12.3 14.4 14.7 Quarterly EPS (NT$) 9.6 9.0 10.6 12.5 FY11 50.2 41.2 36.9 17.5 FY12E FY13E
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: NT$21.95 Price Target: NT$28.00
Abs Rel
1m -2.0% 4.6%
3m 6.9% 7.3%
Source: Bloomberg.
FY11 FY12E FY13E 12.3 12.7 10.0 1.4 1.5 1.4 5.6 5.4 4.7 1.5 6.9 3.6
FY14E 8.8 52-Week range NT$ 27.37 - 18.99 1.2 Share out'g 7,591M 3.9 Avg daily volume 23.9M 16.5 Avg daily val (US$) 17.98M Local Free float 75.0% NT$ 28.00 Market cap (US$) 5.7B 20.5% Exchange rate NT$ 29.23/US$1 Index (TWSE) 7,185 3Q 4Q FINI holding (%) 67.0% 0.45 0.34 0.45 0.58 0.60 0.60
204
205
Aspen
www.aspenpharma.com
Company overview Aspen is the leading supplier of generic medicines to both the private and public sectors in South Africa. Aspen has grown its international footprint and now supplies its products in over 150 countries across Africa, LATAM, Asia Pacific and Europe. Aspen has 18 manufacturing facilities at 13 pharmaceutical manufacturing sites. Investment case In our view Aspen has excellent entrepreneurial management and increasing exposure to an emerging markets generics sector that continues to benefit from attractive tailwinds. Over the next few years the company should benefit from significant cost synergies as it relocates manufacturing from its recent acquisitions to its world-class plant in Port Elizabeth. Key attractions in a benign growth environment Aspen has a strong pipeline of generic launches over the next 5 years in geographies where average drug spend per capita is still relatively low. We see meaningful upside if market share gains can be made in these international; markets. The companys entrepreneurial spirit and solid M&A track record in our view suggest market share gains are likely and this underpins our Overweight recommendation. Earnings risks in 2013 Earnings may be negatively affected by governments efforts to cut drug pricing through international benchmarking. Market share gains in Aspens international businesses may be slower than we currently forecast. Aspen could win a smaller share of the ARV tender than we currently anticipate. Price target, and risks to our investment view Our revised DCF now gives us a fair value of R161/ share. Our DCF uses a WACC of 7.6% and long-term growth rate of 3%. To reflect a one year forward DCF price we inflate this by Aspens cost of capital to give us a target price of R173. Key Risks: 1) Regulatory Pressure. 2) Under delivery on investments made in LATAM, SSA.
Overweight
Price: 15,534c Price Target: 17,300c
(44-20) 7134-5945 alex.r.comer@jpmorgan.com Bloomberg JPMA COMER<GO> J.P. Morgan Securities plc
P r ic e P e r fo r m a n c e
16,000 14,000 c 12,000 10,000 8,000
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 60.7%
1m 7.2%
3m 7.2%
12m 64.5%
Source: Bloomberg.
Aspen Pharmacare Holdings Ltd (APNJ.J;APN SJ) FYE Jun 2011A 2012A Adj. EPS FY (c) 520.30 649.92 Fully Diluted EPS FY (c) 523.09 636.20 Headline P/E FY 29.9 23.9 Revenue FY (R mn) 12,383 15,256 EBITDA FY (R mn) 3,697 4,555 EV/EBITDA FY 12.1 16.7 EBIT FY (R mn) 3,149 3,940 EBIT margin FY 25.4% 25.8%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn)
206
7,180 8,153 16.6% 13.5% 2,030 2,414 28.3% 29.6% 2,103 2,580 27.3% 22.6% 337 439 16.0% 17.0% 7,056 17.2% 7,716 9.4%
207
Axis Bank
www.axisbank.com
Company overview Axis Bank is the third-largest private bank in India. It has a diversified exposure across wholesale, retail and SME, backed by a strong deposit franchise. It has a strong and growing branch network and has recently diversified into asset management and investment banking, though both those businesses are still nascent. Investment case Axis is our top pick among Indian financials. A key driver of the stock, in our view, is the steady improvement in balance sheet quality with a stronger retail presence we think this raises the longer-term growth rates for the bank. We expect the stock to strongly re-rate in 2013. Key attractions in an anemic growth environment Axis recent diversification of revenues has made it a more secular growth story. We expect it to build on its large distribution to continue to take share from PSU banks, which increases its resilience in an anemic growth environment. Earnings risks in 2013 The downside risks we see to earnings are 1) lumpy asset quality shocks from large project exposures, and 2) a slowdown in retail asset demand, Axis main growth driver. A key upside risk is asset quality, where our estimates are more conservative than management expectations. Price target, and risks to our investment view Our Mar-14 PT for Axis of Rs1,400 is based on our 2-stage Gordon growth model and implies 1.8x FY14E book. Our valuation factors in a cost of equity of 15.2%, normalized ROE of ~17%, and terminal growth of 5%. A key risk to our investment case is an adverse policy environment affecting Axis valuations. Also, the government owns 23% of Axis through an SPV called SUUTI any decision to sell that block would be a significant overhang.
Axis Bank Ltd (Reuters: AXBK.BO, Bloomberg: AXSB IN) FY11A FY12A FY13E Operating Profit (Rs mn) 60,563 73,380 90,021 Net Profit (Rs mn) 33,882 42,423 51,619 Cash EPS (Rs) 82.54 102.67 121.40 Fully Diluted EPS (Rs) 76.76 101.15 114.26 DPS (Rs) 14.00 16.00 19.00 EPS growth (%) 34.9% 24.4% 18.2% ROE 18.0% 20.0% 19.5% P/E (x) 14.9 12.0 10.1 BVPS (Rs) 462.82 551.99 635.87 P/BV (x) 2.7 2.2 1.9 Dividend Yield 1.1% 1.3% 1.5%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: Rs1,232.05 Price Target: Rs1,400.00
Abs Rel
1m 7.8% 7.6%
3m 12.9% 5.0%
Source: Bloomberg.
FY14E 116,886 63,093 148.38 140.44 21.00 22.2% 20.1% 8.3 759.68 1.6 1.7%
FY15E 147,464 76,312 179.47 171.53 27.00 21.0% 20.6% 6.9 907.56 1.4 2.2%
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Rs) Date Of Price 3M - Avg daily value (Rs mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) NIFTY Exchange Rate
1,309.00-784.00 509,088 9,352 413 Mar 1,232.05 07 Nov 12 2,903.74 53.3 2.67 5760.10 54.44
208
(47,794) (60,071) 60,563 73,380 (12,800) (11,430) 3,593 931 51,356 62,881 (17,474) (20,458) 0 0 33,882 42,423
Growth Rates FY15E 3.3% Loans 96.7% Deposits 3.2% Assets Equity 155,032 RWA 89,962 Net Interest Income 85,226 Non-Interest Income of which Fee Grth 244,994 Revenues Costs (97,530) Pre-Provision Profits Loan Loss Provisions 147,464 Pre-Tax (39,409) Attributable Income - EPS - DPS 5,000 - Balance Sheet Gearing 113,055 Loan/deposit (36,743) Investment/assets 0 Loan/Assets 76,312 Customer deposits/liab. LT debt/liabilities Asset Quality/Capital Loan loss reserves/loans NPLs/loans Specific loan loss reserves/NPLs Growth in NPLs Tier 1 Ratio Total CAR Du-Pont Analysis NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Non-Int. Rev./ Revenues Non IR/Avg. Assets Revenue/Assets Cost/Income Cost/Assets Pre-Provision ROA LLP/Loans Loan/Assets Other Prov, Income/ Assets Operating ROA Pre-Tax ROA Tax rate Minorities & Outside Distbn. ROA RORWA Equity/Assets ROE
FY11 36.4% 33.9% 34.4% 18.4% 39.2% 31.1% 31.3% 28.4% 31.2% 27.0% 34.6% (7.8%) 34.4% 36.7% 34.9% 16.7% FY11 75.3% 11.7% 58.8% 84.6% 8.4% FY11 (0.8%) 1.2% 0.0% 21.4% 9.4% 12.7% FY11 3.2% 97.2% 3.1% 39.4% 2.0% 5.1% 44.1% 2.3% 2.9% (1.0%) 58.8% 0.2% 2.3% 2.4% 34.0% 0.0% 1.5% 1.9% 8.3% 18.0%
FY12 19.1% 16.3% 17.7% 20.1% 17.9% 22.2% 24.7% 27.9% 23.2% 25.7% 21.2% (10.7%) 22.4% 25.2% 24.4% 14.3% FY12 77.1% 11.8% 59.6% 83.7% 9.5% FY12 (0.8%) 1.1% 0.0% 12.9% 9.5% 13.7% FY12 3.1% 97.0% 3.0% 39.9% 2.0% 5.1% 45.0% 2.3% 2.8% (0.7%) 59.6% 0.0% 2.3% 2.4% 32.5% 0.0% 1.6% 2.0% 7.9% 20.0%
FY13E 22.2% 24.3% 22.3% 18.5% 22.0% 18.4% 21.8% 18.0% 19.7% 16.2% 22.7% 57.9% 21.6% 21.7% 18.2% 18.8% FY13E 75.7% 11.8% 59.9% 84.8% 9.3% FY13E (0.9%) 1.2% 0.0% 56.8% 9.0% 12.9% FY13E 3.1% 96.8% 3.0% 40.6% 2.0% 5.0% 43.7% 2.2% 2.8% (0.9%) 59.9% 0.1% 2.3% 2.4% 32.5% 0.0% 1.5% 1.9% 7.8% 19.5%
FY14E 24.4% 25.3% 23.4% 19.5% 24.0% 27.3% 19.6% 20.0% 24.1% 16.8% 29.8% 57.4% 22.2% 22.2% 22.2% 10.5% FY14E 74.9% 11.2% 60.1% 85.9% 8.7% FY14E (1.3%) 1.6% 0.0% 66.4% 9.0% 12.3% FY14E 3.2% 96.7% 3.1% 39.1% 2.0% 5.1% 41.1% 2.1% 3.0% (1.2%) 60.1% 0.1% 2.3% 2.4% 32.5% 0.0% 1.5% 1.9% 7.6% 20.1%
FY15E 25.6% 26.1% 24.3% 19.5% 25.0% 28.3% 16.0% 20.0% 23.5% 19.7% 26.2% 38.7% 21.0% 21.0% 21.0% 28.6% FY15E 74.3% 10.6% 60.6% 86.9% 7.9% FY15E (1.7%) 2.2% 0.0% 71.7% 8.6% 11.5% FY15E 3.3% 96.7% 3.2% 36.7% 1.9% 5.1% 39.8% 2.0% 3.0% (1.3%) 60.6% 0.1% 2.2% 2.3% 32.5% 0.0% 1.5% 1.8% 7.3% 20.6%
Per Share Data EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rs in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA
FY11 82.54 14.00 17.0% 462.82 411 FY11 1,424,076 (11,891) 1,435,967 15,994 277,938 46,321 2,056,670 2,427,129 1,892,376 209,365 1,815,680 2,116,774 189,988 1,965,626 1,688,662
FY12 102.67 16.00 15.6% 551.99 413 FY12 1,697,595 (13,337) 1,710,932 18,063 346,588 64,829 2,563,466 2,856,278 2,201,043 253,204 2,277,994 2,641,703 228,085 2,317,114 2,141,370
FY13E 121.40 19.00 15.7% 635.87 425 FY13E 2,071,066 (19,263) 2,090,330 28,329 403,099 80,272 3,075,302 3,494,614 2,735,207 292,123 2,740,789 3,175,446 270,373 2,826,879 2,571,996
FY14E 148.38 21.00 14.2% 759.68 425 FY14E 2,568,122 (33,188) 2,601,310 47,142 471,094 100,100 3,776,366 4,313,678 3,426,984 332,212 3,393,263 3,904,146 323,018 3,505,330 3,166,104
FY15E 179.47 27.00 15.0% 907.56 425 FY15E 3,210,153 (56,671) 3,266,824 80,959 553,052 125,648 4,677,407 5,362,071 4,322,746 380,328 4,231,136 4,837,874 385,898 4,381,662 3,943,496
209
Ayala Corporation
www.ayala.com.ph
Company overview AC is the holding company of one of the largest business groups in the Philippines. It maintains a leading presence in real estate (Ayala Land), financial services (Bank of the Philippine Islands), telecom (Globe Telecom), water delivery, sewerage services (Manila Water), and electronics manufacturing services (Integrated Microelectronics). It also has exposure to the business process outsourcing sector through LiveIt. Investment case AC is our top pick in the Philippine conglomerates space given its leverage to the robust macro, access to quality management, stock liquidity, and attractive valuations. We also believe that AC is best positioned to win new projects from the infra project roll-out of the government. Key attractions in an anemic growth environment AC has a portfolio of well-managed companies that are either market leaders or superior value generators, and operate in sectors that leverage on the robust growth of the Philippine economy. New infra project roll-out is independent of the external environment. Earnings risks in 2013 Major disappointments in the operating performance of key subsidiaries particularly, Ayala Land (ALI) is a key earnings risk in 2013. Should ALIs sales take-up contract or margins contract, this pose a risk to our above-consensus AC earnings estimates. Price target, and risks to our investment view Our Dec-13 PT of Php550 is derived from a 15% discount to our Php647 NAV; the higher discount applied versus other conglomerates is justified given that more than 90% of AC's portfolio can be replicated in the market. Our NAV is a SOTP of the major subsidiaries and associates. Key risks: Major disappointment in the operating performance of its major subsidiaries/associates, ALIs failure to deliver on its longterm targets, and continued losses of LiveIt.
Ayala Corporation (Reuters: AC.PS, Bloomberg: Php in mn, year-end Dec FY09A FY10A Revenue (Php mn) 76,294 98,071 Net Profit (Php mn) 8,154.3 11,161.1 EPS (Php) 13.70 18.75 DPS (Php) 4.00 4.00 Revenue growth (%) -3.6% 28.5% EPS growth (%) 0.6% 36.9% ROCE 10.5% 13.5% ROE 8.2% 10.6% P/E (x) 32.8 24.0 P/BV (x) 2.6 2.5 EV/EBITDA (x) 13.4 9.8 Dividend Yield 0.9% 0.9%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: Php449.60 Price Target: Php550.00
Abs Rel
1m 1.0% 1.0%
3m 4.0% 1.6%
Source: Bloomberg.
AC PM) FY11A 107,532 9,394.9 16.14 4.00 9.6% -13.9% 12.8% 8.8% 27.9 2.4 9.4 0.9%
FY12E 119,605 12,032.6 20.26 4.00 11.2% 25.5% 14.0% 10.9% 22.2 2.3 8.4 0.9%
FY13E 140,065 15,519.6 26.13 4.00 17.1% 29.0% 17.2% 13.0% 17.2 2.1 6.7 0.9%
FY14E 170,012 19,167.7 32.27 4.00 21.4% 23.5% 19.5% 14.7% 13.9 2.0 5.2 0.9%
Company Data Shares O/S (mn) Market cap (Php mn) Market cap ($ mn) Price (Php) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Php mn) 3M - Avg daily Value (USD) ($ mn) PSE Exchange Rate Fiscal Year End
594 266,857 6,498 449.60 07 Nov 12 38.0% 0.57 244.06 5.93 5,471 41.07 Dec
210
FY10 53,143 25,935 18,375 6,912 104,364 11,699 315,370 15,757 37,713 3,867 57,336 67,080 70,153 207,829 107,541 180.65
Cash flow statement FY11 FY12E FY13E FY14E Php in millions, year end Dec 107,532 119,605 140,065 170,012 EBIT 9.6% 11.2% 17.1% 21.4% Depr. & amortization 32,443 33,112 41,553 49,334 Change in working capital 12.4% 2.1% 25.5% 18.7% Taxes 25,843 30,425 38,518 45,952 Cash flow from operations 9.3% 17.7% 26.6% 19.3% 24.0% 25.4% 27.5% 27.0% Capex -6,175 -5,942 -6,962 -7,144 Disposal/(purchase) 19,668 24,482 31,556 38,809 Net Interest 4.1% 24.5% 28.9% 23.0% Other -3,869 -4,915 -7,079 -8,967 Free cash flow 19.7% 20.1% 22.4% 23.1% 9,394.9 12,032.6 15,519.6 19,167.7 Equity raised/(repaid) -15.8% 28.1% 29.0% 23.5% Debt raised/(repaid) 582 594 594 594 Other 16.14 20.26 26.13 32.27 Dividends paid (13.9%) 25.5% 29.0% 23.5% Beginning cash Ending cash DPS Ratio Analysis FY11 FY12E FY13E FY14E Php in millions, year end Dec 53,577 78,521 80,072 103,411 EBITDA margin 31,320 31,320 31,320 31,320 Operating margin 27,766 27,766 27,766 27,766 Net margin 9,289 9,289 9,289 9,289 121,951 146,896 148,447 171,785 Sales per share growth - Sales growth 13,851 10,381 10,846 10,965 Net profit growth 357,627 356,539 375,321 398,283 EPS growth Interest coverage (x) 14,125 5,432 5,432 5,432 51,014 51,014 51,014 51,014 Net debt to equity 4,169 3,189 3,189 3,190 Sales/assets 69,308 59,635 59,635 59,636 Assets/equity 92,592 99,622 99,622 99,622 ROE 75,233 82,767 91,725 102,399 ROCE 250,583 242,024 250,982 261,657 107,044 114,515 124,339 136,625 183.92 192.79 209.32 230.01
FY10 FY11 FY12E FY13E 23,642 25,843 30,425 38,518 5,228 6,600 2,688 3,035 1,854 -2,588 -442 -5,394 -3122 -3869 -4915 -7079 11,807 12,416 14,494 12,114 -3,534 -3,741 -3,500 -4,756 -6,175 -5,942 -5,592 -15,892 11,661 8,272 8,675 10,994 199 18,108 -10,973 -4,569 45,657 53,143 4.00 FY10 29.4% 24.1% 11.4% -5,800 49,280 -28,680 -5,305 53,143 53,398 4.00 FY11 30.2% 24.0% 8.7% -3,500 -6,962 24,232 8,614
FY14E 45,952 3,382 -5,585 -8967 16,400 -3,501 -7,144 17,318 12,899
0 0 0 7,030 0 0 1 1 2 -4,562 -5,695 -6,881 53,398 78,521 80,072 78,521 80,072 103,411 4.00 4.00 4.00 FY12E 27.7% 25.4% 10.1% FY13E 29.7% 27.5% 11.1% 17.1% 17.1% 29.0% 29.0% 5.97 FY14E 29.0% 27.0% 11.3% 21.4% 21.4% 23.5% 23.5% 6.91 1.2% 0.44 2.92 14.7% 19.5%
28.5% 12.2% 9.0% 28.5% 9.6% 11.2% 36.9% -15.8% 28.1% 36.9% (13.9%) 25.5% 6.07 5.25 5.57 27.6% 0.36 2.15 10.6% 13.5%
49.6% 23.2% 20.1% 0.32 0.33 0.38 2.15 3.11 3.02 8.8% 10.9% 13.0% 12.8% 14.0% 17.2%
Value/share 350.5 68.0 223.6 50.2 7.6 33.8 -86.4 647 550
211
Overweight
Price: Php22.90 Price Target: Php30.00
Abs Rel
1m -1.7% -3.1%
3m 1.1% -2.9%
Source: Bloomberg.
FY12E 48,001 9,128.7 0.69 0.24 23.1% 25.6% 11.9% 12.7% 33.3 3.7 26.5 1.1%
FY13E 58,637 11,394.7 0.83 0.33 22.2% 20.7% 13.4% 13.4% 27.6 3.5 20.7 1.5%
FY14E 70,264 14,415.9 1.05 0.50 19.8% 26.5% 15.8% 15.6% 21.8 3.3 16.8 2.2%
Company Data Shares O/S (mn) Market cap (Php mn) Market cap ($ mn) Price (Php) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Php mn) 3M - Avg daily Value (USD) ($ mn) PSE Exchange Rate Fiscal Year End
13,751 314,895 7,668 22.90 09 Nov 12 49.0% 9,610,408.00 222.56 5.42 5,469 41.07 Dec
212
Cash flow statement FY10 FY11 FY12E FY13E FY14E Php in millions, year end Dec 33,765 38,987 48,001 58,637 70,264 EBIT 25.8% 15.5% 23.1% 22.2% 19.8% Depr. & amortization 7,273 9,810 13,034 16,838 21,086 Change in working capital 15.4% 34.9% 32.9% 29.2% 25.2% Taxes 7,273 9,810 13,034 16,838 21,086 Cash flow from operations 15.4% 34.9% 32.9% 29.2% 25.2% 21.5% 25.2% 27.2% 28.7% 30.0% Capex -318 1 -576 -1,166 -1,122 Disposal/(purchase) 7,860 10,710 13,611 17,106 21,685 Net Interest 34.5% 36.3% 27.1% 25.7% 26.8% Other -1,572 -2,619 -3,312 -4,282 -5,557 Free cash flow 20.0% 24.5% 24.3% 25.0% 25.6% 5,458.1 7,140.3 9,128.7 11,394.7 14,415.9 Equity raised/(repaid) 35.1% 30.8% 27.8% 24.8% 26.5% Debt raised/(repaid) 13,043 13,043 13,273 13,723 13,723 Other 0.42 0.55 0.69 0.83 1.05 Dividends paid 35.1% 30.8% 25.6% 20.7% 26.5% Beginning cash Ending cash DPS Ratio Analysis FY10 FY11 FY12E FY13E FY14E Php in millions, year end Dec 20,214 24,795 16,533 13,701 7,355 EBITDA margin 17,942 21,578 22,021 27,415 33,000 Operating margin 13,615 21,909 26,130 32,345 38,813 Net margin 4,860 7,035 7,035 7,035 7,035 56,631 75,317 71,718 80,496 86,203 Sales per share growth 44,969 55,170 79,741 87,684 99,002 Sales growth 20,702 24,132 26,348 28,912 30,261 Net profit growth 122,302 154,619 177,807 197,092 215,466 EPS growth Interest coverage (x) 5,218 6,196 5,432 5,432 5,432 25,892 38,129 33,642 43,605 52,111 Net debt to equity 2,104 1,304 1,556 1,926 2,311 Sales/assets 33,215 45,629 40,630 50,963 59,853 Assets/equity 15,753 28,335 35,365 35,365 35,365 ROE 7,865 8,612 9,085 9,776 9,968 ROCE 56,832 82,577 85,079 96,104 105,186 56,857 62,357 81,873 88,703 96,282 4.36 4.78 6.17 6.46 7.02
FY10 FY11 FY12E FY13E FY14E 7,273 9,810 13,034 16,838 21,086 0 0 0 0 0 5,370 -1,861 -8,900 -1,276 -3,162 -1572 -2619 -3312 -4282 -5557 13,083 10,159 4,876 15,772 17,318 -6,535 -12,393 -28,100 -13,831 -13,009 1,900 -1,623 973 3,076 -535 -318 1 -576 -1,166 -1,122 6,548 -2,235 -23,223 1,941 4,309 77 130 13,600 0 0 2,077 13,560 6,266 0 0 -1,441 373 -2,665 -3,284 -3,284 -1,034 -2,604 -3,213 -4,564 -6,837 10,529 18,656 24,795 16,533 13,701 18,656 26,258 16,533 13,701 7,355 0.08 0.20 0.24 0.33 0.50 FY10 21.5% 20.6% 16.2% 25.8% 25.8% 35.1% 35.1% 22.86 1.3% 0.29 1.86 10.0% 9.8% FY11 FY12E FY13E FY14E 25.2% 27.2% 28.7% 30.0% 25.2% 26.0% 26.7% 28.4% 18.3% 19.0% 19.4% 20.5% 15.5% 15.5% 30.8% 30.8% 15.6% 0.28 1.87 12.0% 11.2% 21.0% 23.1% 27.8% 25.6% 22.63 29.6% 0.29 2.17 12.7% 11.9% 18.2% 22.2% 24.8% 20.7% 14.45 30.5% 0.31 2.22 13.4% 13.4% 19.8% 19.8% 26.5% 26.5% 18.79 34.7% 0.34 2.24 15.6% 15.8%
213
Baidu.com
www.baidu.com
Company overview Baidu is a leading internet search provider in China with a focus on Chinese web pages. Baidu is also the # 1 site in China in terms of traffic volume and reach, according to Alexa. The company generates a majority of its revenue through pay-perclick advertising and customized search solutions. As of 3Q12, Baidu has 390k active paying customers and quarterly ARPU of Rmb16,000. Baidu has a wide range of investments besides core business, including Online video iQiyi and travel vertical search engine Qunar. Investment case Baidu remains our top pick in the sector. (1) worst sentiment & lowest valuation in years despite clarity in 30% CAGR earnings growth, (2) market share / barrier of entry / monetization remain high, (3) fundamental need for information doesnt change on mobile, (4) share price drivers to come from structural improvements in mobile monetization and cyclical economic improvements. Key attractions in an anemic growth environment We expect Qihoos search traffic share to gradually come down, while Baidu to gradually improve in mobile monetization. In the next 1-2 years, we expect mobile monetization to be the key revenue driver. Earnings risks in 2013 1) Slower-than-expected online search growth; 2) potential margin decline from increasing TAC and investment; 3) large infrastructure-related expense. Price target, and risks to our investment view Dec-13 PT of US$170. We use a 10-year DCF valuation with a 15% long-term growth from 20162023E. Our nominal case DCF valuation is based on WACC of 12% and 0% terminal growth. PT implies 35.3x FY12E, 27.4x FY13E, and 20.8x FY14E diluted EPS; or PEG ratio of 0.9x (FY13E P/E vs. long-term growth of 30%) or PEG ratio of 0.7x (FY14E PE vs. growth of 30%).
Bloomberg BIDU US, Reuters BIDU
(Year-end Dec, $ mn) Net Sales Operating Profit (EBIT) EBITDA Pre Tax Profit Reported Net profit Reported EPS (US$) P/E (x) Adj. EPS * Adj. P/E (X) EV/EBITDA (x) P/B (x) Y/E BPS (US$)
Overweight
Price: $105.94 Price Target: $170.00
Evan Zhou
(852) 2800 8505 evan.z.zhou@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
P r ic e P e r fo r m a n c e
160 $ 140 120 100
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs Rel
1m -7.2% -3.2%
3m -17.8% -18.5%
Source: Bloomberg.
FY11 FY12E FY13E FY14E 2,258 3,524 4,946 6,685 1,180 1,792 2,404 3,138 1,341 2,037 2,731 3,607 1,216 1,888 2,553 3,398 1,034 1,660 2,195 2,917 2.96 4.72 6.13 8.10 35.8 22.4 17.3 13.1 3.02 4.81 6.20 8.19 35.0 22.0 17.1 12.9 28.5 18.7 14.0 10.6 15.5 8.9 5.7 3.9 6.82 11.90 18.64 27.47
FY11 ROE(%) 54.9% ROIC(%) 52.3% Cash 2,283.5 Equity 2,542.5 Qtr GAAP EPS ($) 1Q EPS (11) 0.47 EPS (12) E 0.85 EPS (13) E 1.16 1M Abs. Perf.(%) 1.5% Rel. Perf.(%) 4.9%
FY12E 48.9% 45.7% 3,690.4 4,327.3 2Q 0.72 1.25 1.50 3M -4.0% (7.3%)
FY13E 40.3% 37.5% 6,155.0 6,690.2 3Q 0.84 1.37 1.69 12M -13.0% (25.7%)
52-Week range Shares Outstg Market Cap(US) Free float Avg daily vol. Avg daily val ($) Dividend Yield Index (NASDAQ) Price Target Price Date
154.15 - 99.71 349.3MN US$ 37,003MN 76.3% 5.5MM shares 628.67MN 0.0% 3,012 170.00 06 Nov 12
Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense.
214
Ratio Analysis $ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth Diluted EPS growth Net debt to total capital Net debt to equity
FY12E 71.6% 57.8% 50.8% 47.1% 9.3% 10.5% 56.1% 51.9% 60.5% 59.6% -85.3% -85.3% 0.78 1.48 48.9% 45.7%
FY13E 69.2% 55.2% 48.6% 44.4% 9.1% 11.0% 40.3% 34.1% 32.2% 29.8% -92.0% -92.0% 0.72 1.22 40.3% 37.5%
FY14E 68.1% 54.0% 46.9% 43.6% 9.1% 11.6% 35.2% 30.6% 32.9% 32.2% -95.2% -95.2% 0.67 1.03 35.8% 32.8%
80.7% 91.9% 150.5% 100.4% 141.0% 97.2% 140.3% 97.0% -97.5% 78.2% -97.5% 681.2% 0.93 1.65 55.0% 54.2% 0.86 1.67 54.9% 52.3%
USD
Diluted EPS (GAAP) 1.50 2.96 4.72 6.13 8.10 Asset turnover Adj. Diluted EPS* 1.54 3.02 4.81 6.20 8.19 Working capital turns (x) BVPS 3.59 6.82 11.90 18.64 27.47 ROE DPS 0.00 0.00 0.00 0.00 0.00 ROIC Shares outstanding (mn) 349.18 349.63 351.57 358.18 360.16 Balance sheet Cash flow statement $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec Cash and cash equivalents 1,219 2,284 3,690 6,155 9,320 Net income Accounts receivable 44 93 152 218 286 Depr. & amortization Inventories 0 0 0 0 0 Change in working capital Others 43 91 113 162 213 Other Current assets 1,306 2,468 3,956 6,535 9,819 Cash flow from operations LT investments 43 114 173 174 174 Capex Net fixed assets 241 427 607 842 1,127 Other investing cashflow Others LT assets 53 625 714 716 716 Cash flow from investing Total Assets 1,643 3,635 5,450 8,268 11,836 Free cash flow Liabilities Equity raised/(repaid) ST Loans 0 19,604 0 0 0 Debt raised/(repaid) Payables 196 396 573 855 1,142 Other Others 184 270 397 568 745 Dividends paid Total current liabilities 379 686 969 1,424 1,887 Cash flow from financing Long-term debt 0 0 0 0 0 Other liabilities 14 406 154 154 154 Net change in cash Total Liabilities 393 1,093 1,123 1,578 2,041 Beginning cash Shareholders' equity 1,250 2,543 4,327 6,690 9,795 Ending cash Source: Company reports and J.P. Morgan estimates. *Note: Excluding share-based compensation expenses.
FY10 FY11 FY12E FY13E FY14E 524.2 1,033.9 1,659.8 2,194.8 2,917.4 66 138 213 301 437 123 245 213 337 345 -11 -71 21 17 22 702 1,343 2,107 2,849 3,721 -166 -754 -462 -534 -721 -15 41 -57 0 0 -182 -713 -519 -534 -721 535 589 1,645 2,315 3,000 5 176 46 127 155 0 20 -20 0 0 14 182 -249 10 10 0 0 0 0 0 19 378 -223 138 165 548 671 1,219 1,065 1,219 2,284 1,407 2,284 3,690 2,465 3,690 6,155 3,165 6,155 9,320
215
Overweight
Price: Rp8,550 Price Target: Rp10,000
Abs Rel
1m 7.0% 5.6%
3m 7.6% 1.8%
Source: Bloomberg.
FY12E 14,742 11,752 482.34 118.25 8.6% 25.1% 17.7 2,113.82 4.0 1.4% 482.34
FY13E 19,540 14,411 591.44 126.13 22.6% 24.8% 14.5 2,650.64 3.2 1.5% 591.44
Company Data 52-week Range (Rp) Market Cap (Rp bn) Market Cap ($ bn) Shares O/S (mn) Fiscal Year End Price (Rp) Date Of Price 3M - Avg daily value (Rp mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) JCI Exchange Rate
8,550-6,750 208,322.80 21.63 24,365 Dec 8,550 09 Nov 12 83,261.52 8.6 10.40 4333.64 9,632.06
216
(9,558) (10,914) (12,979) (14,926) 10,724 13,136 14,742 19,540 (324) 161 (486) (1,877) 253 322 503 400 10,653 13,619 14,759 18,063 (2,174) (2,801) (3,009) (3,653) 0 2 3 0 8,479 10,819 11,752 14,411 FY10 FY11 FY12E FY13E 348.01 444.05 482.34 591.44 113.84 114.85 118.25 126.13 32.7% 25.9% 24.5% 21.3% 1,399.86 1,723.89 2,113.82 2,650.64 24,365 24,365 24,365 24,365 FY10 FY11 FY12E FY13E 150,891 199,451 253,717 301,447 (3,906) (3,815) (4,042) (4,803) 154,797 203,266 257,759 306,250 989 987 1,045 1,242 18,504 40,028 50,635 51,396 327,995 385,183 485,376 550,768 278,087 324,292 379,806 433,835 5,886 7,953 8,108 9,188 34,108 42,003 51,504 64,584 209,609 280,197 337,341 382,584 179,226 244,903 308,769 359,963
Growth Rates FY14E 7.1% Loans - Deposits - Assets Equity 28,016 RWA 10,402 Net Interest Income - Non-Interest Income of which Fee Grth Revenues 38,418 Costs Pre-Provision Profits (16,957) Loan Loss Provisions 21,462 Pre-Tax (2,218) Attributable Income 460 EPS - DPS - Balance Sheet Gearing 19,703 Loan/deposit (4,138) Investment/assets 0 Loan/Assets 15,566 Customer deposits/liab. LT debt/liabilities FY14E Asset Quality/Capital 638.84 Loan loss reserves/loans 150.44 NPLs/loans 23.5% Loan loss reserves/NPLs 3,016.60 Growth in NPLs 24,365 Tier 1 Ratio Total CAR FY14E Du-Pont Analysis 339,467 NIM (as % of avg. assets) (6,827) Earning assets/assets 346,293 Margins (as % of Avg. Assets) 1,750 Non-Int. Rev./ Revenues - Non IR/Avg. Assets 59,512 Revenue/Assets - Cost/Income - Cost/Assets 624,923 Pre-Provision ROA LLP/Loans 494,705 Loan/Assets 9,622 Other Prov, Income/ Assets - Operating ROA - Pre-Tax ROA - Tax rate 73,500 Minorities & Outside Distbn. 443,722 ROA 413,153 RORWA Equity/Assets ROE
FY10 FY11 FY12E FY13E FY14E 24.9% 31.3% 26.8% 18.8% 13.1% 13.4% 16.6% 17.1% 14.2% 14.0% 14.4% 17.4% 26.0% 13.5% 13.5% 22.4% 23.1% 22.6% 25.4% 13.8% 40.8% 33.7% 20.4% 13.4% 16.0% (7.9%) 30.1% 18.7% 26.3% 11.0% 41.3% (1.8%) 7.2% 19.2% 12.8% 5.4% 18.6% 15.3% 24.3% 11.5% 12.6% 14.2% 18.9% 15.0% 13.6% (0.3%) 22.5% 12.2% 32.5% 9.8% (85.5%) (149.6%) (402.5%) 286.1% 18.2% 19.1% 27.8% 8.4% 22.4% 9.1% 24.6% 27.6% 8.6% 22.6% 8.0% 25.3% 27.6% 8.6% 22.6% 8.0% (27.9%) 0.9% 3.0% 6.7% 19.3% FY10 54.3% 95.9% 1.8% FY10 (2.5%) 0.7% 435.8% 10.4% 14.7% 16.0% FY10 6.1% 36.2% 2.4% 6.6% 47.1% 3.1% 3.5% 3.5% 3.5% 20.4% 0.0% 2.8% 27.4% FY11 61.5% 95.6% 2.2% FY11 (1.9%) 0.6% 390.6% (0.2%) 13.8% 14.8% FY11 6.8% 30.0% 2.0% 6.7% 45.4% 3.1% 3.7% 3.7% 3.7% 20.6% 0.0% 3.0% 28.4% FY12E 66.8% 88.4% 2.1% FY12E (1.6%) 0.4% 386.5% 5.8% 14.3% 15.1% FY12E 6.8% 27.9% 1.8% 6.4% 46.8% 3.0% 3.4% 3.4% 3.4% 20.4% 0.0% 2.7% 25.1% FY13E 69.5% 90.1% 1.9% FY13E (1.6%) 0.4% 386.8% 18.8% 16.0% 16.7% FY13E 7.3% 26.8% 1.8% 6.7% 43.3% 2.9% 3.8% 3.8% 3.8% 20.2% 0.0% 2.8% 24.8% FY14E 68.6% 90.8% 1.8% FY14E (2.0%) 0.5% 388.7% 41.0% 15.8% 16.4% FY14E 7.1% 27.1% 1.8% 6.5% 44.1% 2.9% 3.7% 3.7% 3.7% 21.0% 0.0% 2.6% 22.5%
217
Overweight
Price: HK$6.02 Price Target: HK$7.00
Source: Bloomberg.
FY13E 39,098 2,053 1,325 0.52 57.3% 66.1% 25.0% 9.2 1.9 -
FY14E 43,516 2,523 1,655 0.65 11.3% 24.9% 22.0% 7.4 1.5 -
Company Data 52-week Range (HK$) Shares O/S (mn) Market Cap (HK$ mn) Market Cap (US) ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume Average 3m Daily Turnover (US) ($ mn) R-CHIP Exchange rate (HK$/US$)
10.12 - 3.40 2,529 9,584 1,237 6.02 08 Nov 12 28.1% 2.72 1.56 4,285 7.75
218
FY12E FY13E FY14E 9.7% 9.8% 10.4% 5.3% 5.3% 5.8% 3.0% 3.4% 3.8%
49.4% 55.7% 106.9% 57.3% 11.3% 73.9% 98.0% 24.4% 77.0% 24.9% 57.0% 87.5% 87.7% 59.0% 17.9% 74.1% 109.9% 36.8% 57.4% 23.0% 28.9% 26.2% 21.4% 25.0% 22.0%
219
Overweight
Price: HK$5.30 Price Target: HK$9.30
Abs Rel
1m 0.8% -2.4%
3m 1.5% -9.0%
Source: Bloomberg.
FY14E 7,973 2,057.6 0.48 0.07 7.9% 21.7% 11.5% 9.0 1.0 6.7 1.7%
Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (HK$ mn) Average 3m Daily Turnover ($ mn) MSCI-HK Exchange Rate Fiscal Year End
1,879 21,914.3 2,828 5.30 07 Nov 12 34.2% 4.90 25.63 3.23 11,144 7.75 Dec
220
1,975 2,297
0 0 0 0 0 -1,704 -1,381 1,161 2,011 1,961 0 0 -0 0 -0 -334 -206 -254 -309 -325 882 949 2,139 2,420 2,441 949 2,139 2,420 2,441 2,557 0.08 0.05 0.06 0.07 0.08 FY11 59.7% 35.5% 17.9% FY12E 59.2% 36.3% 20.3% FY13E 61.9% 40.2% 22.9% FY14E 64.3% 42.9% 25.8% FY15E 66.3% 44.8% 25.5% 6.8% 5.5% 5.5%
31,376 30,334 32,753 36,565 384 76 54 54 33,899 33,816 36,569 40,474 399 2,089 5 2,494 16,813 121 19,427 14,472 3.34 1,139 2,250 5 3,394 14,692 92 18,179 15,637 3.61 139 2,411 5 2,555 16,853 87 19,495 17,074 3.94 2,589 2,561 5 5,155 16,414 82 21,651 18,823 4.35
Sales growth Net profit growth 40,254 EPS growth 54 44,348 Interest coverage (x) Net debt to total capital Net debt to equity 139 Sales/assets 2,706 Assets/equity 5 ROE 2,850 ROCE 20,825 4 23,680 20,668 4.77
12.2% 8.7% 9.3% 7.9% 87.1% 23.1% 23.3% 21.7% 87.1% 23.1% 23.3% 21.7%
5.16 6.43 6.38 7.53 6.13 51.3% 43.5% 42.8% 43.8% 44.2% 112.3% 87.5% 85.3% 87.9% 89.0% 0.18 0.20 0.21 0.21 0.20 234.2% 216.3% 214.2% 215.0% 214.6% 8.0% 9.1% 10.3% 11.5% 11.0% 6.9% 7.8% 9.1% 9.5% 9.6%
221
Overweight
Price: HK$8.89 Price Target: HK$11.00
Abs Rel
1m -1.3% -5.2%
3m 21.4% 14.1%
Source: Bloomberg.
Company Data 52-week Range (HK$) Shares O/S (mn) Market Cap (HK$ mn) Market Cap (US) ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume Average 3m Daily Turnover (US) ($ mn) R-CHIP Exchange rate (HK$/US$)
9.89 - 6.15 447 4,300 555 8.89 08 Nov 12 61.0% 19.71 19.95 4,285 7.75
222
FY11 FY12E FY13E FY14E 28.1% 34.6% 38.5% 39.8% (0.9%) 21.8% 5.0% 16.9% 21.7% 25.9%
67.7% 50.3% 41.7% 37.4% 38.0% 209.0% 183.3% 166.6% 152.2% 143.0% 22.4% 27.2% 27.3% 24.6% 24.2%
223
CCR
www.grupoccr.com.br
Overweight
Price: R$18.60 Price Target: R$20.00 End Date: Dec 2013
Company overview CCR is one of the largest toll road operators in Brazil, with concessions in the South and Southeastern parts of the country. The company also operates other businesses, including three airports in Latin America, an electronic payment system company, a company that inspects motor vehicles, the consortium that operates a line of the So Paulo Subway system, and a water transportation company in Rio de Janeiro. Investment case We see CCR as one of the best vehicles to be exposed to the expected new round of concessions in Brazil. The company has a comfortable cash position, a proven track record of accretive acquisitions, and it has already stated its willingness to invest in new projects. We believe that CCRs focus should be on urban mobility and airport projects, where higher returns could be achieved. Key attractions in an anemic growth environment We still see room for CCR to outperform if a scenario of new concessions materializes as we do not include any new projects in our forecasts. The stock suffered in Aug-Sep with concerns about regulation, but it recovered quickly and has been trading ~R$18 since then. The stock is trading at 9.8x 2013E EV/EBITDA, 11% above the historical average. Earnings risk in 2013 Despite being quite defensive, toll road traffic in the Brazilian concessions is closely related to macroeconomic activity. As a result, the major earning risk that we see for the name is a round of GDP expectations downgrade, which would, at some point, lead to a reduction of traffic growth estimates (assuming traffic elasticity is maintained). Price target, and risks to our investment view We derive our Dec 2013 PT of R$20 using a finite DCF, in which our forecasts match the concession term and no perpetuity is considered. We assume a 12.0% cost of equity in R$ nominal. Main risks would be lower GDP prospects and regulatory intervention.
Companhia de Concessoes Rodoviarias (CCRO3.SA;CCRO3 BZ) FYE Dec 2010A 2011A Revenues (R$ mn) FY 3,776 4,578 EBITDA FY (R$ mn) 2,259 2,934 Net Income - GAAP FY (R$ mn) 672 899 EPS Reported FY (R$) 0.38 0.51 Bloomberg EPS FY (R$) 0.43 0.52
Source: Company reports, Bloomberg, J.P. Morgan estimates.
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
224
Change in working capital Capex FCFF FCFE Dividends Dividend % of net income Operating Data Traffic (million vehicle-equivalent) Traffic growth (YoY, %) Revenue / vehicle (R$) Capex / depreciation (x) ROA (%) Net margin (%) Revenues / assets (%) Assets / equity (x) ROE (%)
FY11A FY12E FY13E FY14E FY15E Balance Sheet 4,578 5,201 6,007 6,866 7,526 Cash (1,955) (2,135) (2,175) (2,234) (2,097) Accounts receivable 2,934 3,346 3,993 4,692 5,259 Other current assets 2,934 3,346 3,993 4,692 5,259 Long-term assets 64.1% 64.3% 66.5% 68.3% 69.9% Net PP&E (435) (469) (484) (549) (586) Other permanent assets 2,277 2,699 3,237 3,823 4,459 Total assets (923) (858) (959) (1,051) (1,186) Short-term debt 0 0 0 0 0 Accounts payable (444) (630) (775) (943) (1,113) Other current liabilities (11) (14) (13) (15) (17) Long-term debt 899 1,196 1,490 1,815 2,351 Other long-term liabilities 1,766 1,766 1,766 1,766 1,766 Total liabilities 0.51 0.68 0.84 1.03 1.33 Minority interest Shareholders' equity (36) 339 (5) 36 32 Liabilities and Equity (1,002) (1,052) (714) (645) (431) 1,319 1,839 2,660 3,289 3,782 Net debt 621 1,845 1,712 1,850 1,508 Net debt / Equity (x) 807 943 1,341 1,633 2,351 Net Debt / Total Capital (x) 89.7% 78.8% 90.0% 90.0% 100.0% Net Debt / EBITDA (x) FY11A FY12E FY13E FY14E FY15E Macro, Valuation 962 995 1,077 1,163 1,193 GDP Growth (%) 10.8% 3.4% 8.2% 8.0% 2.6% FX rate (Ps/US$, eop) 4.76 5.23 5.58 5.90 6.31 Inflation (YoY, %) 91-day Cetes rate (%, eop) 2.3 2.2 1.5 1.2 0.7 7.0% 8.5% 10.3% 12.4% 17.1% EV/EBITDA 19.6% 23.0% 24.8% 26.4% 31.2% P/E 0.4 0.4 0.4 0.5 0.5 P/BV 4.0 4.1 4.0 3.9 3.6 FCFE Yield (%) 28.1% 34.6% 41.4% 48.0% 62.2% Dividend yield
FY11A 763 430 187 11,471 431 11,040 12,851 1,882 335 695 5,065 1,660 9,637 9 3,205 12,851
FY12E 1,274 428 264 12,105 599 11,507 14,072 3,501 429 745 4,325 1,605 10,606 13 3,453 14,072
FY13E 1,564 483 264 12,175 648 11,527 14,485 3,502 371 773 4,349 1,875 10,871 13 3,602 14,485
FY14E 1,698 516 264 12,122 694 11,429 14,601 3,307 367 798 4,171 2,161 10,805 13 3,783 14,601
FY15E 980 566 264 11,932 726 11,206 13,742 2,765 345 830 3,641 2,365 9,946 13 3,783 13,742
6,185 6,552 6,287 5,780 5,426 192.9% 189.7% 174.6% 152.8% 143.4% 48.1% 46.6% 43.4% 39.6% 39.5% 2.1 2.0 1.6 1.2 1.0 FY11A FY12E FY13E FY14E FY15E 2.8% 1.4% 4.1% 4.0% 4.0% 1.80 1.98 1.95 2.00 2.05 6.5% 6.0% 5.0% 4.5% 4.5% 11.0% 7.5% 9.0% 9.0% 9.0% 13.1 36.2 10.0 1.9% 2.5% 11.6 27.2 9.3 5.7% 2.9% 9.6 21.8 8.9 5.3% 4.1% 8.1 17.9 8.5 5.7% 5.0% 7.2 13.8 8.5 4.7% 7.2%
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
225
Overweight
Price: Php58.60 Price Target: Php90.00
Abs Rel
1m 1.0% 1.0%
3m -13.9% -16.3%
Source: Bloomberg.
FY13E 47,648 2,978 4.91 4.91 0.00 19.5% 19.9% 74.5% 10.8% 13.3% 11.9 1.5 6.6 0.0%
FY14E 56,194 3,622 5.98 5.98 0.00 17.9% 21.6% 21.6% 11.5% 14.1% 9.8 1.3 5.4 0.0%
Company Data Shares O/S (mn) Mkt Cap (Php mn) Mkt Cap ($ mn) Price (Php) Date Of Price Free float (%) Avg Daily Volume (mn) Avg Daily Value (Php mn) Avg Daily Value ($ mn) PSE Exchange Rate Fiscal Year End
606 35,509 857 58.60 07 Nov 12 35.0% 5.20 664.10 16.03 5,437 41 Dec
226
LT investments 370 409 Net fixed assets 33,986 41,038 Total Assets 49,937 55,681 Liabilities Short-term loans 2,056 2,467 Payables 5,598 6,711 Others 4,642 5,351 Total current liabilities 12,296 14,529 Long-term debt 16,377 18,404 Other liabilities 3,357 3,582 Total Liabilities 32,030 36,515 Shareholders' equity 17,907 19,166 BVPS 30.47 31.38 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY12E FY13E FY14E Php in millions, year end Dec 39,866 47,648 56,194 EBIT 17.5% 19.5% 17.9% Depr. & amortization 6,322 8,575 10,230 Change in working capital 2.6% 35.6% 19.3% Taxes 3,402 4,946 5,921 Cash flow from operations (3.6%) 45.4% 19.7% 8.5% 10.4% 10.5% Capex -793 -888 -980 Disposal/(purchase) 3,449 4,136 5,031 Net Interest -8.0% 19.9% 21.6% Free cash flow -966 -1,158 -1,409 183.3% 207.3% 203.4% Equity raised/(repaid) 2,483 2,978 3,622 Debt raised/(repaid) -31.5% 19.9% 21.6% Other 606 606 606 Dividends paid 4.10 4.91 5.98 Beginning cash (30.9%) 19.9% 21.6% Ending cash 2.82 4.91 5.98 DPS (46.9%) 74.5% 21.6% Ratio Analysis FY12E FY13E FY14E Php in millions, year end Dec 9,680 10,238 11,636 EBITDA margin 983 1,175 1,386 Operating margin 467 558 658 Net margin 327 391 461 11,458 12,362 14,141 Sales per share growth 477 555 645 Sales growth 47,153 56,893 61,659 Net profit growth 59,480 70,201 76,836 EPS growth Interest coverage (x) 2,467 2,467 2,467 7,884 9,423 11,113 Net debt to equity 6,269 7,473 8,796 Sales/assets 16,620 19,363 22,376 Assets/equity 18,404 23,404 23,404 ROE 3,582 3,582 3,582 ROCE 38,606 46,350 49,363 20,874 23,851 27,474 34.45 39.36 45.34
FY10 6,450 2,101 2,173 10,024 -2,199 -694 7,824 3,732 1,323 -3,233 3,841 9,763 0.00 FY10 29.4% 22.2% 23.8%
FY11 3,528 2,632 2,634 7,995 -4,230 -207 3,766 0 2,439 -6,949 0 9,763 8,958 0.00 FY11 18.2% 10.4% 10.7%
FY12E FY13E FY14E 3,402 4,946 5,921 2,920 3,629 4,309 1,827 2,397 2,632 -966 -1158 -1409 6,390 8,926 10,474 -9,036 -13,368 -9,076 -793 -888 -980 -2,646 -4,443 1,398 0 0 0 0 5,000 0 3,368 0 0 0 0 0 8,958 9,680 10,238 9,680 10,238 11,636 0.00 0.00 0.00 FY12E FY13E FY14E 15.9% 18.0% 18.2% 8.5% 10.4% 10.5% 6.2% 6.2% 6.4% 19.5% 19.5% 19.9% 19.9% 9.66 17.9% 17.9% 21.6% 21.6% 10.44
23.7% 12.2% 18.4% 24.8% 16.7% 17.5% 112.5% -47.6% -31.5% 110.6% (49.6%) (30.9%) 12.32 29.78 7.97 26.7% 0.68 2.79 55.0% 21.3% 45.1% 0.64 2.91 19.6% 9.2% 53.6% 0.69 2.85 12.4% 8.3%
65.5% 51.8% 0.73 0.76 2.94 2.80 13.3% 14.1% 10.8% 11.5%
227
Overweight
Price: Bt35.00 Price Target: Bt43.00
Abs Rel
1m 7.5% 7.6%
3m 9.9% 3.9%
Source: Bloomberg.
Charoen Pokphand Foods (Reuters: CPF.BK, Bloomberg: CPF TB) Bt in mn, year-end Dec FY10A FY11A FY12E FY13E Revenue (Bt mn) 189,049 206,099 336,743 414,636 Net Profit (Bt mn) 13,562.6 15,836.8 20,549.5 19,027.9 EPS (Bt) 2.04 2.38 2.84 2.59 DPS (Bt) 1.05 1.20 1.02 1.29 Revenue growth (%) 14.8% 8.3% 63.9% 22.9% EPS growth (%) 34.4% 16.8% 19.4% -8.9% ROCE 14.5% 13.5% 7.2% 11.2% ROE 24.7% 26.0% 25.0% 17.9% P/E (x) 17.7 15.1 12.7 13.9 P/BV (x) 4.1 3.8 2.6 2.4 EV/EBITDA (x) 2.1 1.8 6.1 3.8 Dividend Yield 2.9% 3.3% 2.8% 3.6% Core EPS (Bt) 1.89 2.18 1.17 2.59 Core Profit (Bt mn) 12,601 14,479 8,442 19,028
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY14E 471,288 23,500.1 3.20 1.60 13.6% 23.5% 12.6% 19.9% 11.3 2.1 3.2 4.4% 3.20 23,500
Company Data Shares O/S (mn) Market cap (Bt mn) Market cap ($ mn) Price (Bt) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Bt mn) 3M - Avg daily Value (USD) ($ mn) SET Exchange Rate Fiscal Year End
7,743 278,746 9,097 36.00 09 Nov 12 46.6% 26.45 901.34 29.42 1,291 30.64 Dec
228
70.4% 120.4% 117.1% 105.3% 1.63 1.52 1.40 1.46 2.06 2.85 2.80 2.70 26.0% 25.0% 17.9% 19.9% 13.5% 7.2% 11.2% 12.6%
229
China Foods
www.chinafoodsltd.com
Company overview China Foods is a leading manufacturer and distributor of wines in China, under the brand, Greatwall (), and one of the three key bottlers and distributors of CocaCola beverages in China. In addition, it distributes one of the top four edible oil brands, Fortune (), in China. Investment case Wine is gaining stomach shares from beer in the alcoholic drinks market in China. According to Euromonitor, sales of wine grew at a CAGR of 19% by value in 20062011, compared to 13% CAGR for beer during the same period. We believe the trend is likely to be continued, driven by increasing popularity of red wine by young adults. China Foods is the second-largest red wine company in China and is well-positioned to benefit from the consumption trend, in our view. Key attractions in an anemic growth environment China Foods wine margin expanded from 11.7% in 2010 to 17.1% in 2011 thanks to the introduction of two mid-to high-end wine products, ie Sungod and Terroir. EBIT margin for wine expanded further to 23% in 1H12 driven by stringent cost control. Going forward, we expect product mix improvement to restart driven by two new imported wine products, from France and Chile, which were introduced to the market in Aug 2012. Earnings risks in 2013 A key risk to 2013 earnings and our PT would be a sharp sudden slowdown in the economy in China, which might impact the consumption of red wine, especially the consumption of mid-to high-end and imported red wine. Price target, and risks to our investment view Our Jun-13 PT of HK$10.0 is based on 1.0x PEG, in line with the sector average, with two-year (2013-2015) EPS CAGR of 25%. We base our PT on 1.0x PEG, in line with other China consumer staples companies.
China Foods Ltd (Reuters: 0506.HK, Bloomberg: 506 HK) FY10A FY11A FY12E Revenue (HK$ mn) 19,956 28,011 32,090 Net Profit (HK$ mn) 428 647 935 EPS (HK$) 0.15 0.23 0.33 Recurring EPS (HK$) 0.15 0.23 0.33 DPS (HK$) 0.06 0.08 0.12 Revenue growth (%) 40.4% 14.6% Net Profit growth (%) 51.2% 44.6% Recurring profit growth 51.2% 44.6% EPS growth (%) 51.2% 44.6% ROE 14.4% 10.3% 13.4% ROA 5.7% 3.9% 4.9% P/E (x) 50.3 33.3 23.0 P/BV (x) 3.6 3.2 3.0 EV/EBITDA (x) 18.5 14.2 10.9 Dividend Yield 0.7% 1.1% 1.6%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: HK$7.70 Price Target: HK$10.0
Abs Rel
1m -7.9% -14.0%
3m 5.9% -1.3%
Source: Bloomberg.
FY13E 38,462 1,257 0.45 0.45 0.16 19.9% 34.4% 34.4% 34.4% 16.4% 6.0% 17.1 2.7 8.3 2.1%
FY14E 45,810 1,600 0.57 0.57 0.21 19.1% 27.3% 27.3% 27.3% 18.6% 6.9% 13.4 2.4 6.5 2.7%
Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3mth Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3m Avg. Daily Value ($ mn) MSCI-Cnx Exchange Rate Fiscal Year End
2,796 21,533 2,778 7.70 09 Nov 12 2.99 23.25 3.0 6004.47 7.75 Dec
230
Cash flow statement HK$ in millions, year end Dec PBT Depr. & amortization Change in working capital Tax & Other Cash flow from operations Capex Sale of assets Acquisition of subsidiaries/intangibles Other Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Dividends paid Other Cash flow from financing FX gain/(loss) Net change in cash Ending cash DPS
FY10 881 332 (816) 181 125 (798) (17) (815) 0 713 (205) (71) 438 51 (202) 1,741 0.06
FY11 FY12E FY13E 1,209 1,519 1,981 400 505 626 (517) (203) (391) 138 208 351 666 1,446 1,843 (598) (547) 0 301 (154) (292) (145) 74 49 1,790 0.08 (628) (180) (808) 0 18 (284) 0 (267) 0 371 2,161 0.12 (660) (204) (864) 0 27 (394) 0 (366) 0 613 2,774 0.16
FY14E 2,475 760 (721) 394 2,034 (693) (230) (923) 0 32 (513) 0 (482) 0 630 3,404 0.21
Ratio Analysis FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec 1,741 1,790 2,161 2,774 3,404 Gross margin 1,616 1,945 2,116 2,410 2,813 EBITDA margin 3,490 5,702 6,206 7,066 8,247 Operating Margin 1,512 1,789 1,851 1,803 1,730 Net margin 8,359 11,225 12,334 14,052 16,194 Recurring net profit margin - Sales growth 1,680 1,728 1,979 2,372 2,826 Net profit growth 0 0 0 0 0 Recurring net profit growth 3,548 3,889 4,012 4,046 3,978 EPS growth 1,388 1,487 1,517 1,547 1,578 14,975 18,330 19,843 22,018 24,576 Interest coverage (x) Net debt to equity Liabilities Sales/assets Short-term loans 1,021 1,517 1,593 1,672 1,756 Assets/equity Trade & other payables 2,663 3,939 4,423 5,195 6,064 ROE Others 3,150 3,939 4,012 4,198 4,400 ROCE Total current liabilities 6,834 9,396 10,027 11,065 12,220 Long-term debt 495 300 315 331 347 Others 96 120 138 165 197 Total Liabilities 7,426 9,816 10,480 11,561 12,764 Minorities 1,603 1,844 2,094 2,383 2,713 Shareholders' equity 5,947 6,670 7,269 8,074 9,099 BVPS 2.13 2.39 2.60 2.89 3.26 Source: Company reports and J.P. Morgan estimates.
FY11 FY12E FY13E 23.8% 23.0% 23.1% 5.6% 6.3% 6.8% 4.2% 4.8% 5.2% 2.3% 2.9% 3.3% 2.3% 2.9% 3.3% 40.4% 14.6% 19.9% 51.2% 44.6% 34.4% 51.2% 44.6% 34.4% 51.2% 44.6% 34.4%
FY14E 23.2% 7.1% 5.4% 3.5% 3.5% 19.1% 27.3% 27.3% 27.3%
26.3 42.7 50.3 64.6 80.0 (3.0%) 0.3% (2.7%) (7.4%) (11.0%) 2.7 1.7 1.7 1.8 2.0 251.8% 264.0% 273.9% 272.8% 271.3% 14.4% 10.3% 13.4% 16.4% 18.6% 16.3% 10.6% 13.5% 16.1% 18.1%
231
Overweight
Price: HK$33.70 Price Target: HK$35.00
Lun Zhang
(852) 2800 8561 lun.zhang@jpmorgan.com Bloomberg JPMA ZHANG<GO> J.P. Morgan Securities (Asia Pacific) Limited
P r ic e P e r fo r m a n c e
45 40 HK$ 35 30 25 20
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs Rel
1m 11.8% 7.1%
3m 13.3% 3.3%
Source: Bloomberg.
FY14E 267,397 55,304.4 2.78 1.06 4.8% 6.0% 22.2% 18.0% 9.8 1.7 5.2 3.9%
Company Data Shares O/S (mn) Market cap (Rmb mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (HK$ mn) 3M - Avg daily Value (USD) ($ mn) HSI Exchange Rate Fiscal Year End
3,399 92,352 14,778 33.70 05 Nov 12 27.0% 14.31 435.98 56.68 22,111 7.75 Dec
232
Ratio Analysis FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 77,212 61,437 74,072 74,588 102,349 Gross margin 11,424 13,365 16,973 17,477 18,315 EBITDA margin 11,574 12,628 17,208 18,099 18,903 Net profit margin 19,251 20,507 36,412 38,242 39,711 SG&A/Sales 119,461 107,937 144,664 148,405 179,278 Sales growth 3,789 3,900 3,900 3,900 3,900 Net profit growth 188,061 219,904 233,064 262,548 277,857 372,131 401,077 470,133 490,092 529,822 Current ratio Quick ratio Interest coverage (x) 15,317 16,389 16,389 16,389 16,389 19,661 23,668 27,902 29,410 30,717 Total debt to total asset 41,948 47,492 82,216 66,570 69,531 Net debt to equity 76,926 87,549 126,506 112,369 116,637 52,311 44,013 44,013 44,013 44,013 Sales/assets 134,704 136,763 175,720 161,747 165,998 Assets/equity 205,113 225,822 255,921 289,853 325,332 ROE 10.31 11.35 12.87 14.57 16.36 ROA
FY10 FY11 FY12E FY13E FY14E 42.8% 38.5% 33.7% 35.3% 35.5% 44.9% 39.8% 36.2% 37.6% 38.4% 24.6% 21.9% 20.4% 20.4% 20.7% 5.8% 5.3% 5.0% 5.0% 5.0% 30.0% 32.1% 13.1% 22.5% 17.6% 5.1% 1.55 31.52 1.23 44.87 1.14 34.35 8.3% 8.7% 1.32 45.61 4.8% 6.0% 1.54 54.68
36.2% 34.1% 37.4% 33.0% 31.3% -4.7% -0.5% -5.3% -4.9% -12.9% 0.46 0.54 0.54 0.53 1.81 1.78 1.84 1.69 20.7% 21.2% 19.9% 19.1% 11.4% 11.8% 11.0% 10.9% 0.52 1.63 18.0% 10.8%
233
Overweight
Price: HK$2.38 Price Target: HK$2.85
Abs Rel
1m 39.2% 30.7%
3m 17.2% 7.4%
Source: Bloomberg.
China Shipping Container Lines (Reuters: 2866.HK, Bloomberg: 2866 HK) Rmb in mn, year-end Dec FY10A FY11A FY12E FY13E Revenue (Rmb mn) 34,809 28,246 31,128 32,810 Net Profit (Rmb mn) 4,203.1 -2,743.5 -246.8 718.6 EPS (Rmb) 0.36 (0.23) (0.02) 0.06 DPS (Rmb) 0.00 0.00 0.00 0.00 Revenue growth (%) 76.3% -18.9% 10.2% 5.4% EPS growth (%) -164.8% -165.3% -91.0% -391.2% ROCE 11.6% -6.1% -0.1% 2.1% ROE 15.4% -9.9% -1.0% 2.7% P/E (x) 5.3 -8.2 -90.8 31.2 P/BV (x) 0.8 0.9 0.9 0.8 EV/EBITDA (x) 3.6 -34.4 20.4 14.0 Dividend Yield 0.0% 0.0% 0.0% 0.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY14E 36,050 1,937.5 0.17 0.00 9.9% 169.6% 4.5% 7.1% 11.6 0.8 10.4 0.0%
Company Data Shares O/S (mn) Market cap (Rmb mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (HK$ mn) 3M - Avg daily Value (USD) ($ mn) HSCEI Exchange Rate Fiscal Year End
3,751 7,192 1,152 2.38 07 Nov 12 59.63 108.33 11.74 10,734 7.75 Dec
234
FY10 10,648 1,792 883 194 13,518 1,292 33,705 49,016 3,225 4,339 879 8,654 8,276 1,784 19,054 29,185 2.50
FY11 7,073 1,801 1,206 237 10,318 1,552 37,049 49,412 5,049 3,820 727 9,792 10,809 1,787 22,512 26,023 2.23
10.2% 5.4% 9.9% 10.2% 5.4% 9.9% -91.0% -391.2% 169.6% (91.0%) (391.2%) 169.6% 6.62 8.85 12.41 82.9% 93.7% 0.54 0.56 2.34 2.33 2.7% 7.1% 2.1% 4.5%
35.0% 62.5% 0.57 0.57 1.90 2.30 (9.9%) (1.0%) -6.1% -0.1%
235
Overweight
Price: M$7.65 Price Target: M$8.50
Abs Rel
1m 0.5% 0.9%
3m -1.8% -2.7%
Source: Bloomberg.
FY13E 7,353 5,274 0.71 0.24 17.9% 17.3% 10.9 4.34 1.78 3.1% 0.71
FY14E 8,723 6,196 0.83 0.24 17.4% 18.0% 9.3 4.93 1.57 3.1% 0.83
Company Data 52-week Range (M$) Market Cap (M$ mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (M$) Date Of Price 3M - Avg daily value (M$ mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) FBMKLCI Exchange Rate
7.96-6.64 57,553 18,876 7,436 Dec 7.74 05 Nov 12 66.44 21.8 8.67 1645.53 3.05
236
(6,613) (6,630) (7,369) (7,943) 5,265 5,141 6,097 7,353 (607) (237) (324) (523) 149 (127) (40) (40) 96 151 151 151 4,627 5,203 5,884 6,942 (957) (1,129) (1,353) (1,597) (169) (44) (60) (71) 3,501 4,031 4,470 5,274 FY10 0.49 0.28 56.1% 3.23 7,123 0.74 FY10 159,181 (8,342) 167,524 10,284 46,666 11,784 232,360 9,703 269,365 212,971 14,743 0 214,093 254,675 23,231 168,364 161,373 FY11 0.54 0.22 40.6% 3.49 7,433 0.69 FY11 183,839 (7,953) 191,792 9,805 48,588 12,357 261,272 9,854 300,203 235,965 18,144 0 240,912 284,784 25,936 185,656 177,010 FY12E 0.60 0.22 36.6% 3.87 7,434 0.82 FY12E 208,830 (7,197) 216,027 8,846 58,306 14,075 290,348 9,854 329,974 261,337 19,300 0 267,373 315,088 28,771 211,183 198,419 FY13E 0.71 0.24 33.9% 4.34 7,437 0.99 FY13E 230,357 (7,245) 237,602 9,278 61,221 15,411 321,535 9,854 365,764 290,815 21,142 0 296,297 347,869 32,259 237,747 224,465
Growth Rates FY14E 3.3% Loans 92.8% Deposits 3.1% Assets Equity 11,879 RWA 5,347 Net Interest Income 2,087 Non-Interest Income 1,993 of which Fee Grth Revenues 17,226 Costs Pre-Provision Profits (8,503) Loan Loss Provisions 8,723 Pre-Tax (680) Attributable Income - EPS (40) DPS 151 Balance Sheet Gearing 8,155 Loan/deposit (1,876) Investment/assets (83) Loan/Assets 6,196 Customer deposits/liab. LT debt/liabilities FY14E Asset Quality/Capital 0.83 Loan loss reserves/loans 0.24 NPLs/loans 28.8% Loan loss reserves/NPLs 4.93 Growth in NPLs 7,440 Tier 1 Ratio 1.17 Total CAR FY14E Du-Pont Analysis 254,038 NIM (as % of avg. assets) (7,402) Earning assets/assets 261,439 Margins (as % of Avg. Assets) 9,991 Non-Int. Rev./ Revenues 64,282 Non IR/Avg. Assets 16,877 Revenue/Assets 358,141 Cost/Income 9,854 Cost/Assets 406,125 Pre-Provision ROA LLP/Loans 323,709 Loan/Assets 23,168 Other Prov, Income/ Assets 0 Operating ROA 329,417 Pre-Tax ROA 385,945 Tax rate 36,669 Minorities & Outside Distbn. 263,981 ROA 250,864 RORWA Equity/Assets ROE
FY10 FY11 FY12E FY13E FY14E 12.5% 14.5% 12.6% 10.0% 10.0% 12.3% 10.8% 10.8% 11.3% 11.3% 12.2% 11.4% 9.9% 10.8% 11.0% 14.2% 11.6% 10.9% 12.1% 13.7% 9.1% 10.3% 13.7% 12.6% 11.0% 15.4% 2.7% 12.5% 14.9% 12.8% 9.3% (8.1%) 18.7% 10.8% 12.2% 2.3% (3.3%) 11.9% 11.1% 12.3% 13.3% (0.9%) 14.4% 13.6% 12.6% 19.6% 0.3% 11.2% 7.8% 7.1% 6.3% (2.4%) 18.6% 20.6% 18.6% (40.6%) (60.9%) 36.5% 61.3% 30.0% 21.4% 12.5% 13.1% 18.0% 17.5% 24.7% 15.1% 10.9% 18.0% 17.5% 24.5% 10.3% 10.9% 17.9% 17.4% 122.0% (20.2%) 0.0% 9.1% (0.0%) FY10 74.7% 18.0% 62.1% 86.8% 5.5% FY10 (5.0%) 5.6% 85.2% 38.7% 11.4% 14.5% FY10 3.4% 91.2% 3.1% 33.2% 1.5% 4.7% 55.7% 2.6% 2.1% (0.4%) 62.1% (0.0%) 1.8% 1.8% 20.7% 0.6% 1.4% 2.2% 8.6% 16.1% FY11 77.9% 16.7% 63.1% 86.3% 6.3% FY11 (4.1%) 5.6% 81.1% (4.7%) 11.6% 15.4% FY11 3.1% 91.7% 2.9% 30.8% 1.3% 4.1% 56.3% 2.3% 1.8% (0.1%) 63.1% 0.1% 1.7% 1.8% 21.7% 0.3% 1.4% 2.2% 8.6% 16.0% FY12E 79.9% 17.0% 64.7% 87.0% 6.5% FY12E (3.3%) 4.6% 81.2% (9.8%) 11.5% 14.8% FY12E 3.2% 92.1% 2.9% 31.9% 1.4% 4.3% 54.7% 2.3% 1.9% (0.2%) 64.7% 0.0% 1.8% 1.9% 23.0% 0.2% 1.4% 2.3% 8.7% 16.3% FY13E 79.2% 17.2% 65.2% 87.4% 6.4% FY13E (3.0%) 4.0% 79.7% 4.9% 11.7% 14.7% FY13E 3.3% 92.4% 3.0% 31.2% 1.4% 4.4% 51.9% 2.3% 2.1% (0.2%) 65.2% 0.0% 2.0% 2.0% 23.0% 0.2% 1.5% 2.3% 8.8% 17.3% FY14E 78.5% 16.3% 64.7% 87.8% 6.3% FY14E (2.8%) 3.9% 76.0% 7.7% 12.2% 14.9% FY14E 3.3% 92.8% 3.1% 31.0% 1.4% 4.5% 49.4% 2.2% 2.3% (0.3%) 64.7% 0.0% 2.1% 2.1% 23.0% 0.2% 1.6% 2.5% 8.9% 18.0%
237
Overweight
Price: 3,350c Price Target: 5,000c
(27-11) 507 0378 francois.x.dutoit@jpmorgan.com Bloomberg JPMA FTOIT<GO> J.P. Morgan Equities Ltd
P r ic e P e r fo r m a n c e
3,600 3,200 c 2,800 2,400 2,000
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 54.1%
1m 12.0%
3m 17.0%
12m 50.5%
Source: Bloomberg.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn)
238
206,256 247,260 322,563 359,487 408,053 28.9% 25.4% 25.6% 19.7% 12.5% 2.6% 2.8% 110.8% 42.7% 9.6% 53.5% 10.6% 37.5% 47.3% 48.6% 71.0% 73.1% 49.9% 47.6% 51.4% 47.8% 49.7% NM NM NM NM NM 2.9% 2.9% 2.7% 2.7% 2.7% 3 4 5 6 7 -
239
Credicorp
www.credicorpnet.com
Overweight
Price: $136.56 Price Target: $139.00 End Date: Dec 2013
Company overview Credicorp is the largest financial services holding company in Peru and is closely identified with its principal subsidiary, BCP, the countrys largest bank. BCP has the leading market share in most banking products, including commercial and individual loans, with market share of 47% and 22%, respectively, as of 9/30/12. At the end of 3Q12, the bank had US$20.3bn in loans and US$22.0bn in deposits. Investment case Principal drivers include (1) continuation of orthodox macroeconomic policies and strong economic growth, (2) continued NIM expansion driven by disproportionately rapid growth in retail lending, (3) stable credit quality (e.g., limited deterioration in consumer loan portfolio), and (4) stronger earnings contributions from insurance and investment banks. How much recovery has already been priced in, what are the key metrics? The stock has risen 17.8% since the end of July 2012 as concerns regarding credit quality deterioration have eased. Nonetheless, at 12.5x 2013E earnings, it trades at a discount to all other major banks in our coverage universe outside Brazil. We think the companys growth prospects and operating fundamentals are better than those of most peers. Earnings risk in 2013 We think the balance of risk is to the upside given (1) continued NIM expansion resulting from better growth in retail lending and (2) better insurance results. We forecast EPS of US$10.94 in 2013 compared to the consensus estimate of US$11.20 per share. We have an upside bias to our estimates. Price target, and risks to our investment view We use two methodologies to establish our Dec 2013 price target of US$139: (1) residual income model and (2) regression of risk-adjusted ROE (2013E and 2014E ROE divided by estimated cost of equity) to price to book value using a cross-section of Latin American financial institutions. Our price target is based on target multiples of 11.2x 2014E earnings and 2.4x 2013E BV. Key downside risks include (1) the adoption of heterodox economic policies that hurt bank profitability, (2) a greater than expected economic slowdown, and (3) greater than forecast expense growth.
Credicorp (BAP;BAP US) 2010A EPS - Recurring ($) Q1 (Mar) Q2 (Jun) Q3 (Sep) Q4 (Dec) FY Bloomberg EPS FY ($) 1.55 2.03 1.96 1.62 7.16 7.26 2011A 2.19 2.18 2.14 2.37 8.89 8.66 2012E 2.37A 2.16A 2.31 2.46 9.29 9.44 2013E 10.94 11.15
Source: Bloomberg.
Company Data Price ($) Date Of Price 52-week Range ($) Market Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date
240
FY14E 3,099 (867) 2,232 (510) 1,345 1,475 (1,853) 1,345 (336) 0 (18) 991 991 3.28 FY14E 12.42 68.14 3.28 13.5% 13.7% 18.0% 16.0%
Balance Sheet Securities Loans, gross Cash and due from Banks Loan loss reserves Other assets Total assets Total deposits Other funding Bonds and subordinated debts Other liabilities Total liabilities Shareholder's equity
FY11A 6,058 17,443 5,636 (520) 2,300 30,916 18,988 2,129 3,962 2,461 27,540 3,376
FY12E FY13E FY14E 8,550 9,576 10,533 21,607 25,497 30,086 5,807 6,387 7,026 (751) (1,017) (1,320) 2,979 1,801 1,802 38,191 42,243 48,127 24,174 28,042 32,529 2,690 2,932 3,195 4,368 3,001 3,002 2,904 3,563 3,967 34,136 37,538 42,693 4,055 4,706 5,435
Valuation, Macro P/E P/BV Dividend yield ROE ROA Shares ADRs
FY11A FY12A 15.3 14.6 3.2 2.7 1.4% 2.2% 22.8% 20.0% 2.4% 2.1% 80 80 80 80
Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec
241
Overweight
Price: HK$6.33 Price Target: HK$8.80
Abs Rel
1m 23.4% 17.5%
3m 10.5% -0.3%
Source: Bloomberg.
FY13E 102,487 5,692.3 0.41 0.08 16.1% 30.0% 15.3% 12.4 1.5 3.6 1.6%
FY14E 107,611 6,217.2 0.45 0.09 5.0% 9.2% 14.9% 11.3 1.3 2.9 1.8%
Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (HK$ mn) Average 3m Daily Turnover ($ mn) HSCI Exchange Rate Fiscal Year End
2,024 11,840.0 1,528 6.33 07 Nov 12 41.5% 18.50 101.74 12.06 2,984 7.75 Dec
242
Cash flow statement FY11 FY12E FY13E FY14E FY15E Rmb in millions, year end Dec 79,517 88,250 102,487 107,611 112,992 EBIT 24.0% 11.0% 16.1% 5.0% 5.0% Depr. & amortization 14,870 16,768 19,678 20,877 21,921 Change in working capital 7,305 8,731 10,735 11,754 12,618 Other adjustment 57.1% 19.5% 23.0% 9.5% 7.4% Taxes 9.2% 9.9% 10.5% 10.9% 11.2% Cash flow from operations 5,768 6,820 8,450 9,152 9,754 Capex 71% 18% 24% 8% 7% Disposal/(purchase) 7.3% 7.7% 8.2% 8.5% 8.6% Other adjustments -904 -535 -357 -290 -245 Cash flow from investing 5,442 6,813 8,712 9,478 10,126 Free cash flow 48.7% 25.2% 27.9% 8.8% 6.8% Equity raised/(repaid) -699 -1,226 -1,742 -1,896 -2,531 Debt raised / (repaid) 12.8% 18.0% 20.0% 20.0% 25.0% Other adjustments 3,864.2 4,378.0 5,692.3 6,217.2 6,226.8 Dividends paid 53.0% 13.3% 30.0% 9.2% 0.2% Cash flow from financing 11,840 13,803 13,803 13,803 13,803 Net changes in cash 0.33 0.32 0.41 0.45 0.45 Beginning cash 53.0% (2.8%) 30.0% 9.2% 0.2% Ending cash DPS Balance sheet Ratio Analysis Rmb in millions, year end Dec FY11 FY12E FY13E FY14E FY15E Rmb in millions, year end Dec Cash and cash equivalents 22,455 24,083 27,939 31,852 37,053 Gross margin Accounts receivable 21,953 24,403 28,340 29,757 31,244 EBITDA margin Inventories 17,842 19,584 22,687 23,763 24,951 Operating margin Others 1,358 1,172 1,141 1,141 1,141 Net profit margin Current assets 63,607 69,243 80,107 86,512 94,389 Other LT investments 5,231 5,525 5,712 5,894 6,072 EBITDA / Interest Paid (x) Net fixed assets 21,374 26,697 30,656 33,305 34,698 Net debt to total capital Total Assets 92,786 104,051 119,070 128,314 137,767 Net debt to equity Sales/assets Liabilities Assets/equity Short-term loans 18,099 12,535 11,835 11,835 11,835 ROE Trade Payables 27,856 29,014 33,694 35,379 37,148 ROA Others 13,230 15,804 21,063 22,121 23,219 Total current liabilities 59,185 57,352 66,592 69,334 72,202 Accounts receivable % Sales Long-term debt 2,325 1,940 1,640 1,640 1,640 Accounts payable % COGS Other liabilities 3,188 3,534 3,850 4,101 4,340 Inventory % COGS Total Liabilities 64,698 62,826 72,083 75,076 78,182 Asset Turnover (%) Minority interests 5,526 6,405 7,614 8,891 10,257 Net WC to sales ratio Shareholders' equity 22,562 34,819 39,373 44,347 49,328 BVPS 2.37 2.99 3.40 3.86 4.32 Source: Company reports and J.P. Morgan estimates.
FY11 5,768 1,538 130 399 -568 6,941 -6,197 146 -1,492 -7,543 890 39,201 -28,396 -689 -974 8,898 8,296 13,719 22,455 0.21
FY12E 6,820 1,911 148 7 -1226 7,652 -7,000 148 -204 -7,056 800 12,755 -20,704 10,654 -876 1,584 2,180 22,455 24,155 0.06
FY13E 8,450 2,285 3,354 -262 -1742 12,346 -6,000 117 -87 -5,970 6,463 4,000 -5,000 1,823 -1,138 -601 5,775 24,155 27,939 0.08
FY14E 9,152 2,602 672 -326 -1896 10,530 -5,000 121 -248 -5,127 5,651 0 0 2,403 -1,243 841 6,244 27,939 31,852 0.09
FY15E 9,754 2,864 614 -372 -2531 10,701 -4,000 131 -339 -4,208 6,832 0 0 3,015 -1,245 1,416 7,909 31,852 37,053 0.09
FY11 FY12E FY13E FY14E FY15E 18.7% 19.0% 19.2% 19.4% 19.4% 9.2% 9.9% 10.5% 10.9% 11.2% 7.3% 7.7% 8.2% 8.5% 8.6% 4.9% 5.0% 5.6% 5.8% 5.5% 8.08 16.33 30.07 40.53 51.45 -4.7% -19.5% -27.4% -31.8% -37.5% -9.0% -27.6% -36.7% -41.4% -47.8% 0.95 0.90 0.92 0.87 0.85 4.11 2.99 3.02 2.89 2.79 18.5% 15.3% 15.3% 14.9% 13.3% 4.6% 4.4% 5.1% 5.0% 4.7% 0.95 0.1 0.90 0.1 0.92 0.1 0.87 0.2 0.85 0.2
243
Cyrela
www.cyrela.com.br
Neutral
Price: R$16.69 Price Target: R$18.00 End Date: Dec 2013
Company overview Cyrela is the largest Homebuilders company in Brazil with a market cap of US$3.6bn. The company was founded and is still controlled by Mr. Elie Horn, who has a 33% ownership stake in the company. Despite weak results during 2010/11 as a consequence of costs overruns, Cyrela is one step ahead of its peers and is already reporting a sequential recovery on results and margins. The company has exposure to all income segments, and it uses the Living brand for the lower income segment. Its launches are concentrated in the South and Southeast region. Investment case Given the sectors high beta, a bullish scenario with better than expected macroeconomic data and higher GDP growth would likely lead to higher than expected growth and faster than expected improvements in results. How much recovery has already been priced in, what are the key metrics? The company is already trading at a premium to peers at 1.5x P/BV and 10x 2013E P/E; however, this premium has long existed and is justified, in our view, by Cyrelas superior execution and lower volatility in results, YTD it is the only stock under our coverage with a positive performance, up 19% vs 3% for the IBOV. Earnings risk in 2013 Main upside risks to our estimates include higher than expected FCF generation leading to a reduction in net debt and higher margins as well as better than expected contracted sales leading to higher revenue. On the negative side a lower than expected recovery in results and lower growth would impact sentiment on the name. Price target, and risks to our investment view We have a Neutral rating on Cyrela with a Dec 2013 price target of R$18.00, the average of our GGM-based valuation and our yield-based valuation. For the GGM we assume a COE of 12.6% and a sustainable ROE of 15.5%. In our yield-based valuation we assume sustainable sales of R$8.0bn (100% stake), net margin of 12% with a cash conversion ratio of 60%, and a yield of 8%. Main upside risks include higher than expected FCF, and downside risks include lower than expected recovery in margins.
Cyrela Brazil Realty (CYRE3.SA;CYRE3 BZ) FYE Dec 2011A EPS Reported (R$) FY 1.18 EBITDA FY (R$ mn) 1,001 P/E FY 15.0 Revenues FY (R$ mn) 6,127 Bloomberg EPS FY (R$) 1.18 2012E 1.44 1,110 12.2 6,220 1.73 2013E 1.75 1,237 10.1 6,343 2.15 2014E 1.94 1,271 9.1 6,486 2.50 2014E 1.94 1,271 9.1 6,486 2.50
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
244
10,240 10,285 10,316 10,415 FCF yield 167.1% 165.4% 162.6% 160.6% Dividend yield 6,282 4,768 5,245 5,507 Capex/Revenues 5,169 5,339 5,106 5,295 Inventory/Revenues 26,123 23,163 24,500 24,735 Assets/Equity Coverage (EBIT/Interest) 6% (24%) 10% 5% 8% 3% (4%) 4% ROE ROIC a Days receivable 404 390 380 370 Shares Days inventory 341 356 365 370 Days payable 163 143 146 149 Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
245
Overweight
Price: M$2.49 Price Target: M$3.00
Abs Rel
1m 3.8% 4.7%
3m -0.8% -1.7%
Source: Bloomberg.
FY14E 1,766 305 266.9 0.11 0.04 -5.8% 19.2% 13.1% 19.0% 21.85 4.0 21.1 1.7%
FY15E 2,278 384 320.1 0.13 0.05 29.0% 18.0% 14.4% 20.2% 18.52 3.6 17.0 2.0%
Company Data Shares O/S (mn) Market Cap (M$ mn) Market Cap ($ mn) Price (M$) Date Of Price Free float (%) 3-mth trading value (M$ mn) 3-mth trading value ($ mn) 3-mth trading volume (mn) FBMKLCI Exchange Rate Fiscal Year End
2,411 5,993 1,963 2.49 07 Nov 12 59.6% 5.5 1.8 3.6 1,646 3.05 Jun
246
Cash flow statement FY12 FY13E FY14E FY15E M$ in millions, year end Jun 1,634 1,875 1,766 2,278 Earnings before tax 35.2% 14.8% (5.8%) 29.0% Depr. & amortization 12.6% 13.5% 15.3% 14.8% Change in working capital 202 260 305 384 Taxes 9.0% 28.7% 17.6% 25.6% Others 12.3% 13.9% 17.3% 16.8% Cash flow from operations 174 216 236 294 5.3% 24.5% 9.3% 24.2% Capex 10.6% 11.5% 13.4% 12.9% Others -4 -10 -12 -14 Disposal/(purchase) 225 272 326 393 Free cash flow 12.2% 20.9% 19.8% 20.6% -43 -41 -45 -56 Equity raised/(repaid) 19.2% 15.2% 13.9% 14.3% Debt raised/(repaid) 177.0 219.2 266.9 320.1 Other 16.2% 23.9% 21.7% 19.9% Dividends paid 2,594 2,594 2,594 2,594 Beginning cash 0.08 0.08 0.10 0.12 Ending cash (2.0%) 11.3% 21.7% 19.9% DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E M$ in millions, year end Jun 278 580 481 458 450 EBITDA margin 299 494 567 534 689 Net margin 65 98 80 74 96 17 5 0 0 0 660 1,177 1,129 1,066 1,235 Sales per share growth Sales growth LT investments 148 372 583 679 682 Net profit growth Others 50 84 91 98 106 EPS growth Net fixed assets 224 333 529 690 889 Total Assets 1,082 2,050 2,331 2,532 2,912 Interest coverage (x) Net debt to total capital Liabilities Net debt to equity Short-term loans 92 69 83 100 119 Sales/assets Payables 326 465 528 487 570 Assets/equity Others 21 20 48 63 93 ROE Total current liabilities 439 554 659 649 783 ROCE Long-term debt 18 255 295 335 375 Other liabilities 4 3 3 3 3 Total Liabilities 462 812 957 986 1,160 Shareholders' equity 583 1,194 1,325 1,485 1,677 Minorities 37 44 49 61 74 BVPS 0.30 0.52 0.55 0.62 0.70 Source: Company reports and J.P. Morgan estimates.
FY11 201 20 -30 -41 19 133 -95 -36 0 2 15 35 -15 -62 261 274 0.03 FY11 15.3% 12.6% 6.9% 6.1% 28.7% 29.7%
FY12 FY13E FY14E FY15E 225 272 326 393 28 43 69 90 -77 -77 -77 -77 -51 -41 -45 -56 4 -42 -87 -126 78 100 97 124 -361 -18 0 -301 504 214 -10 -71 274 578 0.03 -150 -114 0 -165 0 100 0 -88 578 481 0.03 -150 -53 0 -106 0 100 0 -107 481 458 0.04 -150 -53 0 -79 0 100 0 -128 458 450 0.05
FY12 FY13E FY14E FY15E 12.3% 13.9% 17.3% 16.8% 10.8% 11.7% 15.1% 14.1% 14.0% 35.2% 16.2% (2.0%) 3.1% (5.8%) 14.8% (5.8%) 23.9% 21.7% 11.3% 21.7% 24.79 -6.4% -7.8% 0.86 1.76 17.4% 13.4% 25.35 -1.3% -1.6% 0.73 1.70 19.0% 13.1% 29.0% 29.0% 19.9% 19.9% 27.98 2.2% 2.6% 0.84 1.74 20.2% 14.4%
60.61 48.38 -27.0% -23.1% -28.9% -21.4% 1.22 1.04 1.49 1.72 28.7% 19.9% 26.5% 15.7%
247
Duratex
www.duratex.com.br
Overweight
Price: R$14.11 Price Target: R$16.00 End Date: Dec 2013
Company overview Duratex S.A. is the Brazilian market leader in wood panels, metal fittings, and sanitary ware with the Deca and Hydra brands. Duratex has a production capacity of nearly 4 mn m3/year wood paneling, 6 mn m2/year in laminated flooring, 1.5 mn m2/year in components, and almost 23 mn metal fittings and/or sanitary ware units. Investment case Duratex products are inputs to the housing and durable goods segments, which are highly dependent on credit availability to be sold. The continued low interest rates, low unemployment, and real income growth are important drivers for demand. We conservatively forecast wood panel sales to grow 4.3% in 2013 (vs. a solid 12.1% increase in 2012E). How much recovery has already been priced in, what are the key metrics? Duratex has been gaining share and improving margins amid a faster than expected growing market, and investors have been paying for this performance. The stock outperformed the index by 5.8% in the past three months and is now trading at 8.5x forward EV/EBITDA (~8% premium to the 5Y historical level). We believe such a premium is deserved given improved profitability, higher growth, and earnings visibility as well as positive government intervention in the sector. Earnings risk in 2013 Earnings risks are mainly related to (1) the slowdown of house launches that can affect demand for Decas products and (2) weaker consumer credit conditions. Price target, and risks to our investment view Our Dec 13 price target of R$16.0/share is an equal distribution of (1) DCF based on 9.3% WACC (USD nominal) and 1.2% nominal USD perpetuity growth; (2) 8.5x EV/EBITDA target, (3) 15x P/E target. The risks to our target price are (1) the slowdown of house launches that can affect demand for Decas products, (2) weaker consumer credit conditions, and (3) cost pressures (urea, methanol, labor).
Duratex S.A. (DTEX3.SA;DTEX3 BZ) FYE Dec EBITDA (R$ mn) FY Bloomberg EBITDA FY (R$ mn) EPS Reported FY (R$) Bloomberg EPS FY (R$) Revenues FY (R$ mn)
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date 3mth Avg daily value (R$ mn)
14.11 14 Nov 12 14.55 - 8.08 7,828.11 Dec 548 16.00 31 Dec 13 19.82
248
FY10A FY11A FY12E FY13E Income Statement - Quarterly 2,742 2,970 3,304 3,714 Revenues 1,436 1,716 1,860 2,114 Cost of products sold (691) 1,408 1,584 1,742 Gross profit 428 464 496 553 SG&A 618 454 489 549 Operating income (372) (430) (506) (542) D&A 851 799 961 1,071 EBITDA (98) (122) (122) (132) Net interest income / (expense) 0 0 0 0 Other income / (expense) 618 454 489 549 Pretax income (99) (59) (109) (126) Income taxes 439 350 391 437 Net income - GAAP 439 350 391 437 Net income - recurring 549 548 548 548 Diluted shares outstanding 0.80 0.64 0.71 0.80 EPS - GAAP 0.80 0.64 0.71 0.80 EPS - recurring FY10A FY11A FY12E FY13E Ratio Analysis 617 726 802 1,135 Sales growth 565 658 723 788 Organic sales growth 362 411 395 395 EBITDA growth 133 138 135 135 EPS growth (recurring) 1,677 1,933 2,055 2,452 BV/share growth 765 847 968 968 6,172 6,814 7,547 8,012 Gross margin SG&A ratio 1,594 1,915 2,150 2,335 EBIT margin 6,171 6,814 7,546 8,011 EBITDA margin 3,466 3,693 4,125 4,380 Tax rate 6.31 6.74 7.53 7.99 Net margin 439 350 391 437 Net debt / EBITDA (372) (430) (506) (542) Net debt / Capital (7) (117) (2) (39) Interest coverage ratio 725 460 224 0.41 783 636 (78) (0.14) 895 974 (116) (0.21) 923 Inventory turnover Working capital turnover 609 301 Return on assets (ROA) 0.55 Return on equity (ROE) Return on capital (ROC) (609) (135) 135.48
1Q12A 2Q12A 3Q12A 4Q12E 738A 809A 911A 846 418A 453A 503A 486 353A 393A 443A 395 111A 127A 132A 125 108A 120A 159A 103 (106)A (125)A (132)A (144) 209A 237A 274A 241 (28)A (30)A (32)A (32) 0A 0A 0A 0 108A 120A 159A 103 (25)A (40)A (21)A (24) 86A 99A 126A 81 86A 99A 126A 81 548A 548A 548A 548 0.16A 0.18A 0.23A 0.15 0.16A 0.18A 0.23A 0.15 FY10A FY11A FY12E FY13E 36.6% 8.3% 11.2% 12.4% 36.6% 8.3% 11.2% 12.4% 37.6% (6.0%) 20.2% 11.5% 13.6% (20.2%) 11.9% 11.7% (25.2%) 15.6% 26.1% 31.0% 16.0% 16.0% 1.1 28.2% 4.8 0.1 0.2 7.1% 12.7% 13.9% 47.4% 15.6% 19.4% 26.9% 13.1% 11.8% 1.5 32.2% 2.6 0.1 0.3 5.1% 9.5% 10.4% 48.0% 15.0% 18.5% 29.1% 22.4% 11.8% 1.4 32.7% 2.9 0.1 0.2 5.2% 9.5% 8.9% 46.9% 14.9% 18.3% 28.8% 23.0% 11.8% 1.1 27.4% 3.1 0.1 0.2 5.5% 10.0% 9.7%
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
249
Overweight
Price: Bt129.50 Price Target: Bt155.00
Abs Rel
1m -1.1% -1.0%
3m 18.8% 10.7%
Source: Bloomberg.
FY14E 11,994 7,548.0 14.34 5.25 4.4% 11.2% 9.0% 10.5% 9.0 0.9 6.1 4.1% 7,548 14.34
Company Data Shares O/S (mn) Market cap (Bt mn) Market cap ($ mn) Price (Bt) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Bt mn) 3M - Avg daily Value (USD) ($ mn) SET Exchange Rate Fiscal Year End
526 68,177 2,219 129.50 01 Nov 12 30.0% 0.64 78.82 2.53 1,298 30.72 Dec
250
FY10 FY11 FY12E 107.0% 100.9% 97.2% 81.0% 75.2% 74.0% 78.9% 65.1% 104.8%
(5.9%) (11.0%) 28.9% 16.3% 4.4% -14.4% -26.6% 107.5% -34.4% 11.2% (14.4%) (26.6%) 107.5% (34.4%) 11.2% 50.04 -3.4% 0.13 1.09 13.0% 11.1% 31.56 -1.0% 0.11 1.26 8.9% 8.6% 14.45 10.4% 0.12 1.41 16.8% 9.2% 14.74 19.92 6.0% 0.7% 0.12 0.12 1.42 1.38 10.0% 10.5% 8.7% 9.0%
251
Emaar Properties
www.emaar.ae
Company overview Emaar Properties specializes in master community developments incl. residential and commercial real estate in Dubai and abroad. Since inception the company has delivered more than 34,000 units and now operates as a global developer with planned projects in over 18 countries and ongoing developments under various stages of construction in more than 10 countries. Emaar is well known for its high quality investment property portfolio, which is represented by retail and the hospitality business mostly in Dubai. This business has helped Emaar generate a solid stream of recurring income over the last 2.5 years. The foreign ownership restriction at 49% in Emaars stock is relatively high compared to average 28% for UAE based property developers. Investment case We like Emaar due to its successful comeback into Dubai, its resilient rental income growth and low N D/E at ~25%. Recurring income is now >50% of Emaars EBITDA and ~50% of the SOTP-based PT, where Dubais retail and hospitality segment continues to surprise on the upside. With the comeback in Dubai, we believe Saudi Arabia, Egypt and Turkey form part of its core markets for property development, while Dubai retains its place as the companys core investment portfolio. Key attractions in an anemic growth environment We expect Dubais recovery to continue in 2013 and expect Emaar to record a healthy growth in retail and hospitality segment with footfalls remaining strong and hotel occupancy levels expected north of 90%. Encouraged by pick-up in property sales activity with improving investor confidence, we expect Emaar to add more to its Dubai pipeline in 2013 with the likely launch of the Opera House cultural district in Burj Downtown. Earnings risks in 2013 Amlak write-off and potential refinancing risks for Emaar's Indian business remain key downside risks to earnings in 2013 Price target, and risks to our investment view Our Dec 2013 SOTP based PT of AED4.5 is based on a 10% discount to our NAV. In our NAV, we incl. 1) DCF for all local/intl projects with dev. details; 2) mkt value of EEC AB; 3) BV of unlisted entities (Emaar MGF at 25% of BV); and 4) the value of Emaars landbank captured in project wise DCFs due to limited information. Key risks include 1. Delayed recovery in property prices, delay in completion and handover on the intl front, weaker than forecast margin, Amlak write off and continued overhang on Emaar's stock due to the Indian business's debt refinancing issues.
Emaar Properties PJSC and Subsidiaries (EMAR.DU;EMAAR DB) FYE Dec 2011A 2012E 2013E Adj. EPS FY (Dh) 0.32 0.33 0.33 Sales FY (Dh mn) 8,112 7,780 7,684 EBITDA FY (Dh mn) 3,060 3,256 3,169 EBITDA margin FY 37.7% 41.9% 41.2% Net profit FY (Dh mn) 1,794 2,013 1,983 BV/Sh FY (Dh) 5.19 5.42 5.71 P/BV FY 0.7 0.7 0.6 Net D/E FY 23.5% 24.5% 21.0% 2014E 0.25 6,479 2,719 42.0% 1,505 5.56 0.7 22.4%
Overweight
Price: Dh3.66 Price Target: Dh4.50
United Arab Emirates MENA & Turkey Real Estate Muneeza Hasan
AC
(971) 4428-1766 muneeza.z.hasan@jpmorgan.com Bloomberg JPMA HASAN<GO> JPMorgan Chase Bank, N.A., Dubai Branch
P r ic e P e r fo r m a n c e
3.6 3.2 2.8 2.4
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Dh
Abs
YTD 46.4%
1m 1.7%
3m 7.0%
12m 35.6%
Source: Bloomberg.
Company Data Price (Dh) Date Of Price Price Target (Dh) Price Target End Date 52-week Range (Dh) Mkt Cap (Dh bn) Mkt Cap (US) ($ bn) Shares O/S (mn)
Source: Company data, Bloomberg, J.P. Morgan estimates. Please note that SOTP is based on fully diluted shares outstanding of 6481Mn
252
(318) (1,568) 308 -805 2,136 (609) 1,540 1,894 1,080 2,973 -72 -1,312 -1,500 (302) -1,786 -695 2,973 2,278
FY11A FY12E FY13E 52.2% 37.7% 26.2% 23.6% 14.3% -33.2% -14.2% (27.0%) NM 12.5 12.3% 23.1% 0.1 6.1% 5.9% 53.1% 41.9% 32.0% 26.5% 13.5% -4.1% 6.4% 2.3% 2.3% 6.9 13.3% 24.1% 0.1 6.3% 6.1% 52.2% 41.2% 31.2% 26.5% 13.5%
Total debt 9,300 Trade payables 8,314 Customer advances 8,145 Others 70 Total liabilities 28,465 Minorities 281 Shareholders' equity 31,589 Total Liabilities & Shareholders Equity 60,054 Source: Company reports and J.P. Morgan estimates.
-1.2% -15.7% -2.7% -14.2% (1.5%) (24.1%) NM NM 7.9 12.1% 20.6% 0.1 5.9% 5.8% 6.0 13.7% 22.0% 0.1 4.4% 4.6%
253
Emlak Konut
www.emlakgyo.com.tr
Company overview Emlak Konut, founded in 1953, is the largest Real Estate Investment Company (REIC) in Turkey with a total asset base of ~$4.2bn. The company primarily focuses on residential developments across Turkey with currently 29 ongoing projects and 5.3mn sq m land under its belt. Emlak primarily purchases its land from TOKI and to Emlak, the construction risk remains muted given the unique revenue sharing agreement it uses for more than 80% of its ongoing projects. Investment case We like Emlak for the scarcity value it offers given its unique business model. As the largest listed REIC in Turkey by mkt cap (US$3.7Bn) and landbank (5.3Mn Sq m), it offers ~4yrs of earnings visibility with a minimum revenue backlog of ~TL5Bn. With TOKIs 75% stake in the company, Emlak benefits from strong indirect govt. support and acts as a bridge b/w the govt. and Turkeys RE developers by providing land for housing projects. Longer term, Turkey still remains one of the best GDP growth stories in EM and as the largest listed developer Emlak is best positioned to benefit from any improvement in macros moving forward. Key attractions in an anemic growth environment Emlak has ~5.3Mn Sq m of land awaiting tender. Of this, land in Istanbul accounts for 75% by appraisal value and 49% by area. We expect the strategically located Istanbul land to fetch at least our conservative valuation multiple of 1.7x (used in our SOTP cal) for future tenders. This is well below the historical average of 2.54x (over and above the base value of tender) that Emlak has managed to generate on completed projects. Near to medium term, we expect stock performance to come from better than expected multiples on land awaiting tender and pick up in monthly unit sales data. Earnings risks in 2013 Political, regulatory and below forecast revenue from land tenders remain key risks Price target, and risks to our investment view Our Dec 2013 PT of TL3.10 for Emlak is derived using a SOTP valuation. In our SOTP, we include a DCF of Emlaks ongoing RSM projects, DCF of ongoing PPM based projects, the value of Emlaks landbank and the appraisal value of Emlaks small inventory of completed units. Key risks include below forecast sales, changes in Emlaks relationship with TOKI, any slowdown in Turkeys housing demand, below forecast revenue from land tenders, and political/regulatory risk.
Emlak Konut Gayrimenkul Yati (EKGYO.IS;EKGYO TI) FYE Dec 2011A 2012E Adj. EPS FY (TL) 0.09 0.17 Sales FY (TL mn) 717 1,117 EBITDA FY (TL mn) 199 425 EBITDA margin FY 27.7% 38.0% Net profit FY (TL mn) 228 435 BV/Sh FY (TL) 1.52 1.65 Net D/E FY 8.6% 8.4% P/E FY 29.6 15.5
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: TL2.70 Price Target: TL3.10
(971) 4428-1766 muneeza.z.hasan@jpmorgan.com Bloomberg JPMA HASAN<GO> JPMorgan Chase Bank, N.A., Dubai Branch
P r ic e P e r fo r m a n c e
2.8 2.6 TL 2.4 2.2 2.0 1.8
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 38.5%
1m 8.4%
3m 14.9%
12m 14.9%
Source: Bloomberg.
Company Data Price (TL) Date Of Price Price Target (TL) Price Target End Date 52-week Range (TL) Mkt Cap (TL bn) Mkt Cap (US) ($ bn) Shares O/S (mn) 3Mnth Avg daily value (US$ MM)
2.70 02 Nov 12 3.10 31 Dec 13 2.74 - 1.85 6.8 3.7 2,500 29.91
254
379 14.9% Debt raised/(repaid) Decrease in payables to HAS 379 beneficiaries 14.9% Others Cashflow from Financing 2,500.0 Change in Cash 0.15 Beginning cash Project deposits and income 14.9% accruals Ending cash Ratio Analysis FY14E year end Dec 1,130 Gross Margin 835 EBITDA Margin 1,455 EBIT margin 4,152 Net profit margin SG&A/Sales 783 2,805 Sales growth 13 EBITDA growth 7,753 Adjusted net profit growth Adjusted EPS growth 186 1,009 2,783 Interest coverage Net debt to Total Capital 434 Net debt to Equity 448 Sales/assets Assets/equity 4,522 ROE 7,753 ROCE
255
Overweight
Price: Rp2,475 Price Target: Rp3,000
Abs Rel
1m 24.4% 23.5%
3m 20.7% 14.2%
Source: Bloomberg.
52-Week range Rp2,475 - 950 Market Cap US$747MM Enterprise Value Rp3,437bn Share Out. (Com) 2,900MM Free float Date of Price 07 Nov 12 Price 2,475 Dividend yield (%) 0.0 Jakarta Index 4,314
Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
256
(7.8%) 48.7% -1.7% 31.1% 7.1% 17.3% (70.7%) (19.9%) 3,221.71 7.7% 8.2% 3.65 4.28 23.1% 18.0% 18.0% FY10 217.7 5 -179 -50 71 -36 0 -72 35 878 77 0 -50 25 24 97
11.70 30.01 42.50 13.5% 1.6% 0.5% 0.3% 12.0% 1.7% 0.5% 0.3% 3.27 3.99 4.32 4.26 3.62 5.90 6.11 5.62 16.1% 19.4% 21.6% 21.5% 10.8% 15.3% 17.8% 17.5% 10.8% 15.3% 17.8% 17.5% FY11 FY12E FY13E FY14E 255.4 460.2 630.4 781.3 4 16 23 78 -717 -66 -564 -739 56 -10 0 0 -77 410 90 120 -73 -135 -62 -96 0 0 0 0 -858 -204 -69 -101 -149 275 28 24 878 0 0 0 -146 -56 -139 61 0 0 0 -0 0 0 0 0 734 -49 -133 48 -201 200 157 358 -112 246 67 312
257
Erste Bank
www.erstegroup.com
Company overview Erste Bank is the 2nd largest retail bank (after Sberbank) in CEEMA region, having a presence in 7 emerging markets, with an Austrian base. Erste is within the top 3 in Czech, Croatia, Hungary; #1 in Romania and Slovakia and enjoys c.8-28% retail deposit market share within these countries. It has c.217bn in assets, c.133bn in loans, c.122bn in deposits and serves c.17mn clients via >3000 branches and c.50K employees. Investment case Despite earning c.70% of profits from EM Europe, Erste trades at a significant 40-60% discount to single country EM banks (Erste's mkt cap of 8.1bn compares to c.5.7bn of Komercni- peer of EB's Czech subsidiary). We expect this discount to narrow, as Erste's capital position continues on an improving trend (Q3 CT1 ex. govt capital at 9.2%- up 140bps vs. YE11) and earnings rebound, driven by gradual reduction in provisioning charges (provisions have absorbed >70% of group pre-provision profits over last 5 years). Erste currently trades at 13E PE 10.7x; PNAV 1x; 14E PE 6.9x; PNAV 0.9x. Key attractions in an anemic growth environment Whilst the revenue outlook remains weak, key driver for bottom-line growth would be gradual normalization of asset quality (signs of which were visible in Q3'12 results), in particular in Romania (where EB loss making in 2011-12; however management's outlook for Romania has improved, with expectations of FY profits in 2013). We expect costs to improve towards 80bps by 2014 (vs. 08-12E avg 147bps; 43bps in 2007). Earnings risks in 2013 Worst than expected economic slowdown in key geographies- lower revenues and steeper asset quality deterioration. Upside risk from pickup in pace of Romanian recovery. Price target, and risks to our investment view Our Dec-13 price target (incorporating 2014 estimates), based on Gordon growth, SOP, PE and NAV multiples is set at 25. Our Gordon growth model incorporates a long term growth rate of 3%; 13% cost of equity and a 14% normalized RoNAV. Key risks include- higher than expected asset quality deterioration, currency weakness (mainly in Hungary & Romania) and continuation of low rate environment.
Erste Bank (ERST.VI;EBS AV) FYE Dec Adj. EPS FY () Adj P/E FY NAV/Sh FY () P/NAV FY ROA FY RoNAV FY Core Tier One Ratio FY Net Attributable Income FY ( mn) 2011A 0.21 94.8 17.7 1.1 0.0% 1.2% 7.8% (719) 2012E 0.85 23.4 19.3 1.0 0.2% 4.7% 9.2% 626 2013E 1.92 10.4 21.1 0.9 0.3% 9.5% 9.5% 900 2014E 2.96 6.7 23.5 0.8 0.5% 13.3% 9.8% 1,320
Overweight
Price: 19.92 Price Target: 25.00
(44-20) 7134-4718 paul.formanko@jpmorgan.com Bloomberg JPMA FORMANKO<GO> J.P. Morgan Securities plc
P r ic e P e r fo r m a n c e
22 18 14 10
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs Rel
1m 11.0% 10.9%
3m 36.5% 36.9%
Source: Bloomberg.
Company Data Price () Date Of Price Price Target () Price Target End Date 52-week Range () Mkt Cap ( bn) Shares O/S (mn)
258
Ratio Analysis FY14E in millions, year end Dec Per Share Data 5,299 EPS Reported 3.7% EPS Adjusted 1,671 % Change Y/Y 1,820 DPS 5.6% % Change Y/Y -149 Dividend yield -32.3% Payout ratio 1 BV per share 6,971 NAV per share 5.4% Shares outstanding -3,893 2.6% Return ratios 1 RoRWA 3,078 Pre-tax ROE 9.2% ROE -1,096 RoNAV 1 1,982 Revenues 46.3% NIM (NII / RWA) (468) Non-IR / average assets 23.6% Total rev / average assets (194) NII / Total revenues 1,320 Fees / Total revenues Trading / Total revenues
FY10A
FY11A
FY12E
FY13E
FY14E
2.05 0.21 0.85 1.92 2.96 2.05 0.21 0.85 1.92 2.96 -14.4% -89.7% 305.9% 125.5% 54.1% 0.70 0.00 0.16 0.23 0.67 7.7% (100.0%) - 43.9% 193.2% 4.9% 0.0% 1.1% 1.6% 4.7% 34.2% - 18.6% 11.9% 22.6% 35 32 32 34 36 17.7 17.7 19.3 21.1 23.5 377.0 380.8 394.6 394.6 394.6 0.01 10.4% 6.1% 12.4% 0.00 (2.6%) 0.6% 1.2% 0.00 8.1% 2.7% 4.7% 0.01 10.5% 5.9% 9.5% 0.01 14.5% 8.5% 13.3%
2.77% 2.74% 2.50% 2.37% 2.40% 0.85% 0.11% 0.78% 0.69% 0.75% 3.52% 2.79% 3.25% 3.03% 3.13% 75.95% 96.09% 76.09% 77.25% 76.02% 25.73% 30.84% 24.84% 26.08% 26.12% -1.67% -26.93% -0.93% -3.33% -2.14% FY10A 53.3% 0.0 113.1% 23.6% 64.3% 61.8% 4.6% 7.6% 1.9% 60.9% 119,844 -3.3% 7.7% 10.2% FY11A 66.4% 0.0 FY12E 54.9% 0.0 FY13E 57.4% 0.0 FY14E 55.8% 0.0 -
132,334 134,750 133,664 135,228 2.8% 1.8% -0.8% 1.2% 6,119 7,027 8,340 8,459 196,036 202,907 210,114 215,650 4,675 3,532 3,214 3,182 6,636 3,326 2,377 2,226 205,770 210,006 215,926 219,978 117,016 118,880 122,446 124,895 4.4% 1.6% 3.0% 2.0% 31,298 30,782 30,474 30,169 20,154 23,785 24,974 24,475 178,870 186,012 190,881 193,227 13,114 12,037 12,593 13,262 3,444 3,143 3,238 3,372 205,770 210,006 215,926 219,978
FY14E in millions, year end Dec Cost ratios 139,614 Cost / income 3.2% Cost / assets 8,180 Staff numbers - Balance Sheet Gearing - Loan / deposit 220,429 Investments / assets 3,150 Loan / assets 2,623 Customer deposits / liabilities 225,730 LT Debt / liabilities Asset Quality / Capital 129,891 Loan loss reserves / loans 4.0% NPLs / loans 30,773 LLP / RWA 23,985 Loan loss reserves / NPLs 196,095 Growth in NPLs - RWAs % YoY change 14,168 Core Tier 1 3,567 Total Tier 1 225,730
113.3% 109.2% 108.3% 107.5% 26.2% 27.9% 28.3% 28.2% 64.2% 61.9% 61.5% 61.9% 61.0% 61.2% 61.4% 62.4% 5.2% 6.2% 6.3% 5.9% 8.5% 10.4% 10.0% 8.9% 2.3% 2.2% 1.5% 1.1% 61.7% 60.1% 62.8% 65.7% 114,019 109,458 112,742 118,379 -4.9% -4.0% 3.0% 5.0% 7.8% 9.2% 9.5% 9.8% 10.4% 11.1% 11.4% 11.6%
259
Overweight
Price: NT$67.80 Price Target: NT$80.00
Taiwan
Telecommunications
Lucy LiuAC
(852) 2800-8566 lucy.y.liu@jpmorgan.com Bloomberg JPMA LLIU <GO> J.P. Morgan Securities (Asia Pacific) Limited
P r ic e P e r fo r m a n c e
75 NT$ 65 55 45
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs Rel
1m -5.7% -0.7%
3m -7.9% -7.2%
Source: Bloomberg.
Company Data 52-wk range (NT$) Mkt cap (NT$ mn) Mkt cap ($ mn) Shares O/S (mn) Free float (%) 3-mth avg trading value: - Local (NT$ mn) TSE Exchange Rate Price (NT$) Date Of Price
75.60 - 52.60 220,926 7,575 3,259 53.0% 5.51 394.45 7,243 29.16 67.80 06 Nov 12
260
3,259 3,259 3,259 2.72 2.73 3.52 2.72 2.73 3.52 2.50 3.00 3.88 92.1% 111.3% 110.1% 5.6% -8.3% -4.1% (3.7%) -10.7% 19.4% 2.1% 0.4% 0.4% 20.0% 14.9% 14.1% 29.2% 29.2% 29.2%
FY10 FY11 FY12E 34.7% 29.7% 29.4% 22.9% 18.5% 14.9% 12.1% 12.1% 15.6% 14.8% 15.0% 19.7% 9.6% 9.2% 11.9% 19.2% 17.9% 18.1% -12.9% -11.4% -10.4% 4.8% 4.1% 1.7% -7.4% -9.3% -14.3% -
Balance Sheet statement FY13E FY14E NT$ in millions, year end Dec 96,278 103,262 Cash and equivalents 28,956 31,620 Accounts receivable -10,111 -10,617 Others -175 -175 Total Current assets 17,939 20,097 192 288 ST loans -59 -59 Others - Total current liabilities 17,498 19,753 -3,167 -3,575 Net working capital 14,209 16,039 14,209 16,039 Net fixed assets Other long term assets 3,259 3,259 Total non-current assets 4.36 4.92 4.36 4.92 Total Assets 4.80 5.42 110.1% 110.1% Long-term debt Other liabilities 10.6% 7.3% Total Liabilities 13.7% 9.4% 23.8% 12.9% Shareholders' equity 23.8% 12.9% 23.8% 12.9% Total liabilities and equity Net debt/(cash) Book value per share Cash flow statement FY13E FY14E NT$ in millions, year end Dec 30.1% 30.6% Cash flow from operations 18.2% 18.3% Capex 18.9% 21.0% Cash flow from other investing 23.1% 25.3% Cash flow from financing 14.3% 15.5% 18.1% 18.1% Change in cash for year -10.4% -10.6% 3.9% 3.9% Beginning cash -19.6% -22.9% Closing cash -
FY10 FY11 FY12E 9,162 9,906 11,977 6,225 6,641 7,629 6,904 6,636 6,756 23,315 25,168 28,642 3,739 2,946 1,146 14,133 11,743 13,965 22,139 20,085 19,637 1,176 5,082 9,005
FY13E 18,010 8,441 6,855 35,828 2,946 15,241 23,484 12,344 42,962 8,320 66,387
FY14E 20,665 9,053 6,930 39,353 2,946 16,316 25,253 14,100 41,171 9,624 65,169
97,647 95,431 96,673 102,215 104,522 6 171 168 1,950 2,398 2,398 24,094 22,654 22,204 73,553 72,776 74,469 165 2,398 26,047 76,168 165 2,398 27,816 76,705
97,647 95,431 96,673 102,215 104,522 -5,417 -6,789 -10,663 -14,899 -17,554 22.57 22.33 22.85 23.38 23.54 FY10 FY11 FY12E FY13E FY14E 22,694 22,646 22,007 27,519 29,813 -8,183 -8,642 -9,049 -10,013 -10,946 -15,882 97 -820 -760 -710 -3,779 -13,406 -10,066 -10,714 -15,502 -5,161 14,323 9,162 744 2,071 6,033 11,977 18,010 2,655 18,010 20,665
261
Fibria
www.fibria.com.br
Neutral
Price: R$19.24 Price Target: R$19.00 End Date: Dec 2013
Company overview The worlds leader in the production of eucalyptus pulp, Fibria has annual production capacity of 5.25 million tons divided among four mills (including a joint venture with Stora Enso). Fibria has a total forest base covering 958,000 hectares, of which 336,000 are native forests that have been set aside for environmental conservation. Investment case Market drivers: (1) Improvement in Chinese demand (we currently forecast Chinese demand to increase 8% in 2013E); (2) new capacity shut downs. Industry drivers: (1) Inclusion of Pulp & Paper sector in Reintegratax refunds to exporterswhich the company guides for ~R$100m cash impact (we estimate ~+R$0.4/share or +2-3% upside to current prices). Company-specific drivers: (1) continuation of the decline trend of cash cogs per unit (in real terms); (2) non-core asset divestments. How much recovery has already been priced in, what are the key metrics? Responding to higher pulp prices in 2Q and 3Q, Fibria has outperformed iBovespa by 20% in the past three months and is currently trading at 8.3x 12M forward EV/EBITDA, in line with its five-year historical average. We believe the scope of a rerating would be limited (targeting 9x EV/EBITDA) given the challenging pricing outlook in 2013. However, Fibrias disciplined approach toward capacity growth and focus on deleveraging stands out. Finally, we estimate that the company should generate a 5.3% FCF yield in 2013. Earnings risk in 2013 Earnings risk are mostly market related, such as (1) weaker then expected demand, which coupled with increasing capacity can drive prices lower; (2) stronger BRL. Price target, and risks to our investment view At our Dec 2013 PT of R$19 ($10/ADR), Fibria trades at 8.4x, slightly above the fiveyear average of 8.3x. Our price target is a combination of 50% DCF (WACC of 8.5%) and 50% target EV/EBITDA of 9x. Key upside and downside risks to our case are (1) pulp prices; (2) devaluation (upside) or appreciation (downside) of BRL.
Source: Bloomberg.
Fibria Celulose S.A. (FIBR3.SA;FIBR3 BZ) FYE Dec EBITDA (R$ mn) FY Bloomberg EBITDA FY (R$ mn) EPS Reported FY (R$) Bloomberg EPS FY (R$) Revenues FY (R$ mn)
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
262
FY14E 6,045 665 1,775 1,948 32.2% 263 (790) (153) 0 0 (552) (1.00) FY14E 1,109 (62) 189 1,109 -
FY15E 6,503 707 1,775 2,179 33.5% 480 (1,030) (150) 0 0 (336) (0.61) FY15E 1,100 11 334 1,100 -
Balance Sheet Cash Accounts receivable Inventories Other current assets Net PP&E Other assets Total assets Short-term debt Accounts payable Other current liabilities Long-term debt Deferred taxes Other liabilities Total liabilities Minority interest Shareholders' equity Liabilities + Equity Net debt Net Debt/Capital Debt/Capital Net Debt/EBITDA Valuation, Macro EV/EBITDA P/E P/BV EV/tonne FCF yield Dividend yield ROE Net income margin Net revenue/Assets Assets/Equity ROIC Shares ADRs DCF WACC Perpetual Growth Cost of equity Cost of debt
FY11A 2,060 945 1,179 436 27,854 326 13,315 14,511 9,264 35.8% 4.7 FY11A 9.4 NM 19.4% 1370.0% (6.0%) (1.7%) -
FY12E 3,422 1,091 1,282 382 29,511 475 13,364 15,587 7,533 28.3% 3.5 FY12E 8.0 NM 7.5% 0.0% (1.4%) 0.9% -
FY13E 4,380 984 1,282 382 29,822 475 13,704 15,431 6,904 25.8% 3.3 FY13E 8.1 264.6 5.1% 52.3% 0.3% 19.0% -
FY14E 7,999 994 1,256 368 32,885 480 17,166 15,031 6,715 22.5% 3.4 FY14E 8.6 NM 1.9% 0.0% (3.7%) (0.1%) -
FY15E 8,510 1,069 1,256 368 32,941 516 17,408 14,845 6,381 21.4% 2.9 FY15E 7.5 NM 3.3% 0.0% (2.3%) 0.9% -
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
263
Overweight
Price: Dh10.50 Price Target: Dh13.5
Abs
YTD -31.3%
1m 5.5%
3m 15.0%
12m -30.1%
Source: Bloomberg.
Company Data Price (Dh) Date Of Price Price Target (Dh) Price Target End Date 52-week Range (Dh) Mkt Cap (Dh bn) Shares O/S (mn) Mkt Cap ($ bn)
264
Ratio Analysis FY14E Dh in millions, year end Dec Per Share Data 6,529 EPSAdjusted 10.1% % Change Y/Y 1,887 DPS 1,586 % Change Y/Y 7.3% Dividend yield 132 Payout ratio 4.4% BV per share 169 NAV per share 8,416 Shares outstanding 9.4% - Return ratios 1,578 RoRWA 10.5% Pre-tax ROE 107 ROE 6,730 RoNAV 9.1% 1,435 Revenues 5,317 NIM (NII / RWA) 16.1% Non-IR / average assets 0 Total rev / average assets 0.0% NII / Total revenues 0 Fees / Total revenues 5,317 Trading / Total revenues
FY10A
FY11A
FY12E
FY13E
FY14E
2.10 2.37 1.34 1.53 1.77 -19.9% 12.9% -43.4% 13.9% 16.1% 0.65 1.00 0.67 0.76 0.89 32.9% 52.8% (33.0%) 13.9% 16.1% 6.6% 10.0% 6.7% 7.7% 8.9% 31.2% 42.2% 50.0% 50.0% 50.0% 18 18 9 10 11 14.0 14.1 7.2 8.0 8.8 1,375.0 1,500.0 3,000.0 3,000.0 3,000.0 0.03 15.2% 14.7% 17.2% 0.03 14.6% 14.6% 17.2% 0.03 14.8% 14.8% 17.7% 0.03 15.8% 15.8% 19.1% 0.03 16.8% 16.8% 20.1%
3.53% 3.74% 3.61% 3.56% 3.53% 1.57% 0.95% 0.98% 0.98% 0.97% 4.76% 4.35% 4.26% 4.28% 4.30% 67.12% 78.25% 77.09% 77.08% 77.57% 23.44% 18.68% 19.18% 19.22% 18.85% 2.54% 1.63% 1.63% 1.65% 1.57% FY10A 17.7% 0.0 FY11A 18.9% 0.0 FY12E 19.5% 0.0 FY13E 19.8% 0.0 FY14E 20.0% 0.0
95,628 104,720 115,225 127,270 5.8% 9.5% 10.0% 10.5% 3,295 3,622 4,815 5,410 33,782 40,602 44,362 46,346 42.8% 20.2% 9.3% 4.5% 121,726 137,366 152,454 166,601 140,758 157,480 172,383 187,019
FY14E Dh in millions, year end Dec Cost ratios 141,795 Cost / income 11.4% Cost / assets 5,864 48,409 4.5% Balance Sheet Gearing 181,910 Loan / deposit - Investments / assets - Loan / assets 204,140 Customer deposits / liabilities LT Debt / liabilities
96.8% 101.2% 105.6% 108.6% 110.8% 10.6% 11.9% 12.1% 11.5% 11.0% 67.9% 66.5% 66.8% 68.1% 69.5% 88.2% 81.6% 78.5% 78.0% 77.7% 0.0% 0.0% 0.0% 0.0% 0.0% 3.4% 3.5% 4.2% 4.3% 4.2% 3.7% 3.4% 3.8% 3.7% 3.5% 2.7% 2.7% 3.2% 3.2% 3.2% 89.4% 98.4% 106.0% 111.3% 112.6% 120,659 135,980 150,208 166,541 184,781 4.3% 12.7% 10.5% 10.9% 11.0% 15.0% 14.8% 13.7% 13.7% 13.8% 19.6% 18.5% 18.1% 17.4% 17.2% 22.9% 21.5% 20.2% 18.8% 18.2%
98,742 103,474 109,077 117,142 127,941 Asset Quality / Capital 14.3% 4.8% 5.4% 7.4% 9.2% Loan loss reserves / loans 0 0 0 0 0 NPLs / loans 1,527 8,247 12,371 15,464 19,330 LLP / RWA 11,724 15,082 17,495 17,495 17,495 Loan loss reserves / NPLs 105,088 119,398 132,874 144,523 157,434 Tangible Equity/Assets - RWAs 24,126 26,651 27,612 30,181 33,208 % YoY change 505 116 116 116 116 Core Tier 1 140,758 157,480 172,383 187,019 204,140 Total Tier 1 Capital Adequacy Ratio
265
Fleury
www.fleury.com.br
Overweight
Price: R$22.60 Price Target: R$31.00 End Date: Dec 2013
Company overview Fleury is the second largest medical diagnostic laboratory in Brazil. The group operates labs that offer medical testing services in a variety of Brazilian states. As part of the groups recent strategy of diversification, it has increasingly focused on preventive and therapeutic medicine. The group is the market leader in individualized health assessment programs for executives. Investment case The key triggers for the stock would be (1) sales growth acceleration derived from a better than expected macro environment and acceleration of floor space growth and (2) margin improvement. How much recovery has already been priced in, what are the key metrics? Fleury trades at 17.9x 2013E P/E, a 20% discount to Neutral-rated DASA, with better earnings visibility, and more stable margins than DASA (which is in the middle of a restructuring). We believe most of the upside for the stock should come from acceleration in organic sales growth through 2013. Earnings risk in 2013 We see limited room for upward revisions to 2013 earnings. However, we see upside risk to consensus for the A+ brand (focused on middle income segment), regarding its long-term growth potential. Price target, and risks to our investment view We rate Fleury OW and have an R$31 PT for Dec 2013. Our price target is based on a 10-year discounted free cash flow to equity, using an 11.7% cost of equity in nominal reais and a 6.0% perpetuity growth rate The key risks of not performing well would be if sales growth in Brazil does not accelerate, margins deteriorate, and if the company does not accelerate organic floor space expansion.
Source: Bloomberg.
Fleury (FLRY3.SA;FLRY3 BZ) FYE Dec Adj. EPS (R$) FY Bloomberg EPS FY (R$)
Source: Company data, Bloomberg, J.P. Morgan estimates. * Adj. P/E includes goodwill tax shield
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
266
FY14E 1,916 (1,398) (204) 312 16.3% 147 459 24.0% 58 1 (41) 314 16.4% 0 1.54 11.9% 13.6% 21.0% FY14E 182 40 42 139 1.2 9.5% 370 19.3% 182
FY15E FY15E -
Balance Sheet Cash Accounts receivable Inventories Other current assets Net PP&E Other assets Total assets Technical Reserves Short-term debt Accounts payable Other current liabilities Long-term debt Deferred taxes Other liabilities Total liabilities Minority Interests Shareholders' equity Liabilities + Equity
FY11A 486 313 18 57 376 108 2,832 36 75 268 600 114 1,200 0 1,632 2,832
FY12E 528 362 22 67 421 126 3,029 90 94 334 537 133 1,275 0 1,754 3,029
FY13E 572 416 25 77 454 145 3,117 90 111 383 417 153 1,246 0 1,871 3,117
FY14E 590 466 28 86 489 163 3,175 90 123 426 297 171 1,203 0 1,972 3,175
FY15E -
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
Net debt Net Debt/Capital Debt/Capital Net Debt/EBITDA Valuation, Macro Adj.P/E EV/EBITDA P/BV P/S FCF yield Dividend yield ROE Net income margin Net revenue/Assets Assets/Equity ROIC Shares
150 6.6% 28.0% 0.6 FY11A 22.6 18.7 2.3 3.3 (4.7%) 0.7% 10.4% 13.4% 13.0% 156
99 4.2% 26.3% 0.3 FY12E 24.6 11.3 2.1 2.5 (1.2%) 0.5% 8.4% 13.3% 19.1% 156
(65) (2.7%) 21.3% (0.2) FY13E 19.3 8.7 2.0 2.2 (0.2%) 1.9% 10.2% 15.2% 23.1% 156
(203) (8.6%) 16.4% (0.4) FY14E 14.9 7.5 1.9 2.0 1.2% 3.9% 12.5% 16.4% 27.5% 156
FY15E -
267
Overweight
Price: $0.00651 Price Target: $0.00878
Abs
YTD -43.9%
1m 4.5%
3m -48.8%
12m -57.3%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
268
Valuation ratios $ in millions, year end Dec P/E adjusted P/E (reported) Price to book value EV/EBITDA EV/EBIT Dividend yield (%) Per share Adjusted EPS Reported EPS
FY11 2,137 1,158 -235 (152) 2,334 (5,225) 984 -4,241 2,317 (1,907) FY11 30,702 2,772 36,174 4,128 27,918 25 8,255 2,650
FY12E 916 1,481 -162 (369) 2,149 (5,311) 1,206 -4,105 1,712 (1,956) FY12E 35,870 2,298 40,500 6,372 29,923 26 10,577 5,748
FY13E 1,001 1,671 -177 (272) 2,733 (4,512) 0 -4,512 1,864 (1,779) FY13E 38,520 2,572 43,412 8,884 30,391 26 13,022 8,178
FY14E FY15E 1,027 1,358 1,821 1,963 -180 -243 (258) (230) 3,110 3,661 (3,535) (3,526) 0 0 -3,535 -3,526 500 -37 (425) 135 FY14E 39,632 2,783 44,700 10,179 30,503 25 14,197 9,410 FY15E 41,160 3,104 46,547 11,193 31,316 25 15,231 10,326
Performance, leverage and return ratios % FY11 EBITDA margin 57.4% EBIT margin 33.0% Operating profit growth y-o-y 166.1% Net Income growth y-o-y 166.9% Reported ROE 6.0% ROA 4.6% Net debt/ (equity+minorities) (%) 9.5% Net debt /EBITDA (%) 1.0 Market valuation in millions FY11 Number of Shares (million) 1,255,948.1 EV 9,905
FY12E FY13E FY14E FY15E 1,260,386.7 1,260,386.7 1,260,386.7 1,260,386.7 13,004 15,435 16,666 17,582
269
Overweight
Price: NT$30.70 Price Target: NT$40.00
Abs Rel
1m 0.0% 4.9%
3m 4.6% -0.3%
Source: Bloomberg.
FY13E 30,046 27,174 2.85 1.14 5.5% 10.7% 10.8 27.44 1.1 3.7%
FY14E 32,733 29,579 3.11 0.00 8.8% 11.0% 9.9 29.19 1.1 0.0%
Company Data 52-wk range (NT$) Market cap (NT$ mn) Market cap ($ mn) Shares outstanding (mn) Fiscal Year End Price (NT$) Date Of Price Avg daily value (NT$ mn) Avg daily value ($ mn) Avg daily vol (mn) TSE Exchange Rate
35.14 - 26.29 290,540 9,937 9,464 Dec 30.70 05-Nov-12 1,503.2 51.4 42.3 7,185 29.24
270
Net Interest Income Non-Interest Income of which Fee Grth Revenues Costs Pre-Provision Profits Loan Loss Provisions Pre-Tax Attributable Income EPS DPS Balance Sheet Gearing Loan/Deposits Investment/Assets Loan/Assets Customer deposits/Liab. LT Debt/Liabilities Asset Quality/Capital Loan loss reserves/Loans NPL/Loans Coverage Growth in NPLs Tier 1 Ratio Total CAR
16.1% -10.1% -0.7% 5.4% 15.6% -12.6% -74.1% -1.6% -0.2% -5.3% -50.1% 2010 74.0% 53.9% 25.5% 36.6% 2.4% 2010 0.75% 0.34% 220.7% -36.0% 9.18% 13.0%
16.3% 38.5% -0.2% 24.0% 10.3% 56.1% 3.9% 58.5% 53.4% 50.4% 32.4% 2011 82.0% 56.1% 26.9% 35.0% 2.7% 2011 0.94% 0.23% 414.7% -25.3% 13.37% 19.6%
13.4% -36.5% 7.0% -6.0% 3.6% -21.8% -182.1% -17.4% -15.7% -20.1% -15.7% 2012E 82.3% 58.3% 29.6% 38.6% 2.5% 2012E 0.68% 0.30% 227.6% 38.3% 13.93% 19.4%
10.4% -3.0% 8.1% 6.9% 4.1% 12.8% -230.4% 5.5% 5.5% 5.5% 5.5% 2013E 83.9% 59.8% 28.5% 36.3% 2.4% 2013E 0.69% 0.38% 182.2% 32.7% 13.63% 18.5%
13.1% -19.3% 7.3% 5.4% 3.9% 8.3% -8.8% 8.9% 8.8% 8.8% -100.0% 2014E 83.8% 60.6% 27.4% 34.9% 2.2% 2014E 0.70% 0.45% 153.7% 26.0% 13.49% 17.9%
Per Share Data (NT$/ share) EPS DPS Payout Book Value Fully Diluted Shares
Key balance sheet - NT$ mn Net Loans LLR Gross Loans NPLs Investments Other Earning Assets Avg. IEA Goodwill Assets
2010
2011
2012E
2013E
2010
2011
2012E
2013E
2014E
879,441 974,402 1,025,889 1,077,843 -6,615 -9,289 -7,049 -7,485 886,056 983,691 1,032,938 1,085,328 2,998 2,240 3,097 4,109 1,860,853 2,030,594 2,020,733 2,262,677 133,202 111,327 120,886 150,851 2,693,441 3,002,862 3,150,084 3,336,706 9,453 0 0 0 3,450,747 3,618,135 3,464,398 3,785,530
Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA
1,188,018 1,188,907 1,246,156 1,284,351 1,352,731 78,534 91,143 80,929 83,133 85,476 102,466 85,402 81,732 78,006 73,408 1,310,647 1,367,235 1,387,135 1,427,153 1,478,553 3,255,500 3,534,441 3,541,267 3,624,964 3,962,811 217,390 233,683 246,478 261,351 278,059 853,180 638,189 649,226 673,680 702,798 809,889 745,685 643,708 661,453 688,239
Margins (as % of Avg. Assets) Non IR/Avg. Assets Non-Int. Rev./ Revenues Revenue/Assets Cost/Income Cost/Assets of which Goodwill Amort. Operating ROA Gross LLP/Loans Loan/Assets Other Prov, Income/ Assets Pre-Tax ROA Tax Rate Minorities & Outside Distbn. ROA RoRWA Equity/Assets ROE
1.66% 0.87% 35.7% 2.45% 46.3% 1.13% 0.00% 1.31% 1.66% 60.8% 0.07% 0.37% -17.2% 0.00% 0.31% 2.46% 6.74% 4.55%
1.65% 0.69% 30.9% 2.24% 48.7% 1.09% 0.00% 1.15% 0.87% 62.8% 0.07% 0.67% -23.1% 0.00% 0.52% 4.10% 6.64% 7.79%
0.96% 0.80% 47.1% 1.70% 56.4% 0.96% 0.00% 0.74% 0.64% 63.0% 0.10% 0.44% -7.5% 0.00% 0.40% 4.00% 6.22% 6.49%
0.92% 0.73% 45.9% 1.59% 60.4% 0.96% 0.00% 0.63% 0.23% 61.0% 0.07% 0.56% -7.9% 0.00% 0.51% 4.11% 5.86% 8.75%
1.00% 0.77% 45.2% 1.70% 54.6% 0.93% 0.00% 0.77% 0.28% 62.1% 0.10% 0.70% -13.8% 0.00% 0.61% 4.30% 5.93% 10.22%
271
Overweight
Price: HK$3.50 Price Target: HK$6.00
Abs Rel
1m 16.7% 9.7%
3m 39.4% 32.7%
Source: Bloomberg.
FY14E 45,867 4,300 3,214 0.43 0.05 21.6% 22.9% 20.4% 6.6 1.2 1.7%
Company Data 52-week Range (HK$) Shares O/S (mn) Market Cap (HK$ mn) Market Cap (US) ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume Average 3m Daily Turnover (US) ($ mn) HSCEI Exchange rate (HK$/US$)
3.56 - 1.65 7,480 23,636 3,049 3.50 08 Nov 12 49.0% 36.40 11.95 10,813 7.75
272
FY10 FY11 FY12E FY13E FY14E 18.5% 18.2% 18.3% 18.8% 18.9% 10.7% 11.5% 10.5% 9.8% 9.7% 6.8% 7.4% 7.2% 6.9% 7.0% 42.9% 4.3% 29.1% 39.3% 21.6% 15.7% 12.8% 26.4% 34.0% 22.9% 46.4% 2.7% 29.8% 42.6% 22.8% 28.7% 11.6% 17.8% 30.5% 20.6% 19.0% 17.5% 18.5% 20.4% 20.4%
273
HCL Technologies
www.hcltech.com
Company overview HCL Technologies (HCLT) is one of Indias largest IT services vendors, with presence in software services, infrastructure management, and BPO. HCLT has several Fortune 500 names as its top clients. The company has 85,000+ employees working for 500+ clients. HCL Tech acquired Axon in FY09, which operates in the package implementation space. HCL Tech has good leverage to high-growth services, with 27% of its revenues coming from Infrastructure management. Investment case HCLT has consistently delivered on revenue growth over the last several quarters primarily driven by its strong positioning in Infra management space. However, margins of the company were a concern. HCLT has shown strong performance on the margin front (particularly gross margins) as well over the last two quarters despite wage rises suggesting that management has complete control on cost structure. Moreover, HCLT has also improved its account mining skills over the last two quarters, which was another concern about the company. If the company is able to deliver on both revenue growth and margin expansion/maintenance simultaneously; we believe there is meaningful upside from current stock price. Key attractions in an anemic growth environment We believe HCLT has strong revenue growth momentum despite slower growing Indian IT industry. The company expects churn in a large number of deals coming for renewal. HCLT has shown strong performance in winning some of these large deals particularly in Infra management space (HCLT won US$ 2.5 billion worth of deals between Sep-11 and Mar-12). We expect HCLT to continue gaining market share and drive superior revenue and profit growth even in benign environment. Earnings risks in 2013 A key risk for HCLTs earnings are a meaningful decline in IT spending due to macro weakness/event. Developed markets in recession will impact IT budgets/spending. Pricing decline and supply-side pressures are the other key risks for earnings. Price target, and risks to our investment view Our Jun-13 PT of Rs650 is based on a one-year forward P/E multiple of 13x. Our target multiple embeds a one-year forward valuation discount of ~30% to TCS, which we believe is fair and warranted, given the weaker margin profile and return ratios of HCLT. Downside risks: slowdown in deal ramp-ups and appreciation of the rupee against the US$. Taking on higher-than normal share of lower-margin and/or assetheavy risky deals can impact operating margins and return ratios impacting HCLTs valuation.
Bloomberg HCLT IN, Reuters HCLT.BO
(Year-end Jun, Rs mn) Revenue Operating Profit EBITDA Net profit (Reported) EPS P/E (x) EV/EBITDA (x) Cash Equity FY11 FY12 FY13E FY14E 160,338 210,315 249,093 274,435 21,617 33,909 42,502 44,661 26,537 39,728 49,156 51,715 16,199.5 24,567.0 32,959.2 35,846.7 23.20 35.06 46.63 50.15 26.5 17.5 13.2 12.3 15.1 10.0 7.7 7.0 22,428 23,851 40,449 57,157 84,410 100,577 139,653 170,089 ROE(%) CORE ROIC(%) Quarterly EPS (Rs) EPS (13) E EPS (14) E Local Abs. Perf.(%) Rel. Perf.(%) Target Price (30 Jun 13) FY11 20.9 16.7 1Q 12.28 11.76 1M 9.6% 9.9% FY12 26.6 22.3 2Q 10.82 11.82 3M 14.5% 7.7% FY13E 27.4 23.1 3Q 11.45 12.74 12M 44.1% 35.2% Rs
Overweight
Price: Rs614.70 Price Target: Rs650.00
Abs Rel
1m 9.6% 9.9%
3m 14.5% 7.7%
Source: Bloomberg.
FY14E 23.1 52-Week range 21.6 Share Out. (Com) 4Q Market Cap 12.08 Market Cap(US) 13.83 Free float Avg daily val (Rs) Dividend Yield Index 650.00 Exchange rate
621.00 - 372.65 694MN 426.75BN US$7,794MN 28.7% 50MN 0.8% 5,686 54.76
274
Profit and Loss Statement Ratio Analysis Rs in millions, year end Jun FY11 FY12 FY13E FY14E Rs in millions, year end Jun Revenues 160,338 210,315 249,093 274,435 - Gross margin Cost of goods sold 87,975 141,265 165,782 186,494 - EBITDA margin Gross Profit 50,304 69,050 83,310 87,940 - Operating margin R&D expenses 0 0 0 0 - Net margin SG&A expenses -23,711 -29,499 -34,098 -36,225 - R&D/sales Operating profit (EBIT) 21,617 33,909 42,502 44,661 - SG&A/Sales EBITDA 26,537 39,728 49,156 51,715 Interest income 0 0 0 0 - Sales growth Interest expense 0 0 0 0 - Operating profit growth Investment income (Exp.) 0 0 0 0 - Net profit growth Non-operating income (Exp.) -562 -1,169 855 2,506 - EPS (reported) growth Earnings before tax 21,056 32,740 43,357 47,167 Tax -4,813 -8,390 -10,307 -11,320 - Interest coverage (x) Net income (reported) 16,199.5 24,567.0 32,959.2 35,846.7 - Net debt to total capital Net income (adjusted) 16,200 24,567 32,959 35,847 - Net debt to equity EPS (reported) 23.20 35.06 46.63 50.15 - Asset turnover EPS (adjusted) 23.20 35.06 46.63 50.15 - Working capital turns (x) BVPS 120.42 143.09 198.43 238.96 - ROE DPS 7.34 10.61 4.93 4.00 - ROIC Shares outstanding 701 703 704 712 - ROIC (net of cash) Balance sheet Cash flow statement Rs in millions, year end Jun FY11 FY12 FY13E FY14E Rs in millions, year end Jun Cash and cash equivalents 22,428 23,851 40,449 57,157 - Net income Accounts receivable 34,089 50,085 57,582 61,996 - Depr. & amortization Inventories 0 0 0 0 - Change in working capital Others 0 0 0 0 - Other Current assets 69,072 88,193 114,814 137,680 - Cash flow from operations LT investments 13,182 19,680 18,284 17,950 - Capex Net fixed assets 64,094 69,525 78,263 82,779 - Disposal/(purchase) Others 11,348 17,808 17,877 17,550 - Cash flow from investing Total Assets 146,348 177,397 211,362 238,409 - Free cash flow Liabilities Equity raised/(repaid) ST Loans 0 0 0 0 - Debt raised/(repaid) Payables 33,789 46,294 44,023 42,327 - Other Others 33,789 46,294 44,023 42,327 - Dividends paid Total current liabilities 33,789 46,294 44,023 42,327 - Cash flow from financing Long-term debt 21,256 18,016 15,938 14,459 Other liabilities 6,893 12,510 11,748 11,534 - Net change in cash Total Liabilities 61,938 76,820 71,709 68,320 - Beginning cash Shareholders' equity 84,410 100,577 139,653 170,089 - Ending cash Source: Company reports and J.P. Morgan estimates.
FY11 31.4% 16.6% 13.5% 10.1% 0.0% 14.8% 27.4% 8.7% 33.0% 29.9% -1.2% -1.4% 1.14 6.43 20.9% 16.7% -
FY12 32.8% 18.9% 16.1% 11.7% 0.0% 14.0% 31.2% 56.9% 51.7% 51.1% -5.2% -5.8% 1.30 6.33 26.6% 22.3% -
FY13E 33.4% 19.7% 17.1% 13.2% 0.0% 13.7% 18.4% 25.3% 34.2% 33.0% -17.9% -17.6% 1.28 5.22 27.4% 23.1% -
FY14E 32.0% 18.8% 16.3% 13.1% 0.0% 13.2% 10.2% 5.1% 8.8% 7.5% --25.1% -25.1% 1.22 4.55 23.1% 21.6% --
FY11 FY12 FY13E FY14E 16,199.5 24,567.0 32,959.2 35,846.7 4,919 5,819 6,654 7,054 -1,132 -3,491 -9,768 -6,109 0 0 0 019,829 27,441 29,558 36,792 0 0 0 00 0 0 0-10,150 -17,748 -13,997 -11,236 19,829 27,441 29,558 36,792 0 0 0 0-5,916 2,377 -2,840 -1,693 0 0 0 0-5,126 -7,437 -3,485 -2,859 -7,997 -6,569 3,563 -7,103 1,681 24,446 22,428 3,124 22,428 23,851 19,124 23,851 40,449 18,452 40,449 57,157 -
275
HOMEX
www.homex.com.mx
Overweight
Price: Ps25.81 Price Target: 38.00 End Date: Dec 2013
Company overview Homex is the largest homebuilder in Mexico, building around 50k homes in 2011. The company focuses most of its activities on the affordable entry-level and middle income housing markets in Mexico with a small operation in Brazil; it also acts on the concession front as it has a 20-year contract to build and operate two prisons in Mexico, which will provide stable cash flow starting next year. Homex was founded in 1989 by the De Nicolas family, which still runs the company and holds a 34% stake. Investment case Homex is a high-beta name that could reverse its underperforming trend once it starts to generate income from its prison business and also as it starts to generate positive FCF from a housing business that burned Ps780mn in 2011 but that is expected to be positive at Ps500-800mn this year. We also believe that a new contract to operate new prisons could be a positive catalyst for the stock as we estimate that its current contract is worth Ps12-14 per share, which represents almost half of its market value. How much recovery has already been priced in, what are the key metrics? Homexs homebuilding business is currently trading at around 0.4x P/BV, which is the lowest level among peers, mainly due to the large amount of cash it burned last year. Thus, we dont see any upside priced in now. Earnings risk in 2013 The major upside earnings risks for Homex are related to better than expected performance from its housing business, which hasnt performed well in 9M12. Also, lower leverage going forward could be translated into lower than expected financing costs. The operating income coming from its penitentiary business could be a risk given that there is no visibility on the operating margins that this concession will have. Price target, and risks to our investment view We rate Homex OW with a Dec 2013 price target of Ps38, which is the average of our DCF-based and GGM-based valuations. The COE of 14.1% is based on a beta of 1.80, country risk of 1.6%, and risk free rate of 5.0%, resulting in a WACC of 12.7%. In our GGM we used a sustainable ROE of 11%. The main downside risks are lower than expected profitability and FCF from its prison business and further cash burn from its housing division.
Desarrolladora HOMEX (HOMEX.MX;HOMEX* MM) FYE Dec 2011A EPS Reported (Ps) FY 3.88 Bloomberg EPS FY (Ps) 5.45 EBITDA FY (Ps mn) 4,705 P/E FY 6.9 Revenues FY (Ps mn) 21,853
Source: Bloomberg.
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.
Company Data Price (Ps) Date Of Price 52-week Range (Ps) Mkt Cap (Ps mn) Fiscal Year End Shares O/S (mn) Price Target (Ps) Price Target End Date
276
Days receivable 33 40 Days inventory 794 814 adj. (excl. land) 467.3 470.1 Days payable 108 107 adj. (excl. land) Cash Conversion Cycle 719 747 Adj. Cash Conversion Cycle Source: Company reports and J.P. Morgan estimates. Note: Ps in millions (except per-share data).Fiscal year ends Dec
277
Overweight
Price: W115,000 Price Target: W185,000
Abs Rel
1m -12.5% -9.1%
3m -5.0% -7.2%
Source: Bloomberg.
Source: Company data, Bloomberg, J.P. Morgan estimates. *NP, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
Company Data 52-week Range (W) Market cap (W bn) Market cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily Value (W bn) 3M Avg daily Value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
167,000 - 98,600 2,300 2,084 20 Dec 115,000 06 Nov 12 43.3% 16.00 13.36 0 1,928 1,103.45
278
FY11 FY12E FY13E FY14E FY15E -581 862 422 427 504 200 118 178 261 326 63 65 68 69 70 -0 -2 -2 -2 -2 0 0 0 0 0 -98 -98 -98 -98 0 -0 -0 -0 -0 -0 716 -55 -62 -33 -42 -135 -47 -70 -103 -128 0 0 0 0 0 265 -100 -80 -80 -80 -428 249 202 207 286 152 -614 -221 -219 -218 -163 149 122 127 206 731 564 712 834 962 564 712 834 962 1,167
FY11 FY12E FY13E FY14E FY15E 9,992 5,879 8,918 13,063 16,281 (59.4%) (41.2%) 51.7% 46.5% 24.6% 160,863 165,576 173,151 184,870 199,808 2,000 1,500 1,500 1,500 1,500 1.7% 1.3% 1.3% 1.3% 1.3% 11.5 19.6 12.9 8.8 7.1 0.7 0.7 0.7 0.6 0.6 8.2 12.0 10.7 6.3 4.1 5.2% 3.4% 5.0% 6.9% 8.0% 14.0% 10.2% 10.0% 11.4% 12.5% 8.2% 3.9% 3.8% 5.7% 7.0% 4.3% 2.7% 4.1% 5.4% 6.3% 9.5% 5.4% 5.4% 7.1% 8.4% -8.70 22 -6.57 20 -6.08 20 -6.79 20 -7.10 20
Source: Company reports and J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
279
Overweight
Price: W208,000 Price Target: W290,000
Abs Rel
1m -14.2% -10.8%
3m -10.9% -13.1%
Source: Bloomberg.
FY14E 100,904 10,258 10,654 37,603 7.6% 6.9% 7.5% 8.4% 17.8% 5.5 0.9 5.4
Company Data 52-week Range (W) Market cap (W bn) Market cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily Value (W bn) 3M Avg daily value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
272,500 - 200,500 45,818 42,004 220 Dec 208,000 06 Nov 12 62.2% 141.56 120.06 1 1,928 1,090.80
280
Ratio Analysis %, year end Dec EBITDA margin Operating margin Net margin SG&A/sales
FY11 13.4% 10.4% 10.4% 14.0% 16.1% 36.4% 35.1% 37.4% 289.25 36.0% 69.2% 0.71 2.71 22.1% 7.9%
FY12E 13.7% 10.8% 10.9% 13.2% 8.9% 13.1% 14.1% 15.0% 29.4% 55.7% 0.73 2.56 21.5% 8.2%
FY13E 13.0% 10.2% 10.6% 13.7% 10.7% 5.1% 7.5% 7.9% 25.7% 43.6% 0.76 2.25 19.8% 8.3%
FY14E 12.8% 10.2% 10.6% 13.3% 7.6% 6.9% 7.2% 7.5% 22.7% 35.6% 0.78 2.00 17.8% 8.4%
Short-term loans 16,200 Payables 6,666 Others 10,297 Total current liabilities 33,164 Total non-current liabilities 35,989 Total Liabilities 69,152 Shareholders' equity 40,328 BVPS (W) 148,616 Source: Company reports and J.P. Morgan estimates.
Sales growth Operating profit growth 36,200 Net profit growth 19,324 EPS growth 2,660 7,127 Interest coverage (x) 129,579 Net debt to total capital Net debt to equity 14,200 Sales/assets 5,815 Assets/equity 13,355 ROE 33,371 ROA 31,269 64,640 64,939 239,314
281
ICICI Bank
www.icicibank.com
Company overview ICICI Bank is one of India's largest banks, with significant market share in retail lending. After the ~38% credit CAGR over FY04-08, ICICI consolidated its loan book over FY08-10 to increase focus on profitability. It has subsequently re-started growing, but is cautious on pricing and credit controls. It has a high T1 CAR of 12.7%. Investment case ICICI is one of our top banking picks we think management is steadily delivering on improved profitability with reasonable growth, especially in the retail segment, where it has been losing share for the last three years. This should drive significant re-rating over the next year. Key attractions in an anemic growth environment ICICIs much-expanded distribution (2750 branches, up~2x in four years) is driving significant market share improvement without the necessity to add risk. It has also eliminated cyclicality from revenues with lower upfront loan fees and reduced dependence on treasury so we see little risk to growth from an adverse environment. Earnings risks in 2013 ICICI has a significant exposure to project loans, and this exposes it to large and lumpy credit charges. The other earnings risk is margin pressure from increased competitive intensity. Price target, and risks to our investment view Our Mar-14 PT for ICICI Bank of Rs1200 is based on our sum of the parts analysis. The core bank is valued using a two-stage Gordon growth model implying 1.6x FY14E book. The subsidiaries (mainly insurance) are valued at Rs218/share. Our core bank valuations factor in cost of equity at 14.3%, normalized ROE of ~20%, and terminal growth of 5%. The key risk, apart from the earnings risk above, is a de-rating triggered by adverse policy environment for infrastructure.
ICICI Bank (Reuters: ICBK.BO, Bloomberg: ICICIBC IN) FY11A FY12A Operating Profit (Rs mn) 92,498 103,865 Net Profit (Rs mn) 51,514 62,449 Cash EPS (Rs) 44.72 54.17 Fully Diluted EPS (Rs) 46.48 54.83 DPS (Rs) 14.00 16.50 EPS growth (%) 23.9% 21.1% ROE 10.0% 10.9% P/E (x) 24.4 20.2 BVPS (Rs) 478.29 523.98 P/BV (x) 2.3 2.1 Dividend Yield 1.3% 1.5%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: Rs1092.95 Price Target: Rs1,200
Abs Rel
1m 2.5% 1.6%
3m 12.2% 3.8%
Source: Bloomberg.
FY13E 129,648 77,025 66.82 65.08 19.00 23.3% 11.9% 16.4 568.57 1.9 1.7%
FY14E 170,103 97,315 84.42 82.68 23.00 26.3% 13.8% 12.9 626.08 1.7 2.1%
FY15E 214,614 119,729 103.86 102.13 29.00 23.0% 15.4% 10.5 696.01 1.6 2.7%
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Rs) Date Of Price 3M - Avg daily value (Rs mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) NIFTY Exchange Rate
1,102.80-641.00 1,259,918 23,145 1,153 Mar 1,092.95 07 Nov 12 3,688.37 67.8 3.66 5724.40 54.44
282
(66,172) (78,504) (89,829) (103,872) 92,498 103,865 129,648 170,103 (22,868) (15,830) (23,407) (35,876) (2,023) (757) 67,607 87,278 106,241 134,227 (16,093) (24,828) (29,216) (36,913) 0 0 0 0 51,514 62,449 77,025 97,315
Growth Rates FY15E 3.0% Loans 95.0% Deposits 2.9% Assets Equity 210,127 RWA 125,154 Net Interest Income 101,193 Non-Interest Income of which Fee Grth 335,282 Revenues Costs (120,668) Pre-Provision Profits Loan Loss Provisions 214,614 Pre-Tax (49,470) Attributable Income - EPS - DPS - Balance Sheet Gearing 165,144 Loan/deposit (45,415) Investment/assets 0 Loan/Assets 119,729 Customer deposits/liab. LT debt/liabilities Asset Quality/Capital Loan loss reserves/loans NPLs/loans Specific loan loss reserves/NPLs Growth in NPLs Tier 1 Ratio Total CAR Du-Pont Analysis NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Non-Int. Rev./ Revenues Non IR/Avg. Assets Revenue/Assets Cost/Income Cost/Assets Pre-Provision ROA LLP/Loans Loan/Assets Other Prov, Income/ Assets Operating ROA Pre-Tax ROA Tax rate Minorities & Outside Distbn. ROA RORWA Equity/Assets ROE
FY11 19.9% 11.6% 11.8% 6.7% 16.1% 11.1% 3.6% 14.0% 7.8% 12.9% 4.3% (48.0%) 26.7% 28.0% 23.9% 16.7% FY11 95.9% 15.8% 53.4% 64.2% 30.7% FY11 (3.4%) 4.7% 68.0% 5.8% 13.2% 19.5% FY11 2.5% 94.3% 2.3% 43.2% 1.8% 4.1% 41.7% 1.7% 2.4% (1.1%) 53.4% (0.1%) 1.8% 1.8% 23.8% 0.0% 1.4% 1.7% 13.9% 10.0%
FY12 16.7% 13.3% 16.6% 9.6% 16.7% 19.0% 9.5% 4.1% 14.9% 18.6% 12.3% (30.8%) 29.1% 21.2% 21.1% 17.9% FY12 99.3% 16.1% 55.2% 61.8% 32.7% FY12 (2.9%) 4.0% 78.1% (5.6%) 12.7% 18.5% FY12 2.6% 94.9% 2.4% 41.1% 1.7% 4.1% 43.0% 1.8% 2.4% (0.7%) 55.2% (0.0%) 2.0% 2.0% 28.4% 0.0% 1.4% 1.7% 13.1% 10.9%
FY13E 15.9% 31.4% 15.6% 8.5% 15.9% 22.9% 16.7% 12.0% 20.3% 14.4% 24.8% 47.9% 21.7% 23.3% 23.3% 15.2% FY13E 87.6% 14.8% 55.3% 69.6% 29.7% FY13E (2.9%) 3.6% 80.4% 16.3% 12.5% 17.5% FY13E 2.7% 95.0% 2.6% 39.9% 1.7% 4.3% 40.9% 1.8% 2.5% (0.8%) 55.3% 2.1% 2.1% 27.5% 0.0% 1.5% 1.7% 12.3% 11.9%
FY14E 21.3% 28.8% 21.1% 10.1% 21.3% 28.3% 19.5% 22.0% 24.8% 15.6% 31.2% 53.3% 26.3% 26.3% 26.3% 21.1% FY14E 82.5% 13.8% 55.4% 73.2% 24.2% FY14E (2.9%) 3.6% 80.4% 20.9% 11.5% 15.6% FY14E 2.9% 95.0% 2.8% 38.2% 1.7% 4.5% 37.9% 1.7% 2.8% (1.1%) 55.4% 2.2% 2.2% 27.5% 0.0% 1.6% 1.9% 11.4% 13.8%
FY15E 21.8% 27.7% 21.4% 11.2% 21.6% 24.1% 19.6% 20.0% 22.4% 16.2% 26.2% 37.9% 23.0% 23.0% 23.0% 26.1% FY15E 78.6% 12.8% 55.5% 76.2% 20.8% FY15E (3.1%) 3.7% 80.4% 28.1% 10.6% 14.0% FY15E 3.0% 95.0% 2.9% 37.3% 1.7% 4.6% 36.0% 1.6% 2.9% (1.2%) 55.5% 2.3% 2.3% 27.5% 0.0% 1.6% 1.9% 10.4% 15.4%
Per Share Data EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rs in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA
FY11 44.72 14.00 31.3% 478.29 1,152 FY11 2,163,659 (76,269) 2,239,928 100,333 696,384 163,476 3,630,570 4,062,336 2,256,021 1,095,543 312,172 3,157,512 3,848,496 550,909 3,414,980 3,178,393
FY12 54.17 16.50 30.5% 523.98 1,153 FY12 2,537,277 (76,135) 2,613,412 94,744 721,716 195,130 4,173,294 4,736,447 2,555,000 1,401,649 316,615 3,654,106 4,399,392 604,029 3,985,858 3,700,419
FY13E 66.82 19.00 28.4% 568.57 1,153 FY13E 2,940,450 (88,526) 3,028,975 110,163 792,215 224,660 4,848,732 5,475,101 3,356,055 1,261,484 316,615 4,287,093 5,105,774 655,427 4,619,210 4,302,534
FY14E 84.42 23.00 27.2% 626.08 1,153 FY14E 3,566,066 (107,025) 3,673,090 133,183 883,771 282,124 5,748,832 6,627,642 4,321,793 1,330,290 316,615 5,134,810 6,051,371 721,721 5,602,003 5,110,607
FY15E 103.86 29.00 27.9% 696.01 1,153 FY15E 4,337,136 (137,132) 4,474,268 170,648 990,857 353,407 6,967,600 8,045,383 5,518,108 1,406,964 316,615 6,288,577 7,336,512 802,337 6,813,293 6,207,648
283
IJM Land
www.ijmland.com
Company overview IJM Land (IJML) is the result of the merger between IJM Properties and Road Builder completed in Sept-08. IJMLs total land bank size currently stands at 6,127 acres (project GDV: M$31.4B) spread across the Northern, Central and Southern regions of the Peninsula as well as in Sabah, East Malaysia, which would sustain earnings in the next 8-10 years, in our view. IJML is both a niche and township developer with its properties ranging from residential mass market to high-end, as well as commercial projects. Investment case We believe the election overhang or risk is largely priced-in and we see the recent launch of new flagship project, 'Bandar Rimbayu', as a key upside catalyst for IJML. The stock has also underperformed the KLCI Index over the last 12 months. Key attractions in an anemic growth environment The new Bandar Rimbayu project in the Klang Valley (GDV: M$11B) is in a sweet spot given its focus on affordable housing below M$1MM per unit where demand remains strong. The maiden launch in Sept-12 has received a strong response and IJML is on track to achieve our full year property sales forecast of M$1.5B for FYE Mar-13E (+11% Y/Y). Other potential catalysts in 2013 include land-banking prospects (the government's tender award of the prime land), and new launches in Johor. Earnings risks in 2013 Key downside risk to our PT is slower property sales versus our forecast from external shocks or an unfavorable outcome from the Malaysian general elections. However, our base case expectation is for the ruling party to continue to win with a simple majority. Also, IJMLs diverse product range which includes commercial projects and the mass or the mid market residential segment, will help mitigate impact in our view. Price target, and risks to our investment view Our Jun-13 PT of M$2.90 is based on a 30% discount to RNAV, or close to the stock's historical mean discount. A key risk is a poor election outcome but this risk is largely priced in, we believe, given IJMLs 45% RNAV discount and 2013E P/BV of 1.2x, which are both just below -1SD from historical mean.
IJM Land (Reuters: IJML.KL, Bloomberg: IJMLD MK) M$ in mn, year-end Mar FY11A FY12A Revenue (M$ mn) 1,162 1,206 Reported Net Profit (M$ mn) 217.4 193.7 Core Net Profit (M$ mn) 153 194 Reported EPS (M$) 0.20 0.14 Adjusted EPS (M$) 0.13 0.13 DPS (M$) 0.04 0.04 Revenue growth (%) 5.6% 3.8% Core EPS growth (%) 55.5% 0.4% ROCE 12.3% 9.2% ROE 12.5% 9.1% Adjusted P/E (x) 17.1 16.8 P/BV (x) 1.3 1.2 EV/EBITDA (x) 7.9 8.8 Dividend Yield 1.8% 1.8%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: M$2.17 Price Target: M$2.90
Abs Rel
1m 5.3% 6.2%
3m -14.9% -15.8%
Source: Bloomberg.
FY13E 1,367 229.3 229 0.16 0.15 0.05 13.3% 17.4% 11.3% 9.2% 14.4 1.2 7.2 2.3%
FY14E 1,522 260.4 260 0.19 0.17 0.06 11.4% 13.6% 12.1% 9.7% 12.7 1.1 6.3 2.6%
FY15E 1,599 272.5 271 0.19 0.18 0.06 5.0% 3.9% 12.0% 9.5% 12.1 1.0 6.1 2.7%
Company Data Shares O/S (mn) Market cap (M$ mn) Market cap ($ mn) Price (M$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (M$ mn) Average 3m Daily Turnover ($ mn) FBMKLCI Exchange Rate Fiscal Year End
1,403 3,045 996 2.17 07 Nov 12 22.3% 0.63 1.40 0.85 1,646 03.06 Mar
284
Cash flow statement FY11 FY12 FY13E FY14E FY15E M$ in millions, year end Mar 1,162 1,206 1,367 1,522 1,599 Operating Profit 5.6% 3.8% 13.3% 11.4% 5.0% Depr. & amortization 308 247 328 372 392 Change in working capital 75.1% (19.7%) 32.7% 13.3% 5.4% Taxes 26.5% 20.5% 24.0% 24.4% 24.5% Others -23 35 -14 -15 -15 Cash flow from operations 285 282 315 357 377 91.6% -1.2% 11.6% 13.5% 5.5% Capex -62 -82 -77 -87 -95 Disposal/(purchase) 21.6% 28.9% 24.3% 24.3% 25.1% Net Interest 217.4 193.7 229.3 260.4 272.5 Free cash flow 100.0% -10.9% 18.4% 13.6% 4.6% 153 194 229 260 271 Equity raised/(repaid) 55.5% 26.3% 18.4% 13.6% 3.9% Debt raised/(repaid) 1,103 1,388 1,399 1,399 1,399 Other 0.20 0.14 0.16 0.19 0.19 Dividends paid 100.0% (29.2%) 17.4% 13.6% 4.6% Beginning cash 0.14 0.14 0.16 0.19 0.19 Ending cash 55.5% 0.4% 17.4% 13.6% 3.9% DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E M$ in millions, year end Mar 691 625 455 462 399 EBIT Margin 554 569 616 661 683 Operating margin 229 178 202 225 236 Net margin 1,413 1,476 1,666 1,666 1,666 SG&A/Sales 2,887 2,849 2,939 3,014 2,985 Sales per share growth LT investments 1,241 1,388 1,455 1,569 1,794 Sales growth Net fixed assets 150 230 241 253 266 Net profit growth Total Assets 4,279 4,467 4,635 4,837 5,047 EPS growth Liabilities Interest coverage (x) ST Loans 86 113 113 113 113 Net debt to total capital Payables 832 667 675 682 686 Net debt to equity Others 11 2 2 2 3 Sales/assets Total current liabilities 929 782 790 797 802 Assets/equity Long-term debt 625 287 287 287 287 ROE Other liabilities 845 918 918 918 918 ROCE Total Liabilities 2,399 1,987 1,995 2,002 2,007 Shareholders' equity 1,836 2,430 2,582 2,766 2,959 BVPS 1.66 1.75 1.85 1.98 2.11 Source: Company reports and J.P. Morgan estimates.
FY11 308 10 -41 -62 215 -57 341 -23 477 7 -123 -12 -44 387 691 0.04 FY11 26.5% 26.5% 18.7% -
FY12 FY13E FY14E FY15E 254 314 347 360 10 11 13 13 -145 -63 -60 -29 -82 -77 -87 -95 37 187 212 250 -90 -154 35 -171 455 51 -346 -55 691 625 0.04 -23 -53 -14 97 -8 0 -190 -69 625 455 0.05 -25 -90 -15 83 2 0 -0 -78 455 462 0.06 -26 -193 -15 16 2 0 1 -82 462 399 0.06
FY12 FY13E FY14E FY15E 20.5% 24.0% 24.4% 24.5% 21.1% 23.0% 22.8% 22.5% 16.1% 16.8% 17.1% 17.0% 11.4% 11.4% 13.6% 13.6% 25.92 -2.0% -2.3% 0.32 1.75 9.7% 12.1% 5.0% 5.0% 4.6% 4.6% 26.55 -0.0% -0.0% 0.32 1.71 9.5% 12.0%
5.6% (17.5%) 12.4% 5.6% 3.8% 13.3% 100.0% -10.9% 18.4% 100.0% (29.2%) 17.4% 13.94 - 24.94 0.8% -8.4% -1.9% 1.1% -9.3% -2.2% 0.27 0.28 0.30 2.33 1.84 1.80 12.5% 9.1% 9.2% 12.3% 9.2% 11.3%
285
Overweight
Price: HK$4.96 Price Target: HKS6.25
Abs
YTD 7.6%
1m 0.4%
3m 10.5%
12m 2.1%
Source: Bloomberg
Company Data 52-week Range (HK$) Market Cap (Rmb mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (HK$) Date Of Price 3M - Avg daily value (HK$ mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) Index 1 Exchange Rate
5.72-3.97 1,391,610 223,390 349,083 Dec 4.96 13 Nov 12 1,220.46 126.6 261.64 9.64
286
Growth Rates
FY10 18.5% 14.1% 14.2% 21.7% 20.1% 23.6% 21.1% 32.1% 23.1% 15.4% 27.9% 28.6% 28.8% 28.4% 28.2% 8.2% FY10 59.4% 29.0% 49.6% 88.2% 0.7% FY10 (2.5%) 1.3% 193.3% (17.2%) 10.6% 12.3% FY10 2.5% 98.5% 2.4% 20.2% 0.6% 3.0% 36.6% 1.1% 1.9% (0.4%) 49.6% 0.0% 1.7% 1.7% 22.9% 0.0% 1.3% 2.5% 5.9% 22.1%
FY11 FY12E FY13E FY14E 14.7% 14.7% 12.7% 11.3% 10.0% 13.0% 11.2% 10.0% 15.0% 12.8% 11.3% 10.3% 16.6% 15.6% 14.6% 13.7% 18.8% 12.8% 11.3% 16.2% 19.4% 12.1% 12.8% 7.6% 39.5% 12.7% 7.5% 8.5% 39.4% 13.5% 7.0% 8.0% 23.5% 12.2% 11.6% 7.8% 21.6% 15.6% 11.8% 8.9% 24.6% 10.3% 11.5% 7.1% 14.1% 47.5% 49.2% 8.3% 26.2% 6.0% 5.5% 6.9% 25.9% 6.0% 5.4% 6.9% 22.8% 6.0% 5.4% 6.9% 10.3% (0.5%) 5.4% 6.9% FY11 61.9% 26.4% 50.4% 84.4% 1.1% FY11 (2.5%) 1.0% 247.5% (0.3%) 10.4% 13.2% FY11 2.6% 95.9% 2.5% 22.8% 0.7% 3.2% 36.1% 1.2% 2.1% (0.4%) 50.4% 0.0% 1.9% 1.9% 23.5% 0.0% 1.4% 2.7% 6.1% 23.4% FY12E 62.8% 27.2% 50.8% 84.8% 1.4% FY12E (2.6%) 1.0% 248.8% 36.4% 10.6% 13.3% FY12E 2.5% 96.8% 2.4% 23.0% 0.7% 3.2% 37.1% 1.2% 2.0% (0.6%) 50.8% 0.0% 1.7% 1.7% 23.5% 0.0% 1.3% 2.5% 6.3% 21.4% FY13E 63.5% 28.7% 51.5% 84.9% 1.3% FY13E (2.9%) 1.3% 213.2% 45.9% 11.0% 13.7% FY13E 2.5% 97.2% 2.5% 22.1% 0.7% 3.2% 37.2% 1.2% 2.0% (0.7%) 51.5% 0.0% 1.6% 1.6% 23.5% 0.0% 1.3% 2.3% 6.4% 19.6% FY14E 64.0% 28.5% 52.1% 84.9% 1.2% FY14E (3.1%) 1.6% 192.7% 27.1% 11.0% 13.5% FY14E 2.5% 97.4% 2.4% 22.3% 0.7% 3.1% 37.6% 1.2% 1.9% (0.7%) 52.1% 0.0% 1.6% 1.6% 23.5% 0.0% 1.2% 2.2% 6.6% 18.3%
FY10 FY11 FY12E FY13E 0.48 0.60 0.63 0.67 0.18 0.20 0.20 0.21 37.9% 34.1% 32.0% 32.0% 2.35 2.74 3.17 3.63 340,599 349,024 349,083 349,083 0.71 0.86 0.95 1.06 FY10 FY11 FY12E FY13E 6,623,372 7,594,019 8,697,153 9,775,589 (167,134) (194,878) (234,490) (287,367) 6,790,506 7,788,897 8,931,643 10,062,957 73,241 73,011 99,577 145,242 3,732,268 3,915,902 5,047,904 5,547,449 178,115 236,101 259,580 285,514 12,431,871 13,881,755 15,942,318 17,919,343 27,369 22,223 22,223 22,223 13,458,622 15,476,868 17,450,373 19,421,195 11,145,557 12,261,219 13,852,953 15,404,531 100,410 204,161 214,369 225,088 100,410 204,161 214,369 225,088 11,649,010 13,311,585 15,570,635 17,405,196 12,621,838 14,467,745 16,463,621 18,435,784 820,430 956,742 1,106,288 1,268,171 7,112,357 8,447,263 9,524,401 10,600,074 6,516,844 7,779,810 8,985,832 10,062,237
Source: Company reports and J.P. Morgan estimates. Cost of equity assumptions
Risk free rate: Market risk premium: Cost of equity Terminal g: Fair P/B PV of Terminal Value PV of Dividends to 13E Dec-13 fair value (Rmb) Equity/assets Normalised ROE Source: J.P. Morgan estimates 4.5% 7.0% 13.3% 1.5% 1.26x 4.02 0.51 5.25 7% 16%
287
Industries Qatar
www.industriesqatar.com
Company overview Industries Qatar (IQ) is a Qatari based industrial conglomerate involved in Petrochemicals, Fertilizers and Steel. The company is 70% owned by the state controlled Qatar Petroleum (QP) and 30% by external shareholders. IQ benefits from cost advantaged feedstock (gas at ~ USD 2/BTU) which it receives under long-term contract from QP. The company is at or near the bottom of the cost curve in petrochemicals and fertilizers. The Steel business is less advantaged but import tariffs and a strong outlook for local construction (World Cup, infrastructure, etc) suggest it will fare better than many other steel peers Investment case IQ is due to bring on-stream new plants equal to ~32% of 2011 capacity by end 2013. These low-cost projects should lift earnings materially regardless of the macro. With capex declining after a period of heavy investment, strong cash generation should underpin an already strong balance sheet and dividend payments. Key attractions in an anemic growth environment The company has a net cash position and capex is expected to decline following a period of heavy investment, helping to drive cash flows and support a strong balance sheet. IQ trades on a 2012E PE of 9.6x versus its historical average of 10.9x and SABIC on 10.4x; consequently we think the stock looks cheap. A free cash flow yield of 10% and a dividend yield of 5.7% add to the attraction Earnings risks in 2013 Lower than expected oil prices/weaker GDP growth. In addition a decoupling of gas and oil prices would threaten fertilizer prices. Price target, and risks to our investment view We use an average of our PE and DCF based valuation methodologies to derive our 12M target price of QR 199. Our PE based valuation is derived by multiplying IQ's 2013E EPS of QR 18.6 by the companys historical average PE of 10.9x to derive a value of QR 202. Our DCF valuation suggests a value of QR 196 using a CoC of 8.9% and 2% terminal growth rate. Apart from the earnings risk mentioned above, Industries Qatar may also struggle to obtain additional gas allocations from government.
Overweight
Price: QR154.60 Price Target:QR199.00
(44-20) 7134-5945 alex.r.comer@jpmorgan.com Bloomberg JPMA COMER<GO> J.P. Morgan Securities plc
P r ic e P e r fo r m a n c e
155 150 145 QR 140 135 130 125
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 13.0%
1m 7.5%
3m 12.4%
12m 11.8%
Source: Bloomberg
Industries Qatar (IQCD.QA;IQCD QD) FYE Dec 2011A Adj. EPS FY (QR) 14.41 Adj P/E FY 10.7 Div Yield FY 5.7% Adj EBITDA Margin FY 50.9% EV/EBITDA FY 8.5 EBITDA FY (QR mn) 8,418 OpFCF FY (QR mn) 2,335 Net Debt FY (QR mn) 98
Company Data Price (QR) Date Of Price Price Target (QR) Price Target End Date 52-week Range (QR) Mkt Cap (QR bn) Shares O/S (mn) Average Volume
288
(1,327) (1,327) (1,327) (1,327) (1,384) (1,540) (1,750) (1,970) -1,130 -1,416 -2,113 -2,817 (3,842) (4,283) (5,190) (6,114) (5,535) (5,535) (5,535) (5,535) -770 -770 -770 -770 (10,147) (10,588) (11,495) (12,418) 26,632 31,041 36,146 41,955
EV/Sales EV/EBITDA EV/EBIT P/E (adjusted EPS) FCF yield (1,327) Dividend per share (1,943) Dividend Yield -2,455 EPS growth (5,725) (5,535) Net debt /EBITDA -770 Interest coverage (x) (12,030) Net debt to Total Capital 47,402 Net debt to equity ROIC
289
Iochpe Maxion
www.iochpe.com.br
Overweight
Price: R$25.30 Price Target: R$31.00 End Date: Dec 2013
Company overview Iochpe Maxion produces both light and heavy steel wheels, aluminum wheels, automotive components, chassis/frames, and products for its railway business. The company is based in Sao Paulo, but its geographic footprint includes greater Brazil, Mexico, China, the US, Mexico, South Africa, and various countries in Europe and Asia. The companys top line is divided across the following regions: South America (44%), Europe (28%), North America (24%), and others (4%). A rebound in Brazilian GDP would positively affect trucks production We recently designated MYPK3 as our top pick in the capital goods sector as its exposure to trucks positions it well for a recovery in 2013. This performance should be further bolstered by exposure to light vehicles, which have recovered strongly YTD given lower IPI taxes, and which should continue strong in 2013 as consumption improves. Though above historical averages, MYPK3 is trading below its Brazilian peers EV/EBITDA is the key valuation metric for companies in the automotive sector in Brazil, and MYPK3 is currently trading slightly below the peer average of ~7.2x EBITDA. The sector is trading above historical averages, in part due to government support of the industry, and has been working as a relative safe haven, but we see a combination of deleverage and earnings growth that support our thesis. Fate of Iochpe Maxion closely tied to trucks industry and Europe environment If truck sales do not recover and inventories do not normalize and the European auto industry worsens, we can expect production and thus demand for products supplied by MYPK3 and its competitors to remain low. We expect margins to remain pressured for the remainder of 2012 but see them returning in 2013. We are OW with a Dec 2013 13 of R$31.00 We estimate the equity value of Iochpe using a finite FCF to firm calculation (DCF) with explicit forecasts to 2020 and a perpetual value calculation thereafter. Downside risks include a delay in the trucks recovery, declining margins in the companys aluminum business, cyclical cash flow issues from international exposure, mainly from EUROPE, and issues with the companys financing costs for its acquisitions.
Iochpe-Maxion SA (MYPK3.SA;MYPK3 BZ) FYE Dec 2011A EPS Reported (R$) FY 6.08 Revenues FY (R$ mn) 6,256 EBITDA FY (R$ mn) 710 EV/EBITDA FY 4.3 P/E FY 4.4
Source: Company data, Reuters, J.P. Morgan estimates.
Thomas McElwee
(55-11) 4950 6719 thomas.mcelwee@jpmorgan.com Banco J.P. Morgan S.A. Bloomberg JPMA LUCIN <GO>
P r ic e P e r fo r m a n c e
40 35 R$ 30 25 20
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Free Float Average Volume Price Target (R$) Price Target End Date
25.30 14 Nov 12 37.72 - 19.80 2,514.83 Dec 95 45.0% 1.50 31.00 31 Dec 13
290
Income Statement - Quarterly Revenues Cost of goods sold Gross profit SG&A D&A Operating income Net interest income / (expense) Other income / (expense) Pretax income Income taxes Net income - GAAP Net income - recurring EPS - GAAP EPS - recurring EBITDA Diluted shares outstanding Ratio Analysis Sales growth (total) Sales growth (organic) EBITDA growth EPS growth Gross margin EBIT margin EBITDA margin Tax rate Net margin SG&A (% of revenue) D&A (% of revenue) Net debt / EBITDA Interest coverage ratio Return on assets (ROA) Return on equity (ROE) Return on invested capital (ROIC) FCF / share P/E Enterprise value / EBITDA
1Q12E 2Q12E 3Q12E 4Q12E 1,188 1,510 1,573 1,409 (1,076) (1,360) (1,400) (1,240) 112 150 173 169 (68) (75) (79) (70) 33 45 50 51 44 75 94 99 (11) (38) (30) (31) 0 0 0 0 32 37 65 68 (18) (27) (32) (34) 9 1 20 21 9 1 20 21 0.10 0.01 0.22 0.23 0.10 0.01 0.22 0.23 76 120 144 149 95 95 95 95 FY11A FY12E FY13E FY14E - (9.2%) 4.0% 20.8% - (9.2%) 4.0% 20.8% - (31.0%) 46.1% 16.9% - (91.0%) 192.8% 37.3% 17.9% 10.6% 11.3% 7.0% 11.3% 8.6% (17.2%) (55.0%) 9.2% 0.9% 6.6% 0.0% 0.7 9.2 15.3% 43.6% 30.5% 1.89 4.4 4.3 5.1% 3.1% 5.1 2.6 0.9% 5.8% 1.5% 6.91 48.4 10.6 16.0% 5.5% 12.1% 37.0% 2.6% 7.0% 3.1% 3.3 2.8 2.7% 15.2% 4.5% 1.88 16.5 7.1 16.0% 9.0% 11.7% 37.0% 2.9% 7.0% 2.7% 2.9 3.1 3.5% 18.5% 5.9% 0.30 12.1 6.2
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
291
ITC Limited
www.itcportal.com
Company overview ITC Limited (ITC) is the largest cigarette manufacturer in India with 70%+ volume market share with strong brands across price points and has a wide and efficient distribution network nation wide. ITC also has business interests into other areas such as hotels, paperboards & specialty papers, agri-business, packaged foods, branded apparel, personal care and other FMCG products. Investment case ITC dominates cigarette business in India with over 70% share. Tobacco is probably the only Indian consumer business whose pricing power is intact given low competition, high entry barriers and strong brand affinity. With favorable demographics and potential to raise prices (and trade up), it remains a growth business for foreseeable future. It is also far less susceptible to input cost pressures. Steadily expanding margins for cigarettes, stable capex requirements coupled with improved profitability of non-tobacco businesses would lead to higher FCF generation which would eventually lead to higher dividend payout for ITC in our view. Key attractions in an anemic growth environment We believe pricing will continue to support healthy mid-to-high-teen EBIT growth for cigarette business over the medium term we estimate 18% cigarette EBIT CAGR over FY12-15E. The non-tobacco businesses have also emerged as an important valuation driver. The financial trends in most of these businesses have shown significant improvement in the recent past. We expect them to deliver EBIT growth of 20% over FY12-15E. We expect increased focus on business such as foods, paper and hotels to drive long-term earnings and value for the company. Earnings risks in 2013 Any sharp excise hike or further VAT hikes by state governments could necessitate significant price increases for cigarettes which in turn may impact volume growth adversely. Any regulatory change on point of sales or packaging for cigarettes could also pose risk to growth. Higher investments and/or worsening of profitability in other businesses such as other FMCG and Hotels may also act as an earnings drag. Price target, and risks to our investment view We have a SOTP-based Dec-13 price target of Rs325. Our target EV/EBITDA multiple for the cigarette division is 16x in line with the benchmark to global tobacco multiples adjusted for growth. Key downside risks to our earnings and PT are substantial decline in volume growth for cigarettes, any business diversification that is substantially dilutive of earnings and any legislative changes that impact cigarette demand.
ITC Limited (Reuters: ITC.BO, Bloomberg: ITC IN) FY11A FY12A Revenue (Rs mn) 211,676 247,984 Net Profit (Rs mn) 49,876 61,624 EPS (Rs) 6.41 7.84 Revenue growth (%) 16.6% 17.2% EPS growth (%) 21.4% 22.3% ROE 33.2% 35.5% P/E (x) 45.0 36.8 EV/EBITDA (x) 30.2 25.3 Dividend Yield 1.5% 1.6%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: Rs 288.65 Price Target: Rs 325.00
Abs Rel
1m 4.7% 5.4%
3m 11.7% 3.7%
Source: Bloomberg.
FY13E 289,212 72,751 9.25 16.6% 18.1% 36.5% 31.2 21.4 1.9%
FY14E 337,849 86,388 10.99 16.8% 18.7% 38.4% 26.3 17.8 2.3%
FY15E 391,905 101,708 12.93 16.0% 17.7% 39.8% 22.3 14.9 2.6%
Company Data Shares O/S (mn) Market Cap (Rs mn) Market Cap ($ mn) Price (Rs) Date Of Price 3mth Avg daily volume (mn) 3m Avg. Daily Value ($ mn) NIFTY Fiscal Year End
292
Cash flow statement FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 211,676 247,984 289,212 337,849 391,905 EBIT 16.6% 17.2% 16.6% 16.8% 16.0% Depr. & amortization 77,057 90,916 106,675 127,308 149,982 Change in working capital 17.9% 18.6% 17.8% 19.8% 18.0% Taxes 70,497 83,930 99,584 119,409 140,956 Cash flow from operations 19.4% 19.1% 18.7% 19.9% 18.0% 33.3% 33.8% 34.4% 35.3% 36.0% Capex (583) (670) (670) (670) (670) Disposal/(purchase) 72,682 88,975 105,436 126,113 148,478 Net Interest 20.8% 22.4% 18.5% 19.6% 17.7% Other (22,806) (27,352) (32,685) (39,726) (46,771) Free cash flow 31.4% 30.7% 31.0% 31.5% 31.5% 49,876 61,624 72,751 86,388 101,708 Equity raised/(repaid) 22.8% 23.6% 18.1% 18.7% 17.7% Debt raised/(repaid) 7,783 7,863 7,863 7,863 7,863 Other 6.41 7.84 9.25 10.99 12.93 Dividends paid 21.4% 22.3% 18.1% 18.7% 17.7% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar Cash and cash equivalents 62,346 71,822 80,073 93,715 113,044 EBITDA margin Accounts receivable 9,076 9,860 11,885 13,884 16,106 Operating margin Inventories 52,675 56,378 64,974 75,900 88,045 Net margin Others 17,656 18,311 18,311 18,311 18,311 Current assets 141,753 156,372 175,243 201,811 235,505 Sales per share growth LT investments 15,633 19,533 19,533 19,533 19,533 Sales growth Net fixed assets 96,785 113,759 126,010 136,379 146,936 Net profit growth Total Assets 254,171 289,664 320,786 357,722 401,974 EPS growth Liabilities Interest coverage (x) Short-term loans Payables 43,821 47,358 55,465 64,793 75,160 Net debt to equity Others 41,807 44,869 44,869 44,869 44,869 Sales/assets Total current liabilities 85,628 92,227 100,334 109,662 120,029 Assets/equity Long-term debt 992 791 791 791 791 ROE Other liabilities 8,019 8,727 8,727 8,727 8,727 ROCE Total Liabilities 94,638 101,745 109,852 119,180 129,547 Shareholders' equity 159,533 187,919 210,934 238,542 272,428 BVPS 21.09 24.84 27.88 31.53 36.01 Source: Company reports and J.P. Morgan estimates.
FY11 FY12 FY13E FY14E FY15E 70,497 83,930 99,584 119,409 140,956 6,560 6,985 7,090 7,899 9,027 737 (4,868) (2,513) (3,598) (3,999) (22,806) (27,352) (32,685) (39,726) (46,771) 53,327 60,156 77,328 90,689 106,736 (13,499) (23,036) (19,341) (18,268) (19,584) 81 559 0 0 0 (583) (670) (670) (670) (670) (4,526) 2,839 0 0 0 40,309 38,143 58,449 72,880 87,610 9,038 7,650 0 0 0 (105) (99) 0 0 0 (4,222) (2,368) 0 0 0 (38,182) (34,435) (49,736) (58,779) (67,822) 54,963 62,346 71,822 80,073 93,715 56,875 73,612 80,073 93,715 113,045 4.45 4.50 5.50 6.50 7.50 FY11 35.2% 33.3% 23.6% 15.2% 16.6% 22.8% 21.4% 127.8 FY12 35.7% 33.8% 24.8% 16.0% 17.2% 23.6% 22.3% 132.0 FY13E 36.0% 34.4% 25.2% 16.6% 16.6% 18.1% 18.1% 155.5 FY14E 36.9% 35.3% 25.6% 16.8% 16.8% 18.7% 18.7% 186.2 FY15E 37.6% 36.0% 26.0% 16.0% 16.0% 17.7% 17.7% 219.8
(38.5%) (37.8%) (37.6%) (39.0%) (41.2%) 0.9 0.9 0.9 1.0 1.0 161.3% 156.5% 153.1% 151.0% 148.7% 33.2% 35.5% 36.5% 38.4% 39.8% 32.0% 33.3% 34.3% 36.3% 37.7%
Multiple (X) Per Share 16.0x 234 3.5x 43 13.0x 8 8.0x 17 7.0x 9 310 14 324
293
Overweight
Price: Php105.80 Price Target: Php125
Abs Rel
1m 5.7% 3.8%
3m 5.8% 2.0%
Source: Bloomberg.
FY14E 92,858 5,918.6 5.63 2.09 14.8% 30.9% 27.4% 22.3% 18.8 3.9 0.1 2.0%
FY15E 106,037 7,533.0 7.17 2.66 14.2% 27.3% 30.8% 24.4% 14.8 3.3 -0.1 2.5%
FY16E 120,462 9,245.9 8.80 3.26 13.6% 22.7% 32.6% 25.6% 12.0 2.8 -0.4 3.1%
Company Data Shares O/S (mn) Market cap (Php mn) Market cap ($ mn) Price (Php) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Php mn) 3M - Avg daily Value (USD) ($ mn) PSE Exchange Rate Fiscal Year End
1,044 110,404 2,688 105.80 12 Nov 12 30.0% 0.44 44.47 1.08 5,471 41.07 Dec
294
Balance sheet Php in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets Liabilities Short-term loans Payables Others Total current liabilities Long-term debt Other liabilities Total Liabilities Shareholders' equity BVPS
Cash flow statement FY10 FY11 FY12E FY13E FY14E Php in millions, year end Dec 53,372 62,555 69,832 80,852 92,858 EBIT 11.3% 17.2% 11.6% 15.8% 14.8% Depr. & amortization 5,577 6,304 7,472 9,040 11,434 Change in working capital 3.5% 13.0% 18.5% 21.0% 26.5% Taxes 3,599 3,902 4,620 5,621 7,430 Cash flow from operations 9.0% 8.4% 18.4% 21.7% 32.2% 6.7% 6.2% 6.6% 7.0% 8.0% Capex -30 -112 -96 -46 4 Disposal/(purchase) 4,186 4,358 5,025 6,095 7,970 Net Interest 14.5% 4.1% 15.3% 21.3% 30.8% Other - Free cash flow 3,197.8 3,231.7 3,727.4 4,522.2 5,918.6 Equity raised/(repaid) 20.0% 1.1% 15.3% 21.3% 30.9% Debt raised/(repaid) 1,039 1,044 1,050 1,050 1,050 Other 3.08 3.10 3.55 4.31 5.63 Dividends paid 19.2% 0.6% 14.6% 21.3% 30.9% Beginning cash Ending cash DPS Ratio Analysis FY10 FY11 FY12E FY13E FY14E Php in millions, year end Dec 8,170 6,655 4,179 595 816 EBITDA margin 2,099 2,389 2,505 2,900 3,331 Operating margin 2,134 2,860 2,744 3,150 3,578 Net margin 1,330 1,169 1,355 1,355 1,355 13,572 13,259 10,783 8,000 9,080 Sales per share growth 778 772 772 772 772 Sales growth 8,771 10,557 13,962 16,856 19,463 Net profit growth 33,746 38,908 39,836 39,948 43,635 EPS growth Interest coverage (x) 4,183 1,677 3,413 756 0 3,602 4,728 4,576 5,253 5,968 Net debt to equity 5,741 5,543 5,543 5,543 5,543 Sales/assets 13,694 12,102 13,686 11,706 11,665 Assets/equity 52 3,943 940 185 185 ROE 1,152 1,297 1,297 1,297 1,297 ROCE 16,065 18,686 17,267 14,531 14,490 17,120 19,519 21,866 24,714 28,441 16.47 18.70 20.82 23.53 27.08
FY11 FY12E FY13E FY14E 3,902 4,620 5,621 7,430 2,402 2,853 3,419 4,004 -1207 -1273 -1544 -2019 5,880 6,453 7,845 9,811
-2,553 -3,700 -5,531 -5,588 -5,885 -30 -112 -96 -46 4 57 -2,826 -726 -726 -726 2,951 2,180 922 2,258 3,927 28 1,483 -5 -2,557 8,977 8,170 2.46 69 0 0 0 1,309 -1,267 -3,413 -756 -0 0 -1,197 -1,380 -1,674 -2,192 8,170 6,655 4,179 595 6,655 4,179 595 816 1.15 1.31 1.59 2.09
FY10 FY11 FY12E FY13E FY14E 10.4% 10.1% 10.7% 11.2% 12.3% 6.7% 6.2% 6.6% 7.0% 8.0% 6.0% 5.2% 5.3% 5.6% 6.4% 10.5% 16.7% 10.9% 15.8% 14.8% 11.3% 17.2% 11.6% 15.8% 14.8% 20.0% 1.1% 15.3% 21.3% 30.9% 19.2% 0.6% 14.6% 21.3% 30.9% 185.17 56.50 77.89 195.31 -16.2% 1.6% 6.9% 6.8% 2.5% 1.68 1.72 1.77 2.03 2.22 1.97 1.99 1.82 1.62 1.53 19.1% 17.6% 18.0% 19.4% 22.3% 17.8% 16.8% 18.0% 21.7% 27.4%
295
Overweight
Price: HK$3.31 Price Target: HK$5.00
HK$
Abs
YTD 248.4 %
1m 0.3%
3m 40.9%
12m 125.2 %
Source: Bloomberg.
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
FY10 FY11 FY12E FY13E 7,166 8,235 9,336 10,697 456 292 693 940 871 782 1,282 1,595 420 287 673 893 331 252 534 702 0.29 0.22 0.47 0.62 23.5% 32.6% 42.6% 38.0% 3.87 4.24 4.49 5.03
FY12E FY13E 7.0 5.3 0.7 0.7 08.8 10.7 0.08 0.08
Target Price (HK$) 52-Week range (HK$) Share Outstanding Free float Avg daily volume Avg daily val (USD) Dividend Yield (2012) Index (HSI) Market Cap(USD)
296
3.0% (4.0%) 14.9% 13.4% 9.9% -53.6% -36.0% 137.5% 7.1% -53.0% -23.8% 111.7% 0.0% (55.3%) (23.9%) 110.7% 26.69 25.5% 32.2% 0.90 5.42 18.7% 14.0% 14.0% FY09 705 315 -330 -63 1,091 -2,174 -2,089 -1,083 446 208 462 -89 1,031 33 584 617 25.19 17.6% 23.5% 0.74 4.88 6.8% 5.1% 5.2% FY10 331 415 768 134 1,060 -1,048 -1,128 12 238 28 -19 91 335 267 617 884 17.34 24.3% 32.6% 0.77 5.22 4.5% 2.6% 2.8% FY11 252 491 -233 -15 639 -1,627 -1,763 -987 319 509 207 -90 938 -186 884 698 23.10 29.6% 42.6% 0.77 5.38 8.8% 5.7% 5.9%
Balance sheet HK$ in millions, year end Dec FY09 FY10 Cash and cash equivalents 617 884 Accounts receivable 3,267 2,499 Inventories 869 1,029 Others 409 427 Current assets 5,162 4,839 LT investments Net fixed assets 4,205 4,838 Others Total Assets 9,521 9,912 Liabilities ST Loans 883 761 Payables 2,850 2,416 Others 11 146 Total current liabilities 3,745 3,322 Long-term debt 1,202 1,353 Other liabilities 14 11 Total Liabilities 4,961 4,686 Shareholders' equity 4,561 5,225 Source: Company reports and J.P. Morgan estimates.
FY12E FY13E 534 702 589 656 -578 -577 55 32 614 1,012 -1,288 -856 -1,164 -856 -674 156 11 0 589 10 -111 -8 -91 -91 398 -89 -152 698 546 67 546 613
297
KEPCO
www.kepco.co.kr
Company overview KEPCO is an integrated electric-utility company in Korea with 100% market share in transmission and distribution, and a 94% market share in generation. KEPCO is the largest listed utility in the Asia Pac by installed capacity. The government holds a 51% stake, which is the minimum requirement of the government holding by KEPCO Act. Investment case We expect KEPCOs fundamentals to improve through 2013 on multiple factors. First, fuel prices have been trending down amidst slowing global economy and this trend, for coal in particular, is expected to continue throughout 2013. Coal and LNG accounted for 88% of fuel cost in 2011 and as such lower fuel prices should be a big plus to earnings. Second, KEPCO is activating 4 new nuclear plants from 3Q12 to 3Q13 and this will lead to a declining dependence on LNG and bunker C. Utilization of existing nuclear plants will also improve from historical lows in 1H12. Third, stronger currency is positive, as it lowers overall cost of fuel that is mostly imported. Lastly, we expect the government to announce an annual price hike sometime in 2Q12, and this should improve overall pricing to a level closer to fair level. Key attractions in an anemic growth environment Alongside regulatory support and favorable changes in macro variables, we believe KEPCO to go through an earnings normalization process throughout 2013 following an abnormal period of earnings deterioration between 2008 and 2012 on artificially low tariff and surging fuel cost. Earnings risks in 2013 Key downside risks to our earnings and PT include Won depreciation, negative changes in public perception on nuclear plants, an unexpected rise in fuel costs and a change in government stance on electricity tariff. Price target, and risks to our investment view Our Jun-13 price target of W33,000 is based on 2012E P/BV of 0.39x, representing 32% premium to the average multiple for the stock over the past 12 months and the mid-point of the trading range over the past five years or so.
Korea Electric Power Corporation (Reuters: 015760.KS, Bloomberg: 015760 KS) Year-end Dec FY11A FY12E FY13E Revenue (W bn) 43,532 49,729 53,420 Operating Profit (W bn) -654 -1,041 2,707 Net Profit (W bn) -3,293 -1,923 343 EPS (W) -5,289 -3,088 551 Revenue growth 10.2% 14.2% 7.4% Operating Profit growth -129% 59% -360% EPS growth 4672.5% (41.6%) (117.8%) ROA -2.5% -1.4% 0.2% ROE -5.9% -3.6% 0.7% P/E (x) NM NM 49.6 P/BV (x) 0.3 0.3 0.3 EV/EBITDA (x) 9.7 11.4 7.7 EPS growth 4672% -42% -118%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: W27,350 Price Target: W33,000
Abs Rel
1m -1.3% 0.9%
3m 14.7% 12.0%
Source: Bloomberg.
FY14E 57,544 5,535 2,011 3,230 7.7% 104% 486.2% 1.3% 3.8% 8.5 0.3 6.6 486%
Company Data 52-week Range (W) Market cap (W bn) Market cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily Value (W bn) 3M Avg daily Value ($ mn) 3M Avg Daily vol (mn) KOSPI Exchange Rate
30,250 - 21,200 17,558 16,096 642 Dec 27,350 07 Nov 12 40.9% 51.84 46.08 2.0 1,938 1,090.80
298
Balance sheet W in billions, year end Dec Current assets Cash and cash equivalents St. Investment Assets Accounts receivable Accrued Receivable Inventories Other current assets Fixed assets Investments assets Tangible assets Intangible assets Total Assets Current liabilities Accounts payable Short-term borrowings CPLTD Other current liabilities Long-term liabilities Long-term debt Other long-term liabilities Total Liabilities Capital stock Capital surplus Retained earnings Capital adjustments Total equity Financial ratios W, year end Dec Growth (% y-y) Revenue Operating profit Recurring profit Net profit EBITDA EPS Margins (%) Operating profit Recurring profit Net profit EBITDA ROE ROA Ratios Net debt/equity (%) Liabilities/equity (%) Interest coverage (x) Receivables turnover (x) Per share data (Won) Sales Book value DPS EBITDA
FY11 FY12E 14,126 15,228 1,388 1,389 531 581 6,267 6,600 3,852 4,287 343 423 9,108 10,140 112,385 117,927 849 959 136,468 17,741 3,133 7,006 7,602 64,923 39,199 25,724 82,664 35,769 53,804 FY11 10.2% -129% 4672.5% -24.5% 4672.5% (1.5%) -7.6% 14.3% (5.9%) (2.5%) 82.3% 153.6% 3.41 6.95 69,916 86,413 0 10,022 144,254 19,041 3,333 7,806 7,902 73,376 46,899 26,478 92,417 33,802 51,837 FY12E
FY13E FY14E 15,880 16,933 1,390 1,391 781 981 7,118 7,698 4,007 4,058 503 583 10,424 10,710 124,494 131,061 979 999 151,777 20,341 3,533 8,606 8,202 79,300 54,299 25,002 99,642 34,100 52,135 FY13E 159,704 21,641 3,733 9,406 8,502 83,961 61,699 22,262 105,602 36,067 54,102 FY14E 7.7% 104% 486.2% 30.6% 486.2% 9.6% 3.5% 22.6% 3.8% 1.3% 127.0% 195.2% 4.69 7.48 92,420 86,891 0 20,871
14.2% 7.4% 59% -360% -41.6% -117.8% -2.9% 64.2% (41.6%) (117.8%) (2.1%) -3.9% 12.2% (3.6%) (1.4%) 101.7% 178.3% 2.94 7.53 79,869 83,253 0 9,732 5.1% 0.6% 18.6% 0.7% 0.2% 116.5% 191.1% 4.11 7.50 85,796 83,733 0 15,980
-13,598 -17,537 -12,243 -17,533 8,455 0 1 1,388 1,389 8,155 0 1 1,389 1,390
299
Overweight
Price: M$6.01 Price Target: M$7.10
Abs Rel
1m -0.8% 0.5%
3m -3.5% -3.4%
Source: Bloomberg.
FY13E 2,430 187 0.32 0.30 0.16 14.7% 21.1% 18.2% 18.1% 20.1 3.2 8.6 2.7%
FY14E 2,782 226 0.39 0.36 0.19 14.5% 20.1% 20.8% 19.6% 16.7 2.9 7.1 3.2%
Company Data Shares O/S (mn) Market cap (M$ mn) Market cap ($ mn) Price (M$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (M$ mn) Average 3m Daily Turnover ($ mn) FBMKLCI Exchange Rate Fiscal Year End
641 3,850 1,257 6.01 09 Nov 12 24.3% 0.64 3.96 1.32 1,641 03.06 Dec
300
Cash flow statement FY11 FY12E FY13E FY14E M$ in millions, year end Dec 1,891 2,119 2,430 2,782 Earnings before tax 14.3% 12.0% 14.7% 14.5% Depr. & amortization 30.8% 31.7% 33.1% 34.7% Change in working capital 242 283 346 417 Taxes 19.7% 16.7% 22.3% 20.5% Others 12.8% 13.3% 14.2% 15.0% Cash flow from operations 171 206 254 312 19.6% 20.5% 23.1% 22.7% Capex 9.0% 9.7% 10.5% 11.2% Disposal/(purchase) -6 -9 -7 -7 Free cash flow 192 223 273 332 14.3% 16.1% 22.6% 21.3% Equity raised/(repaid) 47 56 68 83 Debt raised/(repaid) 24.7% 25.0% 25.0% 25.0% Other 131.7 152.2 186.6 226.4 Dividends paid 10.8% 15.6% 22.6% 21.3% Beginning cash 585 585 585 585 Ending cash 0.24 0.26 0.32 0.39 DPS 6.8% 7.9% 22.6% 21.3% 0.20 0.25 0.30 0.36 -7.3% 23.9% 21.1% 20.1% Ratio Analysis FY10 FY11 FY12E FY13E FY14E M$ in millions, year end Dec 197 177 212 171 164 EBITDA margin 298 301 330 374 428 EBIT margin 42 45 45 51 57 Net margin 12 10 11 12 12 550 534 598 607 661 Sales per share growth LT investments 28 29 29 29 29 Sales growth Net fixed assets 537 617 740 848 943 Net profit growth Intangibles 136 166 171 176 181 EPS growth Other LT Assets 429 420 429 439 449 Adjusted EPS growth Total Assets 1,680 1,765 1,967 2,099 2,263 Interest coverage (x) Liabilities Net debt to total capital Short-term loans 363 120 114 108 103 Net debt to equity Payables 308 249 425 483 547 Sales/assets Others 54 72 72 72 72 Assets/equity Total current liabilities 725 440 610 663 722 ROE Long-term debt 37 274 260 247 235 ROCE Other liabilities 55 60 29 29 33 Total Liabilities 817 774 900 939 990 Minorities 95 108 93 74 52 Shareholders' equity 769 883 974 1,086 1,221 BVPS 1.37 1.51 1.67 1.86 2.09 Source: Company reports and J.P. Morgan estimates.
FY10 168 59 -19 -36 16 188 -250 65 3 69 31 -8 -42 144 197 0.08
FY11 FY12E FY13E FY14E 192 223 273 332 71 76 92 105 -65 147 8 4 -32 -56 -68 -83 -13 -33 -34 -34 152 358 271 324 -197 40 -4 13 -5 42 -64 197 177 0.16 -200 0 158 0 -20 0 -104 177 212 0.13 -200 0 71 0 -19 0 -93 212 171 0.16 -200 0 124 0 -18 0 -113 171 164 0.19
FY10 FY11 FY12E FY13E FY14E 12.2% 12.8% 13.3% 14.2% 15.0% 8.7% 9.0% 9.7% 10.5% 11.2% 7.2% 7.0% 7.2% 7.7% 8.1% 10.5% 10.2% 13.6% 14.3% 5.5% 10.8% 2.6% 6.8% 1.0% -7.3% 31.44 18.7% 26.3% 1.08 2.19 17.0% 13.2% 38.08 17.7% 24.5% 1.10 2.00 15.9% 14.0% 4.6% 12.0% 15.6% 7.9% 23.9% 30.63 12.4% 16.7% 1.14 2.02 16.4% 15.7% 14.7% 14.7% 22.6% 22.6% 21.1% 47.52 13.3% 17.0% 1.20 1.93 18.1% 18.2% 14.5% 14.5% 21.3% 21.3% 20.1% 56.19 11.6% 14.3% 1.28 1.85 19.6% 20.8%
301
Kroton
www.kroton.com.br
Overweight
Price: R$42.70 Price Target: R$45 End Date: Dec 2013
Company overview Kroton is the leading provider of undergraduate distance learning in Brazil, with 270k students, while also being a major player in on-campus higher education with 141k students. The company also provides learning systems for the K-12 segment, serving 289k students and 822k schools. On-campus higher education, distance learning, and K-12 represent 61%, 27%, and 11% of 2012E net revenues, respectively. Investment case Kroton should continue to benefit from FIES (subsidized loans for low income students) expansion. Also, maintenance of high employment levels and increasing wage mass are important as more than half of its students are not in FIES. Another important driver for Kroton would be permission from the Education Ministry to open new learning centers for its distance learning operation, expected for 2013. How much recovery has already been priced in, what are the key metrics? Kroton trades at 20x 12m fwd P/E, which is in line with Brazilian peers. We believe most of the upside for the stock should come from earnings revisions. Earnings risk in 2013 Kroton is expected to open new distance learning centers during 2013 and 2014, and earnings might be revised down if the company is unable to do so. The company may open 40 new centers in 2013, but it needs permission from the government to open more centers. Price target, and risks to our investment view Our Dec 2013 PT of R$45 is based on a DCF model employing a 13% WACC and 4.5% perpetuity growth rate, all in R$ nominal terms. At our target, Kroton would trade at 16x P/E forward, and the upside we expect for the stock should come from strong earnings growth. Key downside risks include Kroton not receiving permission to open new distance learning centers, bad debt increasing, negative evaluation from the Education Ministry and restrictions on education funding from the government.
Kroton Educacional SA (KROT11.SA;KROT11 BZ) FYE Dec 2011A EPS (R$) FY 0.00 Bloomberg EPS FY (R$) 0.52 EBITDA FY (R$ mn) 91 Bloomberg EBITDA FY (R$ 93 mn) P/E FY Source: Company data, Bloomberg, J.P. Morgan estimates.
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
302
FY14E 1,972 15.8% (1,403) 569 28.8% 17.9% 438 22.2% 18.5% 556 (131) 438 0 (75) 0.64 363 (23) (6.2%) 0 340 133 2.56 2.81 2.64 0.00 FY14E 340 131 (45) 426 (158) (8.0%) 269 -47 (205)
FY15E 2,261 14.6% (1,596) 664 29.4% 16.8% 520 23.0% 18.8% (145) 520 0 (61) 0.81 459 (28) (6.2%) 0 430 133 3.23 3.49 0.00 FY15E 430 145 (48) 527 (181) (8.0%) 346 -49 (230)
Balance Sheet Cash Other current assets Current assets Net PP&E Intangibles Other Non Current Assets Total assets Short-term debt Other Current liabilities Current Liabilities Long Term Debt Other Non Current liabilities Total liabilities Minority interest Shareholders' equity Net debt Net Debt/EBITDA Net Debt, reported Working Capital Working Capital as % of Revenues Fx avg Valuation, Macro EV/EBITDA P/E FCF yield Dividend yield ROE, eop ROE, avg ROIC, eop ROIC, avg Net Debt / Capital (book) Net Debt / Capital (market)
FY11A FY12E FY13E FY14E 151 382 458 594 306 459 537 621 457 840 994 1,215 246 360 443 503 2,263 2,903 2,914 2,927 2,966 4,104 4,351 4,646
421 218 218 218 218 162 197 247 286 328 584 415 465 504 546 607 750 750 750 750 300 433 433 433 433 1,491 1,599 1,648 1,687 1,729 0 0 0 0 0 1,475 2,505 2,703 2,958 3,281 877 586 444 223 (74) 9.7 1.7 1.1 0.7 0.3 877 586 510 374 185 143 261 289 335 383 20.1% 19.2% 17.0% 17.0% 16.9% 1.68 1.94 2.01 2.07 2.14
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
0 66 85 108 0.0% 25.0% 25.0% 25.0% Risk Free Rate 852 0 0 0 Country Risk (61) 0 0 0 Beta 133 0 0 0 Ke 925 (66) (85) (108) Kd, post tax 903 76 136 189 WACC
FY11A FY12E FY13E FY14E FY15E 41.7 15.3 10.4 8.4 6.7 - 34.1 22.9 17.7 14.0 (1.2%) 0.0% 4.1% 5.9% 7.6% 0.0% 0.0% 1.1% 1.4% 1.8% 2.6% 7.0% 9.7% 11.5% 13.1% 3.5% 7.0% 9.7% 11.5% 13.1% 1.9% 7.1% 10.1% 11.1% 12.2% 3.4% 7.1% 10.1% 11.1% 12.2% 29.6% 14.3% 11.7% 8.1% 3.7% 34.7% 23.6% 22.2% 20.8% 19.3% 0.0% 7.6% 0.00 11.2% 6.3% 0.0%
303
Overweight
Price: HK$15.00 Price Target: HK$17.50
Abs Rel
1m 9.8% 4.9%
3m 20.2% 15.3%
Source: Bloomberg.
FY14E 56,505 18,142 10,636 1.32 22.5% 22.5% -0.9% 11.4 5.8 2.0 18.9% 0.37 2.5%
Company Data Shares O/S (mn) Market cap (HK$ mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) Average 3m Daily Turnover ($ mn) HSCEI Exchange Rate Fiscal Year End
8,048 120,726 15,577 15.00 09 Nov 12 38.0% 22.39 10,527 7.75 Dec
304
FY14E 34,184 1,611 1,253 9,495 46,543 SG&A/Sales Sales per share growth 12,535 Sales growth 80,118 Net profit growth 140,866 EPS growth Interest coverage (x) 3,447 Net debt to total capital 15,826 Net debt to equity 2,325 Sales/assets 21,597 Assets/equity 30,206 ROE 1,009 52,813 60,160 7.47
305
Overweight
Price: HK$6.82 Price Target: HK$8.10
Abs Rel
1m 10.9% 8.7%
3m 12.2% 6.2%
Source: Bloomberg.
P/E P/BV (x) ROE(%) Cash Div ($) Quarterly EPS ($) EPS (12) EPS (13) E EPS (14) E
Target Price (HK$) 52-Week range (HK$) Share Outstanding Free float Avg daily volume Avg daily val (USD) Dividend Yield (FY2013) Index (HSI) Market Cap(USD)
8.1 7.71 - 5.00 10,322mn 43.0% 12mn 48.42mn 2.8% 5,966 9,082mn
306
388 11,548 11,935 0 2,242 Net change in cash 14,177 Beginning cash 2,606 Ending cash
307
LG Display
www.lgdisplay.com
Company overview LG Display Co Ltd develops and manufactures digital display products. The companys products include thin-film transistor-liquid crystal displays (TFT-LCD) for notebooks and desktop computer monitors, TVs, mobile phones, and medical equipment. LGDs key customers are Apple, LG Electronics, Phillips, Vizio and Panasonic/Toshiba. Investment case LGD had been de-rated due to saturated TV market and prolonged losses. Meanwhile, the company has significantly changed its product mix and cost structure along with prudent capex management. Those efforts are paying off and we expect to see both earnings growth and valuation multiple expansion going forward. Key attractions in an anemic growth environment Amid stagnant macro economies and muted LCD TV market growth, LGD continued its growth in specialty products and mobile display. Although we expect business revenue and OP contribution from smartphone/smartbook display in 2013 to decline, we think momentum remains intact and estimate combined revenue and OP to grow by ~30% in 2013. Earnings risks in 2013 Although we expect near-term panel prices to remain stable, decelerating demand from TV and PC remain our major concerns for panel makers. Mobile display, on the other hand, could continue to show robust growth in 2013. We believe LGD has technological leadership in mobile display, a solid customer base and healthy balance sheet that could continue to widen its lead against peers. Price target, and risks to our investment view LGD's share price has appreciated by 30% over the past three months thanks to substantial earnings improvement coupled with progress in product mix. Given meaningful FCF and mid-teens ROE, we expect the stock to maintain its upward trend. Our P/BV-based June-2013 PT of W40,000 implies 1.2x FY13E book. Key downside risks are lower-than-expected TV panel prices and margins; prolonged uncertainty around end-demand / inventories.
Bloomberg 034220 KS, Reuters 034220.KS (YE Dec, W bn) FY10 FY11 FY12E FY13E Sales 25,512 24,291 28,912 31,402 Sales growth Operating Profit 1,310 -924 498 1,922 OP growth EBITDA 4,236 2,727 4,904 6,127 NP growth Net profit 1,159 -788 280 1,676 Quarterly EPS (W) EPS 3,240 -2,202 783 4,683 EPS (11) BPS (W) 30,912 28,314 29,115 33,298 EPS (12) E P/E (x) 10.9 NM 45.2 7.6 EPS (13) E P/BV (x) 1.1 1.3 1.2 1.1 Price Target ROE (%) 10.9 -7.4 2.7 15.0 Consensus PT Net Debt 1,510 33 -1,334 -154 Difference (%) Source: Company data, Bloomberg, J.P. Morgan estimates. FY10 FY11 27% -5% 30% NM 4% NM 1Q 2Q -323 60 -361 -314 1,007 1,144 40,000 33,149 20.7 FY12E 19% NM NM 3Q -1,922 442 1,386
Overweight
Price: W35,400 Price Target: W40,000
Abs Rel
1m 34.3% 38.1%
3m 40.2% 42.1%
Source: Bloomberg.
FY13E Date of Price 9% 52-Week range 286% Market Cap 498% Market Cap 4Q Share Out. (Com) -17 Free float 1,017 Avg daily val 1,146 Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
09 Nov 12 W31,450 - 19,600 W12,667B US$11,536MM 358MM 56.0% W68.2B 54.75MM 2.4MM shares 0.0 1,098.05
308
Balance sheet W in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others current assets Current assets LT investments Net fixed assets Other long term assets Total Assets ST Debt and CPLTD Account Payables Other current liabilities Total current liabilities Long-term debt Other Long term liabilities Total Liabilities Shareholders' equity Total Liabilities and Equity BVPS (W) Ratio Analysis (%) Gross margin EBIT margin Net profit margin COGS/sales Sales per share growth Sales growth EBIT growth Net profit growth EPS growth Interest coverage (x) Inventory Turnover (x) Net debt to total capital Net debt to equity Sales/assets Assets/equity ROE Quarterly Data Sales Net income EPS (W)
FY10 3,134 3,001 2,215 491 8,840 1,662 12,815 540 23,858 2,101 2,962 3,819 8,882 2,543 1,372 12,797 11,061 23,858 30,912 FY10 15% 5.1% 5% 27% 27% 30% 4% 4% 79.44 11.52 10% 14% 1.2 1.81 11% 1Q13E
7,736 360 1,007
FY11 2,333 2,317 2,740 468 7,858 2,073 14,697 535 25,163 22 3,783 5,328 9,911 2,344 1,398 15,032 10,131 25,163 28,314 FY11 5% -3.8% -3% -5% -5% NM NM NM 31.53 8.87 0% 0% 1.0 2.48 -7% 2Q13E
7,894 409 1,144
FY12E 2,567 2,740 2,794 689 8,790 2,228 14,316 491 25,826 38 4,888 5,140 11,067 1,195 1,800 15,408 10,418 25,826 29,115 FY12E 10% 1.7% 1% 19% 19% NM NM NM 40.37 10.35 -11% -13% 1.1 2.48 3% 3Q13E
7,991 496 1,386
FY13E 1,387 2,592 2,644 652 7,274 2,249 13,912 472 23,907 38 3,364 4,863 8,505 1,195 1,347 11,992 11,915 23,907 33,298 FY13E 14% 6.1% 5% 9% 9% 286% 498% 498% 85.11 11.88 -1% -1% 1.3 2.01 15% 4Q13E
7,781 410 1,146
Cash flow statement W in billions, year end Dec Net income Depr. & amortization Other non-cash items Change in working capital Cash flow from operations Disposal/(purchase) Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Other charges Cash dividends Cash flow from Financing Net Changes in Cash Beginning cash Ending cash DPS (W)
FY10 1,159 2,926 1,439 1,740 5,826 -274 -6,783 -60 1,043 -75 -179 729 -228 3,362 3,134 500
FY11 -788 3,651 1,509 2,511 5,375 5 -5,939 0 -95 37 -179 -237 -801 3,134 2,333 500
FY12E 280 4,406 -188 220 4,907 44 -4,137 0 -542 6 0 -536 234 2,333 2,567 0 3Q12E
7,593 158 442
FY13E 1,676 4,204 -277 -1,466 4,414 19 -3,801 0 -1,614 0 -179 -1,793 -1,180 2,567 1,387 500 4Q12E
8,225 364 1,017
Quarterly Data 1Q12A 2Q12A Sales 6,184 6,910 Net income -129 -112 EPS (W) -361 -314 Source: Company reports and J.P. Morgan estimates.
309
LG Electronics
www.lg.com
Company overview LG Electronics manufactures and markets digital display equipment and home appliances, televisions, washers, air-conditioners, and microwaves. The company also produces telecommunications equipment such as handsets (incl. smartphones). Investment case Management expressed confidence in the smartphone business with competitive productsOptimus G and Optimus Vu:2. LGE will do aggressive marketing activities to drive strong volume growth and cautiously expects to reach quarterly smartphone shipments of 10 million units by 2Q13 or 3Q13. We believe this is an inflection point for LGE to generate sustainable handset OP, given finalization of restructuring in its feature phone business. Key attractions in an anemic growth environment Amid stagnant macro economics, we estimate global smartphone shipment growth to maintain strong momentum in 2013. Despite the wide gap with SEC and Apple, LGE stands out among second-tier smartphone makers, in our view. Earnings risks in 2013 Although the company has experienced meaningful earnings decline in the last two years, it has continuously beat consensus YTD on normalized core operations along with breakeven results in the handset business. With normalized core operations and meaningful bottom-line earnings growth in LGD, we forecast LGE to post 130% EPS growth next year. Price target, and risks to our investment view We maintain our high-end-of-consensus earnings and P/E-based Jun-13 PT of W100,000, implying 8.9x to 2013E EPS, which is a mid-cycle valuation. We recommend investors accumulate the stock from a long-term perspective given its undemanding valuation, M/S gain story, and sustainable OP in handset business. Key downside risks to our PT are potential margin pressure on its TV operation, weakerthan-expected smartphone shipments, and unfavorable F/X movements.
Bloomberg 066570 KS, Reuters 066570.KS (YE Dec, W bn) FY10 FY11 FY12E FY13E Sales 55,754 54,257 50,818 53,371 Sales growth Operating Profit 176 280 1,230 1,765 OP growth EBITDA 1,531 1,483 2,539 3,163 NP growth Net profit 1,282 -399 802 1,844 Quarterly EPS (W) EPS 8,863 -2,761 4,903 11,266 EPS (11) BPS (W) 79,462 81,245 76,218 86,413 EPS (12) E P/E (x) 8.7 NM 15.6 6.8 EPS (13) E P/BV (x) 1.0 0.9 1.0 0.9 Price Target ROE (%) 10.1 -3.1 6.0 12.5 Consensus PT Net Debt 4,482 3,435 3,500 2,485 Difference (%) Source: Company data, Bloomberg, J.P. Morgan estimates. FY10 0% -93% NM 1Q -109 1,482 2,560 100,000 85,059 17.6 FY11 -3% 59% NM 2Q 725 948 3,199 FY12E -6% 339% NM 3Q -2,886 960 2,793
Overweight
Price: W76,700 Price Target: W100,000
Abs Rel
1m 9.9% 13.3%
3m 16.9% 14.7%
Source: Bloomberg.
FY13E Date of Price 5% 52-Week range 44% Market Cap 130% Market Cap 4Q Share Out. (Com) -541 Free float 1,490 Avg daily val 2,713 Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
06 Nov 12 W94,300 - 55,800 W12,552B US$11,380MM 164MM 58.3% W111.5B 100.04MM 1.6MM shares 0.3 1,102.97
310
Balance sheet W in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others current assets Current assets LT investments Net fixed assets Other long term assets Total Assets ST Debt and CPLTD Account Payables Other current liabilities Total current liabilities Long-term debt Other Long term liabilities Total Liabilities Shareholders' equity Total Liabilities and Equity BVPS (W) Ratio Analysis (%) Gross margin EBIT margin Net profit margin COGS/sales Sales per share growth Sales growth EBIT growth Net profit growth EPS growth Interest coverage (x) Inventory Turnover (x) Net debt to total capital Net debt to equity Sales/assets Assets/equity ROE Quarterly Data Sales Net income EPS (W)
FY10 2,029 7,002 5,872 1,611 16,515 8,540 6,500 763 32,318 3,327 5,824 5,560 15,394 3,184 881 19,459 12,860 32,318 79,462 FY10 22% 0.3% 2% -78% 0% 0% -93% NM -45% 6.98 9.49 23% 35% 1.7 1.84 10% 1Q13E
12,410 419 2,560
FY11 2,495 6,753 4,947 1,588 15,783 8,549 7,290 1,036 32,658 1,673 5,487 5,549 14,215 4,257 1,038 19,510 13,148 32,658 81,245 FY11 22% 0.5% -1% -78% -3% -3% 59% NM -131% 6.49 10.97 18% 26% 1.7 2.48 -3% 2Q13E
13,288 524 3,199
FY12E 1,955 6,879 4,830 1,581 15,244 8,460 7,102 1,043 31,850 2,018 5,505 5,342 13,618 3,437 1,013 18,067 13,783 31,850 76,218 FY12E 24% 2.4% 2% -76% -17% -6% 339% NM -278% 10.48 10.52 18% 25% 1.6 2.31 6% 3Q13E
13,315 457 2,793
FY13E 2,269 6,451 5,192 1,700 15,612 9,063 6,904 1,085 32,664 1,618 5,474 5,743 12,988 3,137 913 17,038 15,626 32,664 86,413 FY13E 25% 3.3% 3% -75% 5% 5% 44% 130% 130% 15.42 10.28 13% 16% 1.7 2.09 13% 4Q13E
14,358 444 2,713
Cash flow statement W in billions, year end Dec Net income Depr. & amortization Extraordinaries Change in working capital Cash flow from operations Net Capex Disposal/(purchase) Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Other charges Cash dividends Cash flow from Financing Net Changes in Cash Beginning cash Ending cash
FY10 1,282 1,354 848 -699 1,089 -146 40 -1,954 -461 247 736 -276 247 -618 2,647 2,029
FY11 -399 1,202 849 1,652 -1,992 -272 -2,274 975 400 -220 -67 1,088 466 2,029 2,495
FY12E 802 1,309 -191 1,920 -1,121 -7 -1,039 -0 -1,254 -131 -37 -1,422 -541 2,495 1,955 3Q12E
12,376 157 960
FY13E 1,844 1,398 317 3,560 -1,200 -42 -1,845 -0 -1,400 -0 0 -1,400 315 1,955 2,269 4Q12E
13,355 244 1,490
Quarterly Data 1Q12A 2Q12A Sales 12,228 12,859 Net income 243 159 EPS (W) 1,482 948 Source: Company reports and J.P. Morgan estimates.
311
Localiza
www.localiza.com
Neutral
Price: R$35.50 Price Target: R$39.00 End Date: Dec 2013
Company overview Localiza is a company active in the car rental, fleet rental, used car sales, and franchising industries. As of 2011 its network comprised 452 branches in approximately 300 cities in Brazil. The businesses complement each other, resulting in significant synergies. Investment case Localiza is highly leveraged to Brazilian GDP as historically the revenue elasticity has been 6x for car rental and 4x for fleet rental. In a recovery environment, results could benefit by significant top-line expansion, as a reflection of GDP growth and a fragmented car rental industry in Brazil. That said, Localiza offers prospect for ROIC expansion driven by the expected higher growth in the car and fleet rental divisions. How much recovery has already been priced in, what are the key metrics? Localizas shares are up 38.7% this year, in our view mostly due to the decrease in interest rates in Brazil. The stock is currently trading with 9.9% upside to our PT, but any stronger than expected performance of the domestic economy could improve such upside. The stock trades at 17.7x 2013E P/E, below its historical average of 18-20x. Earnings risk in 2013 We believe there could be downside risk to Localizas earnings next year if the market starts to revise GDP expectations downwards, which could impact demand for car and fleet rental. Our R$1,085mm 2013E EBITDA is 5.6% above Bloomberg consensus. Any deterioration in credit for autos next year could also negatively impact the companys used car sales business. Price target, and risks to our investment view Our Dec 2013 PT for RENT3 is R$39, based on a 10-year DCF methodology, using a WACC of 11.9% in nominal R$ and a long-term growth rate of 5%. Key downside risks: (1) deterioration of the macroeconomic environment, (2) a tougher competitive landscape, and (3) a sharp increase in interest rates in Brazil. Key upside risks: (1) stronger Brazilian GDP performance could lead to higher demand for car and fleet rental and (2) improvement in auto credit could boost used car sales.
Localiza Rent A Car (RENT3.SA;RENT3 BZ) FYE Dec 2010A Revenues (R$ mn) FY 2,497 EBITDA FY (R$ mn) 650 Net Income - GAAP FY (R$ mn) 251 EPS Reported FY (R$) 1.24 Bloomberg EPS FY (R$) 1.24
Source: Company data, Bloomberg, J.P. Morgan estimates.
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
312
2,056 2,027 2,488 3,364 (1,777) (1,963) (2,392) (2,719) 279 64 96 268 (1,777) (1,963) (2,392) (2,719) 273 (283) (45) (78) 0.40 0.30 0.50 0.67
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
313
LW Bogdanka
www.lw.com.pl
Company overview LW Bogdanka SA is the only coal mine operating in the Lublin Coal Basin. The company has 8% market share in thermal coal sales in Poland, mostly sold to the local power utilities in Eastern Poland, where it has a considerable transportation cost advantages. Investment case Bogdanka is our top pick within Poland Metals & Mining on superior asset quality demonstrated by volume growth (23.5% 11-14E CAGR), economies of scale, LT EBITDA margin of 44% as well as a strong balance sheet (13E Net Debt / EBITDA 0.3x). In 2013E we are looking at 40% EPS growth driven by continued ramp-up of the Stefanow field with projected 14% yoy increase in thermal coal volumes. Finally, the long term dividend outlook supports our bullish view on Bogdanka: we forecast 22.6% cum div yield 12-14E funded by 19% cum 12-14E FCF yield. Key attraction in an anemic growth environment We believe that Bogdankas ability to sell the increased thermal coal volumes at decent prices stems from: the local thermal coal pricing mechanism, Bogdankas competitive cost advantage vs. local peers, the continued dominant role of coal in the local power generation, and around 90% of sales to captive customers based on long-term contracts which already capture the future growth. Earnings risks in 2013 In a scenario of an inflationary 3% increase for Bogdanka's realized coal prices in 2013E, our EPS forecast would increase by 11% vs. our current flat prices assumption. We believe there is a high probability of higher 13E prices, given that Bogdankas thermal coal is approx 10% cheaper than that of local competition, adjusting for calorific value. Price target, and risks to our investment view Our September 2013 PT of zl169 is based on peer group valuation (target 6.5x 13E EV/EBITDA) and corresponds with 1.0x P/NPV multiple (Base Case until concession expiry in 2034, zero Terminal or Residual Value). The key risks are lower realized thermal coal price and sales volumes and higher production costs and capex.
Lubelski Wegiel Bogdanka SA (LWBP.WA;LWB PW) FYE Dec 2011A 2012E Adj. EPS FY (zl) 4.98 10.23 DPS (Net) FY (zl) 4.00 6.14 Adj EBITDA FY (zl mn) 388 744 Adj P/E FY 24.4 11.9 EV/Adj EBITDA FY (zl) 12.1 6.5 Div Yield FY 3.2% 4.9% Revenue FY (zl mn) 1,301 1,923 Net Att. Income FY (zl mn) 221 348
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: zl121.50 Price Target: zl169.00
zl
Abs
YTD 15.6%
1m 0.2%
3m 1.8%
12m 10.8%
Source: Bloomberg.
Company Data Price (zl) Date Of Price Price Target (zl) Price Target End Date 52-week Range (zl) Mkt Cap (zl bn) Shares O/S (mn)
314
Cash flow statement FY10 FY11 FY12E FY13E FY14E zl in millions, year end Dec 1,230 1,301 1,923 2,219 2,668 Net Income (Reported) 821 963 1,289 1,385 1,529 Depreciation & amortization 410 338 634 834 1,138 Working capital movement 106 119 163 176 192 Other operating cash flow -27 -16 -25 -25 -25 Cash flow from operations 415 388 744 967 1,292 138 185 298 334 371 Capex 276 203 446 633 921 Disposals/(purchase) 12 6 (11) (26) (23) Other investment cash flow 0 63 0 0 0 Cash flow from investment 288 272 435 607 898 (58) (51) (87) (121) (180) Equity raised/repaid 230 221 348 486 718 Debt Raised/repaid 230 169 348 486 718 Dividends paid 34.0 34.0 34.0 34.0 34.0 Other Cash Flow from Financing FX movement 6.76 6.50 10.23 14.28 21.12 6.76 4.98 10.23 14.28 21.12 Beginning cash 1.40 4.00 6.14 8.57 12.67 Ending cash Movement in cash Ratio Analysis FY10 FY11 FY12E FY13E FY14E zl in millions, year end Dec 472 103 241 283 526 Operating margin (%) 127 256 290 334 402 EBITDA margin (%) 61 43 71 76 84 Net margin (%) (Adjusted) 4 0 0 0 0 SG&A/Sales 664 402 602 694 1,012 0 0 0 0 0 Sales growth (%) 2,101 2,605 2,951 3,160 3,304 EBITDA growth 2,828 3,076 3,622 3,922 4,385 EPS growth (%) (Adjusted) Interest coverage (x) 50 0 0 0 0 Net debt/(cash) to Total Capital 241 234 318 342 377 Sales/assets (x) 112 73 73 73 73 Total Assets/Equity 403 307 391 414 450 ROE 200 341 591 591 591 ROCE 256 286 286 286 286 859 934 1,267 1,291 1,327 1,969 2,143 2,355 2,632 3,059 2,828 3,076 3,622 3,923 4,385 58 63 69 77 90
FY10 230 138 58 (57) 368 (716) 138 -578 0 0 0 0 0 0 682 472 -210 FY10 22.5% 33.7% 18.7% 8.6%
FY11 FY12E FY13E FY14E 221 348 486 718 185 298 334 371 (118) 23 (26) (40) 26 0 0 0 314 669 793 1,050 (698) -29 -726 0 91 (48) 0 43 0 472 103 -369 (644) 0 -644 0 250 (136) 0 114 0 103 241 139 (543) 0 -543 0 0 (209) 0 -209 0 241 283 42 (516) 0 -516 0 0 (291) 0 -291 0 283 526 243
FY11 FY12E FY13E FY14E 15.6% 23.2% 28.5% 34.5% 29.8% 38.7% 43.6% 48.4% 13.0% 18.1% 21.9% 26.9% 9.1% 8.5% 7.9% 7.2%
10.0% 5.8% 47.7% 15.4% 20.2% 12.7% -6.5% 92.0% 29.8% 33.7% 20.0% (26.3%) 105.6% 39.5% 47.9% 23.4 32.5 40.8 24.7 39.9 -11.4% 9.1% 11.9% 9.7% 1.9% 0.4 0.4 0.5 0.6 0.6 1.4 1.4 1.5 1.5 1.4 12.4% 8.2% 15.5% 19.5% 25.3% 14.2% 7.8% 15.2% 20.0% 27.5%
315
Magnit
magnit-info.ru
Company overview Magnit operates the largest network of retail stores in Russia, counting more than 6,000 retail spots, and is the second-largest retailer in terms of revenue. The company's core format is convenience stores; however, it is actively diversifying into formats with greater exposure to higher-margin non-food products hypermarkets and cosmetics stores. The distinct features of Magnits business model are its focus on organic expansion as opposed to M&A, its vast logistics backbone and its presence in areas with less pronounced competitive pressures, i.e. smaller regional markets. Investment case Magnit is by far the best quality play on the Russian retail sector, in our opinion, as reflected in superior organic growth prospects, high profitability and returns, and an impeccable execution track record. We rate the stock Overweight and recommend a buy-on-weakness strategy. Key attractions in an anemic growth environment Magnit is relatively immune to consumption slowdown given its focus on value-formoney formats and high operating efficiencies that leave more room for price investments, in our opinion. Rapid store network expansion enables the company to obtain better terms from suppliers and protect or even increase gross margins. Earnings risks in 2013 Our 2013 revenue growth projection is above managements expectation of 25-27% (JPMe), as we expect stronger food inflation of 8% on average for the year. Key risks for our earnings forecasts are stronger than expected cannibalization leading to traffic outflow, and operating cost pressures. Price target, and risks to our investment view Our DCF-based Dec-13 PT is $40.5/GDR We use: 1) 6.8% after-tax cost of debt; 2) COE of 14% for GDRs (13% base COE + 100bps liquidity premium) and 3) target leverage of 30% to derive a WACC of 11.9% for GDRs. We assume what we see as a conservative terminal growth rate of 3% beyond the 10 year forecasting period. The main risks to our price target and rating include: a worse than expected macroeconomic environment could affect consumption in Russia and hence our earnings forecasts for Magnit; and tighter regulation of retail trade could also negatively affect returns.
Magnit (MGNTq.L;MGNT LI) FYE Dec Adj. EPS FY ($) Revenue FY ($ mn) EBITDA FY ($ mn) EBITDA margin FY EBIT FY ($ mn) Net Att. Income FY ($ mn) FCF FY ($ mn) Adj P/E FY EV/EBITDA FY 2011A 0.89 11,423 934 8.2% 668 419 (765) 41.3 19.3 2012E 1.44 14,230 1,377 9.7% 1,021 683 (655) 25.3 13.1 2013E 1.67 18,106 1,659 9.2% 1,206 788 (379) 21.9 10.9 2014E 2.03 22,472 2,032 9.0% 1,470 958 166 18.0 8.9 2015E 2.46 26,629 2,390 9.0% 1,724 1,163 597 14.9 7.6
Overweight
Price: $36.56 Price Target: $40.50
(7-495) 967-3888 elena.jouronova@jpmorgan.com Bloomberg JPMA JOURONOVA<GO> J.P. Morgan Bank International LLC
P r ic e P e r fo r m a n c e
40 35 $ 30 25 20 15
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 75.2%
1m 7.1%
3m 12.3%
12m 65.1%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
316
FY11 FY12E FY13E FY14E FY15E 24.3% 25.3% 25.0% 25.0% 25.0% 8.2% 9.7% 9.2% 9.0% 9.0% 5.8% 7.2% 6.7% 6.5% 6.5% 3.7% 4.8% 4.3% 4.3% 4.4% -18.9% -18.4% -18.6% -18.7% -18.8% 46.9% 47.9% 38.8% 25.5% 1,617 1,082 1.2 5.7 44.3% 2.1 2.2 20.1% 9.2% 14.7% 24.6% 47.4% 52.9% 63.1% 1,906 1,808 1.3 8.3 59.3% 2.1 2.2 24.9% 11.3% 17.2% 27.2% 20.5% 18.1% 15.4% 2,356 2,322 1.4 62.7% 2.2 2.2 23.3% 10.7% 16.6% 24.1% 22.5% 21.9% 21.7% 2,306 2,313 1.1 51.3% 2.4 2.1 23.3% 11.0% 17.4% 18.5% 17.6% 17.3% 21.4% 2,006 1,907 0.8 34.8% 2.6 1.9 23.3% 11.9% 18.3%
317
Overweight
Price: Rs909.40 Price Target: Rs985.00
Abs Rel
1m 4.6% 3.5%
3m 22.4% 14.9%
Source: Bloomberg.
Company Data 52-week Range (Rs) Shares O/S (mn) Market cap ($ mn) Price (Rs) Date Of Price 3mth Avg daily volume Average 3m Daily Turnover ($ mn) NIFTY
318
Cash flow statement FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 232,950 318,535 382,650 434,996 494,491 EBIT 25.7% 36.7% 20.1% 13.7% 13.7% Depr. & amortization 32,835 37,708 44,580 51,329 58,350 Dec/(Inc) in Working Capital 10.3% 14.8% 18.2% 15.1% 13.7% Taxes 14.1% 11.8% 11.7% 11.8% 11.8% Cash flow from operations -4,139 -5,761 -7,028 -7,564 -8,426 Extra ordinary Items 3,264 3,566 4,339 4,796 5,247 Net Capex 503 -536 -1,106 -1,201 -1,260 Net Interest (Paid)/ Recd 35,196 36,059 40,783 47,361 53,911 (Put) / Sale of investments -8,575 -7,270 -10,644 -12,574 -14,313 Free cash flow 24.4% 20.2% 26.1% 26.6% 26.6% Income from Investments 26,621 28,789 30,139 34,786 39,598 24,433 26,501 30,139 34,786 39,598 24.8% 8.5% 13.7% 15.4% 13.8% Inc / (Dec) in Net worth 41.61 44.99 51.17 59.06 67.22 Debt raised/(repaid) 20.3% 8.1% 13.7% 15.4% 13.8% Dividends paid Cash generated 12.03 13.03 13.03 13.03 13.03 Beginning cash 26.5% 26.7% 25.5% 22.1% 19.4% Ending cash Ratio Analysis FY11 FY12 FY13E FY14E FY15E %, year end Mar 6,146 11,884 14,442 19,532 32,409 EBITDA margin 13,547 19,884 25,573 32,566 37,026 Net profit margin 16,942 23,584 30,687 37,218 44,960 24,799 29,856 33,477 37,641 42,427 Sales growth 61,435 85,208 104,180 126,956 156,822 Net profit growth EPS growth 93,253 103,105 115,605 125,105 136,605 43,719 50,808 54,779 58,216 60,790 PE (x) - Cash PE (x) 198,407 239,120 274,564 310,276 354,216 EV/EBITDA (x) EV/Sales (x) Price to Book Value (x) 47,617 57,876 69,558 76,762 87,275 Dividend Yield 20,059 18,453 19,375 20,344 21,361 67,676 76,329 88,934 97,106 108,636 Net debt to equity - Sales/assets 24,053 35,808 36,808 37,808 38,808 Assets/equity 95,272 117,408 131,540 141,292 154,460 ROE 103,133 121,711 143,024 168,984 199,756 ROCE 175.65 206.63 242.81 286.88 339.12
FY11 28,695 4,140 1,625 -7435 33,029 -10,830 503 22,199 -29,273
FY12 31,946 5,762 -10,041 -5543 26,772 -12,850 -536 13,922 -9,852
FY13E 37,550 7,029 -3,950 -10117 34,850 -11,000 -1,106 23,850 -12,500
FY14E 43,766 7,564 -9,514 -11994 34,617 -11,000 -1,201 23,617 -9,500
FY15E 49,924 8,426 -5,458 -13676 44,464 -11,000 -1,260 33,464 -11,500
6,271 -1,525 0 -0 -0 -4,749 11,755 1,000 1,000 1,000 -6,238 -8,026 -8,686 -8,826 -8,826 -11,287 5,738 2,558 5,090 12,878 17,432 6,146 11,884 14,442 19,532 6,146 11,884 14,443 19,532 32,409 FY11 14.1% 11.4% 25.7% 27.5% 22.9% 20.1 18.69 16.1 2.27 5.2 1.3% 17.4% 1.17 2.55 23.7% 24.4% FY12 FY13E FY14E FY15E 11.8% 11.7% 11.8% 11.8% 9.0% 7.9% 8.0% 8.0% 36.7% 8.1% 7.8% 18.6 16.64 14.4 1.70 4.4 1.4% 19.7% 1.33 1.96 21.7% 21.8% 20.1% 4.7% 4.7% 17.8 14.41 12.2 1.42 3.7 1.4% 15.6% 1.39 1.92 21.1% 22.6% 13.7% 15.4% 15.4% 15.4 12.65 10.6 1.25 3.2 1.4% 10.8% 1.40 1.84 20.6% 22.8% 13.7% 13.8% 13.8% 13.5 11.15 9.3 1.10 2.7 1.4% 3.2% 1.40 1.77 19.8% 22.5%
319
MediaTek Inc.
www.mediatek.com
Company overview MediaTek is a fabless semiconductor company that builds SOC system solutions for wireless communications, HDTV, optical storage, and DVD/Blu-ray. Investment case Assuming that MediaTeks acquisition of MStar goes through, MediaTek will become the fourth-largest fabless semiconductor company by revenues. Top-tier fabless semiconductor companies, such as Qualcomm, Broadcom, nVidia and Marvell, are trading 12.5x-15.4x FY14E P/E on a U.S. GAAP basis. We believe that MediaTek is also fairly valued at 14x FY13E earnings based on positive customer feedback on MediaTeks new quad-core chipset. Key attractions in an anemic growth environment On a trip to China in November 2012, we found that TCL Comm will likely be the first to launch smartphones using MediaTeks quad-core solution (6589). We expect MediaTek to have a big wave of growth in January 2013. As a result, we raised MediaTeks earnings estimates, for the fifth time since June. In the long term, the Android tablet and Windows-on-ARM will be a growth driver for the Taiwanese company. MediaTek has started shipping standalone/3G-integrated application processors for Android tablets. We do not expect material contribution from tablets until 2014/15. Earnings risks in 2013 Key risks for earnings and PT: high unpredictability of earnings (earnings forecasts can move by 30% within a year). We think the risk is on the upside as MediaTek is in an earnings up-cycle, but one needs to watch for when SPRD/ RDA starts volume shipments in WCDMA smartphones. Price target, and risks to our investment view Our Dec-13 price target of NT$450 is based on 20x/14x FY13E/14E P/E, on par with the global top 5 fabless semiconductor companies.
Bloomberg 2454 TT, Reuters 2454.TW
(Year-end Dec, NT$ bn) FY11 FY12E FY13E FY14E Sales 86.86 103.32 128.11 147.30 Operating Profit 12.35 13.59 24.59 34.47 EBITDA 13.07 14.32 25.31 35.19 Pretax Profit 14.08 16.62 26.15 36.37 Adj. Net Profit (New TW GAAP) 13.49 15.65 24.96 34.72 New TW GAAP EPS (NT$) 12.40 14.24 22.69 31.57 Net Debt / Equity NM NM NM NM Y/E BPS (NT$) 82.93 88.92 103.55 121.26 FY11 25.6 3.8 13.3 21.7 1Q 3.01 2.27 4.31 FY12E FY13E 22.3 14.0 3.6 3.1 16.6 23.6 10.6 12.0 2Q 3Q 3.02 3.69 3.05 4.49 5.34 6.77 FY14E 10.1 2.6 28.1 19.3 4Q 2.79 4.26 6.28
Overweight
Price: NT$318.00 Price Target: NT$450.00
Abs Rel
1m 0.0% 4.0%
3m 9.0% 13.0%
Source: Bloomberg.
New TW GAAP P/E P/BV (x) ROE(%) Cash Div (NT$) Quarterly EPS (NT$) EPS (11) EPS (12) E EPS (13) E
Target Price (NT$) 52-Week range (NT$) Share Outstanding Free float Avg daily volume Avg daily val (USD) Dividend Yield (2012) QFII Holding (%) Market Cap(USD)
450 344.50 - 235.00 1,349mn 86.6% 13mn 121.67mn 3.3% 34.3% 14,800mn
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
320
Ratio Analysis FY12E FY13E FY14E NT$ in millions, year end Dec 103,324 128,111 147,298 Gross margin 60,258 72,055 79,288 EBITDA margin 43,066 56,056 68,010 Operating margin -23,132 -24,399 -25,858 Net margin -6,343 -7,067 -7,684 R&D/sales 13,592 24,590 34,468 SG&A/Sales 14,315 25,313 35,191 973 1,156 1,501 Sales growth 0 0 0 Operating profit growth 973 1,156 1,501 Net profit growth 3,029 1,556 1,901 EPS (reported) growth 16,621 26,146 36,368 -966 -1,187 -1,651 Interest coverage (x) 15,654.9 24,958.1 34,717.7 Net debt to total capital 15,655 24,958 34,718 Net debt to equity 14.24 22.69 31.57 Asset turnover 14.24 22.69 31.57 Working capital turns (x) 88.92 103.55 121.26 ROE 10.57 11.99 19.34 ROIC 1,100 1,100 1,100 ROIC (net of cash) Cash flow statement FY12E FY13E FY14E NT$ in millions, year end Dec 56,776 72,905 97,590 Net income 13,501 14,149 16,616 Depr. & amortization 10,725 10,622 12,164 Change in working capital 5,600 5,869 6,892 Other 86,601 103,545 133,262 Cash flow from operations 63,216 63,616 64,016 Capex 8,487 9,764 11,040 Disposal/(purchase) 8,310 8,310 8,310 Cash flow from investing 166,614 185,234 216,628 Free cash flow Equity raised/(repaid) 0 0 0 Debt raised/(repaid) 12,603 12,481 14,293 Other 55,258 57,912 68,011 Dividends paid 67,860 70,393 82,304 Cash flow from financing 0 0 0 939 939 939 Net change in cash 68,800 71,332 83,243 Beginning cash 97,815 113,902 133,385 Ending cash
FY12E 41.7% 13.9% 13.2% 15.2% 22.4% 6.1% 19.0% 10.1% 16.0% 14.8% -60.1% NM 0.67 6.35 16.6% 15.6% 32.0%
FY13E 43.8% 19.8% 19.2% 19.5% 19.0% 5.5% 24.0% 80.9% 59.4% 59.4% -68.9% NM 0.73 4.94 23.6% 22.6% 57.0%
FY14E 46.2% 23.9% 23.4% 23.6% 17.6% 5.2% 15.0% 40.2% 39.1% 39.1% -78.9% NM 0.73 3.50 28.1% 27.0% 84.8%
(1.7%) (23.5%) -14.6% -60.3% -15.7% -56.4% (16.5%) (56.1%) -41.3% NM 0.85 2.74 28.1% 27.6% 52.4% -41.1% NM 0.63 3.39 13.3% 12.2% 21.1%
FY10 FY11 FY12E FY13E FY14E 30,960.0 13,490.7 15,654.9 24,958.1 34,717.7 691 724 723 723 723 -6,250 19,733 10,141 1,718 6,878 -2,546 24,197 13,165 2,385 9,076 25,402 33,948 26,520 27,400 42,319 -1,539 -1,190 -2,000 -2,000 -2,000 0 0 0 0 0 -12,034 -3,992 -2,400 -2,400 -2,400 23,862 32,758 24,520 25,400 40,319 3,919 14,570 2,738 4,318 6,032 489 171 0 0 0 0 0 0 0 0 -28,343 -23,605 -11,618 -13,188 -21,267 -23,936 -8,865 -8,880 -8,871 -15,235 -10,568 59,833 45,574 21,091 45,574 41,713 15,240 41,713 56,776 16,129 56,776 72,905 24,684 72,905 97,590
321
Mega Holdings
www.megaholdings.com.tw/
Company overview Mega Financial Holdings (Mega) is a state-owned, bank-centric holding company. Mega FHC is engaged in banking, brokerage, P&C, asset management and bills businesses. It is the biggest foreign currency settlement bank in Taiwan and owns 108 domestic branches and 19 overseas branches. Mega also has the biggest market share in RMB deposits among Taiwan banks. Bank of China and Bank of Communications signed an MOU with Mega Bank in 1Q11. Investment case Mega remains the largest FX lender in Taiwan with 30% to 35% market share in OBUs Rmb deposit market. While the domestic market remains ultra competitive, Mega has gradually expanded into Asia regional borrowers markets to expand its reach to non-Taiwan corporation clients. Thus, we expect Mega to start differentiating itself from domestic lenders through its greater regional reach. Key attractions in an anemic growth environment Mega has been a consistent cash dividend payer with a 60% payout ratio, offering a 4% to 5% dividend yield to investors. Consistency is Megas best attribute, with it historically paying the highest dividend yield in Taiwans banking sector. Earnings risks in 2013 Key upside risks include 1) Taiwan resuming its interest rate hike cycle in 2H2013 as margin expansion would re-rate Mega's strong deposit franchise, and 2) Rmb business development. The key downside risk is margin contraction due to competition. Price target, and risks to our investment view Our Dec-13 DDM-based price target of NT$28.6 implies a fair 13E 1.4x P/BV and 14x P/E. Key downside risks are: (1) corporate sector defaults increase; (2) unfavorable outcome of Rmb/NT$ settlement agreement.
Overweight
Price: NT$21.60 Price Target: NT$28.60
Abs Rel
1m -3.9% -1.6%
3m -9.6% -7.3%
Source: Bloomberg.
Mega Holdings (Reuters: 2886.TW, Bloomberg: 2886 TT) Year-end Dec (NT$ in mn) FY10A FY11A Operating Profit (NT$ mn) 20,863 24,665 Net Profit (NT$ mn) 15,111 17,680 Cash EPS (NT$) 1.37 1.57 Fully Diluted EPS (NT$) 1.37 1.57 DPS (NT$) 0.88 1.02 EPS growth (%) 5.4% 14.7% ROE 7.6% 8.8% P/E 15.4 13.5 BVPS (NT$) 18.16 17.98 P/BV 1.2 1.2 Div. Yield 4.2% 4.8%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY12E 24,881 20,014 1.77 1.77 1.15 13.2% 9.7% 11.9 18.70 1.1 5.5%
FY13E 27,861 21,678 1.92 1.92 1.25 8.3% 10.1% 11.0 19.46 1.1 5.9%
FY14E 30,049 22,905 2.03 2.03 1.32 5.7% 10.2% 10.4 20.25 1.0 6.3%
Company Data 52-wk range (NT$) Market cap (NT$ mn) Market cap ($ mn) Shares outstanding (mn) Fiscal Year End Price (NT$) Date Of Price Avg daily value (NT$ mn) Avg daily value ($ mn) Avg daily vol (mn) TSE Exchange Rate
24.14 - 17.34 241,591 8,332 11,450 Dec 21.10 12 Nov 12 650.7 22.4 29.1 7,136 28.99
322
Growth Rates FY13E FY09 FY10 FY11 FY12E FY13E 1.4% Loans -2.3% 4.4% 7.4% 4.2% 5.3% 90.0% Deposits 12.8% 5.0% 1.9% 5.3% 5.3% 1.2% Assets 3.6% 0.5% 4.3% 2.4% 4.8% Equity 10.3% 2.5% 1.0% 3.8% 4.1% Net Interest Income 26,497 25,079 28,080 30,586 34,319 RWA Total Non-Interest Income 18,637 16,019 16,839 16,137 16,098 Net Interest Income -12.6% -5.3% 12.0% 8.9% 12.2% Fee Income 9,129 9,230 8,607 8,605 9,168 Non-Interest Income 6090.0% -14.0% 5.1% -4.2% -0.2% Dealing Income 6,454 1,832 -1,014 2,627 1,930 of which Fee Grth 10.6% 1.1% -6.7% -0.0% 6.5% Other Operating Income -5,182 1,153 8,763 1,321 2,008 Total operating revenues 45,133 41,099 44,919 46,723 50,416 Costs 2.7% 5.8% 0.1% 7.8% 3.3% Pre-Provision Profits 116.8% -19.8% 18.2% 0.9% 12.0% Operating costs -19,118 -20,235 -20,254 -21,842 -22,556 Loan Loss Provisions -4.8% -38.0% -42.2% -21.9% 26.4% Pre-Tax 413.4% -1.0% 13.9% 9.4% 9.3% Pre-Prov. Profits 26,016 20,863 24,665 24,881 27,861 Attributable Income 4766.2% 5.4% 17.0% 13.2% 8.3% Provisions -9,739 -6,036 -3,488 -2,723 -3,441 EPS 4766.2% 5.4% 14.7% 13.2% 8.3% Other Inc/Exp. - DPS 300.0% -11.8% 15.5% 13.2% 8.3% Exceptionals Disposals/ other income - Balance Sheet Gearing FY09 FY10 FY11 FY12E FY13E Pre-tax 18,783 18,590 21,177 23,158 25,319 Loan/deposit 83.0% 85.0% 91.3% 88.6% 88.7% Tax -4,146 -3,207 -3,188 -3,145 -3,642 Investment/assets 2.5% 3.0% 2.9% 2.5% 2.5% Minorities 13 39 6 -40 -40 Loan/Assets 51.2% 53.4% 55.6% 56.0% 56.3% Other Distbn. -318 -311 -315 40 40 Customer deposits/liab. 64.0% 67.0% 65.3% 67.2% 67.5% Attributable Income 14,332 15,111 17,680 20,014 21,678 LT debt/liabilities 3.3% 3.2% 3.1% 2.9% 2.9% Per Share Data NT$ FY09 FY10 FY11 FY12E FY13E Asset Quality/Capital FY09 FY10 FY11 FY12E FY13E EPS 1.30 1.37 1.57 1.77 1.92 Loan loss reserves/loans 0.5% 0.1% 0.2% 0.1% 0.1% DPS 1.00 0.88 1.02 1.15 1.25 NPLs/loans 0.9% 0.3% 0.2% 0.3% 0.4% Payout 938.8% 77.2% 65.9% 65.0% 65.0% Loan loss reserves/NPLs 0.1% 0.0% 0.1% 0.0% 0.0% Book value 17.69 18.16 17.98 18.70 19.46 Growth in NPLs Fully Diluted Shares 11,059.43 11,059.43 11,280.62 11,280.62 11,280.62 Tier 1 Ratio 9.9% 9.4% 9.2% 9.9% 10.1% PPOP per share - Total CAR 11.7% 11.3% 11.6% 13.0% 13.2% Key Balance sheet NT$ in millions FY09 FY10 FY11 FY12E FY13E Du-Pont Analysis FY09 FY10 FY11 FY12E FY13E Net Loans 1,279,560 1,339,253 1,454,913 1,502,080 1,582,229 NIM (as % of avg. assets) 1.1% 1.1% 1.2% 1.3% 1.4% LLR -17,816 -14,967 0 -14,556 -14,518 Earning assets/assets 97.2% 89.0% 90.4% 89.6% 90.0% Gross Loans 1,297,376 1,354,220 1,454,913 1,516,636 1,596,747 Margins (as % of Avg. Assets) 1.1% 1.0% 1.1% 1.2% 1.2% NPLs - Non-Int. Rev./ Revenues 46.6% 37.9% 31.4% 33.6% 30.7% Investments 61,245 74,201 76,209 66,936 70,923 Non IR/Avg. Assets 0.8% 0.6% 0.7% 0.6% 0.6% Other earning assets 666,543 594,347 533,035 556,528 542,312 Revenue/Assets 1.8% 1.6% 1.8% 1.8% 1.8% Avg. IEA 2,385,886 2,227,386 2,318,175 2,374,172 2,472,509 Cost/Income 42.4% 49.2% 45.1% 46.7% 44.7% Goodwill 0 0 0 0 0 Cost/Assets 0.8% 0.8% 0.8% 0.8% 0.8% Assets 2,497,532 2,509,708 2,618,402 2,681,509 2,810,560 Pre-Provision ROA 1.1% 0.8% 1.0% 0.9% 1.0% LLP/Loans -0.7% -0.5% -0.2% -0.2% -0.2% Deposits 1,473,470 1,547,309 1,577,120 1,660,424 1,748,872 Loan/Assets 53.5% 53.0% 54.8% 56.1% 56.7% Long-term bond funding 82,512 80,541 80,200 77,900 81,901 Other Prov, Income/ Assets Other Borrowings 47,153 50,550 58,901 56,601 60,602 Operating ROA 1.1% 0.8% 1.0% 0.9% 1.0% Avg. IBL 2,207,178 2,031,888 2,105,883 1,718,372 1,776,264 Pre-Tax ROA 0.7% 0.6% 0.8% 0.8% 0.9% Avg. Assets 2,453,572 2,503,620 2,564,055 2,649,955 2,746,034 Tax rate 22.1% 17.3% 15.1% 13.6% 14.4% Common Equity 196,295 201,241 203,179 210,949 219,618 Minorities & Outside Distbn. RWA - ROA 0.6% 0.6% 0.7% 0.8% 0.8% Avg. RWA - RORWA 0.8% 0.9% 1.0% 1.1% 1.1% Equity/Assets 7.9% 8.0% 7.8% 7.9% 7.8% ROE 7.7% 7.6% 8.8% 9.7% 10.1% Source: Company reports and J.P. Morgan estimates.
323
Metalrgica Gerdau
www.gerdau.com
Overweight
Price: R$22.38 Price Target: R$32.00 End Date: Dec 2013
Company overview Metalrgica Gerdau is a holding company with its main asset being Gerdau, in which it holds a 40.9% stake (78.4% of ONs and 22.1% of PNs). Gerdau is the largest long steel producer in the Americas and the second largest in the world, with total capacity of 25.3Mtpy. In addition, Gerdau has ~7Mtpy iron ore capacity with plans to expand up to 18Mtpy by 2016. Metalrgica Gerdaus shares are listed on the Bovespa under the tickers GOAU4 (PNs) and GOAU3 (ONs). Investment case We expect stronger demand in Brazil (as investments for the 2014 World Cup pick up) and in the US (driven by continued recovery in the US non-residential construction market). In addition, 2013 should see improved sales mix in Brazil as the companys HRC facility is started as well as improved costs given 100% self-sufficiency in iron ore. Finally, we expect improved capex discipline, as hinted during 3Q12 results. We see Metalrgica as a cheaper way to gain exposure on Gerdau S.A. How much recovery has already been priced in, what are the key metrics? Gerdau is trading at 6.4x 2013E EBITDA, which is below peers average of 6.8x. In addition, we believe a relatively benign competitive environment vs. flat steel and an encouraging bottom-up story (adding value, iron ore capacity) may warrant a valuation premium vs. peers. Earnings risks in 2013 We believe the earnings forecasts for Gerdau are balanced with JPM estimates in line with consensus. There is, however, some downside risk to earnings if the recovery in demand is weaker than expected. Price target, and risks to our investment view Our Overweight rating and Dec 13 price target of R$32.0 is based on a SOTP valuation with a holding discount to NAV of 10%. In the SOTP, we value Metalrgicas participation in Gerdau BG Participaes and other assets at book value. The stake in Gerdau S.A. is valued at our estimated fair value for GGBR4 shares, which is extended to GGBR3 shares. We estimate the fair value for Gerdau (GGBR4) with a combination of DCF (80% weight; WACC of 9.4%) and multiples (20% weight) analysis. Key downside risks are weaker than expected steel demand in the US and Brazil, weaker than expect steel prices, lack of capex discipline, expensive acquisitions, among others.
Metalrgica Gerdau S.A. (GOAU4.SA;GOAU4 BZ) FYE Dec 2007A 2008A EPS - Recurring (R$) FY 3.90 3.06
Source: Company data, Bloomberg, J.P. Morgan estimates.
Source: Bloomberg.
2009A 1.20
2010A 2.10
2011A 1.87
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
324
325
Overweight
Price: Php4.27 Price Target: Php5.00
Abs Rel
1m 1.9% 0.5%
3m 1.9% -2.1%
Source: Bloomberg.
FY14E 28,441 8,506.7 0.32 0.04 10.0% 12.0% 12.7% 10.6% 13.5 1.1 0.8 0.9%
Company Data Shares O/S (mn) Market cap (Php mn) Market cap ($ mn) Price (Php) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Php mn) 3M - Avg daily Value (USD) ($ mn) PSE Exchange Rate Fiscal Year End
24,601 105,048 2,558 4.27 09 Nov 12 40.0% 19.29 80.48 1.96 5,469 41.07 Dec
326
-9,203 -11,103 -6,652 -8,387 -8,294 0 0 0 0 0 -3,969 -3,234 -3,120 -2,759 -2,293 4,984 -3,581 3,601 2,632 3,993 66 -10,401 12 0 6,380 4,942 0.01 FY10 57.1% 43.5% 15.5% 15.1% 15.3% 24.8% 24.7% 2.67 45.4% 0.14 2.42 5.4% 9.1% 6,600 0 0 0 6,981 -1,067 -2,069 -3,301 -961 -1,064 -1,064 -1,064 4,942 7,715 11,213 13,770 7,715 11,213 13,770 16,511 0.04 0.04 0.04 0.04 FY11 56.3% 43.0% 22.9% FY12E 58.1% 47.0% 27.9% FY13E 60.0% 48.8% 29.4% FY14E 61.6% 50.2% 29.9%
2.5% (8.3%) 10.8% 10.0% 18.9% 5.8% 10.8% 10.0% 76.3% 28.5% 16.8% 12.0% 52.0% 11.3% 16.8% 12.0% 3.84 4.34 5.63 7.65 44.4% 34.5% 25.6% 16.1% 0.16 0.16 0.16 0.17 2.18 2.23 2.12 2.07 8.5% 9.6% 10.3% 10.6% 10.2% 10.6% 11.7% 12.7%
327
Mindray Medical
www.mindray.com
Company overview Mindray is Chinas largest exporter of medical devices and the most profitable medical device manufacturer in China. It is based in Shenzhen, develops new products in-house and assembles most of its products in two factories in Shenzhen. Key products include patient monitors and life support, in-vitro diagnostic products and medical imaging. Investment case Mindrays global presence minimizes the companys risks with over-exposure to any particular markets. The company derives cost advantage from China-based R&D and manufacturing, which allows the company's to compete effectively against MNCs with favorable quality to price trade-off in international markets. Recent share pullback due to perceived weakness of 3Q results may allow for an attractive entry point for investors seeking balanced growth. Key attractions in an anemic growth environment After recording six quarters of 20%+ Y/Y growth in China, we see continued growth to be sustained from: 1) government unabated spending on building up county-level hospitals; 2) deepening penetration to key accounts; and 3) opportunistic M&A. US sales are expected to recover as Obamacare will not be repealed and the medical services sector should expand in the US with 30 million more people with insurance coverage. Earnings risks in 2013 Stronger-than-expected performance of newly launched products and potentially impaired sales of Japanese products due to Sino-Japan conflicts may drive earnings upside. Budget constraints should relax eventually in Europe, leading to higher hospital capex spending and purchase of medical equipment. Price target, and risks to our investment view MR trades at a 17.3x FY13E P/E. Our DCF based Dec-13 PT of US$39.0 implies a FY13E P/E of 20.1x. Key risks to our PT are the sustainability of the domestic market and tender sales for new hospitals might be lower than we expect.
Mindray Medical (Reuters: MR, Bloomberg: MR US) $ in mn, year-end Dec FY09A FY10A Revenue ($ mn) 634 704 Net Profit ($ mn) 138.6 155.7 EPS ($) 1.28 1.37 DPS ($) 0.26 0.30 Revenue growth (%) 15.8% 11.1% EPS growth (%) 25.2% 6.8% ROCE 19.2% 17.5% ROE 24.3% 19.4% P/E (x) 25.5 23.8 P/BV (x) 5.4 3.6 EV/EBITDA (x) -0.2 -2.1 Dividend Yield 0.8% 0.9%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: US$32.69 Price Target: US$39.0
Abs Rel
1m -0.8% -0.3%
3m -7.9% -21.4%
Source: Bloomberg.
FY11A 881 166.6 1.47 0.32 25.1% 7.6% 16.0% 16.0% 22.2 3.1 -2.2 1.0%
FY12E 1,060 194.3 1.72 0.38 20.3% 16.6% 17.0% 16.2% 19.0 2.7 -2.2 1.2%
FY13E 1,255 225.2 1.99 0.44 18.4% 15.9% 17.1% 16.1% 16.4 2.3 -2.3 1.3%
Company Data Shares O/S (mn) Market cap ($ mn) Market cap ($ mn) Price ($) Date Of Price Free float (%) 3-mth trading volume (mn) 3-mth trading value ($ mn) 3-mth trading value ($ mn) MSCICNX-HLTH Exchange Rate Fiscal Year End
328
Cash flow statement FY11 FY12E FY13E FY14E $ in millions, year end Dec 881 1,060 1,255 1,447 EBIT 25.1% 20.3% 18.4% 15.3% Depr. & amortization 486 584 685 786 Change in working capital 21.3% 20.1% 17.3% 14.8% Taxes 221 265 306 348 Cash flow from operations 8.4% 19.9% 15.4% 13.9% 167 205 240 276 Capex 7.2% 22.7% 17.0% 14.9% Net Interest 19.0% 19.3% 19.1% 19.1% Other 19 15 18 21 Free cash flow 190 224 262 303 9.4% 18.0% 17.3% 15.4% -23 -29 -37 -45 Equity raised/(repaid) 11.9% 12.9% 13.9% 14.9% Debt raised/(repaid) 166.6 194.3 225.2 256.8 Other 7.0% 16.6% 15.9% 14.0% Dividends paid 106 106 106 106 Beginning cash 1.47 1.72 1.99 2.27 Ending cash 7.6% 16.6% 15.9% 14.0% DPS Ratio Analysis FY11 FY12E FY13E FY14E $ in millions, year end Dec 493 592 714 867 Gross margin 170 195 219 240 EBITDA margin 99 119 141 163 Operating margin 41 35 52 81 Net margin 804 941 1,126 1,350 Sales per share growth 139 142 144 147 Sales growth 314 369 430 498 Net profit growth 1,316 1,504 1,749 2,038 EPS growth Interest coverage (x) 0 0 0 0 55 67 79 91 Net debt to equity 132 134 138 142 Working Capital to Sales 187 201 217 233 Sales/assets 0 0 0 0 Assets/equity 12 14 17 19 ROE 199 215 234 253 ROCE 1,117 1,289 1,514 1,784 10.54 12.16 14.29 16.83
FY10 156 48 65 0 261 -63 9 0 199 4 -31 215 434 0.30 FY10 57.0% 29.0% 22.1% 22.1% 5.6% 11.1% 12.3% 6.8% -
FY11 167 54 -39 0 186 -90 19 -0 96 2 -35 434 493 0.32 FY11 55.2% 25.1% 19.0% 18.9% 25.7% 25.1% 7.0% 7.6% -
FY12E 205 60 -35 0 228 -90 15 -0 138 2 -39 493 592 0.38 FY12E 55.1% 25.0% 19.3% 18.3% 20.3% 20.3% 16.6% 16.6% -
FY13E 240 66 -35 0 272 -103 18 -0 169 3 -46 592 714 0.44 FY13E 54.6% 24.4% 19.1% 18.0% 18.4% 18.4% 15.9% 15.9% -
FY14E 276 73 -31 0 323 -116 21 -0 207 3 -53 714 867 0.50 FY14E 54.4% 24.1% 19.1% 17.8% 15.3% 15.3% 14.0% 14.0% -
-44.8% -44.2% -45.9% -47.1% -48.6% 25.3% 24.3% 23.3% 22.4% 21.5% 0.67 0.71 0.75 0.77 0.76 1.25 1.25 1.17 1.15 1.14 19.4% 16.0% 16.2% 16.1% 15.6% 17.5% 16.0% 17.0% 17.1% 16.7%
DCF Calculation
329
Mobily
www.mobily.com.sa
Company overview Etihad Etisalat (Mobily) is Saudi Arabias 2nd mobile operator, also providing data and internet services. As a single-country operator, Mobily has c.40% customer market share and covers over 90% of the populated area with its mobile network. Through its subsidiaries, Mobily also develops software programmes, maintains telecom networks and participates in the wholesale / retail trading of telecom equipment, electronics, computers and computer peripherals. Mobily also owns a major stake in the 13,800km long Saudi National Fiber Network. Investment case We believe Mobily is a rare investment opportunity offering an attractive mix of strong growth in combination with good FCF yields and healthy dividend yields. Mobily's focus on the under-penetrated broadband market in Saudi continues to be the key driver of its operational growth and we forecast 2011-14E rev/EBITDA CAGR of 7%/8% for Mobily. Supported by Mobilys rising FCF yield to 11% in 2014E, we expect 2012E and 2013E DPS of SR4.25/sh and SR5.0/sh implying a healthy divi yield of 6.1% and 7.2%, respectively. Our scenario analysis suggests substantial upside potential to total shareholder remuneration based on Mobilys conservative balance sheet. Key attractions in an anemic growth environment Mobilys strong rev growth continues to be mainly driven by a) increasing contribution of higher-margin data rev (26% of total rev in 9M12), b) growing post-paid rev (+15% yoy in 9M12), c) strong 9M12 business sector rev growth of 64% yoy, and d) mobile device sales (especially, smartphones). Mobilys financial performance is underpinned by growing mobile data usage and government spending on projects. Earnings risks in 2013 We believe Mobilys earnings risk remains on the upside following a strong track record of beating estimates. Given Mobilys strong growth and cash flow profile, we see potential for positive surprises with regards to shareholder returns. Price target, and risks to our investment view Our Dec 2013 PT of SR88.0 is derived from our DCF-based valuation analysis (riskadj WACC 11.1%, terminal growth 2%). Key regulatory risks include licensing, termination fees and access to infrastructure. Any potential change to the economic environment is likely to have an impact on our f/c. Our f/c already factor in reasonable levels of competition. However, less or irrational competition could impact our growth and margin f/c more than expected. Etisalat, Mobilys parent company, has started an assessment of the balance sheets of its opcos and this, in our view, could result in potential upside to shareholder remuneration.
Etihad Etisalat Company (7020.SE;EEC AB) FYE Dec 2011A Revenue FY (SRls mn) 20,052 EBITDA FY (SRls mn) 7,454 EBITDA margin FY 37.2% EBIT FY (SRls mn) 5,305 Adj. EPS FY (SRls) 7.26 DPS (Gross) FY (SRls) 3.25 EV/EBITDA FY 7.3 Dividend Yield FY 4.7% Adj P/E FY 10.4
Source: Company data, Bloomberg, J.P. Morgan estimates. 330
Overweight
Price: SR75.25 Price Target: SR88.00
Abs
YTD 38.8%
1m 6.2%
3m 11.1%
12m 40.1%
Source: Bloomberg.
2012E 22,632 8,351 36.9% 5,982 8.18 4.25 6.6 6.1% 9.2
2013E 23,976 8,979 37.5% 6,212 8.43 5.00 6.0 7.2% 8.9
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn) 3M Avg Daily Trading Val (USD mn)
Cash flow statement FY15E SRls in millions, year end Dec 25,449 Cash EBITDA 2.7% Interest 9,607 Tax 2.7% Other 37.8% Cash flow from operations 6,079 -1.3% Capex PPE 23.9% Net investments (138) CF from investments 5,998 Dividends -0.5% Share (buybacks)/ issue 5,848 (0.5%) CF to Shareholders 700.00 FCF to debt 8.35 NM OpFCF (EBITDA - PPE) 5.43 EFCF pre Div, PPE Ratio Analysis FY15E SRls in millions, year end Dec 8,005 EBITDA margin 7,635 EBIT Margin 0 Net profit margin 2,379 Capex/sales 18,019 Depreciation/Sales 8,956 22,269 Revenue growth 49,244 EBITDA Growth 633 EPS Growth 7,762 4,401 Net debt/EBITDA 12,797 CF to Shareholders 7,935 FCF to debt 1,176 21,908 OpFCF (EBITDA - PPE) 49,244 EFCF pre Div, PPE
FY11 FY12E FY13E FY14E FY15E 2,149 2,369 2,767 3,201 3,529 (150) (204) (218) (184) (138) (72) (105) (151) (151) (150) (559) (1,191) 217 284 401 11,978 12,833 15,039 15,462 15,799 (3,700) (4,006) (4,196) (3,718) (3,563) 292 0 0 0 0 -3,408 -4,006 -4,196 -3,718 -3,563 (2,275) (3,631) (3,369) (3,631) (3,770) 0 0 0 0 0 (2,275) (3,631) (3,369) (3,631) (3,770) 990 -786 1,262 1,957 2,387 3,754 3,265 FY11 37.2% 26.5% 25.4% 18.5% 0.1 4,345 2,845 FY12E 36.9% 26.4% 25.3% 17.7% 0.1 4,783 4,631 FY13E 37.5% 25.9% 24.6% 17.5% 0.1 5.9% 7.5% 3.0% 5,639 5,589 FY14E 37.8% 24.8% 23.7% 15.0% 0.1 3.4% 4.2% NM 6,044 6,157 FY15E 37.8% 23.9% 23.0% 14.0% 0.1 2.7% 2.7% NM
0.7 0.7 0.5 0.3 0.1 (2,275) (3,631) (3,369) (3,631) (3,770) 990 -786 1,262 1,957 2,387 3,754 3,265 4,345 2,845 4,783 4,631 5,639 5,589 6,044 6,157
331
Naspers Limited
www.naspers.com
Company overview Exposure to market leadership positioning in social networking, gaming and broader mobile and internet value added services in both China and Russia through the groups large stakes in Tencent (34.6%) and Mail.ru (30.8%). Naspers has a dominant position in Pay TV services in 48 countries in the African continent and South Africa. Also, the company operates an attractive portfolio of EM eCommerce internet assets across markets in Eastern Europe, LATAM, South East Asia and India. Investment case Market yet to fully appreciate medium-term earnings growth potential. Core Internet earnings destruction has already occurred we believe a change in earnings operating leverage is set to occur at Naspers in FY14E (March 2013 onwards). The combination of robust Tencent growth, solid Pay TV growth and attractive year-over-year base effects brought about by loss-reversal in the Core Internet will support a 3yr CAGR of 28%+ at Naspers in our view. We expect Naspers to hold its PE and capital upside to be driven by earnings expansion. Key attractions in an anemic growth environment (1) Growth dynamics particularly in the Core Internet remain very robust (JPMe FY13E revenue growth of c80% yoy). (2) Development spend starts to initially stabilise (12 -18 months) and potentially reverse (2-3 years). We estimate that for every 1% drop in development spend-to-revenue ratio HEPS growth at Naspers could increase by 8-9%. (3) Earnings growth at Naspers could prove to be very macro and FX proof as costs unwind will be a dominant factor driving earnings surprises. (4) Tencent which accounts for c80% of earnings at Naspers through the investment cycle has a favourable outlook. Earnings risks in 2013 Near-term shock risk include - 1) greater than expected competition and regulation in key markets 2) prolonged unstable macro and political environment 3) unanticipated M&A that could be dilutionary on a group level. Price target, and risks to our investment view Our TP of R625.1 is derived using a sum-of-the-parts (SoTP) methodology and have preferred DCF methodology blended with the multiple valuation methodology (where appropriate) to value the underlying assets of Naspers. Key risks include increased emerging market risk aversion and macro shocks, disappointing operational performance and exchange rate fluctuations.
Naspers Ltd (NPNJn.J;NPN SJ) FYE Mar Adj. EPS FY (c) Adj P/E FY Bloomberg EPS FY (c) EBITDA margin FY Revenue FY (R mn) FCF FY (R mn) EBIT margin FY Adj EBITDA FY (R mn) 2012A 1,850.38 30.6 1,769.70 17.6% 39,487 3,246 8.1% 6,960 2013E 2,230.01 25.4 1,911.90 14.2% 49,046 1,641 9.0% 6,944 2014E 2,874.20 19.7 2,316.30 13.8% 57,171 2,328 8.9% 7,862
Overweight
Price: 56,600c Price Target: 62,511c
(27 11) 507-0456 ziyad.x.joosub@jpmorgan.com Bloomberg JPMA JOOSUB <GO> J.P. Morgan Equities Ltd.
P r ic e P e r fo r m a n c e
60,000 55,000 50,000 c 45,000 40,000 35,000 30,000
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 59.8%
1m 5.5%
3m 18.7%
12m 44.6%
Source: Bloomberg.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn) Free Float
332
(1,802) (2,013) (2,736) (2,102) 3,851 (83) 3,666 5,829 7,401 3,246 305 2,429 7,401 8,791
273.76 335.00
FY11 FY12 FY13E FY14E FY15E 18.2% 19.4% 24.2% 16.6% 15.3% 0.4% -21.1% 38.0% 14.7% 37.4% 20.6% -61.1% 106.0% 17.6% 44.2% 1.0 15.5% 26.6 30.0 2.2% 2.1% 1.2 16.2% 27.7 30.0 2.0% 1.7% 1.4 19.0% 28.0 25.4 1.7% 0.9% 1.3 18.3% 24.9 19.7 0.8% 1.3% 0.9 15.1% 19.5 15.4 1.2% 2.1%
333
Natura
www.natura.net
Overweight
Price: R$55.62 Price Target: R$62.00 End Date: Dec 2013
Company overview Natura is the leading player in the beauty and personal care market in Brazil with 15% market share. The company also has operations in other Latin American markets such as Argentina, Bolivia, Chile, Colombia, Mexico, and Peru, which together represent 10% of its sales. Natura sells exclusively through direct selling with a 1.5m sales rep base in LatAm, of which 1.2m are in Brazil. Investment case The key triggers for the stock would be (1) sales growth acceleration in Brazil not only derived from a better than expected macro environment but also a faster maturation of several measures being implemented and successful new product launches; (2) international operations positively surprising or if management executes accretive M&A to enhance the international footprint. How much recovery has already been priced in, what are the key metrics? We think the market is pricing in 12-13% sales growth for Brazil vs. 11% in 2011. Natura is a lower beta stock as it has a very resilient sale mix, but in an expansionary cycle it has grown at ~2.5x GDP. The stock trades at 22.9x 2013E P/E, in line with consumer staples names but with mid teens EPS vs. low teens for staples. Relative to retailers it is trading at a limited 4% premium that we think is unfair considering its higher ROE and cash flow. Earnings risk in 2013 Key earnings risks are lower than expected sales growth and the margin outlook. Price target, and risks to our investment view We rate Natura OW and have a R$62 PT for Dec 2013. Our price target is based on a 10-year FCFF valuation using a WACC of 11.8% in nominal reais and a 6% growth rate in perpetuity. The key risk to not performing well would be if sales growth in Brazil does not accelerate.
Source: Bloomberg.
Natura Cosmeticos SA (NATU3.SA;NATU3 BZ) FYE Dec 2011A EPS Reported (R$) FY 1.83 Bloomberg EPS FY (R$) 1.85 EBITDA FY (R$ mn) 1,425 P/E FY 30.0
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
334
FY15E 9,319 (2,730) (4,471) 2,118 22.7% (217) 2,334 25.1% 90 (191) 0 2,017 (646) 0 0 1,371 14.7% 3.18 13.0% 13.6% 14.2% 19.1% FY15E (326) (90) 1,171 1,141 83.3% 1.5 (3.5%) 809 8.7%
Balance Sheet Cash Accounts receivable Inventories Other current assets Net PP&E Other Assets Total assets Short-term debt Accounts payable Other current liabilities Long-term debt Deferred taxes Other liabilities Total liabilities Minority interest Shareholders' equity Liabilities + Equity
357 408 465 528 597 800 1,041 1,216 1,348 1,457 789 900 950 997 1,047 3,793 4,490 4,876 5,296 5,762 169 1,089 1,089 1,089 1,089 489 588 672 765 868 617 702 799 906 1,024 1,018 476 476 476 476 0.0 0.0 0.0 0.0 0.0 250 300 317 333 349 2,543 3,156 3,354 3,569 3,806 0 0 0 0 0 1,250 1,334 1,523 1,727 1,956 3792.90 4489.80 4876.09 5296.14 5762.38 671 27.5% 48.7% 0.5 FY11A 16.4 30.0 18.1 4.1 1.6% 3.2% 66.3% 14.1% 1.5 3.0 40.0% 431 866 29.9% 54.0% 0.6 FY12E 15.0 25.8 17.0 3.6 3.0% 3.6% 69.6% 14.4% 1.4 3.4 37.5% 431 961 31.1% 50.7% 0.5 FY13E 13.2 22.7 14.9 3.1 3.5% 3.6% 73.1% 14.4% 1.5 3.2 38.2% 431 1,005 30.5% 47.5% 0.5 FY14E 11.5 19.7 13.1 2.8 4.3% 4.2% 73.9% 14.6% 1.6 3.1 40.0% 431 1,009 28.6% 44.4% 0.4 FY15E 10.1 17.3 11.6 2.4 5.2% 4.8% 70.1% 14.7% 1.6 2.9 42.2% 431 -
Sales Area (Sq,m) Floor Space Growth No. of Stores SSS growth (nominal terms) # of PL cards issued % of sales in 0+5x (no interest) % of sales on interest plans Bad Debt Provisions Personal Loans Portfolio Capex Maintenance Expansion
Net Debt Net Debt/Capital Debt/Capital Net Debt/EBITDA Valuation, Macro EV/EBITDA P/E P/BV P/S FCF yield Dividend yield ROE Net income margin Net revenue/Assets Assets/Equity - ROIC - Shares - ADRs - DCF - WACC - Perpetual Growth - Cost of equity - Cost of debt (326) -
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
335
Novatek
www.novatek.ru
Company overview Novatek is Russias largest independent natural gas producer with over 15tr boe of 2P hydrocarbon reserves located in Yamal-Nenets and Yamal regions of Russia. The company supplied 15% of the domestic gas market in 2011, and has established an advanced value chain in liquid hydrocarbons at its Purovsky and Ust-Luga facilities. Novatek plans to expand its gas business beyond Russian borders through its Yamal LNG project, by creating a new production center on the Yamal peninsula and building 15mn tn LNG facility in partnership with TOTAL. Investment case Growth of hydrocarbon production and support from the states program of domestic gas price liberalization remain key investment points for the company. We expect 2012E sales volumes to rise by up to 12% y/y on the back of increased core production (up 5.5% y/y), along with the rising share of output from the equity subsidiaries and gas resale business. Gas sales are forecast by us to exceed 74bcm in 2017, up from 59bcm projected for 2012, with gas business appended by strong liquids component in the companys sales mix (34% of 2013E revenue generated by the liquids segment). Key attractions in an anemic growth environment Organic and equity-based output growth, strong M&A track record, prudent fiscal control and total market focus, excellent management team and political backing. We see 2013 as a key year for the company's to secure its position on the domestic market and as it prepares to enter the global LNG business. Earnings risks in 2013 Oil price fluctuations have a reduced effect on Novateks P&L, as the companys domestic gas business remains regulated. Loss of a large gas offtaker (Gazprom remains Novateks largest customer) could be the companys biggest risk, though an abrupt termination of gas contracts appears to us unlikely at this point. Price target, and risks to our investment view Our end-13 PT for Novatek is $180/GDR, established through DCF-based fair value method. Direct competition from state-supported independent gas producers appears to us as the key risk to the mid-term outlook, followed by a higher govt tax levy. Escalation of capex for Yamal LNG and global gas supply overhang represent crucial long-term risks, we believe.
OAO Novatek (NVTKq.L;NVTK LI) FYE Dec Adj. EPS FY ($) Revenue FY ($ mn) EBITDA FY ($ mn) Net Attributable Income FY ($ mn) Adj P/E FY EV/EBITDA FY EBITDA margin FY Dividend (Gross) FY ($) 2011A 13.40 5,989 5,132 4,070 7.5 7.7 85.7% 0.19 2012E 7.74 7,674 3,435 2,349 13.1 11.5 44.8% 0.23 2013E 10.44 10,311 4,298 3,170 9.7 9.2 41.7% 0.31
Overweight
Price: $101.2 Price Target: $180.0
Abs
YTD -15.4%
1m -14.3%
3m -11.5%
12m -29.0%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
336
FY12E FY13E FY14E 920 1,384 2,047 666 895 1,133 67 90 114 642 863 1,093 2,296 3,232 4,387 5,278 6,156 7,033 5,455 7,025 8,899 13,029 16,412 20,319
Liabilities ST loans 632 750 Payables 775 1,067 Others 152 156 Total current liabilities 1,559 1,973 Long term debt 2,339 1,921 Other liabilities 512 512 Total liabilities 4,411 4,406 Shareholders' equity 7,500 9,213 BVPS 25 30 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY15E $ in millions, year end Dec 15,469 EBIT 18.5% Depreciation & amortisation 43.5% Change in working capital/Other 6,244 Taxes 17.7% Cash flow from operations 40.4% 5,801 Capex 18.0% Disposal/(Purchase)/Other 37.5% Net Interest 12 Free cash flow 6,484 23.6% Equity raised/repaid (1,162) Debt Raised/repaid 17.9% Other 5,305 Dividends paid 24.8% Beginning cash 303.63 Ending cash 17.47 DPS 24.8% Ratio Analysis FY15E $ in millions, year end Dec 2,699 EBITDA margin 1,342 Operating margin 135 Net profit margin 1,295 SG&A/Sales 5,471 Sales per share growth 7,033 EPS growth 10,880 23,384 ROE ROCE
FY11 4,817 316 (142) (535) 4,456 (1,451) 367 (92) 3,279 0 582 (25) (922) 319 742 0.19 FY11 85.7% 80.4% 68.0% 5.7%
FY12E 3,104 331 3 (621) 2,818 (1,766) 0 (2) 1,051 0 -300 0 (636) 742 920 0.23 FY12E 44.8% 40.5% 30.6% 5.8%
FY13E FY14E FY15E 3,946 4,916 5,801 351 389 443 4 14 (4) (790) (985) (1,162) 3,512 4,334 5,078 (1,987) (2,329) (2,469) 0 0 0 2 8 12 1,527 2,012 2,621 0 0 0 -300 -300 -600 0 0 0 (828) (1,113) (1,433) 920 1,384 2,047 1,384 2,047 2,699 0.31 0.42 0.52 FY13E FY14E FY15E 41.7% 40.6% 40.4% 38.3% 37.6% 37.5% 30.7% 32.5% 34.3% 4.7% 3.7% 3.1% 34.4% 34.9% 27.4% 22.7% 1,165 98 968 98 26.6% 34.0% 28.9% 25.3% 1,277 99 1,080 98 18.5% 24.8% 28.6% 26.4% 1,437 136 1,202 98
55.4% 28.1% 204.9% (42.3%) 54.3% 38.8% 1,044 96 851 96 52.4 29.6% 2,229 0.6 25.5% 19.7% 1,106 101 907 99
890 790 690 Production (mboe/day) 1,486 1,901 2,257 Production oil (mbpd) 198 272 330 Production gas (mboe/day) 2,574 2,963 3,277 Refining throughput (mbpd) 1,481 1,281 781 512 512 512 Interest coverage (x) 4,567 4,756 4,570 Net debt to equity 11,555 14,692 18,563 Net debt 38 49 61 Net debt/EBITDA (ny)
2057.6 (1595.5) (647.6) (497.1) 18.9% 8.5% 0.2% -6.6% 1,751 987 24 -1,228 0.5 0.2 0.0 (0.2)
337
Overweight
Price: NT$113.00 Price Target: NT$135.00
Abs Rel
1m 6.6% 10.5%
3m 21.5% 23.4%
Source: Bloomberg.
Share Price: NT$113.00, Date of Price: (09 Nov 12), Bloomberg 3034 TT, Reuters 3034.TW
(Year-end Dec, NT$ bn) Revenue Gross profit Operating profit EBITDA Net Income Profit growth (%) EPS (NT$)* BVPS (NT$, yr-end) Cash dividend yield (%) ROE(%) ROIC (net of cash, %) Net debt/equity (%) FY11 FY12E FY13E FY14E 35.0 36.4 42.4 48.1 8.9 10.1 12.3 14.5 4.2 5.2 6.5 8.0 4.6 5.6 7.0 8.5 3.7 4.3 5.6 6.9 -19.4 17.7 28.0 23.1 6.15 7.21 9.22 11.35 36.9 39.5 43.4 47.8 5.1 4.1 4.8 6.1 16.7 18.9 22.2 24.9 26.5 33.2 40.1 45.3 -72.2 -73.8 -70.4 -71.2 P/E (x) P/B (x) EV/EBITDA (x) FCF/Mkt cap (%) Price target PT (31 Dec 13) Diff from consensus Quarterly EPS (NT$) EPS (12)E EPS (13) E EPS (14) E
FY11 FY12E FY13E 18.4 15.7 12.3 3.1 2.9 2.6 11.5 9.3 7.3 6.0 7.4 7.6
FY14E 10.0 52-Week range NT$ 119 - 68 2.4 Share Out'g 603M 5.7 Avg daily volume 5.8M 9.4 Avg daily val (US$) 19.61M Local Free float 73.9% NT$ 135.00 Market Cap (US$) 2.3B 19.3% Exchange rate NT$ 29/US$1 Index (TWSE) 7,293 3Q 4Q FINI Holding (%) 48.1% 2.15 2.05 2.61 2.71 3.10 3.06
338
Ratio analysis FY11 35.0 26.1 8.9 3.7 1.0 4.2 4.6 0.1 (0.1) (0.2) 0.1 4.2 (0.5) 3.7 6.2 36.9 5.8 600.6 FY11 16.0 10.6 2.8 0.5 30.0 1.9 1.5 3.1 36.5 7.9 4.0 2.3 14.2 0.0 0.1 14.2 6.0 3.9 12.2 0.1 22.2 FY12E 36.4 26.3 10.1 3.9 1.0 5.2 5.6 0.1 (0.1) (0.4) 0.1 5.0 (0.6) 4.3 7.2 39.5 4.6 603.0 FY12E 17.6 10.8 3.6 0.6 32.6 1.5 1.6 3.0 38.8 7.1 4.7 3.1 14.8 0.0 0.1 14.9 6.0 3.9 13.8 0.1 23.8 FY13E 42.4 30.1 12.3 4.6 1.2 6.5 7.0 0.2 (0.1) (0.3) 0.1 6.4 (0.8) 5.6 9.2 43.4 5.4 603.5 FY13E 18.4 12.7 3.5 0.7 35.3 2.3 1.6 3.0 42.2 7.2 5.2 3.6 16.0 0.0 0.1 16.1 6.0 3.9 16.1 0.1 26.2 FY14E 48.1 33.6 14.5 5.2 1.3 8.0 8.5 0.2 (0.1) (0.3) 0.1 7.9 (1.1) 6.9 11.4 47.8 6.9 603.5 FY14E 20.6 13.1 4.5 0.8 38.9 2.0 1.7 3.0 45.6 7.3 5.4 4.0 16.7 0.0 0.1 16.7 6.0 3.9 18.8 0.1 28.9 %, year-end Dec Gross Margin EBITDA margin Operating Margin Net Margin R&D/sales SG&A/Sales Sales growth Operating Profit Growth Net Profit growth EPS (adjusted) growth Interest coverage (x) Net debt to equity Days receivable Days inventory Days payable Cash cycle Asset Turnover ROE (single year) ROIC (net of cash) Cash flow statement TWD in billions, year-end Dec Net Income Depr. & amortization Change in receivables Change in inventory Change in payables Other Cash flow from operations Capex Disposal/ (purchase) Cash flow from investing Free cash flow Equity raised/ (repaid) Debt raised/ (repaid) Dividends paid Other Cash flow from financing Net change in cash Beginning cash Ending cash FY11 3.7 0.4 (0.6) 0.8 (0.4) 0.2 4.1 (0.2) 0.2 (0.7) 3.9 (0.0) (3.5) 0.1 (3.4) 0.0 16.0 16.0 FY12E 4.3 0.4 (0.2) (0.8) 0.7 0.7 5.0 (0.3) 0.3 (0.0) 4.8 (0.8) (2.8) 0.0 (3.5) 1.6 16.0 17.6 FY13E 5.6 0.4 (1.9) 0.1 0.5 0.5 5.2 (0.3) (1.0) (1.3) 4.9 0.1 (3.2) (3.1) 0.8 17.6 18.4 FY14E 6.9 0.5 (0.4) (1.0) 0.2 0.3 6.4 (0.3) 0.1 (0.2) 6.1 0.1 (4.2) (4.1) 2.1 18.4 20.6 FY11 25.4 13.2 12.1 10.5 10.5 2.8 -3.4 -18.6 -19.4 -20.0 67 net cash 107.2 45.1 59.0 93.3 1.0 16.6 26.5 FY12E 27.8 15.3 14.3 11.9 10.8 2.8 4.0 22.3 17.7 17.2 102 net cash 106.9 44.7 60.2 91.5 1.0 18.2 33.2 FY13E 29.1 16.4 15.4 13.1 10.9 2.8 16.3 25.7 28.0 27.8 109 net cash 101.2 43.3 59.9 84.5 1.0 21.3 40.1 FY14E 30.2 17.6 16.7 14.2 10.8 2.8 13.6 22.9 23.1 23.1 134 net cash 97.8 43.2 57.3 83.7 1.1 23.7 45.3
339
Oberoi Realty
www.oberoirealty.com
Company overview Incorporated in 1998, Oberoi Realty is a leading Mumbai-based real estate development company primarily focused on the higher income segment. ORL enjoys a fairly strong brand name in the local market, as reflected in premium pricing and healthy offtake in its projects. The company has a development pipeline of 20msf across various segments to be developed over the next 5-6 years. Most of ORLs assets are located in city-centric locations in Mumbai, where visibility on both pricing and off takes is high. The companys two main township projects (in Goregaon Andheri) have gone on to become marquee locations within the respective areas. Investment case Oberoi is well placed to benefit from the improving policy environment in Mumbai and expected monetary easing ahead. Policy thaw in Mumbai should aid approvals/new launches and improve execution of the companys ongoing projects. Further, the companys luxury residential project in Worli is expected to be formally launched in the next few months. We expect the project to garner good pre-sales given visibility on project construction, potential tie up with a high-end brand and importantly a better location than competition. This project could be a big driver of earnings over the next year. Key attractions in an anemic growth environment The companys net cash position and strong annuity stream (can be securitized) positions it well for any sizeable and attractive buying opportunity that comes in the market, even as the funding environment for most other developers remains tight. Earnings risks in 2013 Delay in new launches remains the key risk to earnings. Further, slow leasing in commercial projects/ usage of cash remain key areas of concern. We think we are closer to the end of the office down-cycle and expect a pickup in FY14. Price target, and risks to our investment view We have an OW rating with a Mar-14 PT of Rs330. Our PT is based on 10x EBITDA inline with other residential RE developers. This implies a 15% discount to forward NAV. Key downside risk is sustained weakness in Mumbai markets and further launch delays especially for Worli project.
Oberoi Realty (Reuters: OEBO.BO, Bloomberg: OBER IN) Rs in mn, year-end Mar FY11A FY12A Revenue (Rs mn) 9,659 3,835 Net Profit (Rs mn) 5,177 2,177 EPS (Rs) 15.8 6.6 Net debt to Equity -43.7% -34.6% EPS growth (%) 6.1% -57.9% ROE 19.9% 6.1% P/E (x) 18.7 44.5 P/BV (x) 2.9 2.6
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: Rs294.95 Price Target: Rs330.00
Abs Rel
1m 10.1% 11.4%
3m 25.6% 21.0%
Source: Bloomberg.
Company Data Shares O/S (mn) Market cap ($ mn) Price (Rs) Date Of Price 3mth Avg daily volume 3M - Average daily Value (Rs mn) Average 3m Daily Turnover ($ mn) BSE30 Exchange Rate
340
Cash flow statement Rs in millions, year end Mar EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash Ratio Analysis Rs in millions, year end Mar EBIT Margin Operating margin Net margin
FY11 5,534 237 -4,576 2 839 -1,364 0 -524 10,074 0 0 -413 4,420 14,643 FY11 57.3% 57.3% 53.6% 26.8% 20.7% 6.1% -56.2% -43.7% 0.30 1.19 19.9% 21.2%
FY12 1,928 131 -4,021 1 -1,711 -807 0 -2,518 2,074 0 0 -386 14,643 12,934 FY12 50.3% 50.3% 56.8% (60.3%) -57.9% (57.9%) -36.5% -34.6% 0.09 1.21 6.1% 5.4%
FY13E 5,750 323 -2,866 3 2,411 -1,622 0 789 -0 0 0 -386 12,934 13,129 FY13E 52.5% 52.5% 45.2% 185.5% 127.4% 127.4% -33.1% -31.3% 0.22 1.31 12.5% 14.5%
FY14E 9,147 388 -12,176 4 -4,539 -3,414 0 -7,953 -0 0 0 -386 13,129 4,612 FY14E 56.7% 56.7% 44.9% 47.3% 46.3% 46.3% -10.2% -9.5% 0.27 1.35 16.0% 20.2%
Liabilities Current Liabilities 4,939 Others 410 Total current liabilities 5,349 Total debt 0 Other liabilities 0 Total Liabilities 5,349 Shareholders' equity 33,476 BVPS 101.99 Source: Company reports and J.P. Morgan estimates.
FY14E 4,612 4,032 13,992 28,532 51,169 Sales growth Net profit growth 0 EPS growth 14,483 65,652 Interest coverage (x) Net debt to total capital Net debt to equity 16,102 Sales/assets 783 Assets/equity 16,885 ROE 0 ROCE 0 16,886 48,766 148.57
341
Orion
www.orionworld.com
Company overview Orion was established in 1956 and has been a leading Korean confectionary company for the past 50 years it is the second largest player after Lotte. Since its first appearance overseas in China in 1993, Orion is becoming a major confectionary company not only in China but also in Vietnam, Russia and Japan. Investment case Orions brand equity and skill at regional penetration with innovative products in China should continue in 2013 due to its 1) still relatively low penetration ratio in China and the consistently increasing number of wholesalers, and 2) its competitive advantage in R&D to roll out new products, which some major players have been failing to deliver. Key attractions in an anemic growth environment Orions China strategy in 2013 will be similar to 2012 with continued focus on confectionarys regional expansion, along with the launch of several new products. Further OPM expansion is likely to come from economies of scale, while A&P amount is likely to be similar, given Orions strong belief that raising brand equity is one of the most important ways to boost sales growth. Domestic confectionary growth is likely to slow in 2013, but we think further OPM expansion is likely with better product mix. Earnings risks in 2013 Key upside risks to earnings are faster-than-expected sales growth in China due to strong demand and CNY appreciation against KRW. We assume mid-single-digit sales growth in Korea confectionary, which we think is conservative compared to company guidance and Street estimates. However, weaker-than-expected sales growth in Korea due to ongoing macro headwinds and the governments regulation on hypermarkets are downside risks. Price target, and risks to our investment view Our Dec-13 PT of W1,300,000 is based on 1.2x PEG, which is the weighted average PEG of Want Want and Lotte Confectionary, weighted for sales growth contribution from Korea and China, and EPS CAGR of 27.8% in 2013-2015. Key risks are: 1) sharp increase in raw material price, which the company might not be able to readily pass on to consumers, and 2) news flow that could bring into question the company's strict controls over food safety.
Orion (Reuters: 001800.KS, Bloomberg: 001800 KS) Year-end Dec FY11A FY12E Revenue (W bn) 1,914 2,387 Operating Profit (W bn) 210 305 Operating Margin 11.0% 12.8% Net Recurring Profit (W bn) 111 193 Net Profit (W bn) 111 193 EPS (W) 18,923.13 31,828.67 BVPS (W) 192,265 224,192 Revenue growth 18.1% 24.7% Operating growth 24.8% 45.2% Net Recurring Profit growth 18.9% 75.0% EPS growth -48.1% 68.2% ROE 11.2% 15.3% P/E (x) 63.1 37.5 P/BV (x) 5.5 4.7
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price:W1,052,000 Price Target: W1,300,000
Abs Rel
1m 3.7% 7.1%
3m 19.4% 17.2%
Source: Bloomberg.
FY13E 2,746 344 12.5% 225 225 39,020.15 261,841 15.1% 12.8% 16.5% 22.6% 16.1% 30.6 4.0
FY14E 3,325 440 13.2% 298 298 51,586.61 312,437 21.1% 27.9% 32.2% 32.2% 18.0% 23.1 3.4
Company Data 52-week Range (W) Market cap (W mn) Market cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily value (W bn) 3M Avg daily value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
1,069,000 - 573,000 6,276,232 5,752 6 Dec 1,052,000 06 Nov 12 56.2% 16.01 14.67 0.02 1928.17 1,091.10
342
Cash flow statement FY11 FY12E FY13E FY14E W in billions, year end Dec 1,914 2,387 2,746 3,325 Operating CF 1,077 1,313 1,537 1,861 Net Profit 837 1,073 1,209 1,464 Additions -624 -766 -865 -1,024 Financial cost 210 305 344 440 Depreciation 30 16 14 22 Amortization 62 43 36 36 Others 176 276 322 426 Deductions 65 83 97 128 Net change in assets/liabilities from oper. 111 193 225 298 Decr.(incr.) in assets from oper. 111 193 225 298 Incr(Decr.) in liabilities from Oper. 24.7% 45.2% 75.0% 75.0% 15.1% 12.8% 16.5% 16.5% 21.1% Cash Flows from Investing 27.9% Capex - Tangible 32.2% Capex - Intangible 32.2% St. Investment Cash Flows from Financing Debt FY14E Dividends 3,956 Increase in Cash 1,831 Cash at the Beginning 612 Cash at the End 305 470 132 2,124 1,543 101 15 15 Ratio Analysis (%) 12 % year end Dec 439 Margin GPM 2,314 OPM 1,058 NPM 508 298 EPS (W) 134 BVPS (W) 117 DPS (W) 1,256 237 RoE (%) NP/PBT (x) 1,642 PBT/EBIT (x) 30 EBIT/sales (%) 64 Sales/assets (x) 1,407 Assets/equity (x) 140 Net debt/equity (%) Total Liab./Equity (x)
FY11 170 99 269 0 -62 -48 12 30 -45 -54 9 -99 -190 -3 13 14 42 -17 90 0 216
FY12E 179 167 232 0 -66 -47 6 17 -184 -120 -64 -339 -210 -4 -126 105 176 -21 103 216 160
FY13E 382 205 223 0 -71 -55 0 14 -53 -120 68 -166 -160 -6 0 -27 0 -27 77 160 348
FY14E 462 271 258 0 -75 -55 0 22 -72 -166 93 -166 -160 -6 0 -32 0 -32 21 348 612
Balance sheet in billions, year end Dec Asset Current Asset Cash and cash equivalents Trade and Other Current Receivables Inventory Others Non-current asset Property, Plant and Equipment Intangible Assets Investment in Properties Inv. in associates, subsidiaries, JV Financial assets Others Liabilities Current liabilities Trade and Other Current Payables St. Debt Current portion of LT debt Others Non-current liabilities LT Debt Total shareholders' equity Paid-in Capital Capital Surplus Retained Earnings Capital Adjustment
FY11 FY12E FY13E 2,320 2,650 3,049 899 1,103 1,406 216 160 348 175 208 249 269 321 383 157 102 114 1,421 1,548 1,643 1,234 1,369 1,458 93 89 95 15 15 15 16 15 15 12 12 12 50 48 48 1,310 826 221 250 139 338 484 256 1,010 30 64 789 127 1,472 846 346 298 134 67 626 237 1,178 30 64 944 140 1,673 944 414 298 134 97 729 237 1,376 30 64 1,142 140
18,923 31,829 39,020 51,587 192,265 224,192 261,841 312,437 2,887 3,546 4,608 5,368 11.2% 0.6 0.8 11.0% 0.89 2.30 39.0% 1.3 15.3% 0.6 0.9 12.8% 0.96 2.25 35.4% 1.2 16.1% 0.6 0.9 12.5% 0.96 2.22 16.7% 1.2 18.0% 0.6 1.0 13.2% 0.95 2.41 -2.1% 1.4
343
Overweight
Price: HK$4.04 Price Target: HK$4.50
Abs Rel
1m 4.9% -0.3%
3m 5.5% -4.6%
Source: Bloomberg.
Pacific Basin Shipping (Reuters: 2343.HK, Bloomberg: 2343 HK) $ in mn, year-end Dec FY10A FY11A FY12E Revenue ($ mn) 1,269 1,343 1,441 Net Profit ($ mn) 104.3 32.0 -126.8 EPS ($) 0.05 0.02 (0.07) DPS ($) 0.03 0.01 0.00 Revenue growth (%) 33.5% 5.8% 7.3% EPS growth (%) NM NM NM ROCE 5.7% 3.1% -4.4% ROE 7.0% 2.1% -8.9% P/E (x) 9.6 31.5 -8.0 P/BV (x) 0.7 0.7 0.7 EV/EBITDA (x) 6.1 8.1 -58.9 Dividend Yield 5.3% 2.5% 0.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY13E 1,427 32.3 0.02 0.01 -0.9% NM 2.2% 2.4% 31.3 0.7 8.9 1.6%
FY14E 1,567 166.2 0.09 0.04 9.8% 414.6% 7.6% 11.7% 6.1 0.7 3.9 8.2%
Company Data Shares O/S (mn) Market cap ($ mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (HK$ mn) 3M - Avg daily Value (USD) ($ mn) HSI Exchange Rate Fiscal Year End
1,937 1,009 1,009 4.04 07 Nov 12 5.27 19.61 2.28 21,944 7.75 Dec
344
Cash flow statement $ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis $ in millions, year end Dec EBITDA margin Operating margin Net margin
FY10 134 58 -12 -0 199 -524 0 -31 62 -325 16 -10 -52 -50 1,049 690 0.03 FY10 15.2% 10.6% 8.2%
FY11 73 73 1 -0 159 -166 4 -31 131 -7 0 0 53 -53 690 599 0.01 FY11 10.9% 5.4% 2.4%
FY12E - 102 81 0 -1 144 -196 0 -25 0 -53 0 0 0 0 599 729 0.00 FY12E -1.5% (7.1%) -8.8%
FY13E FY14E 52 189 85 91 4 -17 -0 -2 120 239 -81 58 -20 0 39 0 0 16 -16 729 814 0.01 -46 58 -22 0 193 0 0 83 -83 814 985 0.04
Balance sheet $ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets Liabilities Short-term loans Payables Others Total current liabilities Long-term debt Other liabilities Total Liabilities Shareholders' equity BVPS
FY10 690 111 40 10 852 1,519 2,555 166 127 9 302 694 15 1,010 1,545 0.80
FY11 599 101 67 29 796 1,525 2,432 65 145 3 214 714 20 947 1,485 0.77
FY12E 729 109 72 204 1,112 1,276 2,500 65 157 3 226 896 20 1,142 1,358 0.70
FY13E FY14E 814 985 107 118 71 78 145 87 1,138 1,269 1,330 2,581 65 160 3 228 958 20 1,206 1,374 0.71
Sales per share growth - Sales growth 1,343 Net profit growth 2,726 EPS growth Interest coverage (x) 65 160 Net debt to equity 3 Sales/assets 228 Assets/equity 1,020 ROE 20 ROCE 1,268 1,457 0.75
28.5% 5.5% 7.2% (0.9%) 9.8% 33.5% 5.8% 7.3% (0.9%) 9.8% (5.4%) (69.3%) (496.5%) (125.5%) 414.6% (8.9%) (69.4%) (496.0%) (125.5%) 414.6% 6.17 4.67 0.85 6.83 12.69 11.0% 0.50 1.21 7.0% 5.7% 12.2% 0.54 1.27 2.1% 3.1% 17.2% 0.58 1.29 (8.9%) -4.4% 15.3% 0.56 1.88 2.4% 2.2% 6.9% 0.59 1.87 11.7% 7.6%
345
Overweight
Price: C$22.00 Price Target: C$36.00 End Date: Dec 2013
Company overview Pacific Rubiales is the biggest E&P company in Colombia; it is incorporated in Canada with shares listed on the Toronto Stock Exchange. The companys production net of royalties reached ~93kboed in 2Q12, which puts it in second place in terms of hydrocarbon production in Colombia after Ecopetrol. The companys net 2P reserves (before royalties) reached 407mn boe. Since the beginning of 2012, Pacific Rubiales went through several transactions for a total of ~$1.0bn, increasing its exposure to Colombian and international assets, including offshore assets in Brazils Santos basin. In our view, Pacific Rubiales is the best investment in the Colombian Oils market We consider PRE to be the company least affected by the two main issues in Colombia today: worsening in security and delays in environmental permitting. Moreover, recent acquisitions and JV are likely to help the company to reach net production after royalties of 109kboed by 2013, up 10% y/y. We consider PRE as naturally shielded from the recent pipeline attacks as it has no exposure to the main targets (Cano-Limon pipeline in the north and the Transandino Pipeline in the south). Moreover, although not included in our NAV calculation, we expect the companys own Enhanced Oil Recovery technology, named STAR, to be an important catalyst for PRE shares over 2013. PRE is valued only on its producing fields In our view, current market price reflects only producing fields probable and extension and cash, assigning no value to net risked resources in Colombia and in other countries. PRE is trading at ~$14/boe, a discount to other E&P players such as GTE trading at $25/boe. Earnings risk in 2013 PREs main earnings risks are (1) oil prices decrease below JPMs Global Commodities Research estimate of $113/bbl for 2013; (2) disappointing results from Enhanced Recovery Technique know as STAR; and (3) production delays from the environmental licensing process and/or pipeline securities issues. We derive our CAD$36 Dec 2013 price target from our reserve depletion model, assuming a production schedule based on the companys targets and using our own assumptions beyond that. We apply our own assumptions in terms of price realizations for crude and gas, lifting costs, and development costs, and we discount the cash flow schedule using a 10.0% discount rate (CAPM using 8.0% risk-free rate, cost of levered equity of 14.5%, cost of debt of 8.0%, and a theoretical leverage ratio of 40% of capital) for proved reserves and increasing to 11% for contingent resources and 12% for i Pacific Rubiales Energy Corp (PRE.TO;PRE CN)
FYE Dec EPU ($) FY Bloomberg EPS FY ($) P/E FY EBITDA FY ($ mn) EV/EBITDA FY ROE FY ROCE FY 2010A 0.75 0.84 31.0 807 8.3 12.3% 12.4% 2011A 1.88 2.44 12.4 1,776 3.8 22.4% 21.9% 2012E 2.84 2.62 8.2 2,180 3.4 26.7% 24.0% 2013E 3.60 2.78 6.5 2,568 2.7 29.1% 27.3%
P r ic e P e r fo r m a n c e
30 C$ 26 22 18
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Source: Bloomberg.
Company Data Price (C$) Date Of Price 52-week Range (C$) Mkt Cap (C$ mn) Fiscal Year End Shares O/S (mn) Price Target (C$) Price Target End Date
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates. 346
1,076 1,303 1,711 (150) (63) 101 1,224 1,585 2,013 (1,153) (1,323) (1,059) (102) (130) (168) (93) 31 0 30 (480) 786 (259) (202) 1,021
0.11 (1.63) 2.67 5.8% (57.5%) 74.2% 1.7% 1.9% 2.5% 18.5% 15.3% 15.3% -
347
Overweight
Price: HK$62.15 Price Target: HK$70.00
Abs Rel
1m 3.8% -1.6%
3m 0.8% -8.9%
Source: Bloomberg.
FY14E 4.23 25.93 0.55 43.5 2.46 11.8 1.9 1.2 1.1% 17.6%
Company Data Shares O/S (mn) Market cap (Rmb mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (HK$ mn) Average 3m Daily Turnover ($ mn) HSI Exchange Rate Fiscal Year End
3,130 156,701 25,098 62.15 06 Nov 12 100.8% 10.85 644.44 81.29 22,006 7.75 Dec
348
-4,409 -7,444 -7,528 -11,365 -627 -3,107 -6,243 -6,589 17,311.0 19,475.0 21,545.0 30,485.5 FY10 FY11 FY12E FY13E 451,882 504,909 563,495 682,253 74,288 99,870 125,780 158,800 218,915 226,212 288,791 291,722 17,868 36,310 28,175 43,523 1,006,24 1,176,29 762,953 867,301 1 9 1,171,62 2,285,42 2,629,52 2,850,38 7 4 7 2 1,089,79 669,938 791,215 927,217 1 7,540 26,633 35,633 35,633 1,054,74 2,114,08 2,433,56 2,620,90 4 2 4 7 4,853 40,475 46,718 53,307 112,030 130,867 149,246 176,169 10,Y/Y 42.0% 42.8% 36.2% 37.1% 30.4% 6.1% 12.2% 24.7%
7,060 Loss ratio 47,511 Expense ratio 53,384 Combined ratio Total investment yield (incl. -12,527 gains/losses) -7,372 ROA 33,484.1 ROE FY14E Per share data 820,714 EPS 198,339 Y/Y 280,411 DPS 68,393 Payout ratio 1,367,85 7 BVPS 3,097,58 4 No. of shares 1,274,43 5 Group embedded value 35,633 Life operation embedded value 2,831,60 5 Y/Y 60,679 New business value 205,299 Y/Y Balance sheet growth rates Bonds Equities Deposits Total investments Total Assets Total insurance reserves
81.5% 78.1% 78.6% 82.2% 83.3% 32.8% 34.7% 36.8% 36.6% 36.2% 0.0% 0.0% 0.0% 0.0% 0.0% 4.6% 1.6% 17.6% FY10 2.31 22.2% 0.56 24.3% 3.6% 3.0% 4.7% 4.8% 1.1% 0.9% 1.1% 1.1% 16.0% 15.4% 18.7% 17.6% FY11 FY12E FY13E FY14E 2.50 2.72 3.85 4.23 8.4% 8.7% 41.5% 9.8% 0.41 0.40 0.45 0.55 16.3% 14.7% 11.7% 13.0% 18.85 7,916 33.7 20.2 22.25 7,916 38.5 23.3 15.5% 2.25 9.6% 13E, Y/Y 21.1% 26.3% 1.0% 16.9% 8.4% 17.5% 25.93 7,916 43.5 26.6 14.0% 2.46 9.2% 14E, Y/Y 20.3% 24.9% -3.9% 16.3% 8.7% 16.9%
11,Y/Y 12E, Y/Y 13E, Y/Y 14E, Y/Y 30.4% 13.2% 16.6% 16.9% 30.2% 13.0% 16.4% 16.8% 32.0% 16.0% 15.8% 17.9% 26.7% 13.3% 21.8% 18.0% 39.7% 19.6% 15.6% 15.4% 17.4% 35.7% 42.7% 20.5% 34.4% 12.5% 17.6% 10.6% 37.2% 41.5%
15.5% 15.2% 10.7% 2.03 2.13 2.06 26.2% 4.8% -3.2% 12E, 10,Y/Y 11,Y/Y Y/Y 28.6% 11.7% 11.6% 16.8% 34.4% 25.9% 36.5% 3.3% 27.7% 29.4% 13.7% 16.0% 25.2% 95.1% 15.1% 22.3% 18.1% 17.2% 100.4 25.0% % 15.1% 31.8% 16.8% 14.0%
349
Overweight
Price: Bt19.80 Price Target: Bt22.00
Abs Rel
1m 3.1% 3.0%
3m 11.9% 2.8%
Source: Bloomberg.
Pruksa Real Estate Pcl (Reuters: PS.BK, Bloomberg: PS TB) Bt in mn, year-end Dec FY10A FY11A FY12E Revenue (Bt mn) 23,307 23,263 25,462 Net Profit (Bt mn) 3,488.1 2,834.8 3,480.1 EPS (Bt) 1.58 1.28 1.58 DPS (Bt) 0.50 0.50 0.55 Revenue growth (%) 22.9% -0.2% 9.5% EPS growth (%) -4.0% -18.8% 22.7% ROCE 21.2% 12.3% 12.1% ROE 24.7% 17.6% 19.2% P/E (x) 12.5 15.4 12.6 P/BV (x) 2.9 2.6 2.3 EV/EBITDA (x) 10.7 13.3 11.8 Dividend Yield 2.5% 2.5% 2.8%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY13E 32,037 4,462.0 2.02 0.71 25.8% 28.2% 13.3% 21.5% 9.8 2.0 10.2 3.6%
FY14E 32,282 4,250.3 1.92 0.67 0.8% -4.7% 11.8% 18.1% 10.3 1.8 10.3 3.4%
Company Data Shares O/S (mn) Market cap (Bt mn) Market cap ($ mn) Price (Bt) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Bt mn) 3M - Avg daily Value (USD) ($ mn) SET Exchange Rate Fiscal Year End
2,211 43,782 1,428 19.80 02 Nov 12 26.0% 7.61 140.66 3.98 1,307 30.67 Dec
350
Cash flow statement FY10 FY11 FY12E FY13E FY14E Bt in millions, year end Dec 23,307 23,263 25,462 32,037 32,282 EBIT 22.9% (0.2%) 9.5% 25.8% 0.8% Depr. & amortization 4,603 4,044 4,698 5,767 5,512 Change in working capital NM NM 16.2% 22.8% NM Others 19.8% 17.4% 18.4% 18.0% 17.1% Cash flow from operations -67 -137 -236 -259 -264 4,536 3,906 4,462 5,509 5,247 Capex -5.5% -13.9% 14.2% 23.5% -4.7% Disposal/(purchase) -1,048 -1,071 -982 -1,047 -997 Net Interest 23.1% 27.4% 22.0% 19.0% 19.0% Free cash flow 3,488.1 2,834.8 3,480.1 4,462.0 4,250.3 -3.7% -18.7% 22.8% 28.2% -4.7% Equity raised/(repaid) 3,388 2,675 3,340 4,301 4,065 Debt raised/(repaid) -4.7% -21.0% 24.8% 28.8% -5.5% Other 2,207 2,209 2,209 2,209 2,209 Dividends paid 1.58 1.28 1.58 2.02 1.92 Beginning cash (4.0%) (18.8%) 22.7% 28.2% (4.7%) Ending cash 0.50 0.50 0.55 0.71 0.67 DPS -9.4% 0.1% 10.2% 28.2% -4.7% Ratio Analysis FY10 FY11 FY12E FY13E FY14E Bt in millions, year end Dec 1,439 837 890 919 952 EBIT Margin 120 0 0 0 0 Operating margin 27,801 36,160 39,708 45,919 46,988 Net margin 1,805 726 726 726 726 SG&A/Sales 31,356 38,916 42,517 48,757 49,859 Sales per share growth LT investments 0 0 0 0 0 Sales growth Net fixed assets 2,855 3,066 2,727 2,388 2,048 Net profit growth Total Assets 34,211 41,982 45,244 51,145 51,907 EPS growth Liabilities Interest coverage (x) ST Loans 4,004 9,333 9,333 9,333 9,333 Net debt to total capital Payables 2,997 1,479 1,479 1,479 1,479 Net debt to equity Others 2,790 3,014 3,014 3,014 3,014 Sales/assets Total current liabilities 9,791 13,827 13,827 13,827 13,827 Assets/equity Long-term debt 9,100 10,962 11,962 14,962 12,962 ROE Other liabilities 57 198 198 198 198 ROCE Total Liabilities 18,948 24,986 25,986 28,986 26,986 Shareholders' equity 15,263 16,996 19,258 22,158 24,921 BVPS 6.92 7.69 8.72 10.03 11.28 Source: Company reports and J.P. Morgan estimates.
FY10 4,603 246 -14,598 6,002 -9,648 2,114 -7,534 0 10,732 -1,214 846 1,439 0.50 FY10 19.8% 19.3% 15.0% -
FY11 FY12E 4,044 4,698 339 339 -8,790 -3,548 5,713 4,801 -4,151 271 -1,002 -5,152 38 6,322 -1,104 1,439 837 0.50 0 271 0 1,000 -1,218 837 890 0.55
FY13E FY14E 5,767 5,512 339 339 -6,211 -1,069 5,848 5,587 -1,410 3,520 0 -1,410 0 3,000 -1,562 890 919 0.71 0 3,520 0 -2,000 -1,488 919 952 0.67
22.5% (0.2%) 9.4% 25.8% 0.8% 22.9% (0.2%) 9.5% 25.8% 0.8% -3.7% -18.7% 22.8% 28.2% -4.7% (4.0%) (18.8%) 22.7% 28.2% (4.7%) 72.29 31.89 21.34 23.60 22.13 52.8% 55.6% 49.4% 51.0% 43.0% 75.2% 107.5% 99.8% 100.1% 80.9% 0.88 0.61 0.58 0.66 0.63 2.24 2.47 2.35 2.31 2.08 24.7% 17.6% 19.2% 21.5% 18.1% 21.2% 12.3% 12.1% 13.3% 11.8%
351
Overweight
Price: Bt168.50 Price Target: Bt180.00
Abs Rel
1m 6.3% 6.2%
3m 13.9% 4.8%
Source: Bloomberg.
FY14E 211,875 59,528.2 14.99 5.10 -0.5% -6.0% 18.4% 15.1% 11.2 1.6 5.0 3.0% 59,528 14.99
Company Data Shares O/S (mn) Market cap (Bt mn) Market cap ($ mn) Price (Bt) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Bt mn) 3M - Avg daily Value (USD) ($ mn) SET Exchange Rate Fiscal Year End
3,320 559,418 18,210 168.50 02 Nov 12 30.0% 3.86 604.37 19.66 1,307 30.72 Dec
352
-56,392 -102,364 -169,633 -133,374 -89,773 0 0 0 0 0 292 -43 -3,073 -3,724 -4,202 29,866 -22,573 -73,732 -15,357 18,035 -410 6,067 2,593 -12,439 48,678 59,515 5.03 FY10 71.6% 45.7% 29.4% 19.0% 88.4% 88.1% -347 44,907 13,591 -16,899 59,515 42,800 5.40 FY11 68.6% 48.5% 26.4% 19.5% 7.2% 7.1% 0 55,000 -14 -18,130 42,800 7,439 5.34 FY12E 69.1% 48.7% 28.1% 9.0% 16.3% 16.3% 41.62 72.8% 0.37 2.31 24.0% 24.5% 97,500 0 -10,000 30,000 11,095 -1,389 -21,364 -20,880 7,439 69,963 69,963 95,730 5.42 5.10 FY13E 71.9% 51.4% 29.0% 17.8% 21.6% 1.7% 42.10 26.1% 0.35 1.87 20.8% 23.5% FY14E 71.5% 48.9% 27.4% (0.5%) -6.0% (6.0%) 36.93 24.7% 0.30 1.85 15.1% 18.4%
FY12E FY13E 7,439 69,963 27,845 32,857 9,834 11,600 3,800 3,800 48,918 118,220 10,000 10,000 427,318 515,829 540,235 698,049
40,000 0 0 Interest coverage (x) 2,458 2,900 3,042 Net debt to equity 68,579 84,775 84,055 Sales/assets (x) 111,037 87,675 87,097 Assets/equity (x) 137,745 167,745 197,745 ROE 57,505 68,600 67,211 ROCE 306,287 324,021 352,053 233,948 374,029 412,677 70.47 94.21 103.95
- 2,705.37 10.6% 40.0% 0.44 0.43 1.89 1.79 26.5% 24.0% 27.9% 28.7%
353
PZU
www.pzu.pl
Company overview Powszechny Zakad Ubezpiecze SA is a Poland based company which offers various insurance products and services for retail and corporate customers. It offers property/casualty insurance products like motor, property, agricultural, as well as life insurance products (group and individual) and insurance guarantees. It also manages investment programs and pension funds. The company uses various distribution channels, like exclusive agents, multi-agents, insurance brokers, and bancassurance, and also the internet. Investment case We recommend to own PZU for its strong and sustainable dividend yield >7.0% reflecting the benefit of PLN5bn excess capital and a business model which is based on risk rather than investment income and is more capital efficient than its peers. We believe that earnings sustainability is supported by continued cost saving potential, which could be materialized by the roll-over of the new IT system in 13-14E. The company recently showed a willingness to pay out dividends up to 100% of net profit which offers a potential 8.9% yield payable in 13E. Key attractions in an anemic growth environment PZUs unique group life business has stable cash flows with strong operating margin (>20%) and 75% market share both stable in the mid-term as barriers to entry for competitors are high. We believe there is some potential in non-life which is why we forecast 95.5% combined ratio in 2013 vs. company target 96%. Earnings risks in 2013 The main earnings risk for 2013 is more intense competition and higher combined ratios in non-life. Our forecasts already reflect a slowdown in premiums growth driven by slowing economy. Price target, and risks to our investment view Our Dec13e target price of PLN421 offers upside of 9% which is conservative as we no longer value the excess capital to reflect potential deal risk. On top we forecast 7.1% dividend yield payable mid-2013. The key downside risks are a large dilutive deal or worsening combined ratio and life margins due to price competition.
PZU Group (PZU.WA;PZU PW) FYE Dec Adj. EPS FY (zl) Adj P/E FY Headline EPS FY (zl) Net Attributable Income FY (zl mn) Combined Ratio FY Dividend (Net) FY (zl) P/NAV FY P/BV FY Gross Yield FY 2011A 27.14 14.2 27.14 2,344 95.1% 22.43 2.6 2.6 5.8% 2012E 34.16 11.3 34.16 2,950 92.7% 27.33 2.4 2.4 7.1% 2013E 34.24 11.2 34.24 2,957 95.5% 27.00 2.3 2.3 7.0% 2014E 34.93 11.0 34.93 3,016 95.0% 27.94 2.2 2.2 7.3%
Overweight
Price: zl384.50 Price Target: zl421.00
Michal Kuzawinski
(48-22) 44 19534 michal.kuzawinski@jpmorgan.com Bloomberg JPMA KUZAWINSKI<GO> J.P. Morgan Securities plc
P r ic e P e r fo r m a n c e
400 380 360 zl 340 320 300 280
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 25.5%
1m 4.7%
3m 6.9%
12m 15.2%
Source: Bloomberg.
Company Data Price (zl) Date Of Price Price Target (zl) Price Target End Date 52-week Range (zl) Mkt Cap (zl bn) Shares O/S (mn)
354
Profit and Loss Statement (IFRS) Ratio Analysis (IFRS) zl in millions, year end Dec FY10 FY11 FY12E FY13E FY14E zl in millions, year end Dec Premiums 14,214 14,892 15,497 15,775 16,276 Shares Outstanding % change Y/Y -1.9% 4.8% 4.1% 1.8% 3.2% Life 6,514 6,753 7,114 7,398 7,731 EPS % change Y/Y 2.7% 3.7% 5.3% 4.0% 4.5% % change Y/Y Non Life 7,700 8,139 8,383 8,377 8,545 DPS % change Y/Y -5.5% 5.7% 3.0% -0.1% 2.0% % change Y/Y Investment income 2,782 1,594 2,460 2,406 2,443 Other income - Payout Ratio Total revenues 17,372 17,251 18,543 18,724 19,310 % change Y/Y -6.4% -0.7% 7.5% 1.0% 3.1% NAV/Share Insurance related expenses (10,299) (10,221) (10,574) (10,953) (11,401) EV/share Admin expenses -1,663 -1,384 -1,436 -1,307 -1,331 Acquisition expenses (1,851) (1,962) (2,012) (2,028) (2,079) ROE Other expenses (294) (760) (662) (549) (539) RONAV Earning before tax 3,029 2,908 3,659 3,668 3,741 ROEV % change Y/Y -33.6% -4.0% 25.8% 0.2% 2.0% Tax (590) (564) (709) (711) (725) EBT -19.5% -19.4% -19.4% -19.4% -19.4% Minorities 1 2 0 0 0 Net income (Reported) 2,439 2,344 2,950 2,957 3,016 % change Y/Y -35.2% -3.9% 25.8% 0.2% 2.0% Balance sheet (IFRS) Ratio Analysis zl in millions, year end Dec FY10 FY11 FY12E FY13E FY14E zl in millions, year end Dec ASSETS 50,534 52,129 53,447 54,440 55,525 Key ratios: Cash 424 238 245 252 260 Combined ratio Investments 45,345 46,775 47,932 48,760 49,675 Loans Deferred tax 17 9 9 9 9 Other Intangible 109 166 171 176 181 PBT Break up Life LIABILITIES 37,734 39,260 39,652 40,049 40,449 Non Life Policyholder liabilities - Pension Bank loans - Other Debt Other Shareholder's equity 12,800 12,870 13,795 14,391 15,076 Mix of Total revenue Minorities - Life Total Liabilities and Equity 50,534 52,129 53,447 54,440 55,525 Non Life Source: Company reports and J.P. Morgan estimates.
FY10 86.35
FY11 FY12E FY13E FY14E 86.35 86.35 86.35 86.35 34.24 0.2% 27.00 -1.2% 34.93 2.0% 27.94 3.5%
28.25 27.14 34.16 (35.2%) (3.9%) 25.8% 26.00 22.43 27.33 138.3% -13.7% 21.8% 92.0%
146.9 146.0 157.7 164.5 172.4 294.00 294.66 283.99 271.84 259.81 21.6% 21.9% 12.0% 18.3% 23.1% 21.4% 21.0% 18.5% 23.4% 21.7% 21.2% 12.1% 15.7% 16.7% 18.2%
FY10 104.5%
85.2% 64.2% 53.0% 57.3% 54.7% 117.3% 92.8% 33.0% 31.0% 33.0% 4.0% 3.1% -106.6% -60.2% 14.0% 11.8% 12.3% 45.8% 54.2% 45.4% 45.9% 46.9% 47.5% 54.7% 54.1% 53.1% 52.5% -
355
Overweight
Price: NT$71.60 Price Target: NT$85.00
Abs Rel
1m -0.8% 3.1%
3m -10.1% -8.2%
Source: Bloomberg.
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
New TW GAAP P/E P/BV (x) ROE(%) Cash Div (NT$) Quarterly EPS (NT$) EPS (11) EPS (12) E EPS (13) E
Target Price (NT$) 85 52-Week range (NT$) 86.40 - 53.40 Share Outstanding 3,846mn Free float 60.2% Avg daily volume 22mn Avg daily val (USD) 22.85mn Dividend Yield (2012) 5.6% QFII Holding (%) 37.9% Market Cap(USD) 9,491mn
356
Profit and Loss Statement Ratio Analysis NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Revenues 1,124,728 1,109,728 1,046,863 1,128,021 1,149,388 Gross margin 3.5% 3.8% 4.1% 4.8% 5.1% Cost of goods sold -1,085,917 -1,067,205 -1,004,461 -1,073,380 -1,090,588 EBITDA margin 1.9% 1.9% 2.2% 3.1% 3.4% Gross Profit 38,810 42,523 42,403 54,642 58,800 Operating margin 1.4% 1.4% 1.7% 2.6% 2.9% R&D expenses -7,580 -7,723 -9,337 -10,431 -10,344 Net margin 1.7% 2.1% 2.4% 2.8% 2.9% SG&A expenses -13,107 -16,846 -12,913 -11,542 -11,494 R&D/sales 0.7% 0.7% 0.9% 0.9% 0.9% Operating profit (EBIT) 15,976 15,885 17,825 29,667 33,723 SG&A/Sales 1.2% 1.5% 1.2% 1.0% 1.0% EBITDA 20,996 21,445 23,442 35,341 39,397 Interest income 1,548 7,336 14,418 12,740 13,401 Sales growth 33.9% (1.3%) (5.7%) 7.8% 1.9% Interest expense -1,496 -5,423 -9,212 -9,784 -10,715 Operating profit growth -27.5% -0.6% 12.2% 66.4% 13.7% Investment income (Exp.) 53 1,914 5,206 2,956 2,686 Net profit growth -16.7% 24.0% 7.0% 26.5% 7.9% Non-operating income (Exp.) 10,733 16,657 13,856 9,594 8,433 EPS (reported) growth (20.0%) 23.2% 6.8% 26.5% 7.9% Earnings before tax 26,709 32,541 31,681 39,261 42,156 Tax -7,378 -9,043 -6,799 -8,064 -8,494 Interest coverage (x) Net income (reported) 18,592.4 23,052.8 24,662.7 31,197.0 33,661.9 Net debt to total capital -4.8% 4.8% -1.7% -3.4% -5.3% Net income (adjusted) 18,592 23,052 24,662 31,197 33,661 Net debt to equity NM 14.3% NM NM NM EPS (reported) 4.87 6.00 6.41 8.11 8.75 Asset turnover 2.53 1.88 1.38 1.31 1.29 EPS (adjusted) 4.87 6.00 6.41 8.11 8.75 Working capital turns (x) 34.60 18.31 14.55 16.08 15.68 BVPS 29.11 30.29 34.35 38.36 41.93 ROE 17.0% 20.2% 19.9% 22.3% 21.8% DPS 3.70 3.60 4.00 4.04 5.11 ROIC 8.4% 6.1% 4.0% 0.0% 0.0% Shares outstanding 3,834 3,841 3,847 3,847 3,847 ROIC (net of cash) 19.9% 16.9% 14.3% 0.0% 0.0% Balance sheet Cash flow statement NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Cash and cash equivalents 171,642 284,781 426,176 450,796 468,357 Net income 18,592.4 23,052.8 24,662.7 31,197.0 33,661.9 Accounts receivable 183,158 189,698 180,985 184,563 188,129 Depr. & amortization 5,019 5,560 5,617 5,674 5,674 Inventories 81,374 113,907 160,247 163,415 166,573 Change in working capital -25,409 -30,774 8,041 -4,384 -1,932 Others 12,147 17,810 17,663 17,498 17,836 Other 694 2,820 -5,964 -424 451 Current assets 448,321 606,195 785,070 816,271 840,894 Cash flow from operations -1,059 -1,716 38,540 32,486 37,404 LT investments 12,102 8,570 8,456 8,456 8,456 Capex 0 0 0 0 0 Net fixed assets 48,233 53,323 52,035 51,861 51,687 Disposal/(purchase) 0 0 0 0 0 Others 3,328 2,821 2,951 2,951 2,951 Cash flow from investing -10,657 -6,610 -4,345 -5,500 -5,500 Total Assets 511,984 670,909 848,512 879,538 903,987 Free cash flow -1,059 -1,716 38,540 32,486 37,404 Liabilities Equity raised/(repaid) 519 72 58 0 0 ST Loans 131,176 268,713 394,169 406,800 412,074 Debt raised/(repaid) 95,928 140,223 116,292 13,393 5,592 Payables 192,420 197,898 249,529 252,315 256,656 Other -1,487 -5,454 6,014 -222 -281 Others 231,464 245,425 290,946 293,142 298,272 Dividends paid -13,379 -13,376 -15,163 -15,537 -19,654 Total current liabilities 362,641 514,138 685,114 699,942 710,346 Cash flow from financing 81,580 121,466 107,200 -2,367 -14,343 Long-term debt 29,784 32,680 23,767 24,528 24,846 Other liabilities 7,956 7,747 7,496 7,496 7,496 Net change in cash 69,865 113,140 141,395 24,620 17,561 Total Liabilities 400,381 554,565 716,377 731,966 742,689 Beginning cash 101,777 171,642 284,781 426,176 450,796 Shareholders' equity 111,603 116,344 132,134 147,572 161,298 Ending cash 171,642 284,781 426,176 450,796 468,357 Source: Company reports and J.P. Morgan estimates.
357
Rosneft
www.rosneft.com
Company overview Rosneft is the largest oil company in Russia. Crude oil production is expected to reach 2.5 mmbpd in 2012. Proven hydrocarbon reserves (as of end-11) amounted to 23.4 bn boe, 3P reserves to 44.8 bn boe. The government currently owns 75.2% stake in Rosneft, 12.8% stake is in treasury. Recently, Rosneft agreed to acquire TNK-BP, which is expected to raise the companys output to 5.0 mmboepd next year (JPMe) and proven reserve base to 38.3 bn boe. As a result of the transaction, the government stake is to decrease to 69%, while BP is to raise its holding in the company to 19.8%. Investment case Rosnefts hydrocarbon production growth profile returns to high single-digits (5% in 12E and 8% in 13E) on the back of the oil and gas production increase we expect at Vankor and the contribution from Iteras business. The dividend policy improved drastically, as the company started paying 25% of IFRS net income in dividends from 11. Rosneft just announced two major deals (which we consider value accretive): TNK-BP acquisition and an unprecedented gas contract with InterRAO. Key attractions in an anemic growth environment The risk of refining-upgrade budget overruns, the expensive acquisition of Ruhr Oel and the financial leverage increase in 2011-2012 are mostly priced in at this stage, while there is strong turnaround momentum in the companys growth profile, improved position in the gas segment and TNK-BP acquisition related positive implications. Earnings risks in 2013 Although volatility in the oil price, the key risk factor for the earning stream increased recently we see a moderate upside to our 2012-2013 earning forecasts on the back of strong 3Q12 results. TNK-BP acquisition and InterRAO gas deal are to boost the earning profile in the medium-term. Price target, and risks to our investment view Our end-13 PT for Rosneft of $8.4 is based on 50% weight of DCF-based fair value and 50% weight of value based on target (normalized) EV/EBITDA (13E). Politically motivated downstream greenfield projects, capex overspend in downstream and M&As represent important downside risks. A strong oil price, state support via extra crude oil tax holidays and gas business development could be the key upside risks, in our view.
OAO Rosneft (ROSNq.L;ROSN LI) FYE Dec Adj. EPS FY ($) Revenue FY ($ mn) EBITDA FY ($ mn) Net Attributable Income FY ($ mn) EV/EBITDA FY Adj P/E FY EBITDA margin FY Dividend (Gross) FY ($) 2011A 1.21 91,964 22,030 10,749 3.7 6.7 24.0% 0.08 2012E 0.97 97,139 18,751 9,432 4.4 8.4 19.3% 0.09 2013E 1.00 105,656 19,750 9,277 4.1 8.1 18.7% 0.22
Overweight
Price: $8.10 Price Target: $8.40
Abs
YTD 22.7%
1m 18.2%
3m 31.7%
12m 10.5%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
358
Liabilities ST loans 4,730 4,194 Payables 5,632 7,506 Others 2,520 2,460 Total current liabilities 12,882 14,160 Long term debt 18,546 22,155 Other liabilities -3,610 -4,374 Total liabilities 27,818 31,940 Shareholders' equity 63,323 66,643 BVPS 7 7 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY11 FY12E FY13E FY14E FY15E $ in millions, year end Dec 91,964 97,139 105,656 98,967 92,707 EBIT 45.9% 5.6% 8.8% -6.3% -6.3% Depreciation & amortisation 25.9% 21.5% 20.9% 20.7% 23.5% Change in working capital/Other 22,030 18,751 19,750 18,257 19,586 Taxes 15.0% -14.9% 5.3% -7.6% 7.3% Cash flow from operations 24.0% 19.3% 18.7% 18.4% 21.1% 14,785 11,142 11,144 9,488 10,758 Capex 18.3% -24.6% 0.0% -14.9% 13.4% Disposal/(Purchase)/Other 16.1% 11.5% 10.5% 9.6% 11.6% Net Interest 34 (68) (208) (321) (427) Free cash flow 13,674 11,716 11,557 9,533 10,596 18.3% -14.3% -1.4% -17.5% 11.2% Equity raised/repaid (2,925) (2,283) (2,279) (1,833) (2,066) Debt Raised/repaid 21.4% 19.5% 19.7% 19.2% 19.5% Other 10,749 9,432 9,277 7,700 8,530 Dividends paid 11.4% -12.2% -1.6% -17.0% 10.8% Beginning cash 9,590.00 9,266.00 9,266.00 9,266.00 9,266.00 Ending cash 1.12 1.02 1.00 0.83 0.92 DPS 11.5% (9.2%) (1.6%) (17.0%) 10.8% Ratio Analysis FY11 FY12E FY13E FY14E FY15E $ in millions, year end Dec 5,290 4,188 4,857 5,970 6,279 EBITDA margin 6,752 7,463 8,117 7,603 7,122 Operating margin 3,921 4,537 4,582 4,178 3,832 Net profit margin 4,730 5,359 5,829 5,460 5,114 SG&A/Sales 25,360 24,692 23,384 23,211 22,347 Sales per share growth 3,547 5,198 5,916 6,364 6,723 EPS growth 69,422 77,143 83,321 86,487 89,148 105,081 113,818 119,405 122,847 125,003 ROE ROCE 4,194 8,240 2,732 15,166 19,310 -5,380 29,096 73,970 8 4,194 7,793 2,512 14,499 17,151 -3,420 28,231 78,861 9 4,194 Production (mboe/day) 7,123 Production oil (mbpd) 2,297 Production gas (mboe/day) 13,615 Refining throughput (mbpd) 13,987 -2,535 Interest coverage (x) 25,067 Net debt to equity 84,972 Net debt 9 Net debt/EBITDA (ny)
(13,300) (15,486) (14,784) (11,935) (11,489) (1,769) (1,160) 0 0 0 34 (68) (208) (321) (427) 1,531 (994) 5,920 4,716 5,711 (102) 306 (282) (918) 4,192 5,290 0.08 FY11 24.0% 16.1% 11.7% 1.9% 46.0% 11.5% 17.0% 15.9% 2,595 2,384 210 1,163 (647.7) 27.9% 17,985 0.7 (2,190) 3,074 (1,221) (2,214) 5,290 4,188 0.09 FY12E 19.3% 11.5% 9.7% 2.2% 9.3% (9.2%) 14.2% 10.9% 2,726 2,453 273 1,259 275.2 32.7% 22,161 1.0 0 -2,844 342 (2,064) 4,188 4,857 0.22 FY13E 18.7% 10.5% 8.8% 2.2% 0 -2,159 (509) (1,953) 4,857 5,970 0.22 FY14E 18.4% 9.6% 7.8% 2.2% 0 -3,164 620 (1,618) 5,970 6,279 0.21 FY15E 21.1% 11.6% 9.2% 2.4% (6.3%) 10.8% 10.0% 9.3% 3,042 2,573 469 1,275 45.9 13.8% 11,902 0.6
8.8% (6.3%) (1.6%) (17.0%) 12.5% 10.1% 2,929 2,574 355 1,353 95.1 24.8% 18,648 1.0 9.8% 8.5% 3,016 2,587 429 1,275 56.9 19.2% 15,376 0.8
359
Overweight
Price: SRIs44.00 Price Target: SRIs63.00
Abs
YTD -3.4%
1m 0.9%
3m -4.7%
12m -8.0%
Source: Bloomberg.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn) Mkt Cap ($ bn)
360
Ratio Analysis FY10A FY11A FY12E FY13E FY14E SRls in millions, year end Dec Per Share Data 4,536 4,376 4,297 4,713 5,193 EPS Reported -10.5% -3.5% -1.8% 9.7% 10.2% EPSAdjusted 2,364 2,187 2,578 2,955 3,320 % Change Y/Y 1,258 1,399 1,885 2,181 2,454 DPS 4.0% 11.2% 34.8% 15.7% 12.5% % Change Y/Y 1,004 665 631 706 791 Dividend yield 24.9% -33.8% -5.0% 11.9% 12.0% Payout ratio 102 123 62 68 75 BV per share 6,901 6,562 6,875 7,668 8,513 NAV per share -2.9% -4.9% 4.8% 11.5% 11.0% Shares outstanding -1,563 -1,580 -1,657 -1,777 -1,907 -4.2% 1.1% 4.9% 7.2% 7.3% Return ratios (347) (376) (407) (439) (474) RoRWA (%) 4,991 4,606 4,811 5,452 6,132 Pre-tax ROE -3.2% -7.7% 4.5% 13.3% 12.5% ROE -559 -301 -420 -316 -263 RoNAV 4,432 4,305 4,391 5,136 5,869 Revenues -2.7% -2.9% 2.0% 17.0% 14.3% NIM (NII / RWA) 0 0 0 0 1 Non-IR / average assets 0.0% 0.0% 0.0% 0.0% 100.0% Total rev / average assets (3) 2 0 0 1 NII / Total revenues 4,429 4,306 4,391 5,136 5,870 Fees / Total revenues Trading / Total revenues
FY10A FY11A FY12E FY13E FY14E 4.93 4.93 -2.8% 1.79 0.0% 4.0% 36.2% 28 27.6 900.0 3.12 18.6% 18.6% 19.0% 4.78 4.78 -2.9% 1.79 0.0% 4.0% 37.3% 31 30.4 900.0 2.88 16.1% 16.1% 16.5% 4.88 4.88 2.0% 1.79 0.2% 4.0% 36.7% 35 33.9 900.0 2.63 14.8% 14.8% 15.2% 5.71 5.71 17.0% 2.00 11.7% 4.5% 35.0% 38 37.6 900.0 2.73 15.6% 15.6% 15.9% 6.52 6.52 14.3% 2.20 10.0% 4.9% 33.7% 43 41.9 900.0 2.82 16.1% 16.1% 16.4%
2.97% 2.92% 2.67% 2.65% 2.66% 1.27% 1.15% 1.28% 1.36% 1.43% 3.70% 3.45% 3.42% 3.54% 3.68% 65.74% 66.68% 62.51% 61.46% 61.00% 18.23% 21.31% 27.41% 28.44% 28.83% 14.55% 10.13% 9.18% 9.21% 9.29% FY10A FY11A FY12E FY13E FY14E 27.7% 1.02 29.8% 1.03 30.0% 1.03 28.9% 1.02 28.0% 1.03
FY10A FY11A FY12E FY13E FY14E SRls in millions, year end Dec Cost ratios 80,251 89,111 101,115 114,115 128,658 Cost / income -4.6% 11.0% 13.5% 12.9% 12.7% Cost / assets 3,707 3,439 3,627 3,715 3,849 64,883 60,175 60,128 63,292 66,660 - Balance Sheet Gearing - Loan / deposit 152,694 149,821 160,728 177,725 195,183 Investments / assets 28 26 30 30 30 Loan / assets - Customer deposits / liabilities 187,416 192,774 209,643 223,713 239,462 LT Debt / liabilities Asset Quality / Capital 133,463 137,257 146,267 153,788 161,508 Loan loss reserves / loans -9.3% 2.8% 6.6% 5.1% 5.0% NPLs / loans 1,875 0 0 0 0 LLP / RWA 19,801 20,628 22,691 24,960 27,456 Loan loss reserves / NPLs 154,983 156,512 163,422 173,853 183,856 Growth in NPLs - RWAs % YoY change 25,430 28,130 31,168 34,627 38,505 Core Tier 1 173 127 111 111 111 Total Tier 1 187,416 192,774 209,643 223,713 239,462
4.3% 3.9% 3.7% 3.3% 3.1% 3.7% 3.0% 2.2% 1.9% 1.7% 0.4% 0.2% 0.3% 0.2% 0.1% 118.1% 124.4% 156.4% 166.2% 174.0% 8.0% (11.9%) (16.1%) (3.6%) (1.1%) 143,487 156,050 178,289 197,386 219,177 2.4% 8.8% 14.3% 10.7% 11.0% 17.8% 18.1% 17.3% 17.3% 17.4% 17.8% 18.1% 17.3% 17.3% 17.4%
361
Samsung Electronics
www.samsung.com
Company overview Samsung Electronics Co., Ltd. Manufactures a wide range of consumer and industrial electronic equipment and products, such as semiconductors, TFTLCD panels, handsets, televisions, and home appliances. Investment case AP, NAND, LCD, and TV likely to be major earnings drivers in near-term and now we foresee SECs earnings momentum remaining intact even in 4Q12, on the back of strong sales growth in component businesses (except DRAM) along with seasonal upticks in TV demand, fully offsetting the potential margin contraction in the handset business, in our view. Key attractions in an anemic growth environment Amid anemic global consumer spending growth, we believe SEC will sustain its strong growth in handset and TV, which should benefit the relevant supply chains. Moreover, we forecast its tablet PC business should drive top-line growth for MC division and help component business given that smartphone and tablets share same components. Earnings risks in 2013 Although the market fears significantly reduced earnings growth in 2013, we believe earnings momentum will continue in 2013 on the back of meaningful growth in Display Panel and System LSI businesses. Although we believe the recovery in memory division seems slower than our previous estimates, its handset momentum should remain intact on the back of multi-year growth in smartphone business at the expense of feature phone and tablet PC opportunities. Price target, and risks to our investment view We have a Jun-13 PT of W1.8 million based on 9.0x FY13E P/E, which is a mid-cycle valuation. Our estimates are still at the high end of consensus. Key downside risks to our price target are sudden and substantial changes in DRAM and LCD prices, the global economy, and higher-than expected end-demand for PC, handset, and TVs. A key upside catalyst is a further increase in memory prices.
Bloomberg 005930 KS, Reuters 005930.KS (YE Dec, W bn) FY10 FY11 FY12E FY13E FY10 FY11 Sales 154,630 165,002 202,755 241,438 Sales growth 13.4% 6.7% Operating Profit 17,297 16,250 29,018 35,927 OP growth 58.3% -6.1% EBITDA 28,295 29,344 45,046 53,301 NP growth 65.4% -14.9% Net profit 16,147 13,734 23,698 30,132 Quarterly EPS (W) 1Q 2Q EPS (W) 109,617 93,239 160,882 204,564 EPS (11) 18,905 23,804 BPS (W) 521,921 594,916 718,900 891,775 EPS (12) E 33,000 35,258 P/E (x) 14.2 16.7 9.7 7.6 EPS (13) E 42,662 48,160 P/BV (x) 2.6 2.3 1.9 1.5 Price Target 1,800,000 ROE (%) 19.5 14.0 20.8 21.9 Consensus PT 1,746,471 Net Debt -12,829 -12,231 -20,046 -26,547 Difference (%) 3.1
Source: Company reports, Bloomberg, J.P. Morgan estimates.
Overweight
Price: W1,341,000 Price Target: W1,800,000
Abs Rel
1m -2.3% 1.5%
3m 0.1% 2.0%
Source: Bloomberg.
FY13E Date of Price 19.1% 52-Week range 23.8% Market Cap 27.2% Market Cap 4Q Share Out. (Com) 25,607 Free float 46,102 Avg daily val 55,212 Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
09 Nov 12 W1,418,000 - 919,000 W197,528B US$179,890MM 147MM 72.5% W405.4B 391.27MM 0.3MM shares 0.3 1,098.05
362
FY10 18.3 11.2 10.4 22.4 13.4 13.4 65.4 65.4 752.7 net cash net cash 115.1 150.3 19.5 20.3
FY11 17.8 9.8 8.3 22.2 6.7 6.7 -14.9 -14.9 net cash net cash net cash 106.0 152.8 14.0 15.6
FY12E 22.2 14.3 11.7 22.3 22.9 22.9 72.5 72.5 net cash net cash net cash 111.2 148.2 20.8 10.6
FY13E 22.1 14.9 12.5 21.9 19.1 19.1 27.2 27.2 net cash net cash net cash 122.2 129.4 21.9 10.6
363
Samsung Engineering
www.samsungengineering.co.kr
Company overview Samsung Engineering Co., Ltd. provides engineering and construction services in the domestic and international markets. The company constructs governmental buildings, petrochemical plants, industrial plants, power plants, and gas plants. Investment case Samsung Engineering is our preferred pick in the Korean E&C space due to its solid top line and backlog growth in 2013E, and aggressive investment in engineering capability expansion. Key attractions in an anemic growth environment Among domestic peers, Samsung Engineering has shown a notable top-line expansion in the past few years (2007-11A sales CAGR 42%). We believe the companys strong earnings growth is the main differentiating factor among its peers, deserving a valuation premium (2013E ROE 33% vs. Northeast Asian peers 14%). Also, Samsung Engineerings consistent investment in engineering staff since 2005 has supported its significant growth. We believe the company's engineering capability expansion will strengthen its business outlook in the long term. Earnings risks in 2013 Due to increasing competition overseas, particularly in the Middle East region, the companys selective new order wins and project execution will be key to its earnings in 2013. Also, slower-than-expected ramp up in the companys non-hydrocarbon business may present further downside risks to Samsung Engineerings margins. Price target, and risks to our investment view Our Jun-13 price target is based on 15x 2013E earnings. We arrive at our target multiple by taking its three-year 1-year forward P/E average of 13.5x and applying a 10% premium as a result of the companys consistent order flows and higher expected EPS growth than peers (11% CAGR) until 2014E. Key downside risks are: (1) stronger-than-expected competition in overseas markets, and (2) a fall in oil and gas pricesprices.
Samsung Engineering Co. Ltd (Reuters: 028050.KS, Bloomberg: 028050 KS) Year-end Dec FY11A FY12E FY13E Revenue (W bn) 9,298 11,308 13,234 Operating Profit (W bn) 717 877 953 Net Profit (W bn) 512 629 688 EPS (W) 12,793 15,724 17,202 BVPS (W) 33,766 46,438 59,994 Revenue growth 78.2% 21.6% 17.0% EPS growth 44.2% 22.9% 9.4% ROE 44.5% 40.1% 32.8% ROA 12.2% 11.6% 11.0% P/E (x) 11.6 9.5 8.7 P/BV (x) 4.4 3.2 2.5 EV/EBITDA (x) 7.4 6.1 5.1 Dividend Yield 2.0% 2.3% 2.7%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: W149,000 Price Target: W260,000
Abs Rel
1m -12.4% -10.7%
3m -24.9% -22.6%
Source: Bloomberg.
FY14E 14,412 968 701 17,526 73,875 8.9% 1.9% 26.5% 9.8% 8.5 2.0 4.9 2.7%
Company Data 52-week Range (W) Market cap (W bn) Market cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily Value (W bn) 3M Avg daily Value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
255,500 - 141,000 5,960 5,479 40 Dec 149,000 12 Nov 12 64.2% 33.62 30.89 0 1,901 1,087.85
364
FY11 FY12E FY13E FY14E 12,793 15,724 17,202 17,526 44.2% 22.9% 9.4% 1.9% 33,766 46,438 59,994 73,875 3,000 3,500 4,000 4,000 2.0% 2.3% 2.7% 2.7% 11.6 9.5 8.7 8.5 4.4 3.2 2.5 2.0 7.4 6.1 5.1 4.9 44.5% 40.1% 32.8% 26.5% 11.6% 11.4% 10.7% 10.1% 7.7% 7.8% 7.2% 6.7% 5.5% 5.6% 5.2% 4.9% 8.1% 8.1% 7.8% 7.4%
Source: Company reports and J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
365
Overweight
Price: W94,000 Price Target: W140,000
Abs Rel
1m -2.2% 1.7%
3m 0.0% -2.6%
Source: Bloomberg.
FY14E 1,463 19.8% 7,543 12.5 106,778 0.9 7.2% 0.8% 2,600 2.8% 160,474 0.6
Company Data 52-week Range (W) Market cap (W bn) Market cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily value (W bn) 3M Avg daily value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
102,000 - 79,500 18,800 16,917 200 Mar 94,000 02 Nov 12 38.7% 12.16 11.65 0 1,919 1,111.30
366
367
SASOL
www.sasol.com
Company overview Sasol is an integrated energy and chemical company with exposure to 38 countries. Sasol develop and commercialise technologies, and build and operate world-scale facilities to produce a range of product streams, including liquid fuels, chemicals and electricity. Investment case We rate Sasol Overweight as we believe the company represents good value at this point trading on a 2013FY PE of 8.6x vs its historical average of 10x: Volumes should improve, cash flow, balance sheet and dividend outlook remain strong and the gas franchise offers significant optionality. We also expect Sasol to go ahead with its planned GTL and Chemical investments in the US which we value at NPV R129/share. Key attractions in an anemic growth environment Sasols earnings are highly geared to the rand oil price and its share price has traditionally shown a strong correlation with the rand oil price. This has broken down in recent times as the market prices in falling demand and less risky supply of oil causing a drop in oil prices (our model suggests the market is pricing in ~USD87/bbl). Whilst we do believe that oil prices will fall, our marginal cost oil model suggests that it will find a support level above USD90/bbl. Sasol has a strong balance sheet, a healthy dividend ~4.8% and improving domestic volume growth in FY13 which are good attributes to have in a weak global economy. Earnings risks in 2013 Our earnings hinge on an assumption of a higher than previously witnessed long term oil price (USD90-110). Anything materially lower would hit earnings significantly, Sasol estimates that for 2012, a USD1 per barrel movement in the oil price would have a ~R580m impact on its EBIT. Price target, and risks to our investment view Our 12M target price of R 457 is derived from the average of our DCF value (R 515) and our 12M forward HEPS ex Arya x Sasols long-term average historical PE of 10x (R 399). Biggest risks: 1) Lower long term oil price. 2) Inability of management to execute on projects. 3) Environmental Factors - Clean Fuels, CO2 tax.
Overweight
Price: 37,299 Price Target: 45,700
AC
Alex Comer
(44-20) 7134-5945 alex.r.comer@jpmorgan.com Bloomberg JPMA COMER<GO> J.P. Morgan Securities plc
P r ic e P e r fo r m a n c e
41,000 39,000 c 37,000 35,000 33,000
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD -3.2%
1m -1.8%
3m 5.1%
12m 3.3%
Source: Bloomberg.
Sasol Ltd. (SOLJ.J;SOL SJ) FYE Jun Adj. EPS FY (c) EV/EBITDA FY Adj P/E FY EBITDA FY (R mn) EBITDA margin FY Revenue FY (R mn) OpFCF FY (R mn) FCF Yield FY
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn)
368
FY15E 195,772 54,118 12,505 41,614 (800) 1,287 42,101 (12,176) (782) 29,143 603.00 4,833.04 1,900.00 8,661.26 FY15E 230,726 72,280 (33,617) -89,365 180,024 260,071 -47,483 30,349 FY15E 41,614 12,505 (1,891) 52,227 (5,872) (10,914) (12,176) (59,557) (32,413) (18,218) 2 0 -32,487
Production Vol bbl/d Growth Secunda costs per barrel Macro Global GDP est Rand/USD (Sasol Year) Oil Price Brent (Sasol Year) Refining Margin Forecast Macro Effect on EBIT Oil Hedge gain/ (loss) Valuation EV/ Sales EV/EBITDA EV/EBIT EV/ Invested Capital RoIC P/E FCF yield Debt/ EBITDA Interest Cover
FY12 216,135 4.2% (58) FY12 2.5 7.68 113.50 471.8% 18,709 FY12 1.5 5.5 6.9 1.6 16.7% 8.8 3.9% 0.1 (76.1)
FY13E 227,498 5.3% (58) FY13E 2.8 8.20 100.00 881.4% (3,589) FY13E 1.6 5.7 7.3 1.5 15.8% 8.6 2.5% 0.2 73.9
FY14E 229,190 0.7% (66) FY14E 3.0 8.20 110.00 780.1% 5,904 FY14E 1.5 5.5 7.1 1.4 14.3% 8.4 -0.7% 0.3 36.1
FY15E 239,486 4.5% (71) FY15E 3.3 8.20 112.20 934.9% 1,353 FY15E 1.6 5.7 7.4 1.2 12.8% 7.7 -9.9% 0.9 12.7
369
Overweight
Price: SRls194.25 Price Target: SRls221.00
(971) 4428-1766 muneeza.z.hasan@jpmorgan.com Bloomberg JPMA HASAN<GO> JPMorgan Chase Bank, N.A., Dubai Branch
P r ic e P e r fo r m a n c e
200 190 180 170
Nov-11 Feb-12 May-12 Aug-12 Nov-12
SRls
Abs
YTD 13.1%
1m 3.6%
3m 3.4%
12m 6.4%
Source: Bloomberg.
Saudi Arabian Fertilizer Co. (2020.SE;SAFCO AB) FYE Dec 2011A 2012E Reported EPS FY (SRls) 16.44 15.69 Revenue FY (SRls mn) 5,051 4,908 EBITDA FY (SRls mn) 4,034 3,891 EBITDA margin FY 79.9% 79.3% Net Income FY (SRls mn) 4,109 3,923 Dividend Yield FY 6.9% 7.1% Headline P/E FY 11.8 12.4 FCF Yield FY 8.1% 8.3%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn)
370
-193 0 0 0 (3,000) (3,250) (3,408) (3,477) -3,193 -3,250 -3,408 -3,477 649 2,256 2,905 545 2,905 3,449 -620 3,449 2,829 -8 2,829 2,821
Shares outstanding EPS % change Y/Y DPS Payout ratio Balance sheet SRls in millions, year end Dec Cash Trade other receivables Current assets
FY11 FY12E FY13E FY14E 11.8 10.9 5.9 8.1% 12.4 11.3 5.5 8.3% 12.5 11.5 5.2 6.1% 12.7 11.6 5.0 7.5%
Property, plant and equipment Investment in Associates Non current assets Total assets
-37.8% -41.0% -32.3% -31.0% -37.1% -40.3% -31.8% -30.5% (0.8) (0.9) (0.8) (0.8) 346.4 215.8 215.0 236.3 81.3% 79.9% 80.0% 77.4% 50.1% 44.2% 41.5% 39.5% 44.1% 39.3% 37.1% 35.4%
Trade and other payables Short Term loans Current liabilities Long term Loans Long term liabilities
Shareholders' Equity 8,210 Total Liabilities & Shareholders Equity 9,326 Source: Company reports and J.P. Morgan estimates.
371
Overweight
Price: SRls23.90 Price Target: SRls29.00
Abs
YTD 24.8%
1m 1.5%
3m 19.1%
12m 22.9%
Source: Bloomberg.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn)
372
FY10 FY11 3,769 3,515 452 743 255 356 4,599 4,614 23,674 25,602 161 173 565 689 866 992 12,777 14,365 13,957 15,629 -
13.6 10.0 3.6 2.6 249.1 34.2 25.2 6.5 8.1 227.3% 276.3% 307.6% 282.1% 246.9% 1.7% 2.0% 3.0% 7.4% 9.7%
373
Sberbank
Sbrf.ru
Company overview Sberbank is the largest bank in Russia and CEEMEA with over 19,000 branches spanning through all country regions; in 2012 JPMe assets should exceed $400 bn; the bank controls an outsized 45% share of Russias aggregate deposits. Investment case The stock is the best vehicle for gaining exposure to the secular growth of credits in Russia in our view. It offers fundamental strength owing to an oligopolistic set up of the market, also benefiting from the government support during times of tighter liquidity. Sberbank is taking advantage of the ongoing retrenchment of foreign banks and funding difficulties of domestic peers as it continues to deliver a superior combination of growth and profitability. Key attractions in an anemic growth environment Sberbank continues to monetize on its unique competitive positioning allowing for low funding costs and market muscle; in 2013 we expect to see continuation of a steady expansion of volumes accompanied by robust margin, tighter control over opex and normalization of provisioning costs. Strong profitability translates into steady internal capital generation which should allow it to maintain or gain market share. Earnings risks in 2013 Macro risks may result in slower than expected credit growth; among the main company-specific risks, we highlight the potential for opex overruns and provision overshoots as well as value destroying M&A. Price target, and risks to our investment view Our end-2013 target prices of RUB147.31 ($4.60) per common share and RUB117.85 ($3.68) per preference share are based on the Gordon Growth model. The key risks to our target price and rating include lower than expected loan growth, cost overruns and possible increase in provisioning charges.
Savings Bank of the Russian Federation (SBER.MM;SBER RX) FYE Dec 2011A 2012E Adj. EPS FY ($) 0.48 0.50 BV/Sh FY ($) 1.74 2.19 Adj P/E FY 6.1 5.8 P/BV FY 1.7 1.3 NII FY ($ mn) 19,081 21,496 Fees & comms FY ($ mn) 4,783 5,319 Net Att. Income FY ($ mn) 10,754 11,328 Tier One Ratio FY 11.6% 12.1%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: RUB92 ($2.93) Price Target: RUB147.31 ($4.60)
Abs
YTD 9.4%
1m -5.1%
3m -6.8%
12m 8.0%
Source: Bloomberg.
Company Data Price (R) Date Of Price Price Target (R) Price Target End Date 52-week Range (R) Mkt Cap (R bn) Shares O/S (mn)
374
Per Share Data & Ratio Analysis FY10A FY11A FY12E FY13E FY14E $, year end Dec FY10A Per Share Data 15,774 19,081 21,496 25,744 29,346 EPS Reported 0.27 -0.4% 21.0% 12.7% 19.8% 14.0% EPS Adjusted 0.27 5,621 6,183 6,991 8,612 9,942 % Change Y/Y 680.2% 4,068 4,783 5,319 6,749 7,974 DPS 0.03 27.8% 17.6% 11.2% 26.9% 18.2% % Change Y/Y 1101.9% 789 232 268 375 403 Dividend yield 1.0% -35.3% -70.7% 15.8% 39.8% 7.5% Payout ratio 11.4% 764 1,169 1,403 1,488 1,565 BV per share 1.43 21,395 25,264 28,486 34,356 39,288 NAV per share 1.4 4.8% 18.1% 12.8% 20.6% 14.4% Shares outstanding 22,586.9 -8,754 -11,847 -13,588 -16,028 -18,078 21.2% 35.3% 14.7% 18.0% 12.8% Return ratios 0 0 0 0 0 RoRWA 0.03 12,641 13,417 14,899 18,328 21,210 Pre-tax ROE 26.1% -4.2% 6.1% 11.0% 23.0% 15.7% ROE 20.7% -5,064 41 -560 -3,480 -4,413 RoNAV 20.7% 7,577 13,457 14,339 14,848 16,797 Revenues 705.4% 77.6% 6.5% 3.6% 13.1% NIM (NII / RWA) 6.51% (1,596) (2,712) (3,011) (2,970) (3,359) Non-IR / average assets 2.17% 21.1% 20.2% 21.0% 20.0% 20.0% Total rev / average assets 8.26% 16 9 0 0 0 NII / Total revenues 73.73% 5,996 10,754 11,328 11,879 13,438 Fees / Total revenues 19.02% Trading / Total revenues 3.69% FY10A
FY11A
FY12E
FY13E
FY14E
0.48 0.50 0.53 0.59 0.48 0.50 0.53 0.59 79.3% 5.3% 4.9% 13.1% 0.07 0.09 0.12 0.18 133.6% 26.4% 36.3% 47.1% 2.4% 3.0% 4.2% 6.1% 14.9% 17.8% 23.2% 30.1% 1.74 2.19 2.62 3.09 1.7 2.2 2.6 3.1 22,586.9 22,586.9 22,586.9 22,586.9 0.04 37.6% 28.1% 28.1% 0.03 32.3% 25.5% 25.5% 0.03 27.3% 21.9% 21.9% 0.03 26.0% 20.8% 20.8%
6.22% 6.10% 6.05% 5.96% 2.00% 1.84% 1.88% 1.89% 7.63% 7.49% 7.52% 7.47% 75.53% 75.46% 74.93% 74.69% 18.93% 18.67% 19.64% 20.30% 0.92% 0.94% 1.09% 1.03% FY11A FY12E FY13E FY14E
FY10A FY11A FY12E FY13E FY14E Year end Dec Cost ratios 179,762 240,212 302,878 363,007 429,710 Cost / income 11.0% 33.6% 26.1% 19.9% 18.4% Cost / assets -23,006 -20,612 -19,129 -21,115 -24,924 Staff numbers 59,719 50,591 56,250 57,656 59,098 25,684 23,707 38,408 42,199 43,384 Balance Sheet Gearing -0.6% -7.7% 62.0% 9.9% 2.8% Loan / deposit 218,812 265,902 326,402 391,255 455,673 Investments / assets 0 0 0 0 0 Loan / assets 17,395 22,643 26,219 27,573 28,989 Customer deposits / liabilities 282,560 337,153 423,755 490,436 561,180 LT Debt / liabilities Asset Quality / Capital 217,806 246,822 301,591 357,590 416,340 Loan loss reserves / loans 20.3% 13.3% 22.2% 18.6% 16.4% NPLs / loans 24,641 25,399 35,500 36,783 38,130 LLP / RWA 4,410 16,566 27,281 27,281 27,281 Loan loss reserves / NPLs 227,502 267,822 326,580 393,013 451,703 Growth in NPLs 3,540 8,911 9,563 9,563 9,563 RWAs % YoY change 32,192 39,346 49,383 59,219 69,867 Core Tier 1 16 9 0 0 0 Total Tier 1 282,723 337,153 423,755 490,436 561,180
40.9% 46.9% 47.7% 46.7% 46.0% 0.0 0.0 0.0 0.0 0.0 262,779 266,187 276,834 276,834 276,834 82.5% 21.1% 63.6% 87.0% 9.8% 97.3% 100.4% 101.5% 103.2% 15.0% 13.3% 11.8% 10.5% 71.2% 71.5% 74.0% 76.6% 82.9% 80.7% 82.9% 84.7% 8.5% 9.5% 8.5% 7.8%
11.3% 7.9% 5.9% 5.5% 5.5% 7.3% 4.9% 3.5% 3.7% 3.7% 2.0% (0.0%) 0.1% 0.8% 0.9% 155.3% 162.6% 170.0% 150.0% 150.0% (1.4%) (9.9%) (11.6%) 25.1% 18.0% 246,487 317,915 381,379 441,393 505,062 17.4% 29.0% 20.0% 15.7% 14.4% 11.9% 11.6% 12.1% 12.5% 12.9% 11.9% 11.6% 12.1% 12.5% 12.9%
375
Semen Gresik
www.semengresik.com
Company overview Semen Gresik Group is the largest cement producer in Indonesia. The group has three subsidiaries: Semen Padang, Semen Tonasa, and Semen Gresik, operating in West Sumatera, South Sulawesi, and East Java, respectively. At the end of FY12, its effective cement capacity is expected to be 22.5mn MT. Investment case We view that cement demand will continue to grow robustly at 7% in FY13E, with Java in the lead. Industry dynamics (oligopolistic and tight utilization rate >90%) remain conducive to pricing power to benefit the big three players. We like SMGR due to its new 5mn capacity (via commissioning of its new Tuban and Tonasa plant). With the increased capacity, we expect the company to be able to gain market share in 2013. Key attractions in an anemic growth environment 1) Commissioning of new capacity enables the company to gain market share. 2) We expect increase in sales volume and ASP, coupled with declining energy cost to improve gross and EBITDA margins in 2013. 3) We estimate SMGRs earnings will increase c.20% y/y in FY13, exceeding consensus JCI earnings growth of 14% y/y. Earnings risks in 2013 Rising prices in energy (especially coal) would directly impact SMGRs bottom line. However, the biggest risk would be the impact of a slowdown in major commodity (CPO and coal) prices on Indonesia discretionary income and consumption. There is also a risk of increased competition, though we view the risk as more mid-to-long term. Price target, and risks to our investment view Our Dec 13 PT of Rp16,000 is based on DCF, assuming a risk-free rate of 6.5%, and a market risk premium of 8.0%. Key downside risks to our PT are weaker-than-expected industry volume growth in FY13E, as we are wary of the impact of commodity prices on cement demand.
Overweight
Price: Rp14,900 Price Target: Rp16,000
Abs Rel
1m -0.3% -1.2%
3m 17.3% 10.8%
Source: Bloomberg.
Semen Gresik (Persero) Tbk (Reuters: SMGR.JK, Bloomberg: SMGR IJ) Rp in bn, year-end Dec FY10A FY11A FY12E FY13E Revenue (Rp bn) 14,344 16,379 18,924 21,846 Net Profit (Rp bn) 3,633.3 3,925.5 4,629.5 5,600.5 EPS (Rp) 612.55 661.81 780.49 944.19 DPS (Rp) 308.45 249.50 330.90 390.24 Revenue growth (%) -0.3% 14.2% 15.5% 15.4% EPS growth (%) 9.2% 8.0% 17.9% 21.0% ROCE 39.2% 33.5% 33.1% 35.2% ROE 32.7% 29.7% 29.6% 30.3% P/E (x) 24.3 22.5 19.1 15.8 P/BV (x) 7.4 6.1 5.2 4.4 EV/EBITDA (x) 17.1 16.0 13.1 10.3 Dividend Yield 2.1% 1.7% 2.2% 2.6%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY14E 25,446 6,583.4 1,109.91 472.10 16.5% 17.6% 35.9% 29.9% 13.4 3.7 8.6 3.2%
Company Data Shares O/S (mn) Market cap (Rp mn) Market cap ($ mn) Price (Rp) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Rp mn) 3M - Avg daily Value (USD) ($ mn) JCI Exchange Rate Fiscal Year End
5,932 88,379,650 9,174 14,900 07 Nov 12 23.5% 6.12 84,142.18 8.73 4,319 9,634.00 Dec
376
-4,123 -4,537 -2,945 -4,986 -4,522 203 183 167 -15 -80 0 0 0 0 0 -209 -71 2,365 1,572 3,275 -133 -0 -0 535 1,205 432 -1,830 -1,480 -1,963 5,273 3,636 3,291 3,636 3,291 4,125 308.45 249.50 330.90 0 0 -2,315 4,125 3,383 390.24 0 -400 -2,800 3,383 3,457 472.10
ASP/Tonne Cash cost/Tonne EBITDA/Tonne EBITDA/Tonne (USD) Domestic Sales Domestic Sales growth Export Sales Cement Capacity Balance sheet Rp in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets Liabilities Short-term loans Payables Others Total current liabilities Long-term debt Other liabilities Total Liabilities Shareholders' equity BVPS
813,154.0 836,260.6 886,436.2 921,893.7 531,753.6 560,741.9 578,441.5 565,775.7 281,400.3 275,518.7 307,994.7 356,118.0 30.4 31.7 32.4 36.7 17,640.2 19,586.0 21,348.7 23,697.1 2.9% 11.0% 9.0% 11.0% 0.0 0.0 0.0 0.0 19,500.0 20,200.0 22,500.0 25,900.0 FY10 3,789 1,717 1,624 214 7,344 7,663 15,563 63 1,453 1,001 2,518 547 276 3,423 12,006 2,024.18 FY11 3,429 1,828 2,007 382 7,646 11,641 19,662 59 1,826 1,005 2,889 1,738 347 5,047 14,465 2,438.60 FY12E 4,125 2,357 1,910 382 8,773 13,864 23,012 0 1,831 1,505 3,336 2,220 374 5,930 16,864 2,843.10 FY13E 3,383 2,716 2,118 382 8,599 17,713 26,687 0 1,961 1,713 3,674 2,220 374 6,268 20,149 3,397.05
Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash 958,769.4 DPS 578,207.9 380,561.6 40.1 26,540.8 12.0% 0.0 27,300.0 Ratio Analysis FY14E Rp in billions, year end Dec 3,457 EBITDA margin 3,167 Operating margin 2,466 Net margin 382 9,472 Sales per share growth - Sales growth 20,783 Net profit growth 30,630 EPS growth Interest coverage (x) 0 2,176 Net debt to equity 1,998 Sales/assets 4,174 Assets/equity 1,820 ROE 374 ROCE 6,367 23,933 4,034.87
FY10 FY11 FY12E FY13E 34.6% 32.9% 34.7% 38.6% 31.3% 29.5% 30.9% 33.4% 25.3% 24.0% 24.5% 25.6%
(0.3%) 14.2% 15.5% 15.4% 16.5% (0.3%) 14.2% 15.5% 15.4% 16.5% 9.2% 8.0% 17.9% 21.0% 17.6% 9.2% 8.0% 17.9% 21.0% 17.6% - 549.49 126.87 -26.5% -11.3% -11.3% -5.8% -6.8% 1.01 0.93 0.89 0.88 0.89 1.85 1.79 1.36 1.32 1.28 32.7% 29.7% 29.6% 30.3% 29.9% 39.2% 33.5% 33.1% 35.2% 35.9%
377
Sesa Goa
www.sesagoa.com
Company overview Sesa Goa in its present form is an iron ore mining company, however, the restructuring of the group corporate structure earlier this year would merge Sterlite with Sesa to create a global Resource Giant. The merger is still awaiting High Court approval and is likely to be completed by the end of this year. Sesa Sterlite (SESA STLT) is one of the largest diversified non-ferrous metal companies in India with operations in aluminum, copper, zinc, iron ore, oil and power. It is a subsidiary of Vedanta Group, a Londonbased company controlled by Anil Agarwal. Investment case In our view, the new merged entity will offer resource diversification across commodities and a relatively stable earnings stream given diversification. We believe the company will include the best-in-class resource base in zinc and oil with low operating costs and decent mine life. The companys aggressive capex is nearly complete as spending will be limited to its power business and no new projects have been announced so far. Cash flows at the operating entity would be more than enough to meet the interest component while dividend upstream from the subs should allow dividend distribution from SESA STLT. The merged entity would be the biggest beneficiary from any improvement in the regulatory environment in India. Key attractions in an anemic growth environment We like SESA STLTs diversified earnings profile (oil 37%, zinc 34%, power 9% FY14E attributable EBITDA) with no single commodity generating more than 40% of EBITDA. Over the next three years we estimate an 8-10% CAGR volume growth in oil, +20% volume growth in power to drive attributable EBITDA CAGR of 11% over FY12-14E. Currently the ~$7B in VAL aluminum and the $1.4B in BALCO is being written off by investors. We believe its aluminum investments would benefit from any potential change in regulatory environment. Coal remains the missing part in the diversified portfolio and any step to address this would likely be positive, in our view. Earnings risks in 2013 Weakness in commodity prices (especially zinc, silver & oil prices) is a key risk to earnings in 2013. While a weaker Rs is positive operationally, given the ~$7.5B debt, MTM impact is sharp on Rs weakness (1% change = Rs4B MTM as per JPMe). Price target, and risks to our investment view We value the company on an SOTP basis and we assign EV/EBITDA multiples to underlying EBITDA. Our Sep-13 PT of Rs220 implies EV/EBITDA of 5.5x FY14E. Key risks to our PT and rating are sharp decline in zinc and oil prices, sharp increase in royalty rates in India and inability to ramp up volumes in power and oil segments.
Sesa Goa (Reuters: SESA.NS, Bloomberg: SESA IN) Rs in mn, year-end Mar FY12A FY13E Net Sales (Rs mn) 544,762 591,117 Net Profit (Rs mn) 61,426.0 78,910.5 EPS (Rs) 20.72 26.61 Net profit growth (%) 28.5% ROE 20.1% 15.6% P/E (x) 8.5 6.6 P/BV (x) 0.9 1.3 EV/EBITDA (x) 5.8 5.5
Overweight
Price: Rs175.50 Price Target: Rs220.00
Abs Rel
1m 2.7% 2.1%
3m -4.3% -12.4%
Source: Bloomberg.
Source: Company data, Bloomberg, J.P. Morgan estimates. Note: Revenue, net profit and valuations based on attributable data.
Company Data 52-week Range (Rs) Market cap (Rs mn) Market cap ($ mn) Price (Rs) Date Of Price 3-mth trading volume (mn) 3-mth trading value ($ mn) Shares O/S (mn) BSE30
378
Cash flow statement Rs in millions, year end Mar Net Income (Pre exceptionals) Depr. & amortization Change in working capital Cash flow from operations Net Capex Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS
FY13E 78,910.5 38,167 80,060 275,567 -128,470 147,097 -337,877 38,351 -527,461 -11,837 267,477 427,271 3.99
FY14E 95,187.9 41,312 196 227,274 -138,731 88,543 -70,925 20,500 82,103 -14,278 427,271 533,214 4.82
FY15E 105,571.3 44,324 2,972 244,538 -75,259 169,279 -71,661 -10,000 81,730 -15,836 533,214 686,726 5.34
Ratio Analysis Rs in millions, year end Mar EBITDA margin Operating margin Net margin
FY13E 28.2% 13.3% 8.5% 28.5% 28.5% 7.98 23.7% 70.5% 0.27 5.34 15.6% 10.7%
FY14E 29.0% 14.3% 12.9% 20.6% 20.6% 10.29 17.1% 41.4% 0.30 4.88 21.6% 13.1%
FY15E 27.7% 14.3% 11.0% 10.9% 10.9% 15.94 2.8% 6.2% 0.31 4.45 20.2% 12.9%
Sales growth Net profit growth LT investments - EPS growth Net fixed assets 844,340 918,284 924,278 Total Assets 2,151,549 2,342,224 2,513,844 Interest coverage (x) Net debt to total capital Liabilities Net debt to equity Short-term loans 63,520 63,520 63,520 Sales/assets Payables 102,595 112,475 125,873 Assets/equity Others 49,503 50,607 52,295 ROE Total current liabilities 215,618 226,602 241,689 ROCE Long-term debt 647,750 668,250 658,250 Other liabilities 399,383 414,383 429,383 Total Liabilities 1,262,751 1,309,235 1,329,322 Shareholders' equity 402,561 479,650 564,453 BVPS 135.77 161.77 190.37 Source: Company reports and J.P. Morgan estimates. Note: The P&L estimates are attributable data.
379
Overweight
Price: Bt162.00 Price Target: Bt200.00
Abs Rel
1m -4.4% -4.5%
3m 3.2% -5.9%
Source: Bloomberg.
FY13E 69,798 48,219 14.19 14.19 4.75 18.7% 21.1% 11.4 72.06 2.2 2.9%
FY14E 83,107 57,544 16.93 16.93 5.50 19.3% 21.8% 9.6 83.49 1.9 3.4%
Company Data 52-week Range (Bt) Market Cap (Bt mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Bt) Date Of Price 3M - Avg daily value (Bt mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) SET Exchange Rate
172.00-102.00 550,669 17,925 3,399 Dec 162.00 02 Nov 12 778.93 25.4 4.86 1306.60 30.72
380
(30,535) (36,883) (39,862) (43,662) 36,935 48,822 60,213 69,798 (4,699) (6,630) (7,731) (9,056) 1,655 5,330 334 0 33,891 47,521 52,817 60,741 (9,563) (11,213) (11,884) (12,148) (123) (36) (325) (374) 24,205 36,273 40,608 48,219 FY10 7.12 3.00 42.1% 45.40 3,399 10.87 FY10 1,018,803 (41,595) 1,060,398 38,752 153,746 80,675 1,318,348 0 1,476,735 1,092,109 110,649 0 1,132,199 1,385,362 154,316 1,057,431 993,155 FY11 10.67 3.50 32.8% 54.68 3,399 14.36 FY11 1,249,688 (45,995) 1,295,683 36,281 330,774 92,134 1,590,799 0 1,877,836 1,184,388 309,274 0 1,348,210 1,677,286 185,871 1,262,694 1,160,062 FY12E 11.95 4.00 33.5% 62.63 3,399 17.71 FY12E 1,465,015 (50,544) 1,515,559 40,168 330,774 86,606 1,915,134 0 2,126,882 1,506,168 199,488 0 1,599,659 2,002,359 212,882 1,430,157 1,346,425 FY13E 14.19 4.75 33.5% 72.06 3,399 20.53 FY13E 1,721,805 (55,867) 1,777,671 44,715 330,774 86,606 2,252,572 0 2,535,723 1,882,710 199,488 0 1,893,927 2,331,302 244,955 1,705,070 1,567,613
Growth Rates FY14E 3.0% Loans 97.3% Deposits 3.0% Assets Equity 80,437 RWA 50,497 Net Interest Income 37,599 Non-Interest Income 9,488 of which Fee Grth Revenues 130,934 Costs Pre-Provision Profits (47,826) Loan Loss Provisions 83,107 Pre-Tax (10,640) Attributable Income 0 EPS - DPS - Balance Sheet Gearing 72,467 Loan/deposit (14,493) Investment/assets (430) Loan/Assets 57,544 Customer deposits/liab. LT debt/liabilities FY14E Asset Quality/Capital 16.93 Loan loss reserves/loans 5.50 NPLs/loans 32.5% Loan loss reserves/NPLs 83.49 Growth in NPLs 3,399 Tier 1 Ratio 24.45 Total CAR FY14E Du-Pont Analysis 2,029,163 NIM (as % of avg. assets) (62,115) Earning assets/assets 2,091,278 Margins (as % of Avg. Assets) 50,048 Non-Int. Rev./ Revenues 330,774 Non IR/Avg. Assets 86,606 Revenue/Assets 2,643,109 Cost/Income 0 Cost/Assets 2,894,907 Pre-Provision ROA LLP/Loans 2,202,771 Loan/Assets 199,488 Other Prov, Income/ Assets 0 Operating ROA 2,242,228 Pre-Tax ROA 2,715,315 Tax rate 283,804 Minorities & Outside Distbn. 1,946,591 ROA 1,825,830 RORWA Equity/Assets ROE
FY10 12.6% 14.2% 14.1% 10.1% 13.8% 5.9% 20.0% 20.4% 11.3% 9.2% 13.1% (11.1%) 21.4% 16.6% 16.6% 20.0% FY10 93.3% 11.5% 72.3% 82.6% 8.7% FY10 (3.9%) 4.2% 101.1% (13.5%) 11.6% 15.5% FY10 3.0% 95.2% 2.9% 41.1% 2.0% 4.9% 45.3% 2.2% 2.7% (0.5%) 72.3% 0.1% 2.3% 2.4% 28.2% 0.1% 1.7% 2.4% 10.6% 16.4%
FY11 22.2% 8.4% 27.2% 20.4% 19.4% 27.1% 26.9% 26.8% 27.0% 20.8% 32.2% 41.1% 40.2% 49.9% 49.9% 16.7% FY11 105.5% 14.4% 70.2% 70.1% 13.9% FY11 (3.5%) 3.2% 116.7% (6.4%) 11.1% 14.5% FY11 3.2% 94.8% 3.0% 41.0% 2.1% 5.1% 43.0% 2.2% 2.9% (0.6%) 70.2% 0.3% 2.5% 2.8% 23.6% 0.1% 2.2% 3.1% 10.1% 21.3%
FY12E 17.0% 27.2% 13.3% 14.5% 13.3% 18.4% 14.4% 15.0% 16.8% 8.1% 23.3% 16.6% 11.1% 12.0% 12.0% 14.3% FY12E 97.3% 16.5% 70.2% 78.8% 14.1% FY12E (3.3%) 2.7% 126.3% 10.7% 11.7% 14.6% FY12E 3.1% 95.6% 3.0% 40.2% 2.0% 5.0% 39.8% 2.0% 3.0% (0.5%) 70.2% 0.0% 2.6% 2.6% 22.5% 0.1% 2.0% 3.0% 10.0% 20.4%
FY13E 17.3% 25.0% 19.2% 15.1% 19.2% 14.3% 12.0% 12.0% 13.4% 9.5% 15.9% 17.1% 15.0% 18.7% 18.7% 18.8% FY13E 91.5% 14.2% 70.6% 82.2% 9.5% FY13E (3.1%) 2.6% 125.4% 11.3% 11.7% 14.2% FY13E 3.0% 96.6% 2.9% 39.7% 1.9% 4.9% 38.5% 1.9% 3.0% (0.5%) 70.6% 0.0% 2.6% 2.6% 20.0% 0.1% 2.1% 3.1% 9.8% 21.1%
FY14E 17.6% 17.0% 14.2% 15.9% 14.2% 17.6% 12.0% 12.0% 15.4% 9.5% 19.1% 17.5% 19.3% 19.3% 19.3% 15.8% FY14E 92.1% 12.2% 71.2% 84.4% 8.1% FY14E (3.0%) 2.4% 124.5% 11.9% 12.2% 14.4% FY14E 3.0% 97.3% 3.0% 38.6% 1.9% 4.8% 36.5% 1.8% 3.1% (0.5%) 71.2% 0.0% 2.7% 2.7% 20.0% 0.1% 2.1% 3.2% 9.7% 21.8%
381
Sino Biopharmaceutical
www.sinobiopharm.com/viewHome.do
Company overview Sino Biopharmaceutical (SB) produces medicines in two core therapeutic categories: cardio cerebral diseases and hepatitis. The company is extending its development efforts to oncology, analgesic and respiratory medicines in order to meet the increasing demand from medical practitioners and patients. Investment case SBP operates the No.1 hepatitis franchise with 20% market share. It also has the No.1 position for alprostadil, a top-5 drug in China, with 75% market share. SBP has several newly-launched products and a strong product pipeline, including raltitrexed and Kaifen patch, which have the potential to become blockbuster drugs with total sales of over Rmb100MM, in our view. Key attractions in an anemic growth environment We believe Sino Biopharma will continue performing well in 2013, as the company has shown continued strength with its products sales and has shouldered price cuts better than most competitors. We believe while SBP has achieved great sales for some of its key products, there are still substantial market opportunities left. SBP's entecavir achieved sales of HK$497mn in 2011, its first full year in the market, a remarkable achievement. However, the sales paled in comparison to the originator BMS's sales for entecavir (Rmb1.8bn). The key drivers for the company going forward are: 1) good acquisitions to complement growth; and 2) strong performance by new products. Earnings risks in 2013 Larger-than-expected price cuts for anti-viral products would be a key earnings risk for SBP. On the other hand, better-than-expected sales ramp-up for new products may drive earnings upside. Price target, and risks to our investment view Our DCF-based Dec-12 PT of HK$3.6 implies 20.4x FY13E P/E. Key risks to our PT are the timing of commercialization of new drugs and pricing pressure from regulators.
Sino Biopharmaceutical (Reuters: 1177.HK, Bloomberg: 1177 HK) HK$ in mn, year-end Dec FY09A FY10A FY11A Revenue (HK$ mn) 3,244 4,086 5,782 Net Profit (HK$ mn) 397.0 566.9 462.8 EPS (HK$) 0.09 0.12 0.09 DPS (HK$) 0.05 0.08 0.07 Revenue growth (%) 42.2% 26.0% 41.5% EPS growth (%) 33.3% 33.2% -20.0% ROCE 31.1% 27.1% 28.9% ROE 16.9% 18.5% 12.4% P/E (x) 35.5 26.6 33.3 P/BV (x) 5.7 4.2 4.0 EV/EBITDA (x) 13.0 10.7 8.1 Dividend Yield 1.6% 2.6% 2.3%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: HK$3.11 Price Target: HK$3.60
Abs Rel
1m 9.5% 10.0%
3m 6.5% -7.0%
Source: Bloomberg.
FY12E 7,689 737.4 0.15 0.11 33.0% 59.3% 33.9% 18.8% 20.9 3.8 6.6 3.6%
FY13E 8,918 874.5 0.18 0.13 16.0% 18.6% 39.1% 21.2% 17.6 3.6 5.4 4.3%
Company Data Shares O/S (mn) Market cap (HK$ mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (HK$ mn) 3M - Avg daily Value (USD) ($ mn) MSCICNX-HLTH Exchange Rate Fiscal Year End
4,941 15,368 1,983 3.11 09 Nov 12 47.6% 8,765,418.00 26.18 3.38 130 7.75 Dec
382
FY11 FY12E 2,110 2,228 914 1,216 452 601 0 0 3,871 4,845 430 1,688 6,295 51 221 1,099 1,371 35 114 1,519 3,836 0.77 429 1,867 7,142 19 293 1,221 1,533 86 114 1,734 4,021 0.81
Cash flow statement FY13E FY14E HK$ in millions, year end Dec 8,918 10,532 EBIT 16.0% 18.1% Depr. & amortization 7,090 8,426 Change in working capital 16.7% 18.8% Taxes 1,846 2,257 Cash flow from operations 20.4% 22.2% 1,658 2,049 Capex 21.7% 23.6% Net Interest 18.6% 19.5% Other -12 -13 Free cash flow 1,759 2,154 20.5% 22.5% -340 -417 Equity raised/(repaid) 19.3% 19.3% Debt raised/(repaid) 874.5 1,065.2 Other 18.6% 21.8% Dividends paid 4,952 4,952 Beginning cash 0.18 0.22 Ending cash 18.6% 21.8% DPS Ratio Analysis FY13E FY14E HK$ in millions, year end Dec 2,304 2,393 Gross margin 1,410 1,665 EBITDA margin 697 823 Operating margin 0 0 Net margin 5,567 6,457 Sales per share growth 428 426 Sales growth 2,057 2,262 Net profit growth 8,052 9,146 EPS growth Interest coverage (x) 23 23 340 402 Net debt to equity 1,301 1,394 Working Capital to Sales 1,664 1,819 Sales/assets 102 102 Assets/equity 114 114 ROE 1,881 2,035 ROCE 4,240 4,506 0.86 0.91
FY10 851 88 -296 -135 508 -544 -6 35 1,137 -101 -389 1,739 2,338 0.08 FY10 80.8% 23.0% 20.8% 13.9%
FY11 FY12E FY13E FY14E 1,116 1,362 1,658 2,049 139 171 189 208 -256 -386 -247 -337 -228 -167 -275 -340 771 980 1,324 1,580 -383 -11 377 -53 -367 2,338 2,110 0.07 FY11 78.5% 21.7% 19.3% 8.0% -349 -10 621 20 -297 2,110 2,228 0.11 -377 -12 936 20 -604 2,228 2,304 0.13 -411 -13 1,156 0 -727 2,304 2,393 0.16
FY12E FY13E FY14E 79.0% 79.5% 80.0% 19.9% 20.7% 21.4% 17.7% 18.6% 19.5% 9.6% 9.8% 10.1% 18.1% 18.1% 21.8% 21.8% 178.02
17.5% 38.7% 33.0% 16.0% 26.0% 41.5% 33.0% 16.0% 42.8% -18.4% 59.3% 18.6% 33.2% (20.0%) 59.3% 18.6% 161.90 111.21 159.06 158.29 -59.9% 20.4% 0.87 1.54 18.5% 27.1% -52.8% 19.8% 0.97 1.64 12.4% 28.9%
-52.8% -51.4% -50.3% 19.8% 19.8% 19.8% 1.14 1.17 1.22 1.78 1.90 2.03 18.8% 21.2% 24.4% 33.9% 39.1% 45.6%
383
Sinopec Corp.- H
www.english.sinopec.com
Company overview Sinopec is one of the three big oil companies of China and is integrated with E&P, R&M and Chemicals. In 2011, oil production was 0.9 mn BOPD and gas 0.2 mn BOEPD, refining throughout was 4.4 mn BOPD, ethylene production 10 mn tonnes. Sinopec has SEC proven reserves of 4.0 bn BOE (30% is natural gas, 75% of crude is developed). Major profit drivers are crude price and refining margins in China. Sinopec controls over 50% of the petroleum retail market with 29,000 retail stations, and presence primarily in south and east of China. Investment case From generating refining losses in 1H12, we expect refining to break even in 2H12 (which is on its way) and further turn positive in 1H13 (and beyond) driven by more active product price adjustments by the NDRC. This is expected to drive about 20% earnings growth in 2013. Stock trades at 7.7x FY13E P/E, at a 30-40% discount to regional and Chinese peers, generating similar ROEs. Key attractions in an anemic growth environment An anemic but benign growth environment should weigh on global crude demand and hence oil prices, which should give NDRC the leg-room to adjust down the product prices in a way so to let the refiners make money. NDRC has shown willingness to adjust product prices corresponding to around US$100-110/bbl crude price, and any decline in oil prices bodes well for the Chinese refining margin. Sinopecs greater leverage to refining makes it more attractive than peers, given current valuations. Earnings risks in 2013 Our 2013 EPS growth is based on refining improving in 2013, while we expect Chemicals to remain weak. In case the chemicals segment picks up meaningfully, full year earnings could come in about 10-15% higher than current estimate. Price target, and risks to our investment view Dec-13 PT of HK$9.50 is based on 1.2x 2013E BV, which is at a 10% premium to PetroChinas (PTR) valuations at our PTR PT which we believe is justified given Sinopec is expected to generate higher ROE than PetroChina. Risks are much lower oil price or NDRC cutting the product prices to below profitability levels.
Sinopec Corp - H (Reuters: 0386.HK, Bloomberg: 386 HK) Rmb in mn, year-end Dec FY10A FY11A FY12E Revenue (Rmb mn) 1,913,134 2,505,643 2,714,970 Net Profit (Rmb mn) 71,752 73,185 62,828 EPS (Rmb) 0.83 0.84 0.72 DPS (Rmb) 0.21 0.20 0.22 Revenue Growth (%) 42% 31% 8% EPS Growth (%) 16% 2% (14%) ROCE 19% 17% 14% ROE 18% 16% 13% P/E 8.1 7.9 9.2 P/BV 1.4 1.2 1.1 EV/EBITDA 4.4 4.4 4.8 Dividend Yield 3.1% 3.0% 3.3%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: HK$8.28 Price Target: HK$9.50
Abs Rel
1m 14.2% 6.1%
3m 13.7% 4.0%
Source: Bloomberg.
FY13E 2,655,253 75,082 0.87 0.26 (2%) 20% 15% 14% 7.7 1.0 4.2 3.9%
FY14E 2,640,208 79,433 0.92 0.27 (1%) 6% 14% 13% 7.3 0.9 3.9 4.1%
Company Data Shares Outstanding (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) Avg Daily Volume (mn) Avg Daily Value (HK$ mn) Avg Daily Value ($ mn) HSCEI Exchange Rate Fiscal Year End
86,702 695,354 111,267 8.28 05 Nov 12 19.6% 205 1,098 142 10,834 7.75 Dec
384
Income Statement Cash flow statement Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec Revenues 1,913,134 2,505,643 2,714,970 2,655,253 2,640,208 EBIT % change Y/Y 42% 31% 8% (2%) (1%) Depr. & amortization EBITDA 164,179 169,306 166,327 191,867 199,979 Change in working capital % change Y/Y 22% 3% (2%) 15% 4% Taxes EBIT 104,956 105,490 96,601 114,553 119,119 Cash flow from operations % change Y/Y 24% 1% (8%) 19% 4% EBIT Margin 3% 2% 2% 2% 2% Capex Net Interest -7,312 -7,657 -10,186 -11,787 -10,539 Disposal/(purchase) Earnings before tax 103,645 104,525 90,718 107,054 112,855 Net Interest % change Y/Y 29% 1% (13%) 18% 5% Other Tax -25,689 -26,120 -22,670 -26,752 -28,202 Free cash flow as % of EBT 24.8% 25.0% 25.0% 25.0% 25.0% Net income (reported) 71,752 73,185 62,828 75,082 79,433 Equity raised/(repaid) % change Y/Y 16% 2% (14%) 20% 6% Debt raised/(repaid) Shares outstanding 86,702 86,702 86,702 86,702 86,702 Other EPS (reported) 0.83 0.84 0.72 0.87 0.92 Dividends paid % change Y/Y 16% 2% (14%) 20% 6% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec Cash and cash equivalents 17,008 24,647 9,089 22,014 49,092 EBITDA margin Accounts receivable 43,093 58,721 63,627 62,227 61,875 Operating margin Inventories 156,546 203,417 220,411 215,563 214,341 Net margin Others 42,450 55,420 60,050 58,729 58,396 Current assets 260,229 342,755 353,727 359,084 384,254 Sales per share growth LT investments - Sales growth Net fixed assets 630,299 677,247 780,425 815,499 847,027 Net profit growth Total Assets 995,154 1,144,528 1,262,981 1,307,700 1,368,673 EPS growth Liabilities Interest coverage (x) Short-term loans 17,019 68,224 68,224 68,224 68,224 Payables 132,528 177,002 186,632 177,600 175,174 Net debt to equity Others 186,859 199,014 208,637 199,611 197,187 Sales/assets Total current liabilities 336,406 444,240 463,493 445,435 440,585 Assets/equity Long-term debt 136,465 116,894 166,894 171,894 176,894 ROE Other liabilities 71,915 76,050 76,050 76,050 76,050 ROCE Total Liabilities 544,786 637,184 706,437 693,379 693,529 Shareholders' equity 419,047 472,328 516,308 568,865 624,468 BVPS 4.83 5.45 5.95 6.56 7.20
Source: Company reports and J.P. Morgan estimates.
FY11 FY12E FY13E 105,490 96,601 114,553 63,816 69,726 77,313 -14,484 -7,276 -10,490 -26120 -22670 -26752 150,622 133,199 150,192
-97,637 -141,038 -179,908 -119,742 -120,110 16,126 1,216 0 0 0 -7,312 -7,657 -10,186 -11,787 -10,539 72,696 9,584 -46,709 30,450 45,907 11,687 -2,977 50,000 5,000 5,000 -16,391 -19,469 -18,849 -22,525 -23,830 8,806 17,008 24,647 9,089 22,014 17,082 24,647 9,089 22,014 49,092 0.21 0.20 0.22 0.26 0.27 FY10 4% 3% 2% 42% 42% 16% 16% 22.45 32% 4.09 2.23 18% 19% FY11 3% 2% 1% 31% 31% 2% 2% 22.11 34% 4.68 2.42 16% 17% FY12E 3% 2% 1% 8% 8% (14%) (14%) 16.33 44% 4.51 2.45 13% 14% FY13E FY14E 4% 4% 2% 2% 1% 2% (2%) (2%) 20% 20% 16.28 38% 4.13 2.30 14% 15% (1%) (1%) 6% 6% 18.98 31% 3.95 2.19 13% 14%
385
Skyworth Digital
www.skyworth.com.hk
Company overview Skyworth Digital is the largest LCD TV manufacturer (~15% China market share) and the second-largest TV maker by revenue. The company, founded in 1988 and listed in Hong Kong in 2000, has manufacturing facilities in Shenzhen, Guangzhou Inner Mongolia, China. Skyworth has diversified distribution channels and also manufactures OEM and ODM TVs. Investment case Strong demand driven by new TVs and government rebates. Skyworth has seen a dramatic improvement in growth rates for August and September (avg 27% Y/Y growth) compared to June and July (up 10% Y/Y) mainly due to the introduction of more high-end TVs and the start of an energy savings rebate (approx 10% of the cost of the TV) that the government introduced in June but did not start to stimulate demand until after July. We stay OW and maintain it as an AFL stock. Key attractions in an anemic growth environment Price competition at the retail level appears to be less severe than last year. Skyworth has mentioned that due to lower prices (after the ~10% government rebates), customers are feeling much better about buying TVs in Oct 12 compared to Jun12. Retailers, including on-line retailers, have less incentive to cut prices in order to attract sales. New features of the new TVs are also a factor in attracting customers to a brand compared to price this year. Earnings risks in 2013 Controlling SGA expenses is the key for FY13. Skyworth hopes to lower distribution costs by reducing the reliance on large electronic chain stores that charges the highest fees for selling TVs. The company is continuing to roll out its own dedicated outlets (5.8% of FY12 sales vs 0% in FY11) which entail much lower distribution costs. Price target, and risks to our investment view Our PT (Dec-13, DCF-derived with market risk premium of 6.0% and a risk-free rate of 4.2% and beta of 1.5) of HK$6.0 implies a fwd P/BV (FCY14E) of 1.4x and implies a fwd P/E of 8.7x (CY14E). Key risks are the timing of the commencement of government subsidy schemes for TVs, and higher cost of components cutting into margins.
Skyworth Digital Holdings (Reuters: 0751.HK, Bloomberg: 751 HK) HK$ in mn, year-end Mar FY11A FY12A FY13E Revenue (HK$ mn) 24,339 28,137 33,169 Net Profit (HK$ mn) 1,174.0 1,252.0 1,726.9 EPS (HK$) 0.44 0.46 0.62 DPS (HK$) 0.14 0.14 0.19 Revenue growth (%) 6.9% 15.6% 17.9% EPS growth (%) -10.7% 4.8% 34.9% ROCE 13.4% 14.3% 17.2% ROE 18.3% 16.1% 19.0% P/E (x) 9.8 9.4 7.0 P/BV (x) 1.6 1.4 1.2 EV/EBITDA (x) 6.5 6.1 4.5 Dividend Yield 3.1% 3.2% 4.4%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: HK$4.35 Price Target: HK$6.0
Abs Rel
1m 18.2% 8.0%
3m 41.2% 29.2%
Source: Bloomberg.
FY14E 37,778 1,915.5 0.68 0.21 13.9% 9.3% 17.4% 18.5% 6.4 1.1 3.9 4.8%
FY15E 41,772 2,000.9 0.69 0.21 10.6% 1.5% 16.4% 17.1% 6.3 1.0 3.7 4.9%
Company Data Shares O/S (mn) Market cap (HK$ mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3-mth trading volume (mn) 3-mth trading value (HK$ mn) 3-mth trading value ($ mn) HSCEI Exchange Rate Fiscal Year End
386
FY11 FY12 FY13E FY14E FY15E 19.2% 21.2% 21.7% 21.6% 20.9% 7.4% 7.0% 7.8% 7.6% 7.1% 6.6% 6.1% 6.9% 6.7% 6.3% 4.8% 4.4% 5.2% 5.1% 4.8% 1.8% 13.6% 15.3% 12.3% 7.4% 6.9% 15.6% 17.9% 13.9% 10.6% -6.2% 6.6% 37.9% 10.9% 4.5% (10.7%) 4.8% 34.9% 9.3% 1.5% 12.98 11.12 15.60 17.32 17.96 25.9% 27.9% 1.29 2.64 18.3% 13.4% 25.0% 27.2% 1.38 2.62 16.1% 14.3% 17.5% 23.1% 1.40 2.60 19.0% 17.2% 12.5% 8.3% 21.3% 20.6% 1.42 1.41 2.56 2.51 18.5% 17.1% 17.4% 16.4%
387
Summarecon Agung
www.summarecon.com
Company overview Summarecon Agung, established in 1975, is a real estate developer. Its flagship development, Summarecon Kelapa Gading, comprises of residential and commercial complexes spanning 550ha, and is one of the first township developments in Jakarta. The company focuses on developing integrated townships with facilities supporting residential and commercial activities in the area. Summarecon currently manages three township developments in Kelapa Gading, Serpong, and Bekasi. Investment case Summarecon is the market leader in upper-middle class residential properties. The company has an excellent track record on new projects and land-banking. We expect strong marketing sales growth, driven by the launches in Bekasi and Serpong projects. Momentum is positive for Summarecon, driven by earnings upgrade momentum and potential land acquisitions. Key attractions in an anemic growth environment 1) Marketing sales are projected to grow 21% and 24% for 12E and 13E. 2) We expect a target ASP increase of 19% y/y in FY13E for Bekasi, driven by the opening of the Mall and finishing of the flyover, which we view as achievable. 3) Potential land bank acquisition in South Jakarta should provide further upside to NAV. Earnings risks in 2013 Unsuccessful new project launches in Serpong and Bekasi, their source of growth. Difficulties in securing contractors, due to recent property boom, could cap revenue growth potential in FY13. Price target, and risks to our investment view Our Dec-13 PT of Rp2,500 is based on a 30% discount to Dec-13 equity value per share of Rp3,640, the discount it has traded on during up cycles. The key risks to our price target are: (1) limitations on land bank availability could cap expansion opportunities; (2) diversification risk as the company plans to expand into tourism business in Bali; and (3) valuation concerns may cap outperformance.
Summarecon Agung (Reuters: SMRA.JK, Bloomberg: SMRA IJ) Rp in mn, year-end Dec FY09A FY10A FY11A Revenue (Rp mn) 1,197,693 1,700,832 2,359,331 Net Profit (Rp mn) 167,343.4 233,477.9 392,019.5 EPS (Rp) 26.00 33.97 57.04 DPS (Rp) 8.49 10.00 0.00 Revenue growth (%) -5.5% 42.0% 38.7% EPS growth (%) 77.7% 30.7% 67.9% ROCE 11.3% 12.9% 16.2% ROE 10.2% 12.1% 17.0% P/E (x) 69.6 53.3 31.7 P/BV (x) 6.8 5.8 5.0 EV/EBITDA (x) 31.0 24.5 17.2 Dividend Yield 0.5% 0.6% 0.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: Rp1,810 Price Target: Rp2,500
Abs Rel
1m 5.8% 3.9%
3m 11.0% 5.0%
Source: Bloomberg.
FY12E 2,939,476 562,607.5 74.95 0.00 24.6% 31.4% 19.6% 17.2% 24.1 3.3 11.7 0.0%
FY13E 3,658,331 744,369.8 99.16 0.00 24.5% 32.3% 19.9% 16.7% 18.3 2.8 9.5 0.0%
Company Data Shares O/S (mn) Market cap (Rp mn) Market cap ($ mn) Price (Rp) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Rp mn) 3M - Avg daily Value (USD) ($ mn) JCI Exchange Rate Fiscal Year End
7,213 13,056,240 1,357 1,810 02 Nov 12 70.0% 5.43 8,792.91 0.89 4,339 9,623.00 Dec
388
LT investments Net fixed assets 3,073,435 4,497,728 Total Assets 8,099,175 9,505,707 Liabilities ST Loans 0 0 Payables 246,765 261,282 Others 259,168 259,168 Total current liabilities 505,933 520,450 Long-term debt 1,431,040 773,450 Other liabilities 3,685,101 4,122,760 Total Liabilities 5,622,075 5,416,661 Shareholders' equity 2,464,196 4,076,143 BVPS 358.53 543.02 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY13E FY14E Rp in millions, year end Dec 3,658,331 4,552,320 EBIT 24.5% 24.4% Depr. & amortization 1,029,179 1,299,171 Change in working capital 20.1% 26.2% Others 28.1% 28.5% Cash flow from operations -26,107 26,981 973,072 1,296,153 Capex 30.5% 33.2% Disposal/(purchase) -232,015 -288,314 Net Interest 23.8% 22.2% Free cash flow 744,369.8 1,011,151.4 32.3% 35.8% Equity raised/(repaid) 744,370 1,011,151 Debt raised/(repaid) 32.3% 35.8% Other 7,506 7,506 Dividends paid 99.16 134.70 Beginning cash 32.3% 35.8% Ending cash 0.00 0.00 DPS Ratio Analysis FY13E FY14E Rp in millions, year end Dec 1,280,660 1,764,602 EBIT Margin 53,382 66,427 Operating margin 3,556,941 4,015,977 Net margin 731,666 910,464 SG&A/Sales 5,626,348 6,761,168 Sales per share growth - Sales growth 4,888,501 5,090,794 Net profit growth 10,774,345 12,111,458 EPS growth Interest coverage (x) 0 0 Net debt to total capital 330,337 405,024 Net debt to equity 259,168 259,168 Sales/assets 589,505 664,192 Assets/equity 648,185 326,613 ROE 4,703,239 5,276,085 ROCE 5,940,929 6,266,890 4,820,513 5,831,664 642.18 776.89
FY12E FY13E FY14E 856,742 1,029,179 1,299,171 115,832 128,732 137,732 -3,757 30,121 -3,345 -294,135 -284,809 -288,020 674,682 903,223 1,145,538 -519,504 383,719 -340,024 805,513
-405,915 -1,540,125 -6,919 -865,443 0 454,790 -4,743 0 1,120,483 1,495,901 0.00 FY11 24.0% 24.0% 16.6% 38.7% 38.7% 67.9% 67.9% 19.36 -2.0% -2.8% 0.33 3.29 17.0% 16.2%
981,629 0 0 -657,589 -125,266 -321,572 0 0 0 0 0 0 1,495,901 1,022,207 1,280,660 1,022,207 1,280,660 1,764,602 0.00 0.00 0.00 FY12E 29.1% 29.1% 19.1% 14.1% 24.6% 43.5% 31.4% 12.03 -5.8% -6.2% 0.33 2.33 17.2% 19.6% FY13E 28.1% 28.1% 20.3% 24.5% 24.5% 32.3% 32.3% 44.35 -12.3% -13.2% 0.36 2.24 16.7% 19.9% FY14E 28.5% 28.5% 22.2% 24.4% 24.4% 35.8% 35.8% -24.8% -24.7% 0.40 2.08 19.0% 22.3%
389
Neutral
Price: Rs1,324.95 Price Target: Rs1,400
Abs Rel
1m 2.3% 2.6%
3m 5.3% -1.5%
Source: Bloomberg.
FY11 FY12 ROE(%) 37.0 36.2 CORE ROIC(%) 48.7 45.5 Quarterly EPS (Rs) 1Q 2Q EPS (13) E 16.76 17.95 EPS (14) E 17.63 18.89 Local 1M 3M Abs. Perf.(%) 2.3% 5.3% Rel. Perf.(%) 2.6% (1.5%) Target Price (31 Mar 13)
FY13E FY14E 36.4 31.5 52-Week range 45.0 43.3 Share Out. (Com) 3Q 4Q Market Cap 16.84 18.03 Market Cap(US) 19.73 20.69 Free float 12M Avg daily val (Rs) 18.0% Dividend Yield 9.1% Index Rs 1400.00 Exchange rate
1,439.80 - 1,034.34 1,957MN 2,593.22BN US$47,360MN 23.5% 236MN 1.1% 5,686 54.76
390
FY11 FY12 FY13E FY14E FY15E 87,163.6 106,383.1 136,164.2 150,613.6 4,924 5,807 6,458 7,096 -16,194 -34,744 -22,579 -16,067 0 0 0 0 77,084 78,556 121,439 143,127 0 0 0 0 0 0 0 0 77,084 78,556 121,439 143,127 0 0 0 0 -2,703 552 1,762 0 1,816 1,527 -4,579 -1,484 -18,413 -59,843 -27,620 -27,620 -43,518 -33,115 -53,044 -29,104 4,131 46,774 50,905 16,817 50,905 67,722 62,333 67,722 130,055 98,003 130,055 228,058 -
391
Televisa
www.televisa.com.mx
Overweight
Price: $22.24 Price Target: $31.00 End Date: Dec 2013
Company overview Televisa (TV) is a media company producing content, operating free-to-air television channels in Mexico, as well as a cable network and a DTH company, among other smaller business. More recently the company has acquired 50% of Iusacell, a small mobile operator in Mexico. TV is the largest provider of media content in Spanish in the world, which accounted for 48% of its revenue in 2011. Pay-TV is the second largest segment, accounting for 41% of revenues 2011. Investment case Televisa would benefit from higher growth in advertising in Mexico, as well as for the continued growth of Pay-TV services in the country. Regulatory measures intended to increase competition in the mobile arena should also be positive for the company, as they would support Iusacell. How much recovery has already been priced in, what are the key metrics? We believe recent weakness in broadcasting revenues coupled with uncertainty about Iusacell has been weighing on share prices. TV trades at 16x 12m fwd P/E, in line with its historical five-year average. Earnings risk in 2013 The main risk we see for 2013 earnings is a downgrade in Mexican GDP growth expectations, which would result in lower advertising spending, affecting the core business of Televisa. Price target, and risks to our investment view Our Dec 2013 $31 PT is based on a 50/50 blend of (1) SoTP valuation of each operating segment; and (2) DCF assuming 8.4% WACC and 2.5% terminal growth in US$ nominal terms. At our target, TV would trade at 16.7x P/E. Risks: Weak performance on Iusacell might prevent the stock from appreciating in a market recovery.
Source: Bloomberg.
Grupo Televisa, S.A.B. (TV;TV US) FYE Dec 2011A EPS (Ps) FY 12.18 Bloomberg EPS FY (Ps) 13.10 Revenues FY (Ps mn) 62,582 EBITDA FY (Ps mn) 23,635 EBITDA Margin FY (Ps) 37.8% P/E FY 24.4
Source: Company data, Bloomberg, J.P. Morgan estimates. EPS defined as: Net Income in Mx Ps divided by total ADRs Outstanding.
Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date Div. Yield Debt/Total Capital
22.24 14 Nov 12 24.88 - 18.60 12,858.01 Dec 571 31.00 31 Dec 13 1.0% 35.3%
392
Net debt 34,648 29,373 8.2% 11.9% 10.0% 9.6% 6.4% Adj.Net Debt 72,441 62,782 9.4% 16.0% 9.7% 7.6% 4.2% Net Debt/Capital 23.6% 19.1% (10.3%) 14.4% 41.7% 17.8% 9.6% Debt/Capital 38.4% 35.3% 72.8% (13.9%) 46.5% 13.6% 4.3% Net Debt/EBITDA 1.5 1.1 FY11A FY12E FY13E FY14E FY15E Valuation, Macro FY11A FY12E (10,005) (11,107) (10,386) (10,892) (11,170) EV/EBITDA 9.6 7.9 2,384 (470) 0 0 (293) P/E 24.4 21.5 8,897 7,659 11,218 12,740 13,284 Adj.P/E 24.4 21.5 990 1,722 1,971 2,794 6,583 P/BV 3.1 2.8 14.4% 21.8% 17.6% 21.2% 45.6% FCF yield (7.7%) 5.5% 13 0 1,971 2,794 6,583 Dividend yield 0.6% 1.0% 1.4 1.4 1.3 1.3 1.4 (16.0%) (15.9%) (13.5%) (12.9%) (12.4%) ROE 13.3% 13.5% (5,489) (5,019) (5,201) (5,516) (5,223) Net revenue/Assets 40.6% 43.1% (8.8%) (7.2%) (6.8%) (6.5%) (5.8%) Assets/Equity 3.0 2.8 11.0% 11.3% 14.5% 15.6% 16.1% ROIC 15.1% 17.1% Pay-TV Subs 6,191 7,306 8,357 9,349 10,242 Shares 566 571 Broadband Subs 1,067 1,297 1,505 1,692 1,860 ADRs 566 571 Dial-Up Subs VoIP Subs 650 768 875 971 1,057 WACC 8.4% Circulation - Perpetual Growth 2.5% RGUs 7,908 9,371 10,737 12,012 13,159 Cost of equity 9.1% Cost of debt 4.0% Fx,Avg 12.65 13.07 12.62 12.87 13.12 Source: Company reports and J.P. Morgan estimates. EPS defined as: Net Income in Mx Ps divided by total ADRs Outstanding. Note: Ps in millions (except per-share data).Fiscal year ends Dec
FY15E 89,869 0 0 0 33,744 37.5% (8,211) 0 (609) 25,014 (7,063) (3,517) 14,434 14,434 539 26.78 26.78
Balance Sheet Cash Accounts receivable Inventories Other current assets Net PP&E Other assets Total assets Short-term debt Accounts payable Other current liabilities Long-term debt Deferred taxes Other liabilities Total liabilities Minority interest Shareholders' equity Liabilities + Equity
FY11A FY12E FY13E FY14E FY15E 21,699 24,758 31,979 39,076 39,139 22,153 23,749 26,121 28,625 30,467 5,563 6,298 6,298 6,298 6,298 1,246 1,707 1,707 1,707 1,707 40,875 44,020 46,117 48,786 51,745 62,435 62,041 62,680 63,699 65,169 153,969 162,572 174,901 188,190 194,524 1,552 522 522 522 522 7,688 8,394 9,232 10,117 10,768 26,763 28,378 30,094 32,028 32,926 54,795 53,609 53,609 53,609 53,609 4,083 4,295 4,295 4,295 4,295 94,880 95,198 97,753 100,571 102,121 7,314 9,158 11,881 15,089 18,606 51,775 58,216 65,267 72,530 73,798 153,969 162,572 174,901 188,190 194,524 22,152 52,525 13.6% 33.2% 0.7 FY13E 6.9 15.0 15.0 2.5 7.9% 1.2% 17.1% 44.1% 2.7 18.3% 565 565 15,055 43,311 8.7% 31.3% 0.5 FY14E 6.0 12.6 12.6 2.2 9.1% 1.7% 18.2% 44.9% 2.6 19.1% 556 556 14,992 36,137 8.5% 30.8% 0.4 FY15E 5.4 11.1 11.1 2.1 10.0% 4.1% 19.6% 46.2% 2.6 20.0% 539 539
393
Tencent
www.tencent.com
Company overview Tencent is a leading internet media company in China. The companys QQ IM software has more than 780 million active users in China, making Tencent the largest online community in China. Tencent operates one of the most visited portals in China, QQ.com; Chinas No 1 social network Qzone; and popular casual gaming portal, QQ Games. Company is also the leading player in advanced causal game and MMORPG. Investment case We maintain Tencent as one of our sector top picks. We expect new game launches, opportunities from the mobile platform, and eCommerce growth with prior investments paying off and increasing platform monetization to showcase Tencents franchise power from its sticky QQ platform. Key attractions in an anemic growth environment We expect potential earnings upside to drive its share price: (1) potential upside in gaming, with new title YL Online and Blade & Soul in 2013; (2) new open-platform applications across QQ platforms, which also creates synergy in the QQ ecosystem, (3) better-than-expected ad growth with online video and targeted advertising, and (4) in medium-term mobile-related services could likely be another driver. Earnings risks in 2013 Risks to earnings and PT include higher-than-expected costs from investments in open platform, Tencent Microblog, eCommerce, search, mobile platform, online videos and online security services. Revenue growth slowdown from older games, and other regulatory changes. Price target, and risks to our investment view Our Dec-13 PT of HK$306 is based on a 10-year DCF valuation (WACC of 12% and terminal growth rate of 0). We expect Tencent to post a revenue CAGR of >20% in 2010-2015, and subsequently around 17% growth in 2016-2022. Our PT implies 24.6x FY13E, and 19.7x FY14E adj. EPS, with 33.2%/24.9% FY13E/14E EPS growth.
Bloomberg 700 HK, Reuters 0700.HK
(Year-end Dec, Rmb mn) FY11 FY12E FY13E FY14E Net Sales 28,496.1 43,616.3 54,993.7 68,843.4 Operating Profit (EBIT) 11,363.8 15,798.2 21,408.1 26,853.6 EBITDA 14,026.6 19,196.0 25,276.7 31,456.6 Pre Tax Profit 12,289.1 16,172.8 22,218.2 28,145.8 Reported Net profit 10,203.1 13,191.0 18,203.7 23,087.8 Reported EPS (Rmb) 5.48 7.01 9.49 11.93 P/E (x) 40.5 31.7 23.4 18.6 Adj. EPS (Rmb)* 5.88 7.64 10.18 12.71 Adj. P/E (X) 37.8 29.1 21.8 17.5 EV/EBITDA (x) 27.5 19.8 15.1 12.1 P/B (x) 14.4 10.0 7.0 5.1 Y/E BPS (Rmb) 15.39 22.11 31.54 43.23 FY11 FY12E ROE(%) 41 38 ROIC(%) 30 29 Cash 26,328.2 35,958.2 Equity 28,463.8 41,319.3 Qtr GAAP EPS (Rmb) 1Q 2Q EPS (11) 1.54 1.26 EPS (12) E 1.59 1.67 EPS (13) E 2.07 2.30 1M 3M Abs. Perf.(%) 2.9% 11.4% Rel. Perf.(%) 0.7% 5.9% FY13E 36 30 51,490.0 59,584.4 3Q 1.31 1.83 2.49 12M 60.4% 53.5%
Overweight
Price: HK$275.80 Price Target: HK$306.00
Evan Zhou
(852) 2800 8505 evan.z.zhou@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
P r ic e P e r fo r m a n c e
260 HK$ 220 180 140
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs Rel
1m 5.8% 0.4%
3m 18.1% 8.4%
Source: Bloomberg.
52-Week range Shares Outstg Market Cap(US) Free float Avg daily vol. Avg daily val (HK$) Dividend Yield Index (NASD) Price Target Price Date
281.00 - 139.80 1,851MN US$65,851MN 0.2% 3.0MM shares 749.51MN 0.3% 21,384 306.00 06 Nov 12
Source: Company, J. P. Morgan estimates, Bloomberg. *Note: Excluding share-base compensation, amortization from acquisition and one-time items.
394
Ratio Analysis Rmb in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin S&M/sales G&A/Sales Sales growth Operating profit growth Net profit growth Diluted EPS growth Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC Cash flow statement Rmb in millions, year end Dec Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Other investing cashflow Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing
FY10 67.8% 52.5% 48.6% 41.0% 4.8% 14.4% 57.9% 60.6% 56.2% 55.1% -62.2% -77.4% 0.74 1.88 47.5% 42.1%
FY11 65.2% 46.7% 39.9% 35.8% 6.7% 18.5% 45.0% 19.1% 26.7% 26.5% -36.3% -51.3% 0.62 2.14 40.6% 30.2%
FY12E 59.6% 42.0% 36.2% 30.2% 5.4% 18.0% 53.1% 39.0% 29.3% 27.8% -44.6% -57.7% 0.68 2.19 37.8% 29.3%
FY13E 61.2% 44.0% 38.9% 33.1% 5.1% 17.2% 26.1% 35.5% 38.0% 35.4% -54.9% -66.1% 0.66 1.69 36.1% 29.7%
FY14E 61.7% 43.9% 39.0% 33.5% 5.6% 17.1% 25.2% 25.4% 26.8% 25.6% -62.2% -71.3% 0.64 1.42 32.5% 28.0%
FY13E FY14E 51,490 70,990 3,554 4,423 0 0 7,531 9,464 62,574 84,876 10,667 10,667 12,262 17,618 8,627 8,627 94,130 121,788 3,609 4,477 14,963 23,049 8,511 2,986 34,546 59,584
3,609 5,524 18,622 27,755 8,511 2,986 Net change in cash 4,365 2,204 9,630 39,252 Net Effect of Exch. Rate Chg. -52 -172 0 82,536 Beginning cash 11,354 22,134 26,328 Ending cash 22,134 26,328 35,958 Source: Company reports and J.P. Morgan estimates. *Note: Excluding share-base compensation, amortization from acquisition and one-time items.
FY10 FY11 FY12E FY13E FY14E 8,053.6 10,203.1 13,191.0 18,203.7 23,087.8 779 1,934 2,532 2,813 3,336 1,926 -475 2,825 1,522 1,904 1,561 1,695 930 1,114 1,325 12,319 13,358 19,478 23,652 29,653 -7,715 -11,883 -6,608 -7,068 -8,692 -4,300 -3,472 -1,924 0 0 -12,015 -15,355 -8,532 -7,068 -8,692 4,604 1,475 12,870 16,584 20,961 1,808 -2,937 615 826 906 5,097 6,434 387 0 0 -1,954 1,984 -999 -58 -58 -838 -1,108 -1,319 -1,820 -2,309 4,112 4,373 -1,316 -1,052 -1,461 15,532 0 35,958 51,490 19,500 0 51,490 70,990
395
Overweight
Price: Bt71.50 Price Target: Bt90.00
Abs Rel
1m -5.9% -5.1%
3m 0.4% -6.2%
Source: Bloomberg.
FY14E 135,967 8,072.1 6.62 3.31 8.8% 10.8% 15.7% 18.3% 10.8 1.9 8.4 4.6%
Company Data Shares O/S (mn) Market cap (Bt mn) Market cap ($ mn) Price (Bt) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Bt mn) 3M - Avg daily Value (USD) ($ mn) SET Exchange Rate Fiscal Year End
1,148 82,053 2,672 71.50 08 Nov 12 53.4% 2.80 205.94 6.71 1,294 30.71 Dec
396
173.8% 159.2% 78.7% 72.8% 62.0% 1.30 1.26 1.28 1.32 1.35 3.57 3.41 2.40 2.34 2.24 15.4% 22.4% 18.8% 18.0% 18.3% 9.0% 13.2% 13.8% 15.0% 15.7%
397
Tim Participaes
www.tim.com.br
Overweight
Price: R$8.02 Price Target: R$11.00 End Date: Dec 2013
Company overview Tim provides mobile voice and data and long distance services countrywide, as well as corporate data, being almost a pure mobile pay in Brazil. In terms of mobile subs, it ranks #2 in the country with 27% subscriber share. Tim introduced innovative concepts to the Brazilian mobile industry, such as pay-per-call and unlimited calls (on net traffic only). The company is controlled by Telecom Italia, which owns 67% of its capital. Investment case The stock might re-rate if it is able to show sustainable high-single-digit growth in mobile service revenue coupled with the maintenance of capex at the R$3bn/year level. Better growth might come from a successful marketing strategy, with Tim gaining subscriber share (25%+ share of monthly adds would be a positive indicator). How much recovery has already been priced in, what are the key metrics? Tim has experienced a de-rating since March 2012, when it was trading at 5.0x 12m fwd EV/EBITDA, declining 34% to 3.3x currently, following a series of negative events including the departure of the CEO, a sales ban of two weeks applied to the company in July due to network quality issues, and revisions in the interconnection model. Earnings risk in 2013 Tim earnings might disappoint if competitive intensity increases in 2013, thus forcing a decline in prices and a ramp-up in subsidies in the industry. On the other hand, if Tim is able to re-establish differentiation from competitors, there would be upside risk to earnings. Price target, and risks to our investment view Our Dec 2013 PT of R$11 is based on a 50/50 blend of (1) relative valuation assuming Tim would trade at 12x P/E, in line with peers, and (2) DCF, assuming 8% WACC and 2% perpetuity growth, in US$ nominal terms. At our PT, Tim would trade at 4.2x EV/EBITDA and 14.1x P/E. Risks: Tim might not follow the market in a recovery if th titi i t l t i t ifi
TIM Participacoes (TIMP3.SA;TIMP3 BZ) FYE Dec 2011A EPS (R$) FY 0.59 Bloomberg EPS FY (R$) 0.51 Revenues FY (R$ mn) 17,224 EBITDA FY (R$ mn) 4,768 EBITDA Margin FY (R$) 28% P/E FY 13.3 2012E 0.61 0.61 19,044 5,021 26% 12.9 2013E 0.74 0.72 20,299 5,479 27% 10.7 2014E 0.78 0.82 21,578 5,967 28% 10.1 2015E 0.87 22,735 6,359 28% 9.1
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date Div. Yield Debt/Total Capital
8.02 14 Nov 12 11.89 - 6.66 19,117.18 Dec 2,417 11.00 31 Dec 13 3.5% 14.7%
398
FY11A FY12E FY13E FY14E FY15E Balance Sheet 17,224 19,044 20,299 21,578 22,735 Cash (12,455) (14,023) (14,821) (15,610) (16,377) Accounts receivable 4,768 5,021 5,479 5,967 6,359 Inventories 28% 26% 27% 28% 28% Other current assets (2,598) (2,665) (2,837) (2,978) (3,166) Net PP&E 2,170 2,356 2,641 2,989 3,192 Other Assets (137) (96) (119) (75) (75) Total assets 0 0 0 0 0 Short-term debt 1,933 2,164 2,523 2,913 3,117 Accounts payable (583) (682) (729) (1,026) (1,015) Other current liabilities 0 0 0 0 0 Long-term debt - Deferred taxes 1,350 1,482 1,794 1,888 2,101 Other liabilities 1,350 1,482 1,794 1,888 2,101 Total liabilities 2,416 2,417 2,417 2,417 2,417 Minority interest 0.59 0.61 0.74 0.78 0.87 Shareholders' equity 0.56 0.61 0.74 0.78 0.87 Liabilities + Equity 19.1% 10.6% 6.6% 6.3% 5.4% Net Debt 13.7% 5.3% 9.1% 8.9% 6.6% Adj. Net Debt (39.0%) 9.8% 21.0% 5.3% 11.3% Net Debt/Capital (3.5%) (77.5%) 403.5% (8.5%) 17.6% Debt/Capital Net Debt/EBITDA Operating Data, Ratios FY11A FY12E FY13E FY14E FY15E Valuation, Macro Capex (3,002) (3,432) (3,312) (3,659) (3,851) EV/EBITDA Change in working capital 141 (518) (12) (12) (11) Adj. P/E Free Cash Flow Equity 1153.21 259.51 1306.68 1195.11 1405.97 P/BV Dividends/Share 0.20 0.28 0.31 0.49 0.58 Dividend % of net income 36.0% 45.5% 41.3% 63.3% 66.9% FCF yield Consolidated Dividends 486 675 741 1,195 1,406 Dividend yield Share buybacks 0 0 0 0 0 ROE Capex/Depreciation 1.2 1.3 1.2 1.2 1.2 Net revenue/Assets Capex/Sales 17.4% 18.0% 16.3% 17.0% 16.9% Assets/Equity Working capital (336) 183 195 207 218 Working capital/sales (1.9%) 1.0% 1.0% 1.0% 1.0% ROIC Net income margin 7.8% 7.8% 8.8% 8.7% 9.2% Shares ADRs Lines in Service 0 0 0 0 0 Broadband Subs 0.0 40.0 190.0 340.0 490.0 Broadband Net Adds 0 0 0 0 0 WACC Mobile Subs 64,083 74,943 83,361 89,842 95,787 Perpetual Growth Mobile Net Adds 13,055 10,860 8,418 6,482 5,945 Cost of equity Mobile ARPU 21 19 17 17 16 Cost of debt Mobile MOU 129 0 0 0 0 Subsidiary Share PayTV subs 0.0 0.0 0.0 0.0 0.0 Fx, Avg 1.72 1.95 2.01 2.07 2.14 Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
FY11A FY12E FY13E FY14E FY15E 3,265 2,259 2,825 2,825 2,825 3,286 3,818 4,070 4,326 4,559 273 315 315 315 315 1,463 1,550 1,672 1,795 1,907 6,624 7,783 8,258 8,938 9,623 8,527 8,858 8,858 8,858 8,858 23,438 24,584 25,997 27,058 28,086 1,090 1,062 1,062 1,062 1,062 0 0 0 0 0 5,705 5,572 5,933 6,301 6,634 2,570 2,559 2,559 2,559 2,559 1,115 1,333 1,333 1,333 1,333 10,481 10,527 10,888 11,255 11,588 0 0 0 0 0 12,957 14,057 15,110 15,802 16,498 23438.22 24583.90 25997.39 27057.67 28086.04 441 1,319 753 753 753 441 1,319 753 753 753 1.9% 5.4% 2.9% 2.8% 2.7% 15.6% 14.7% 13.9% 13.4% 12.9% 0.1 0.3 0.1 0.1 0.1 FY11A FY12E FY13E FY14E FY15E 4.3 4.3 3.8 3.5 3.3 14.2 12.9 10.7 10.1 9.1 1.6 1.4 1.3 1.3 1.2 5.7% 2.5% 10.4% 0.7 1.8 9.5% 2,416 483 7.9% 2.0% 8.3% 3.5% 1.3% 3.5% 10.5% 0.8 1.7 9.5% 2,417 483 6.5% 3.9% 11.9% 0.8 1.7 10.2% 2,417 483 5.9% 6.3% 11.9% 0.8 1.7 10.1% 2,417 483 7.0% 7.4% 12.7% 0.8 1.7 10.8% 2,417 483
399
TMK
www.tmk-group.com
Company overview TMK is Russias largest manufacturer and exporter of steel pipes and ranks among the global top three pipe producers with manufacturing facilities in Russia, Europe and the US. Most of the companys customers are Russians/global oil & gas majors. Investment case TMK topline is driven by the RU and the US oil & gas capital expenditure. In Russia we forecast integrated oils 2013 downstream capex to grow (+10% y/y) while we estimate a change to positive dynamics for Russian gas capex of +35% y/y (from -35% in 2012). In the US we see stability in oil rig count (+1% y/y, 4Q13) and recovery in gas rig count (+18% y/y, 4Q13). On the top of the well-publicized South Stream project, investors will become familiar with Chayanda, the new Gazprom pipeline linking Chayanda/Kovykta fields to the Pacific Ocean coast (announced in late Oct12). We estimate LD capacity of the above projects at 5.3 mnt (South Stream, 4 lines) and 9.4 mnt (Chayanda, 2 lines) over 2013-16 against TMK 2012 LD output of 0.4 mnt. Key attractions in an anemic growth environment Providing exposure to the Russian/global energy capex, TMK is forecast to grow 2013 EPS by 15% y/y and, courtesy of moderate capex requirements, should deliver 2013 FCF growth of 45% y/y and 9% 2013E FCF yield. Earnings risks in 2013 Official announcement of South Stream development is the key upside risk to earnings while lower gas/integrated oils capex and lower US gas pricing is the main downside risk. Price target, and risks to our investment view To value TMK, we use a combination of DCF and comparable multiple analysis. Given TMKs relatively stable production plans, we assign a 33.3% weight to our DCF model while the remaining 66.7% is assigned to our comparative valuation. For the latter we use 2013E EV/EBITDA of 6.5x and 2013E PE of 11.0x (both based on current Bloomberg industry valuations). Our analysis delivers an end-2013 PT of $19.0/GDR, implying 31% upside from current levels and 2013E EV/EBITDA of 6.6x and 2013E PE of 12.4x (COB 5 November 2012, Bloomberg). Risks: lower energy prices may affect pipe demand while currency risk is also a factor due to TMKs international
Trubnaya Metalurgicheskaya Kompaniya (TRMKq.L;TMKS LI) FYE Dec 2011A 2012E Adj. EPS FY ($) 1.62 1.46 Adj P/E FY 9.0 10.0 EBITDA FY ($ mn) 1,050 1,090 EV/EBITDA FY 7.1 6.3 EBITDA margin FY 15.5% 15.5% P/BV FY 1.9 1.6 ROE FY 21.9% 17.2% Revenue FY ($ mn) 6,753 7,039
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: $14.56 Price Target: $19.00
Roman M Gorokhov
(7-495) 967-7057 roman.m.gorokhov@jpmorgan.com J.P. Morgan Bank International LLC
P r ic e P e r fo r m a n c e
16 14 $ 12 10 8
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 60.7%
1m -9.2%
3m -3.9%
12m 18.0%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
400
Cash flow statement FY14E $ in millions, year end Dec 7,909 EBIT 5.4% Depreciation & amortization 22.0% Change in working capital 1,309 Taxes 11.9% Cash flow from operations 16.5% 901 Capex 16.2% Disposals/(purchase) 11.4% Net Interest (279) Free cash flow 622 24.7% Equity raised/repaid (124) Debt Raised/repaid 20.0% Other 493 Dividends paid 25.0% Beginning cash 234.4 Ending cash 2.10 DPS (GDR) 25.0% Ratio Analysis FY14E $ in millions, year end Dec 3 EBITDA margin 891 Operating margin 1,649 Net Profit margin 206 SG&A/Sales 2,753 Sales per share growth 2 Sales growth 3,402 Net profit growth 7,315 EPS growth 599 Interest coverage (x) 1,003 Net debt to Total Capital 243 Net debt to equity 1,846 Sales/assets (x) 2,294 Assets/Equity 414 ROE 4,554 ROCE 2,761 12
FY11 543 336 62 (107) 1,112 (402) (271) 122 0 4 158 229 0.21 FY11 15.5% 10.1% 5.6% -6.1% 21.1% 21.1% 272.1% 272.1% 3.0 50.5% 188.0% 0.9 3.9 21.9% -
FY12E 434 353 (69) (87) 1,021 (450) (273) 181 0 -206 229 116 0.37 FY12E 15.5% 10.0% 4.9% -6.1% 4.2% 4.2% -9.7% (9.7%) 2.6 48.5% 161.0% 1.0 3.5 17.2% -
FY13E 499 365 (88) (100) 1,082 (400) (276) 276 0 -280 116 10 0.42 FY13E 15.6% 10.3% 5.3% -6.0% 6.6% 6.6% 15.2% 15.2% 2.8 45.6% 134.4% 1.0 3.1 17.2% -
FY14E 622 378 (58) (124) 1,251 (300) (279) 518 0 -399 10 3 0.53 FY14E 16.5% 11.4% 6.2% -6.0% 5.4% 5.4% 25.0% 25.0% 3.2 40.1% 102.9% 1.1 2.6 18.5% -
401
Overweight
Price: NT$415.50 Price Target: NT$550.00
Abs Rel
1m 9.3% 14.2%
3m 16.1% 17.2%
Source: Bloomberg.
FY11 FY12E FY13E FY14E FY11 FY12E 143.4 158.5 214.9 253.3 Sales growth 140.6% 10.6% 16.3 16.7 22.6 24.5 OP growth 161.9% 2.5% 19.2 21.6 29.3 33.0 NP growth 139.2% 10.3% 11.3 12.5 16.6 18.1 Quarterly EPS (NT$) 1Q 2Q 37.2 40.7 50.6 55.4 EPS (11) 8.1 12.2 96.3 114.6 148.2 181.2 EPS (12) E 8.6 9.7 11.2 10.2 8.2 7.5 EPS (13) E 9.2 10.8 4.3 3.6 2.8 2.3 Difference (%) 36.1 51.4 37.4 38.5 33.6 Price Target 550 14.3 15.6 6.3 -1.5 Consensus PT 404
Date of Price 52-Week range Market Cap Market Cap Share Out. (Com) Free float Avg daily val Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
08 Nov 12 NT$444.50 - 250.80 NT$128B US$4,392MM 309MM 74.0% NT$2.4B 79.40MM 6.1MM shares 3.6 29.25
402
Ratio Analysis FY12E FY13E FY14E NT$ in millions, year end Dec 158,515 214,852 253,305 Gross margin -132,030 181,348 216,414 EBITDA margin 26,486 33,504 36,890 Operating margin -4,781 -5,281 -5,705 Net margin -4,966 -5,573 -6,665 R&D/sales 16,739 22,650 24,520 SG&A/Sales 21,638 29,282 33,002 435 484 694 Sales growth -694 -799 -779 Operating profit growth -259 -314 -85 Net profit growth -306 -229 17 EPS (reported) growth 16,433 22,421 24,537 3,540 4,933 5,398 Interest coverage (x) 12,511.2 16,550.3 18,111.9 Net debt to total capital 12,893 16,550 18,112 Net debt to equity 40.74 50.61 55.39 Asset turnover 41.99 50.61 55.39 Working capital turns (x) 114.59 148.24 181.18 ROE 15.11 16.97 22.45 ROIC 327 327 327 ROIC (net of cash) Cash flow statement FY12E FY13E FY14E NT$ in millions, year end Dec 15,252 25,553 31,609 Net income 18,072 28,369 31,624 Depr. & amortization 19,171 30,094 33,547 Change in working capital 7,085 11,122 12,398 Other 59,579 95,140 109,178 Cash flow from operations 3,639 3,725 3,826 Capex 49,659 55,027 58,546 Disposal/(purchase) 2,576 2,575 2,576 Cash flow from investing 115,453 156,467 174,126 Free cash flow Equity raised/(repaid) 10,634 10,969 11,566 Debt raised/(repaid) 30,822 50,624 56,326 Other 16,208 25,444 28,363 Dividends paid 57,665 87,037 96,254 Cash flow from financing 20,205 20,841 18,505 111 115 121 Net change in cash 77,981 107,993 114,880 Beginning cash 37,472 48,474 59,246 Ending cash
FY10 16.8% 12.2% 10.5% 8.0% 2.6% 3.7% 218.6% 138.6% 104.7% 46.9% 102.17 11.5% 11.5% 2.25 47.2% 31.5% 41.5% FY10 4,742.6 1,059 2,268 3,793 8,076 -13,073 0 -13,981 -4,997 6,160 5,074 -1,436 0 9,799 3,893 1,671 5,564
FY11 16.9% 13.4% 11.4% 7.9% 2.4% 3.1% 140.6% 161.9% 139.2% 110.9% 71.88 37.6% 48.7% 2.13 51.4% 28.7% 36.2%
FY12E 16.7% 13.7% 10.6% 7.9% 3.0% 3.1% 10.6% 2.5% 10.3% 9.5% 83.54 25.5% 41.6% 1.52 37.4% 19.1% 24.1%
FY13E 15.6% 13.6% 10.5% 7.7% 2.5% 2.6% 35.5% 35.3% 32.3% 24.2% 93.11 8.4% 12.9% 1.58 38.5% 21.0% 28.9%
FY14E 14.6% 13.0% 9.7% 7.2% 2.3% 2.6% 17.9% 8.3% 9.4% 9.4% 389.19 -1.8% -2.6% 1.53 33.6% 20.1% 30.2%
FY11 FY12E FY13E FY14E 11,344.3 12,511.2 16,550.3 18,111.9 2,877 4,899 6,632 8,482 3,753 -4,112 3,779 638 -3,746 8,679 5,198 1,643 17,858 13,681 27,899 28,258 -28,665 -10,798 -12,000 -12,000 0 0 0 0 -33,776 -10,232 -12,085 -12,103 -10,807 2,883 15,899 16,258 0 0 0 0 17,395 6,203 975 -1,733 3,342 -143 -938 -1,027 0 -4,641 -5,549 -7,340 20,737 1,420 -5,512 -10,100 4,819 5,564 10,383 4,869 10,383 15,252 10,302 15,252 25,553 6,055 25,553 31,609
403
Tractebel Energia
www.tractebelenergia.com.br
Company overview Tractebel Energia is a power generation company with 8.6GW of operating capacity (6.9GW adjusted by ownership); the company also has projects under construction for 3.6GW (1.9GW adjusted by ownership). The largest proportion, 79.5%, of the companys capacity, is hydroelectric, with thermoelectric plants representing 18.0% and non-conventional renewable (biomass, wind, small-hydro) a marginal 2.5%. Investment case Tractebel Energia has one of the most stable cash flow outlooks in the Brazilian utilities industry and a good track record of paying out available cash to shareholders. The stability of its cash flow is underpinned by a combination of (1) insulation from the concession renewal controversy due to its long-term concessions (expiring no earlier than end of the 2020) and (2) contracts for at least over 85% of its available power through 2015, and 62% of production via long-term contracts beyond 2020. We think the company will likely use this stable and strong cash flow to fund a 100% dividend payout, and we expect a stable 8-8.5% dividend yield between 2013 and 2015. How much recovery has already been priced in, what are the key metrics? Tractebel has been a solid performer in 2012, gaining 19.3% ytd compared to a utilities industry that has lost 6.8% ytd and the wider Bovespa indexs 2.9% ytd loss. Nevertheless, we note that TBLE3s sustainable long-term free cash flow yield and dividend yield of ~9% are much more attractive than the sectors figures (7%), despite Tractebel Energias lower regulatory risk and stronger earnings growth profile. Earnings risk in 2013 The key risk for Tractebel Energias 2013 earnings and long-term ROIC is a potentially dilutive acquisition of the R$15.1bn, 3.75GW Jirau hydroelectric power plant. Jirau is 60% owned by Tractebel Energias parent, GDF Suez. Once GDF Suez completes the construction of Jirautechnically, when Jirau starts commercial operationthe plant will be sold to Tractebel Energia. This related-party transaction carries obvious corporate governance risk as the transfer could be done at above market prices. However, we think Tractebel Energia has designed protocols that provide protection to minority shareholders, including a committee of independent board members. Price target, and risks to our investment view Our price target of R$37 for Dec 2013 implies upside potential of 12%. In addition to a dilutive acquisition of Jirau, we note that the stocks main risk is an increase in interest rates, which would have a double-whammy effect of reducing the attractiveness of the companys high dividend yield while increasing the financial cost of the company.
Tractebel Energia (TBLE3.SA;TBLE3 BZ) FYE Dec EPS Reported (R$) FY 2012E 2.59 2013E 2.53
Overweight
Price: R$33.75 Price Target: R$37.00 End Date: Dec 2013
Source: Bloomberg.
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates..
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
404
FY11A FY12E FY13E FY14E FY15E Balance Sheet FY11A FY12E FY13E FY14E FY15E 4,327 4,980 4,965 4,985 5,015 Cash 782 1,326 1,426 1,854 2,662 (1,440) (1,737) (1,632) (1,561) (1,406) Accounts receivable 542 577 577 578 579 2,887 3,242 3,333 3,425 3,609 Other current assets 289 293 297 301 304 66.7% 65.1% 67.1% 68.7% 72.0% Long Term assets 777 777 777 777 777 (493) (547) (560) (720) (720) Net PP&E 9,885 10,193 10,238 9,704 9,037 2,393 2,695 2,773 2,705 2,889 Other fixed assets 0 0 0 0 0 (264) (265) (375) (402) (370) Total assets 12,371 13,264 13,411 13,311 13,456 (109) (89) (47) (47) (43) Short-term debt 417 417 417 417 417 - Accounts payable 234 270 269 270 272 2,020 2,341 2,350 2,274 2,476 Other current liabilities 907 1,268 1,146 979 1,124 (587) (653) (699) (616) (676) Long-term debt 3,232 3,728 3,998 4,064 4,063 0 0 0 0 2 Other long-term liabilities 2,130 2,130 2,130 2,130 2,130 1,433 1,688 1,652 1,658 1,800 Total liabilities 6,921 7,813 7,961 7,860 8,006 653 653 653 653 653 Minority interest 0 0 0 0 0 2.20 2.59 2.53 2.54 2.76 Shareholders' equity 5,450 5,450 5,450 5,450 5,450 Liabilities + Equity 12371.22 13263.73 13411.26 13310.65 13455.88 Change in working capital 65 (5) (4) (4) (4) Capex (320) (855) (605) (186) (52) Net debt 3,425 3,688 3,787 3,257 2,593 FCFF 2044.8 1730.0 2025.1 2619.5 2877.8 Net debt to EBITDA 1.2 1.1 1.1 1.0 0.7 FCFE 887.70 1961.05 1919.86 2283.07 2506.52 Net Debt to Equity 62.8% 67.7% 69.5% 59.8% 47.6% Dividends (817) (1,327) (1,774) (1,826) (1,656) Current ratio 1.0 1.1 1.3 1.6 2.0 Dividend payout (%) (57.0%) (78.6%) (107.4%) (110.1%) (92.0%) Interest Coverage 10.9 12.2 8.9 8.5 9.8 Operating Data, Ratios FY11A FY12E FY13E FY14E FY15E Valuation, Macro FY11A FY12E FY13E FY14E FY15E Nominal Capacity (avg MW) 6,904 7,318 7,963 8,508 8,558 FX rate (eop) 1.80 1.95 1.90 2.00 2.05 Distribution Customers ('000) - Inflation (%) 6.5% 6.0% 5.0% 4.5% 4.5% Distribution Demand (GWh) - GDP growth (%) 2.8% 1.7% 4.1% 4.0% 4.0% Avg.GenerationTariff ($/MWh) 138.7 152.9 152.7 159.5 168.4 Interest Rates (%,eop) 11.7% 8.5% 8.0% 10.0% 10.0% Avg.Regulated Disco Tariff ($/MWh) # employees 990 990 990 990 990 EV/EBITDA 8.4 7.6 7.4 Net RAB - P/E 15.4 13.1 13.3 13.3 12.2 P/BV 3.8 3.8 3.8 3.8 3.8 Capex/depreciation 0.6 1.6 1.1 0.3 0.1 FCFE yield (%) 4.3% 9.4% 0.0% 0.0% 0.0% Revenue/Employee ('000) 4,371 5,030 5,015 5,036 5,066 Dividend yield (3.7%) (6.0%) (8.1%) (8.3%) (7.5%) Net Margin (%) 33.1% 33.9% 33.3% 33.3% 35.9% Revenues/Assets (%) 0.3 0.4 0.4 0.4 0.4 genco EV/kW capacity 3,510 3,348 2,613 2,446 2,432 Assets/Equity 2.3 2.4 2.5 2.4 2.5 disco EV/customer ROE (%) 26.3% 31.0% 30.3% 30.4% 33.0% discoEV/Net RAB Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
405
TSMC
www.tsmc.com
Company overview TSMC is the worlds largest semiconductor foundry, providing wafer fabrication services as well as semiconductor ecosystem to fabless and IDM customers. It is further expanding its services into the backend 2.5D/3D IC packaging technologies. Investment case Weve been flagging our structural view about the foundry sector that the chip cycle has become less relevant; its all about market share gains. We like companies which are able to structurally gain market share under the mobile computing trend, and TSMC appears to be well positioned to capitalize on this trend. We see three stories in 2013 to support TSMCs outperformance: 1) Apples AP potential, acceleration of IDM outsourcing from Japan, and TSMCs rising silicon value per box as the MCD gets upgraded. Key attractions in an anemic growth environment Structural market share gains have been TSMCs key attraction, and management appears to have confirmed this view during its result that the chip cycle has become irrelevant and TSMC will enjoy growth or strong growth in the next three years as its capex/R&D cycle starts to pay off under the MCD cycle where TSMC is the biggest beneficiary with its tech lead. Earnings risks in 2013 Based on our current expectations, if TSMC fails to procure AP orders from Apple or such orders become a low-margin business, or any demand weakness is observed in smartphone/tablet PC sell-through (due to macro uncertainties), they will act as downside risks to our earnings forecasts. Price target, and risks to our investment view Our Dec-13 PT of NT$110 is based on a 3.5x ROE-adjusted P/BV, where we use our ROE-adjusted P/BV method by comparing our normalized ROE projection of 22% pa for TSMC in the next three to five years with its historical ROE average of 23% over FY09-10. This works out to be a 5% discount and applying this discount to its historical P/BV average of 3.7x yields our 3.5x target P/BV. Risks to our call are endmarket sell-through (macro) & 28/20nm execution (micro).
Share Price: NT$90.30, Date of Price: (05 Nov 12), Bloomberg 2330 TT, Reuters 2330.TW
(Year-end Dec, NT$ B) Revenue Operating profit EBITDA Adjusted net profit Profit growth (%) EPS (NT$)* BVPS (NT$, yr-end) Cash dividend yield (%) ROE(%) ROIC (net of cash, %) Net debt/equity (%) FY11 FY12E FY13E FY14E 427.1 505.2 560.3 671.9 P/E (x) 141.6 178.6 189.6 238.6 P/B (x) 249.2 311.1 358.9 436.7 EV/EBITDA (x) 134.2 164.1 172.7 213.8 FCF/Mkt cap (%) -17.0 22.3 5.2 23.8 Price target 5.18 6.33 6.66 8.25 PT (30 Dec 13) 24.39 27.96 31.46 36.57 Diff from consensus 3.3 3.3 3.3 3.3 22.2 24.2 22.4 24.3 Quarterly EPS (NT$) 24.9 24.0 22.4 24.8 FY11 -15.3 -5.8 -5.3 -9.0 FY12E FY13E
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: NT$90.30 Price Target: NT$110.00
Abs Rel
1m -0.8% 5.8%
3m 13.2% 13.6%
Source: Bloomberg.
FY11 FY12E FY13E 17.4 14.3 13.6 3.7 3.2 2.9 9.0 7.4 6.4 1.4 1.2 3.6
FY14E 10.9 52-Week range NT$ 91.30 - 71.00 2.5 Share out'g 25,916M 5.1 Avg daily volume 35.7M 5.3 Avg daily val (US$) 107.24M Local Free float 3.3% NT$ 110.00 Market cap (US$) 79.9B 10.0% Exchange rate NT$ 29.29/US$1 Index (TWSE) 7,185 3Q 4Q FINI holding (%) 75.4% 1.17 1.22 1.90 1.53 1.94 1.86
406
407
Turkcell
www.turkcell.com.tr/site/en/
Company overview Turkcell is the leading GSM mobile network operator (MNO) in Turkey, with a market share, based on total number of subscribers, of 53%. It also has mobile operations in the Ukraine, Belarus, Azerbaijan, Kazakhstan, Georgia, Moldova and Northern Cyprus. Investment case We are positive on Turkcell with the key structural attractions of the Turkish telecom sector being: relatively low penetration of key products, strong GDP growth, attractive demographics, little/no risk of incremental competition, and the likely reduction of the heavy tax burden through revenue mix evolution. We believe TCELL is making the right steps in the form of price increases which will aide in market repair - We assume in our model an improvement of 320bps in Turkcells Turkish operations EBITDA margin from 2012 to 2015E from 30.8% to 34% (with 32.1% estimated in 2013/33% in 2014). This would result in a consolidated EBITDA CAGR of 13% from 2012-2015E. Key attractions in an anemic growth environment The two potential catalysts for Turkcell are obviously market repair (particularly pricing repair) in Turkish mobile and a resolution of the current shareholder dispute. Timing these is difficult - the shareholder dispute has been running now for 6 years+ and the intense competition for almost 4 - but we believe that on both fronts progress is likely fairly soon. With PE multiples of 11.9/ 10.8x on 2012E/2013E on a completely unlevered balance sheet and the likely resumption of cash returns, we find Turkcell attractive. Earnings risks in 2013 Key risks to our estimates include increased competition in the Turkish market delaying market repair and any dilutive M&A activity pursued by Turkcell. Price target, and risks to our investment view Our 2013 year end TP of TRY14 is derived by taking an average of two values: one based on a discounted medium-term value analysis (8% terminal FCF yield/13.0% cost of equity) and another by DCF analysis. Key risks include deterioration in the competitive environment, any evidence that the current shareholder dispute will last longer.
Turkcell (TCELL.IS;TCELL TI) FYE Dec EBITDA FY ($ mn) Revenue FY ($ mn) EBITDA margin FY EBIT FY ($ mn) EBIT margin FY Adj. EPS FY ($) DPS (Gross) FY (TL) 2011A 1,748 5,610 31.2% 695 12.4% 0.34 0.00 2012E 1,731 5,726 30.2% 972 17.0% 0.50 0.00 2013E 1,974 6,246 31.6% 1,206 19.3% 0.55 0.00
Overweight
Price: TRY 10.90 Price Target: TRY 14.0
AC
TL
Abs
YTD 23.3%
1m -2.2%
3m 6.8%
12m 16.5%
Source: Bloomberg.
Company Data Price (TL) Date Of Price Price Target (TL) Price Target End Date 52-week Range (TL) Mkt Cap (TL bn) Shares O/S (mn)
408
Cash flow statement FY11 FY12E FY13E FY14E FY15E $ in millions, year end Dec 5,610 5,726 6,246 6,798 7,315 Cash EBITDA -6.2% 2.1% 9.1% 8.8% 7.6% Interest 1,748 1,731 1,974 2,223 2,476 Tax -10.7% -1.0% 14.0% 12.6% 11.4% Other 31.2% 30.2% 31.6% 32.7% 33.8% Cash flow from operations 695 972 1,206 1,408 1,604 -39.6% 39.9% 24.0% 16.8% 13.9% Capex PPE 12.4% 17.0% 19.3% 20.7% 21.9% Net investments 41 243 241 299 327 CF from investments 1,017 1,391 1,588 1,863 2,101 Dividends -29.7% 36.8% 14.1% 17.3% 12.8% Share (buybacks)/ issue 752 1,111 1,215 1,434 1,627 -35.8% 47.8% 9.4% 18.0% 13.5% CF to Shareholders - FCF to debt 0.34 0.50 0.55 0.65 0.74 NM 47.8% 9.4% 18.0% 13.5% OpFCF (EBITDA - PPE) 0.00 0.00 0.00 0.00 0.65 EFCF pre Div, PPE Ratio Analysis FY11 FY12E FY13E FY14E FY15E $ in millions, year end Dec 2,509 3,477 3,857 3,739 3,657 EBITDA margin 842 1,043 1,157 1,224 1,317 EBIT Margin - Net profit margin 1,087 363 367 438 446 Capex/sales 4,464 4,917 5,418 5,441 5,463 Depreciation/Sales (%) 414 438 438 438 438 2,710 3,124 3,504 3,858 4,143 Revenue growth 9,099 10,230 11,188 11,475 11,706 EBITDA Growth 812 1,348 1,348 1,348 1,348 EPS Growth 929 695 771 816 878 1,134 1,817 1,836 1,898 1,904 Net debt/EBITDA 2,063 2,513 2,608 2,714 2,782 CF to Shareholders 1,057 - FCF to debt 247 260 260 260 260 3,367 2,972 2,833 1,803 1,958 OpFCF (EBITDA - PPE) 5,732 7,258 8,355 9,671 9,749 EFCF pre Div, PPE
FY11 FY12E 1,053 759 41 243 (292) (287) (51) (680) 2,194 1,979 (895) -895 -1,410 (4) 435 431 810 435
(924) (1,225) (1,078) (1,080) -924 -1,225 -1,078 -1,080 -948 -1,225 -1,078 -1,080 0 0 0 (1,434) 192 192 753 192 738 738 690 738 FY13E 31.6% 19.3% 19.5% 19.6% 12.3 9.1% 14.0% 9.4% (1.5) 738 738 690 738 1,121 1,121 1,074 1,121 FY14E 32.7% 20.7% 21.1% 15.9% 12.0 8.8% 12.6% 18.0% (1.8) 1,121 1,121 1,074 1,121 1,339 -95 1,313 1,339 FY15E 33.8% 21.9% 22.2% 14.8% 11.9 7.6% 11.4% 13.5% (1.5) 1,339 -95 1,313 1,339
FY11 FY12E 31.2% 30.2% 12.4% 17.0% 13.4% 19.4% 16.0% 16.1% 18.8 13.3 -6.2% -10.7% NM (1.0) 435 431 810 435 2.1% -1.0% 47.8% (1.3) 192 192 753 192
409
Overweight
Price: NT$29.25 Price Target: NT$40.00
Abs Rel
1m -9.2% -6.9%
3m -12.9% -10.6%
Source: Bloomberg.
Unimicron Technology Corp. (Reuters: 3037.TW, Bloomberg: 3037 TT) NT$ in mn, year-end Dec FY09A FY10A FY11A FY12E Revenue (NT$ mn) 43,697 65,048 66,146 68,097 Net Profit (NT$ mn) 3,639.0 7,116.4 5,010.6 3,839.9 EPS (NT$) 3.22 4.60 3.26 2.50 DPS (NT$) 0.67 1.39 2.60 1.04 Revenue growth (%) -4.3% 48.9% 1.7% 2.9% EPS growth (%) 42.5% 42.8% -29.2% -23.2% ROCE 6.6% 11.0% 7.9% 6.3% ROE 9.5% 15.5% 10.3% 7.6% P/E (x) 9.1 6.4 9.0 11.7 P/BV (x) 1.1 1.0 1.0 1.0 EV/EBITDA (x) 0.7 0.4 0.6 0.5 Dividend Yield 2.3% 4.8% 8.9% 3.5%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY13E 72,637 4,973.9 3.24 1.46 6.7% 29.7% 7.6% 9.4% 9.0 0.9 0.2 5.0%
Company Data Shares O/S (mn) Market cap (NT$ mn) Market cap ($ mn) Price (NT$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (NT$ mn) 3M - Avg daily Value (USD) ($ mn) TSE Exchange Rate Fiscal Year End
1,539 45,004 1,551 29.25 12 Nov 12 70.0% 7.39 246.69 8.46 7,268 29.01 Dec
410
48.9% 1.7% 2.9% 91.4% -23.8% -15.0% 95.6% -29.6% -23.4% 42.8% (29.2%) (23.2%) 66.75 5.8% 8.7% 0.74 8.59 15.5% 13.1% 89.25 8.2% 12.4% 0.71 6.77 10.3% 8.6% 88.99 6.0% 9.3% 0.69 6.67 7.6% 6.9% -
FY09 FY10 FY11 FY12E FY13E 3,639.0 7,116.4 5,010.6 3,839.9 4,973.9 5,469 6,925 7,289 7,475 7,611 -279 -1,212 -2,146 -338 -224 8,996 13,022 10,134 10,977 12,361 0 0 0 0 0 -12,636 -7,897 -9,497 -7,554 -5,369 8,996 13,022 10,134 10,977 12,361 4,553 -290 580 -11 -9 7,542 -3,756 5,978 262 -1,049 4,230 -1,414 719 -446 -540 -925 -2,347 -3,981 -1,595 -2,246 15,400 -7,806 3,296 -1,790 -3,845 11,759 -2,681 10,446 22,205 22,205 19,524 3,934 19,524 23,458 1,633 3,147 23,458 25,091 25,091 28,238
411
Vakifbank
www.vakifbank.com.tr
Company overview Vakifbank is the 7th largest bank (by total assets) in Turkey; the 2nd largest publicly traded state bank (ownership c.59%) with over 740 branches, 13K employees and c.TRY 64bn in loans & c. TRY64bn in customer deposits (c.9% mkt share). Vakifs initiative to expand into retail & SME segment has resulted in the share of corporate loans declining to 42% (from 51% Q311); retail & SME at 58% (vs.49%). Investment case One of the cheapest retail franchises in CEEMEA, trading at 13E PNAV 0.9x (vs. Turkish banks 1.4x); we expect re-rating towards sector levels as i) profitability gap vs. peers narrows on back of management initiative to shift asset mix towards higher margin business- loans/asset at 65% (vs.62% Q311) with retail/sme constituting c.58% of total loans (vs. 49%). Vakif's TL loan yields (13.7%) are now at upper end of peer group, which coupled with Vakifs low cost of funding results in high TL loan-deposit spreads (6.3% vs. 5.2% Q311) ii) Capital/growth issue addressed with subordinated loan issuance, bringing CAR to c.15% levels (in line with peers). Lastly, while not imminent, we expect prospects of privatization should drive management to improve profitability and achieve higher valuations (especially above book). Key attractions in an anemic growth environment We expect 2013E earnings growth of 16%, driven by i) 11% loan growth; 10% deposits ii) NIM expansion of c.15bps, driven by continuing improvement in funding costs (including wholesale) and positive impact of changing asset mix (mgt targets SMEs to reach 30% of total loans in the medium term vs. c.20% currently) iii) gradual asset quality progression, with c.60bps NPL increase and slight increase in specific cost of risk (ex. collections 85bps vs. 82bps in 12E). Earnings risks in 2013 Slower than expected economic growth driving pickup in asset quality deterioration. Also any pickup in deposit competition/ liquidity tightening would result in higher funding costs/lower margins. Price target, and risks to our investment view Our Dec-13 PT of TL 5.5 is based on Gordon growth model and incorporates a 4% growth rate, 14% cost of equity and 14% normalized ROE. Key risks includeoverhang of secondary placement of government stake ii) lower economic growth.
Turkiye Vakiflar Bankasi (VAKBN.IS;VAKBN TI) FYE Dec 2011A 2012E Adj. EPS FY (TL) 0.49 0.52 Adj P/E FY 8.5 8.1 BV/Sh FY (TL) 4 4 P/NAV FY 1.1 1.0 ROA FY 1.5% 1.4% ROE FY 13.7% 12.9% Tier One Ratio FY 12.4% 12.1% Net Attributable Income 1,227 1,292 FY (TL mn) Gross Yield FY 0.4% 0.0% NPLs FY (TL mn) 2,157 2,632
Source: Company data, Bloomberg, J.P. Morgan estimates. 412
Overweight
Price: TL4.17 Price Target: TL5.50
Abs
YTD 75.5%
1m 3.4%
3m 11.1%
12m 42.4%
Source: Bloomberg.
2013E 0.60 7.0 5 0.9 1.5% 12.9% 12.1% 1,493 0.0% 3,360
2014E 0.71 5.8 6 0.8 1.6% 13.7% 12.0% 1,782 2.6% 3,858
Company Data Price (TL) Date Of Price Price Target (TL) Price Target End Date 52-week Range (TL) Mkt Cap (TL bn) Shares O/S (mn)
Ratio Analysis FY14E TL in millions, year end Dec Per Share Data 4,614 EPS Reported 12.0% EPSAdjusted 1,211 % Change Y/Y 561 DPS 18.0% % Change Y/Y 50 Dividend yield 0.0% Payout ratio 550 BV per share 5,824 NAV per share 11.1% Shares outstanding -1,330 8.0% Return ratios (1,216) RoRWA 3,278 Pre-tax ROE 13.6% ROE -1,051 RoNAV 2,228 Revenues 19.4% NIM (NII / RWA) (446) Non-IR / average assets 20.0% Total rev / average assets - NII / Total revenues 1,782 Fees / Total revenues Trading / Total revenues
FY10A FY11A
FY12E FY13E
FY14E
0.46 0.49 0.52 0.60 0.71 0.46 0.49 0.52 0.60 0.71 -5.9% 6.0% 5.3% 15.6% 19.4% 0.01 0.01 0.00 0.00 0.11 (71.1%) 7.9% (100.0%) 0.3% 0.4% 0.0% 0.0% 2.6% 3.0% 3.0% - 15.0% 3 4 4 5 6 3.4 3.7 4.3 4.9 5.5 2,500.0 2,500.0 2,500.0 2,500.0 2,500.0 0.02 18.4% 14.5% 14.6% 0.02 17.6% 13.7% 13.8% 0.02 16.3% 12.9% 12.9% 0.02 16.2% 12.9% 13.0% 0.02 17.1% 13.7% 13.7%
3.97% 3.59% 2.01% 1.87% 5.95% 5.42% 66.17% 65.44% 10.74% 12.65% 7.15% 1.38% FY10A FY11A 41.0% 43.9% 0.0 0.0 11,077 12,222 98.7% 25.7% 63.7% 72.9% 0.0% 97.4% 22.6% 66.6% 76.3% 0.0%
3.90% 4.05% 4.14% 1.27% 1.10% 1.09% 5.14% 5.14% 5.22% 75.26% 78.54% 79.21% 8.39% 9.06% 9.63% 1.15% 0.95% 0.86% FY12E FY13E 45.5% 45.0% 0.0 0.0 13,444 14,116 FY14E 43.7% 0.0 14,822
FY10A FY11A FY12E 44,861 29.8% 2,241 18,991 68,734 2,090 73,962 47,701 6.8% 14,456 58,659 3,246 8,559 0 73,962 57,309 27.7% 2,048 20,148 80,658 2,269 89,184 60,939 27.8% 14,177 68,884 4,275 9,298 0 89,184
63,370 70,161 10.6% 10.7% 2,436 2,888 19,552 20,529 92,662 101,612 2,075 2,216 97,790 106,297 65,793 72,410 8.0% 10.1% 16,141 16,532 80,372 88,788 1,857 1,563 10,800 12,292 0 0 97,790 106,297
FY14E TL in millions, year end Dec Cost ratios 78,726 Cost / income 12.2% Cost / assets 3,353 Staff numbers 21,556 - Balance Sheet Gearing - Loan / deposit 111,337 Investments / assets - Loan / assets 2,372 Customer deposits / liabilities 116,715 LT Debt / liabilities Asset Quality / Capital 80,332 Loan loss reserves / loans 10.9% NPLs / loans - LLP / RWA 16,943 Loan loss reserves / NPLs 96,609 Growth in NPLs 2,132 RWAs % YoY change 13,807 Core Tier 1 0 Total Tier 1 116,715
100.0% 100.9% 102.2% 20.0% 19.3% 18.5% 67.3% 68.7% 70.3% 75.6% 77.0% 78.1% 0.0% 0.0% 0.0% 3.7% 4.0% 4.1% 4.0% 4.6% 4.7% 1.2% 1.1% 1.0% 92.6% 85.9% 86.9% 22.0% 27.7% 14.8% 84,221 96,283 110,211 17.2% 14.3% 14.5% 12.1% 12.1% 12.0% 12.1% 12.1% 12.0%
4.8% 3.5% 4.8% 3.6% 1.7% 1.3% 98.9% 95.0% 6.9% (4.8%) 56,186 71,862 26.7% 27.9% 13.2% 12.4% 13.2% 12.4%
413
Overweight
Price: 11,200c Price Target: 11,500c
Abs
YTD 25.3%
1m 9.6%
3m 14.6%
12m 26.0%
Source: Bloomberg.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn)
415
Wipro
www.wipro.com
Company overview Wipro is a conglomerate with revenues of over US$6B in FY10, with interest in IT services, consumer care and lighting. Wipros Global IT business contributes 75%+ of the companys revenue and 90%+ of the EBIT. It has 75,000+ employees in IT services and 20,000+ employees in its BPO arm. Wipro serves nearly 900 clients with a diverse portfolio of service offerings. The company plans to demerge its consumer care, lighting and other businesses from IT services business to better focus on both the businesses. Investment case We keep the faith in Wipro's restructuring story and believe that the new management has driven the right structural changes, results of which should be visible in FY14/CY13. Some structural positives are already visible - (a) realization movement has been better than peers in the last 4 quarters pointing to improved productivity in execution, (b) top-10 accounts continue to deliver strong growth suggesting improvement in client mining ability; also number of $100+ mn accounts increased from 1 to 9 over seven quarters, (c) Wipro should benefit from the demand environment to improve in CY13 as discretionary spending might pick-up, and (d) cash flow metrics have improved Key attractions in an anemic growth environment We believe expectations are running low for Wipro and very moderate growth is priced in the current stock price. However, the structural changes in the company should start delivering results in the next calendar year. The deals win in late-2QFY13/early3QFY13 should also help pick up revenue growth trajectory. We believe Wipro to deliver decent sustainable growth in FY14 despite benign environment. Earnings risks in 2013 The key risk for Wipros earnings is a meaningful decline in IT spending due to macro weakness/event. Developed markets in recession will impact IT budgets/spending. Pricing decline and supply-side pressures are the other key risks for earnings. Price target, and risks to our investment view Our Mar-13 PT of Rs405 is based on a one-year forward P/E multiple of 14.5x; this implies a 20% discount to our target P/E multiple for TCS of 18x and on par with our Infosys target multiple of 14.5x. We think the discount relative to TCS is reasonable given Wipros lower expected growth trajectory and weaker margin profile. Downside risks: weakness in spending environment, further rupee appreciation against the US$, and continued supply side pressures (higher attrition or wage increases) bearing on margins.
Bloomberg WPRO IN, Reuters WIPR.BO
(Year-end Mar, Rs mn) Revenue Operating Profit EBITDA Net profit (Reported) EPS P/E (x) EV/EBITDA (x) Cash Equity FY11 310,542 57,225 65,436 53,255.0 21.73 17.1 12.8 110,423 240,371 FY12 FY13E FY14E 371,971 428,655 461,189 60,735 74,237 78,567 70,864 84,809 90,080 55,731.0 65,490.1 68,759.6 22.69 26.64 27.94 16.3 13.9 13.3 11.8 9.4 8.4 119,627 164,170 198,957 286,163 344,854 392,835 FY11 ROE(%) 24.4 CORE ROIC(%) 29.0 Quarterly EPS (Rs) 1Q EPS (13) E 6.43 EPS (14) E 6.74 Local 1M Abs. Perf.(%) 1.0% Rel. Perf.(%) 1.3% Target Price (31 Mar 13) FY12 21.2 23.8 2Q 6.55 6.57 3M 7.3% 0.5% FY13E 20.8 25.4 3Q 6.66 7.10 12M -1.5% (10.4%)
Overweight
Price: Rs370.80 Price Target: Rs405.00
Abs Rel
1m 1.0% 1.3%
3m 7.3% 0.5%
Source: Bloomberg.
FY14E Date of Price 18.6 52-Week range 25.1 Share Out. (Com) 4Q Market Cap 6.99 Market Cap(US) 7.53 Free float Avg daily val Dividend Yield Index 405.00 Exchange rate
09 Nov 12 453.00 - 295.00 2,462 912.97BN US$16,674MN 19.2% 132 1.9% 5,686 0.02
416
Ratio Analysis Rs in millions, year end Mar Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (reported) growth Interest coverage (x) Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC ROIC (net of cash) Cash flow statement Rs in millions, year end Mar Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing
FY11 31.5% 21.1% 18.4% 17.1% 0.0% 13.0% 14.2% 9.6% 15.5% 15.2% -20.9% -24.0% 0.89 14.60 24.4% 29.0% FY11 53,255.0 8,211 -7,066 0 54,400 0 0 -22,926 54,400 1,509 -9,709 3,374 -11,523 -16,349 15,125 95,298 0
FY12 29.2% 19.1% 16.3% 15.0% 0.0% 12.9% 19.8% 6.1% 4.6% 4.4% -19.0% -21.2% 0.92 10.28 21.2% 23.8% FY12 55,731.0 10,129 -18,308 0 47,552 0 0 -33,513 47,552 7,448 6,156 -1,099 -17,340 -4,835 9,204 110,423 0
FY13E 31.3% 19.8% 17.3% 15.3% 0.0% 14.0% 15.2% 22.2% 17.5% 17.4% -27.6% -30.0% 0.91 15.16 20.8% 25.4% FY13E 65,490.1 10,572 -15,678 0 60,384 0 0 -10,377 60,384 10,827 1,637 -565 -17,363 -5,464 44,543 119,627 0
FY14E 31.0% 19.5% 17.0% 14.9% 0.0% 13.9% 7.6% 5.8% 5.0% 4.9% -32.2% -35.2% 0.86 11.95 18.6% 25.1% FY14E 68,759.6 11,513 -10,307 0 69,966 0 0 -14,400 69,966 -0 0 0 -20,778 -20,778 34,787 164,170 0
60,031 44,937 99,871 159,902 564 9,341 Net change in cash 169,807 Beginning cash 392,835 Ending cash
417
Overweight
Price: SRls44.00 Price Target: SRls53.00
Abs
YTD 0.2%
1m -4.6%
3m -1.4%
12m -1.1%
Source: Bloomberg.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn)
418
(878) (1,026) 1,712 (649) (376) 1,048 1,048 0 -201 0 790 0.00
(40)
3,609 3,286 (140) (200) (413) (360) 3,156 2,742 3,156 2,742 0 0 -3,238 -1,500 0 281 599 1,560 0.00 0.50
(92) (109)
(643)
(87)
(92)
FY10 FY11 FY12E FY13E FY14E 22,613 24,694 24,694 24,694 24,694 11,068 8,020 5,883 2,852 503 33,878 32,941 32,941 32,941 32,941 5.8 13.1 16.6 14.8 4.6% 0.00 0.0% NM 4.3 5.4 150.8% 9.1% 3.4 7.1 9.1 7.8 3.6 8.4 11.2 10.0 3.4 8.0 10.3 8.8 3.3 7.8 9.9 8.3
947 2,077 1,200 1,000 800 FCF yield 657 270 270 275 281 Dividend per share - Dividend Yield 2,261 3,555 2,800 1,707 1,504 EPS growth 10,911 6,542 3,842 2,842 2,042 2,651 2,362 2,530 2,495 2,440 Net debt /EBITDA 15,823 12,460 9,172 7,044 5,986 Interest coverage (x) 7,340 10,515 12,702 15,604 17,022 Net debt to equity 23,163 22,975 21,874 22,648 23,008 ROIC
12.8% 11.1% 11.8% 12.1% 0.00 0.50 2.00 3.00 0.0% 1.1% 4.6% 6.8% 89.8% NM 13.3% 6.0% 1.7 1.5 0.7 0.1 8.8 8.2 10.7 12.8 76.3% 46.3% 18.3% 3.0% 16.4% 13.9% 14.2% 14.5%
419
Yandex
www.company.yandex.com
Company overview Yandex is Russias largest internet company by revenue ($682 mn in 2011), accounting for of all online advertising in the country in 2011. Yandex has the leading online search engine in Russia, where it currently services over 49 mn monthly unique users and generates most of its revenues. Investment case Our positive view on Yandex is based on the favorable outlook for the Russian contextual ad market prospects. We believe Yandex will be able to deliver 37% RUB revenue growth CAGR during 2011-14E as it continues to expand the core contextual ad businesses into the Russian regions, monetize newly developed properties and focuses on partnerships with global and Russian majors (Apple and possibly Mail.ru). Key attractions in an anemic growth environment Yandex remains upbeat about the growth prospect of contextual advertising both in 4Q12 and 2013, but confirmed display growth deceleration in 3Q12/early 4Q12. Yandex continues to put additional effort on expanding the rapidly growing mobile segment of its business: mobile search still accounts for only 11% of total queries, but the segment has seen a visible improvement of monetization. Despite healthy cash position, at this stage however management has no intention to pay out dividends. Earnings risks in 2013 We see a number of risks for Yandex, including: 1) More intense competition from Google may result in increased opex spending and put pressure on margins); 2) Yandex is exposed to the FX risk as some of its expenses including rent, capex and cash on the balance are USD denominated; 3) Yandex is considering expansion into new competitive markets (however we will have to see successful operations in Turkey, before this risk materializes). Price target, and risks to our investment view Our end-2013 PT of $42/ADR is based on discounted terminal value calculation, which at our PT implies 2013E EV/EBITDA and P/E of 22x and 35x, respectively. We note however that given robust growth at our PT the stock trades on 1.1x 2013 PEG. We also highlight that the multiple of 23x we are using for the terminal value at year end 2018E is reasonable in light of longer term growth prospects for Yandex. Risks as outlined above.
Yandex N.V. (YNDX;YNDX US) FYE Dec Adj. EPS FY (R) Revenue FY (R mn) ROE FY FCF Yield FY Adj EBITDA Margin FY Adj EBITDA FY (R mn) ROA FY Tax rate FY 2011A 17.75 20,033 29.6% -0.2% 46.4% 9,302 15.8% 21.1% 2012E 26.97 29,674 25.6% 1.8% 47.0% 13,940 18.0% 21.2% 2013E 39.13 42,459 27.9% 2.4% 47.0% 19,944 19.9% 20.5%
Overweight
Price: $22.77 Price Target: $42.00
Abs
YTD 13.8%
1m -7.2%
3m 9.7%
12m -18.6%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
420
Cash flow statement FY15E R in millions, year end Dec 71,171 Cash EBITDA 26.3% Interest 32,184 Tax 25.3% Other 45.2% Cash flow from operations 25,476 24.9% Capex PPE 35.8% Net investments 1,131 CF from investments 26,607 Dividends 24.9% Share (buybacks)/ issue 19,881 24.9% 65.00 24.9% Ratio Analysis FY15E R in millions, year end Dec 30,437 EBITDA margin - EBIT Margin - Net profit margin - Capex/sales 45,745 Depreciation/Sales 9,910 43,758 Revenue growth 100,474 EBITDA Growth 0 EPS Growth 14,104 0 14,548 85,926
FY11 FY12E FY13E (1,545) (2,366) (3,280) 12,325 17,993 25,506 5,617 -7,112 -7,112 0 5,935 -7,042 -7,042 0 -
421
Yapi Kredi
www.yapikredi.com.tr
Company overview Yapi Kredi is the 4th largest private bank in Turkey with c.10% market share in loans, c.9% in customer deposits. The bank, whilst primarily a corporate/SME lender (67% of book), enjoys a strong position within the credit cards (c.18% mkt share; top 3 player), AUM (c.17%), leasing (c.18%) and factoring (c.15%) and is expanding its retail franchise. Overall YKB has c.TRY124bn in assets (c. 56bn), c.TRY75bn in loans, c. TRY69bn in deposits and serves c.6mn retail customers via 918 branches. YKB is jointly owned by Koc Holding and Unicredit (c.41% each). Investment case Attractive and profitable retail franchise (2007-11 avg RoNAV 27%), with a favorable balance sheet structure (Loan/Assets 59%; Securities 17%), resulting in sustainable and less volatile income stream (NII + Fees constitute c.94% of total revenues), which is suited towards a low inflation environment (lowest CPI linker exposure in the sector). Currently trading at 13E PNAV 1.3x (vs. sector 1.4x) - sale of insurance subsidiary offers a visible catalyst and could further improve the capital position. Key attractions in an anemic growth environment We expect 13E EPS growth of 23%, driven by i) loan-deposit growth of 12% ii) NIM expansion of 10bps- driven by continued improvement in loan-deposit spreads, helped by declining funding costs iii) gradual asset quality progression, with 40bps NPL increase and total cost of risk slightly above 2012E levels (154bps vs. 151bps) iv) Total capital to improve to 14.6%, from 13.8% 12E driven by gains from sale of insurance subsidiary. Earnings risks in 2013 We have factored a 100bps increase capital relief from insurance sale. Higher than expected proceeds would provide an additional boost to capital. On the negative sideam uptick in deposit competition, plus tightening by central bank could have a negative impact on margins. Price target, and risks to our investment view Our Dec-13 PT of TRY 5.7 is based on a Gordon growth model and incorporates 4% long term growth rate, 17% normalized RoE and 14% cost of equity. Key risks include significant pickup in NPLs and cost of risk; margin pressure on back of increasing competition/liquidity squeeze; weaker than expected growth in Turkey.
Yapi ve Kredi Bankasi (YKBNK.IS;YKBNK TI) FYE Dec 2011A Adj. EPS FY (TL) 0.52 Adj P/E FY 8.7 BV/Sh FY (TL) 3 P/NAV FY 1.7 ROA FY 2.4% ROE FY 19.3% Tier One Ratio FY 11.3% Net Attributable Income 2,285 FY (TL mn)
Source: Company data, Bloomberg, J.P. Morgan estimates.
Overweight
Price: TL4.49 Price Target: TL5.70
Abs
YTD 71.1%
1m 2.0%
3m 15.8%
12m 36.7%
Source: Bloomberg.
Company Data Price (TL) Date Of Price Price Target (TL) Price Target End Date 52-week Range (TL) Mkt Cap (TL bn) Shares O/S (mn)
422
Ratio Analysis FY14E TL in millions, year end Dec Per Share Data 5,205 5,839 EPS Reported 12.3% 12.2% EPSAdjusted 3,638 3,066 % Change Y/Y 2,038 2,366 DPS 14.9% 16.1% % Change Y/Y 50 50 Dividend yield -106.3% 0.0% Payout ratio 1,500 600 BV per share 8,843 8,905 NAV per share 28.4% 0.7% Shares outstanding -2,007 -2,168 9.0% 8.0% Return ratios (1,578) (1,704) RoRWA 5,258 5,033 Pre-tax ROE 46.1% -4.3% ROE -1,289 -1,266 RoNAV -50 -50 3,989 3,787 Revenues 60.7% -5.1% NIM (NII / RWA) (798) (757) Non-IR / average assets 20.0% 20.0% Total rev / average assets (16) (15) NII / Total revenues 3,175 3,014 Fees / Total revenues Trading / Total revenues FY13E FY14E TL in millions, year end Dec Cost ratios 98,405 Cost / income 14.2% Cost / assets -2,581 Staff numbers 21,668 - Balance Sheet Gearing - Loan / deposit 140,372 Investments / assets 979 Loan / assets 8,385 Customer deposits / liabilities 153,184 LT Debt / liabilities Asset Quality / Capital 89,139 Loan loss reserves / loans 12.8% NPLs / loans 3,400 LLP / RWA 23,169 Loan loss reserves / NPLs 116,479 Growth in NPLs 6,813 RWAs % YoY change 20,696 Core Tier 1 109 Total Tier 1 153,184
FY10A
FY11A
FY12E
FY13E
FY14E
0.52 0.53 0.44 0.73 0.69 0.51 0.52 0.44 0.55 0.69 44.3% 0.9% -14.4% 23.3% 26.9% 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% 2 3 3 4 5 2.2 2.6 3.0 3.7 4.4 4,347.1 4,347.1 4,347.1 4,347.1 4,347.1 0.03 29.2% 23.3% 26.7% 0.03 24.7% 19.3% 21.7% 0.02 18.3% 14.2% 15.8% 0.02 24.8% 14.8% 16.1% 0.02 19.7% 15.7% 17.0%
4.60% 3.77% 3.96% 4.07% 4.16% 3.72% 2.75% 1.83% 2.72% 2.10% 8.07% 6.31% 5.60% 6.61% 6.09% 53.93% 56.46% 67.29% 58.86% 65.56% 26.17% 29.69% 25.74% 23.05% 26.57% -5.35% -7.52% -11.61% 0.57% 0.56% FY10A 40.5% 0.0 14,411 FY11A 43.9% 0.0 14,859 FY12E 47.8% 0.0 14,959 FY13E 40.5% 0.0 15,259 FY14E 43.5% 0.0 15,559
54,676 70,071 77,031 86,175 39.2% 28.2% 9.9% 11.9% -1,475 -1,393 -1,784 -2,202 19,946 21,301 21,355 21,488 77,916 99,426 116,898 127,982 979 979 979 979 6,634 7,600 7,606 7,986 92,814 117,450 128,419 139,198 55,207 66,187 70,826 79,001 27.3% 19.9% 7.0% 11.5% 2,110 2,524 3,400 3,400 13,724 21,569 21,817 22,480 64,027 83,432 97,762 106,124 9,273 10,747 8,979 7,230 10,683 12,568 14,507 17,682 63 67 77 93 92,814 117,450 128,419 139,198
101.7% 108.0% 111.3% 111.9% 113.3% 21.5% 18.1% 16.6% 15.4% 14.1% 60.5% 60.8% 61.4% 63.5% 65.9% 84.0% 83.7% 81.4% 83.6% 84.8% 2.6% 2.4% 3.0% 2.8% 2.6% 2.6% 1.9% 2.3% 2.5% 2.6% 3.4% 3.0% 3.4% 3.8% 3.8% 1.5% 0.8% 0.9% 0.9% 0.8% 77.3% 65.2% 66.6% 65.6% 67.2% (27.3%) 12.1% 25.3% 25.3% 14.3% 79,250 103,462 125,438 140,645 161,562 31.1% 30.6% 21.2% 12.1% 14.9% 11.7% 11.3% 10.9% 11.9% 12.3% 11.7% 11.3% 10.9% 11.9% 12.3%
423
Overweight
Price: $19.6 Price Target: $30.00
Evan Zhou
(852) 2800 8505 evan.z.zhou@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
P r ic e P e r fo r m a n c e
35 30 $ 25 20 15 10
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs Rel
1m 1.2% 5.2%
3m 11.0% 10.3%
Source: Bloomberg.
52-Week range Shares Outstg Market Cap(US) Free float Avg daily vol. Avg daily val ($) Dividend Yield Index (NASD) Price Target Price Date
32.75 - 13.83 114.8MN US$ 2,292MN 0.0% 1.3MM shares 25.24MN 0.0% 3,012 30.00 06 Nov 12
Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense.
424
USD
Ratio Analysis FY11 FY12E FY13E FY14E %, year end Dec 140 323 625 974 Gross margin 108 282 429 569 EBITDA margin 32 41 196 405 Operating margin -10 -18 -25 -34 Net margin -44 -102 -159 -200 R&D/sales 7 19 25 27 SG&A/Sales -29 -98 -13 143 11 27 185 388 Sales growth 3 6 8 8 Operating profit growth 0 0 1 2 Net profit growth -1 1 0 0 Diluted EPS growth -27 -90 -6 150 0 -0 -7 -22 -26.8 -90.5 -12.6 128.5 Net debt to total capital -19 -72 13 156 Net debt to equity
FY10 FY11 FY12E 9.4% 22.7% 12.6% -17.3% 7.9% 8.3% (39.8%) (20.4%) (30.2%) -52.9% -19.2% -28.0% 8.1% 6.8% 5.4% 41.1% 31.6% 31.7%
FY14E 41.5% 39.9% 14.7% 13.2% 3.5% 20.6% 55.8% -1168.9% -1123.7% (1122.1%) -57.1% -57.8% 0.54 1.24 11.6% 11.1%
155.8% 142.8% 131.1% 93.5% -10.7% 24.5% 242.1% -86.3% 14.0% -11.9% 237.6% -86.1% 308.2% (82.1%) 167.0% (88.0%) -90.7% -92.6% 0.29 0.38 -17.5% -16.4% -87.1% -87.4% 0.27 0.33 -4.1% -4.5% -71.0% -71.7% 0.30 0.46 -7.8% -8.3% -60.9% -61.6% 0.41 0.79 1.0% 0.5%
Diluted EPS (GAAP) (1.35) (0.24) (0.65) (0.08) 0.79 Asset turnover Adj. Diluted EPS* -1.28 -0.18 -0.51 0.08 0.96 Working capital turns (x) BVPS 6.69 5.74 7.29 7.62 8.91 ROE DPS 0.00 0.00 0.00 0.00 0.00 ROIC Shares outstanding (mn) 25.86 110.68 138.49 161.87 161.97 Balance sheet Cash flow statement $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec Cash and cash equivalents 269 575 858 774 850 Net income Accounts receivable 32 66 179 293 449 Depr. & amortization Inventories 0 0 0 0 0 Change in working capital Others 5 5 31 48 68 Other Current assets 307 646 1,068 1,115 1,368 Cash flow from operations LT investments 0 0 0 0 0 Capex / Inv. on Intangibles Net fixed assets 10 15 63 85 108 Other investing cashflow Others LT assets 9 67 288 401 515 Cash flow from investing Total Assets 326 728 1,418 1,601 1,991 Free cash flow Liabilities Equity raised/(repaid) ST Loans 3 1 11 14 15 Debt raised/(repaid) Payables 5 9 53 66 87 Other Others 30 61 174 287 444 Dividends paid Total current liabilities 39 72 238 367 547 Cash flow from financing Long-term debt 3 1 0 0 0 Other liabilities 0 0 0 0 0 Net change in cash Total Liabilities 41 73 238 367 547 Beginning cash Shareholders' equity 284 655 1,180 1,234 1,444 Ending cash Source: Company reports and J.P. Morgan estimates. *Note: Excluding share-based compensation expenses.
FY10 -30.4 13 -6 2 -22 -23 0 -23 -45 269 0 0 0 269 225 44 269
FY11 -26.8 33 2 7 16 -95 -0 -95 -80 377 -4 0 0 373 306 269 575
FY12E -90.5 106 17 19 51 -373 0 -373 -323 844 9 -255 0 598 283 575 858
FY13E -12.6 173 -4 25 181 -309 0 -309 -128 44 2 0 0 46 -84 858 774
425
ZTE Corp
www.zte.com.cn/
Company overview ZTE Corp (HK: 0763) is a leading telecom equipment and wireless handset vendor in China. Key customers are telecom companies such as Hutchison, China Mobile, China Telecom, and Vodafone. Investment case We believe ZTE could become a beneficiary of China Mobiles accelerated TD-LTE deployment in 2013. While it could take time to restore investor confidence in the company, expectations are low enough to provide upside potential we believe. We recommend accumulating on weakness given the TD-LTE acceleration in China. Key attractions in an anemic growth environment We believe the visibility of China TD-LTE development became clearer when MIIT announced the entire Dband, ranging from 2500-2690Hz, had been allocated for TDLTE. The allocation is highly positive for TD-LTE development in China: 1) the chances for China to issue two TD-LTE licenses are now substantially higher; and 2) it supports China Mobile's plan to deploy 200k/150k new TD-LTE base stations in 2013/14. We think ZTE will likely enjoy 25% market share in TD-LTE core equipment market. In 2012, we estimate ZTE has secured 25% market share at China Mobile in the market. Earnings risks in 2013 Key downside risks include: 1) high and volatile carrier-capex-to-sales ratio in China; and 2) poor expense control, more volatile currency movements (especially euro vs. US$), 3) lower investment income, resulting in lower ROE, and 4) an escalation of the US political issue, or the market waiting it out to see how the latest US ruling fully transpires. Price target, and risks to our investment view Because of the companys high operating leverage and low visibility of earnings, we use a P/B multiple to value the stock. We believe the stock will re-rate to 1.4x P/BV (2 std below the historical mean), helped by accelerating TD-LTE deployment by China Mobile. Our Dec-13 PT is HK$15. ZTE's ROE should expand to a low-to-mid-teen level in the next two to three years, from a high-single-digit level in 2011-12. If its ROE can recover to the mid-teen level it enjoyed in 2008-10, there could be a further re-rating of the stock. We think any uncertainty of TD-LTE development the key risk to our PT.
Bloomberg 763 HK, Reuters 0763.HK
(Year-end Dec, Rmb mn) FY10 FY11 FY12E FY13E FY14E Sales 70,264 86,254 89,396 107,647 121,430 Gross Profit 21,665 24,168 22,137 28,968 33,292 Operating Profit 4,407 2,661 1,039 3,856 5,320 EBITDA 5,274 3,687 2,153 5,054 6,518 Pre-Tax Profit 4,360 2,635 552 3,292 4,602 Net profit 3,249.9 2,060.2 162.3 2,473.2 3,387.9 EPS (Rmb) 0.96 0.60 0.05 0.72 0.98 BPS (Rmb) 6.71 7.04 6.90 7.44 8.18
Overweight
Price: HK$11.36 Price Target: HK$15.00
Abs Rel
1m -12.5% -21.4%
3m 9.0% -0.6%
Source: Bloomberg.
Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%) ROE (%) ROIC (%) WC Turns (x) Net Debt/Equity
FY10 FY11 FY12E FY13E FY14E 9.6 15.3 194.1 12.7 9.3 1.4 1.3 1.3 1.2 1.1 7.0 10.9 19.0 9.0 6.9 2.7 2.2 2.2 2.0 2.7 16.3 8.7 0.7 10.0 12.6 12.1 6.8 2.4 6.9 8.6 4.05 4.10 5.66 6.27 6.33 NM 5.1% 8.2% 25.0% 21.2%
52-Week range Market Cap (HKD) Market Cap (USD) Share Out. (Com) Free float Avg daily val (US$) Avg daily vol. Dividend yield (%) Hang Seng Index
HK$25.00 - 9.23 38,984MM 5030MM 3,440MM 68.0% 15.85MM 10.9MM 2.2 10,701
426
Ratio Analysis Rmb in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (reported) growth Interest coverage (x) Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC ROIC (net of cash) Cash flow statement Rmb in millions, year end Dec Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing
FY11 FY12E 28.0% 24.8% 4.3% 2.4% 3.1% 1.2% 2.4% 0.2% 9.8% 9.4% 15.9% 15.2%
FY13E FY14E 26.9% 27.4% 4.7% 5.4% 3.6% 4.4% 2.3% 2.8% 9.9% 9.9% 15.2% 15.2% 12.8% 38.0% 37.0% 37.0% 5.95 11.3% 21.2% 0.99 6.33 12.6% 8.6% 13.8%
16.6% 22.8% 3.6% 20.4% 11.8% -39.6% -61.0% 271.2% 32.2% -36.6% -92.1% 1423.9% 23.6% (37.3%) (92.1%) 1423.9% 8.40 -5.5% NM 0.91 4.05 16.3% 12.1% 22.1% 3.38 2.6% 5.1% 0.89 4.10 8.7% 6.8% 13.6% 2.34 4.4% 8.2% 0.85 5.66 0.7% 2.4% 4.2% 5.33 12.9% 25.0% 0.98 6.27 10.0% 6.9% 11.9%
Balance sheet Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Cash and cash equivalents 15,383 21,472 18,732 17,607 18,659 Accounts receivable 36,078 45,308 41,572 51,323 54,401 Inventories 12,104 14,988 13,609 16,801 17,809 Others 3,336 5,144 4,916 6,389 7,128 Current assets 66,901 86,912 78,829 92,119 97,997 LT investments 1,261 1,334 1,958 2,342 2,719 Net fixed assets 7,720 8,646 11,970 12,912 13,854 Others 9,627 10,892 9,358 11,322 11,837 Total Assets 85,509 107,784 102,115 118,696 126,407 Liabilities ST Loans 7,901 11,876 12,060 14,200 14,382 Payables 28,270 35,761 33,522 38,080 39,137 Others 13,399 18,253 17,446 22,671 25,296 Total current liabilities 49,571 65,891 63,028 74,951 78,815 Long-term debt 5,475 10,825 8,618 9,806 10,253 Other liabilities 7,369 6,837 6,735 8,348 9,209 Net change in cash Total Liabilities 62,415 83,552 78,380 93,106 98,277 Beginning cash Shareholders' equity 23,094 24,232 23,735 25,590 28,131 Ending cash Source: Company reports and J.P. Morgan estimates.
FY10 FY11 FY12E 3,249.9 2,060.2 162.3 868 1,026 1,115 -2,989 -1,578 2,297 -0 -3 0 228 -3,655 3,885 -3,067 -4,065 -4,439 -3,649 -3,610 -4,069 -2,839 -7,720 -555 3,634 -236 27 501 15,359 -2,024 -841 -686 -686 4,288 13,435 -2,556 886 6,089 -2,740 14,497 15,383 21,472 15,383 21,472 18,732
FY13E FY14E 2,473.2 3,387.9 1,198 1,198 -4,632 -1,145 1 -1 55 2,053 -2,140 -2,140 -3,353 -1,781 -2,085 -87 0 0 3,329 629 -1,304 0 2,174 779 -1,125 1,052 18,732 17,607 17,607 18,659
427
428
Stocks to Avoid
429
ABB Ltd
www.abb.co.in
Company overview ABB is a leading player in the power and automation products and systems space. Customers include power utilities, PGCIL, state transcos and industrial players. Investment case Over the past year, ABB has underperformed the Sensex by 7%. 9MCY11 performance has disappointed on all fronts order inflows, topline growth and margins. In absolute terms, our estimate of CY12 PAT is similar to CY05s, and our RoE estimate of 8.1% (even lower over CY10-11) compares with 27% in CY05. MNC parentage and technological edge over local peers has not manifested in margin performance. ABB's stock price is still 2x CY05 levels. Key issues in an anemic growth environment Power sector margins continue to be impacted by excess competition, which shows no signs of let up yet. Orders have been on the decline due to customer delays and lack of new projects. Similarly, industrial capex across key sectors like cement and steel is not expected to recover quickly. Managements focus is more on cost conservation and recovering cash. Earnings risks in 2013 A sharper-than-expected pick-up in profitability is a key upside risk. Management remains non-committal of the timeframe over which margins will reach high single digits. In CY13, we factor in 6.6% OPM (vs. 4.4% in CY12), already building in expectation of recovery. A 50bps improvement in margin increases PAT by ~5%. Price target, and risks to our investment view Our Dec-13 PT of Rs540 is DCF based - WACC: 12.0%, terminal growth rate: 6.0%, terminal year: CY17. We factor in optimism for margin recovery and growth in intermediate year and terminal year EBIT margin to 9.5%. Our PT implies 29x FY13E earnings and ~25% potential downside. A sharper-than-expected pick-up in profitability and large orders wins are key upside risks to our UW and PT.
ABB Ltd (Reuters: ABB.BO, Bloomberg: ABB IN) Rs in mn, year-end Dec FY10A FY11A Revenue (Rs mn) 62,871 73,703 Net Profit (Rs mn) 632.3 1,845.3 EPS (Rs) 2.98 8.71 DPS (Rs) 2.00 3.00 Revenue growth (%) 0.8% 17.2% EPS growth (%) -82.2% 191.8% ROCE 1.3% 8.2% ROE 2.6% 7.4% P/E (x) 243.3 83.4 P/BV (x) 6.4 6.1 EV/EBITDA (x) 176.5 53.4 Dividend Yield 0.3% 0.4%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: Rs725.90 Price Target: Rs540.00
Abs Rel
1m -5.6% -6.7%
3m -9.9% -17.4%
Source: Bloomberg.
FY12E 77,052 2,138.3 10.09 3.00 4.5% 15.9% 9.7% 8.1% 71.9 5.7 45.0 0.4%
FY13E 86,636 3,963.7 18.70 3.00 12.4% 85.4% 17.1% 13.8% 38.8 5.1 26.0 0.4%
FY14E 99,631 5,044.3 23.80 3.00 15.0% 27.3% 19.5% 15.5% 30.5 4.5 20.6 0.4%
Company Data Shares O/S (mn) Market cap (Rs mn) Market cap ($ mn) Price (Rs) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Rs mn) 3M - Avg daily Value (USD) ($ mn) NIFTY Exchange Rate Fiscal Year End
212 153,824 2,837 725.90 08 Nov 12 25.0% 0.06 45.61 0.84 5,760 54.22 Dec
430
Cash flow statement Rs in millions, year end Dec EBIT Depreciation & Amortization Change in working capital Taxes Others Cash flow from operations Capex Free cash flow Equity raised/ (repaid) Debt raised/ (repaid) Other Dividends paid Change in cash Beginning cash Ending cash DPS Ratio Analysis Rs in millions, year end Dec EBITDA margin EBIT margin Net profit margin
FY10 321 517 1,017 -439 2,097 -599 1,498 0 0 1 -424 1,075 5,241 5,871 2.00 FY10 1.3% 0.5% 1.0% 0.8% -82.2% (82.2%) 0.00 -24.2% 1.11 2.27 2.6% 1.3%
FY11 2,035 795 -1,837 -934 702 -4,903 -4,201 0 0 -339 -636 -5,175 5,871 2,644 3.00 FY11 3.8% 2.8% 2.5% 17.2% 191.8% 191.8% 0.00 -10.4% 1.22 2.18 7.4% 8.2%
FY12E 2,555 810 -672 -1086 2,197 -2,500 -303 0 0 307 -636 -632 2,644 2,408 3.00 FY12E 4.4% 3.3% 2.8% 4.5% 15.9% 15.9% 0.00 -8.9% 1.19 2.46 8.1% 9.7%
FY13E 4,929 825 -1,301 -1945 3,408 -1,000 2,408 0 0 0 -636 1,772 2,408 4,174 3.00 FY13E 6.6% 5.7% 4.6% 12.4% 85.4% 85.4% 0.00 -13.7% 1.22 2.46 13.8% 17.1%
Sales growth 424 Net profit growth 14,388 EPS growth 74,742 Debt to total capital 30,857 Net debt/Equity (x) 13,479 Sales/assets 44,336 Assets/equity 0 ROE (%) 0 ROCE (%) 44,336 30,407 143.49
431
ALL
www.all-logistica.com
Neutral
Price: R$8.60 Price Target: R$11.50 End Date: Dec 2013
Company overview ALL is Latin Americas largest independent rail-based logistics operator. ALL offers a full range of logistics services, including domestic and international rail and trucking transportation, distribution, warehousing, container customized transportation combined with fractioned distribution and intermodal door-to-door transportation. Its rail network serves seven of the most active ports in Brazil and Argentina through which approximately 78% of all South Americas grain exports are shipped annually. Investment case Even assuming a recovery in the macroeconomic environment and in the companys specific drivers (like a stronger harvest, for example), we believe that further interventions by the government in the sector combined with the closing of the Cosan deal could pressure the stock. If the deal is approved, we would not be surprised if Cosan pushes ALL to increase capex in order to reduce its freight costs. Key issues in an anemic growth environment In our view, any further interference from the government in the sector (like forcing the concessionaires to invest more or give back some of the non-used stretches) could hurt the stock. We also believe that the current stock price does not factor in the possibility of the Cosan deal being approved. Wheres the earnings risk for 2013? Earnings risk for the upside lie in a faster than expected recovery in corn volumes and a stronger contribution on EBITDA from the Rondonpolis project. Price target and key recovery risks Our Dec 2013 PT of R$11.50 is based on a DCF methodology, using a WACC of 12.8% in R$ nominal and a LT growth rate of 5%. We assume perpetuity only for the Malha Norte concession, Brado, and Ritmo operations. We model the remaining rail concessions until their expirations. Risks to the upside could be (1) a faster than expected recovery in corn volumes and (2) further developments of Vetria, the mining project. Risks to the downside: (1) higher than expected capex could postpone cash flow positive, (2) regulatory intervention.
America Latina Logistica SA (ALLL3.SA;ALLL3 BZ) FYE Dec 2011A EBITDA (R$ mn) FY 1,494 Bloomberg EPS FY (R$) 2.07 Revenues FY (R$ mn) 3,204 EPS Reported FY (R$) 0.36 Net Income - GAAP FY (R$ mn) 245 2012E 1,623 3.39 3,564 0.42 289 2013E 1,839 0.59 4,029 0.59 409
Source: Bloomberg.
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
432
FY11A FY12E FY13E FY14E FY15E Balance Sheet 3,204 3,564 4,029 4,529 5,111 Cash (1,445) (1,704) (1,898) (2,124) (2,413) Accounts receivable (125) (120) (198) (242) (274) Inventories (465) (473) (497) (516) (550) Other current assets 1,494 1,623 1,839 2,065 2,321 Net PP&E 46.6% 45.6% 45.7% 45.6% 45.4% Other assets 233 143 105 88 76 Total assets (1,148) (1,057) (1,023) (962) (965) Short-term debt (19) (27) (0) (0) (1) Accounts payable 236 326 517 773 984 Other current liabilities 17 (34) (103) (155) (197) Long-term debt (8) (4) (5) (7) (9) Other liabilities 245 289 409 611 778 Total liabilities 7.6% 8.1% 10.1% 13.5% 15.2% Minority interest 0.36 0.42 0.59 0.89 1.13 Shareholders' equity Liabilities + Equity Revenue growth 16.4% 11.2% 13.0% 12.4% 12.8% EBITDA growth 11.6% 8.6% 13.3% 12.3% 12.4% Net debt Net income growth 3.5% 17.8% 41.7% 49.6% 27.3% Net Debt/(Total Capital) Total Debt/(Total Capital) Net Debt/EBITDA Operating Data FY11A FY12E FY13E FY14E FY15E Valuation, Macro Capex 872 960 1,110 1,072 984 GDP Growth (%) Change in working capital 105 (64) (75) (43) (45) FX rate(R$/US$, eop) Free cash flow to firm 744 566 551 795 1,095 Inflation IGP-M (YoY, %) Change in debt 1,038 (29) (200) 10 (60) Inflation IPCA (YoY, %) Free cash flow to equity 859 (382) (572) (76) 136 Selic rate (%, eop) Dividends 56 72 102 153 195 EV/EBITDA Agricultural commodities 31,412 34,290 37,383 40,747 44,414 P/E Volume change 10.4% 9.2% 9.0% 9.0% 9.0% P/BV Agricultural yield 65.4 65.0 67.1 68.6 70.1 FCF yield Dividend yield Industrial products 11,557 11,126 11,679 12,205 12,754 ROE(%) Volume change 2.5% (3.7%) 5.0% 4.5% 4.5% ROIC(%) Industrial yield 56.7 55.6 57.4 58.7 60.0 CAPEX/sales 27.2% 26.9% 27.6% 23.7% 19.3% Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
FY11A 2,100 272 124 466 7,262 3,918 14,142 937 463 541 5,963 2,151 10,055 67 4,020 14,142
FY12E 1,556 293 169 634 7,888 3,913 14,453 1,261 469 477 5,610 2,280 10,097 69 4,286 14,453
FY13E 975 413 169 815 8,501 3,913 14,785 1,221 519 473 5,450 2,461 10,123 69 4,593 14,785
FY14E 845 496 169 1,013 9,057 3,913 15,493 1,219 539 493 5,462 2,659 10,372 69 5,052 15,493
FY15E 889 602 169 1,214 9,492 3,913 16,278 1,204 582 511 5,417 2,860 10,574 69 5,635 16,278
4,800 5,315 5,695 5,836 5,732 44.0% 47.6% 50.6% 49.7% 46.8% 63.2% 61.6% 59.2% 56.9% 54.0% 3.2 3.3 3.1 2.8 2.5 FY11A FY12E FY13E FY14E FY15E 2.8% 1.7% 4.1% 4.0% 4.0% 1.80 1.98 1.95 2.00 2.05 6.5% 6.0% 5.0% 4.5% 4.5% 6.5% 4.9% 5.3% 5.0% 5.0% 11.0% 7.5% 9.0% 9.0% 9.0% 7.3 7.0 6.4 5.8 25.2 21.4 15.1 10.1 1.5 1.4 1.3 1.2 14.2% (6.3%) (9.5%) (1.3%) 0.9% 1.2% 1.7% 2.5% 6.1% 6.7% 8.9% 12.1% 12.2% 11.8% 12.2% 13.0% 5.1 7.9 1.1 2.3% 3.1% 13.8% 14.0%
433
Alliance Oil
www.allianceoilco.ru
Company overview Alliance is the smallest integrated company in Russia. It currently produces 52 mbpd of crude oil in Timan-Pechora, Volgo-Urals, Tomsk region (Russia) and in Kazakhstan. The company refines 75-85 mbpd at the Khabarovsk refinery (Far East). 2P reserves amounted to 648 mn bbl as of end-2011, though a major cut in the reserve base is possible in the 2012 update due to problems in Timan-Pechora production (63% of 2P reserves). The Bazhaev family owns a 44% stake in the company, Repsol 3.2%. Investment case Alliance Oil used to have highly ambitious growth targets in both the upstream and downstream crude oil segments. However, facing a slump in Timan-Pechora crude oil production and delays in refinery upgrade, it started to reconsider its aggressive growth plans. In the meantime, net debt/EBITDA has reached 2.0x and keeps growing due to significant remaining capex requirements. Key issues in an anemic growth environment The capex requirements to sustain crude oil output have become excessively expensive. The company effectively spends $20/bbl on upstream maintenance capex, which is comparable with its cash generation in a segment with no growth in sight. The recent refinery upgrade mostly confirmed our concerns about launch being delayed to 2014 and about upgrade quality. Earnings risks in 2013 The market seems to continue believing in Alliance Oils earnings growth potential, which we suppose is related to the refinery upgrade and its planned connection to ESPO. We are more conservative, forecasting 11-19% lower than Bloomberg EBITDA consensus in 2013-2014 under our current oil price assumptions. Price target, and risks to our investment view We use a standard valuation approach for Russian oil and gas companies, which is based 50% on our end-13 DCF-based fair value and 50% on our target (normalized) EV/EBITDA (13E). Based on our methodology, our end-13 PT is SKr59 for Alliance Oil. Key upside risks to our rating and target price include an improvement in upstream segment performance, reduced risks relating to the refinery upgrade and government support in pipeline construction.
Alliance Oil Company Ltd (AOILsdb.ST;AOIL SS) FYE Dec 2011A Adj. EPS FY ($) 2.15 Revenue FY ($ mn) 3,083 EBITDA FY ($ mn) 689 Net Attributable Income 319 FY ($ mn) Adj P/E FY 3.6 EV/EBITDA FY 4.8 EBITDA margin FY 22.4% Dividend (Gross) FY (Skr) 0.00
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: Skr51.70 Price Target: Skr59.00
Abs
YTD -40.2%
1m -4.3%
3m -19.6%
12m -39.4%
Source: Bloomberg.
Company Data Price (Skr) Date Of Price Price Target (Skr) Price Target End Date 52-week Range (Skr) Mkt Cap (Skr bn) Shares O/S (mn)
434
Liabilities ST loans 107 241 278 Payables 393 359 377 Others 0 5 5 Total current liabilities 500 605 660 Long term debt 1,514 1,748 2,045 Other liabilities 217 239 239 Total liabilities 5,957 6,884 7,843 Shareholders' equity 1,955 2,264 2,575 BVPS 11 13 15 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY13E FY14E FY15E $ in millions, year end Dec 3,450 3,103 2,873 EBIT 3.9% -10.1% -7.4% Depreciation & amortisation 32.0% 41.1% 41.6% Change in working capital/Other 669 866 785 Taxes -2.3% 29.4% -9.4% Cash flow from operations 19.4% 27.9% 27.3% 471 650 569 Capex -3.3% 38.1% -12.5% Disposal/(Purchase)/Other 13.6% 21.0% 19.8% Net Interest (91) (220) (193) Free cash flow 373 415 362 4.0% 11.2% -12.8% Equity raised/repaid (76) (86) (75) Debt Raised/repaid 20.4% 20.8% 20.8% Other 297 329 287 Dividends paid 14.8% 10.7% -12.8% Beginning cash 171.53 171.53 171.53 Ending cash 1.73 1.92 1.67 DPS 14.8% 10.7% (12.8%) Ratio Analysis FY13E FY14E FY15E $ in millions, year end Dec 126 139 150 EBITDA margin 514 473 445 Operating margin 259 222 203 Net profit margin 0 0 0 SG&A/Sales 899 833 798 Sales per share growth - EPS growth 4,555 4,483 4,410 5,559 5,422 5,314 ROE ROCE 250 301 5 556 1,817 239 7,478 2,768 16 224 Production (mboe/day) 281 Production oil (mbpd) 5 Production gas (mboe/day) 509 Refining throughput (mbpd) 1,608 239 Interest coverage (x) 7,162 Net debt to equity 2,916 Net debt 17 Net debt/EBITDA (ny)
FY11 515 174 (199) (83) 408 (1,179) (16) (62) (917) 0 632 0 228 281 0.00 FY11 22.4% 16.7% 10.3% -12.3%
FY12E FY13E 487 471 198 198 (130) (37) (77) (76) 478 632 (817) 0 (108) (524) 0 377 0 281 170 0.00 (836) (91) (371) (7) 334 0 170 126 0.00
FY14E 650 215 2 (86) 868 (278) (220) 284 (16) -256 0 126 139 0.00 FY14E 27.9% 21.0% 10.6% -13.2%
FY15E 569 216 27 (75) 811 (282) (193) 262 (14) -235 0 139 150 0.00 FY15E 27.3% 19.8% 10.0% -14.3%
FY12E FY13E 20.6% 19.4% 14.7% 13.6% 7.8% 8.6% -12.3% -12.6%
40.4% 7.7% 43.5% (18.8%) 17.1% 12.0% 49 49 74 11.1 67.2% 1,340 2.0 12.3% 9.0% 55 55 76 6.3 78.9% 1,819 2.7
3.9% (10.1%) (7.4%) 14.8% 10.7% (12.8%) 12.3% 7.6% 51 51 76 7.4 84.0% 2,197 3.3 12.3% 10.6% 50 50 64 3.9 68.7% 1,929 2.2 10.1% 9.4% 50 50 64 4.1 56.9% 1,682 2.1
435
Underweight
Price: 27,330c Price Target: 24,832c
South African Metals and Mining Metals and Mining James WellstedAC
(+27-11) 507 0397 James.r.wellsted@jpmorgan.com .P. Morgan Equities Limited
P r ic e P e r fo r m a n c e
34,000 30,000 26,000 22,000
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD -9.0%
1m 6.0%
3m 9.6%
12m -11.2%
Source: Bloomberg.
2012E 1.97 32,106 8,340 26.0% 5,922 18.4% 4.9 1,604 440
2013E 2.06 36,228 9,456 26.1% 6,856 18.9% 4.9 1,753 481
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn)
436
FY11 36,548 11.0% 13,379 11.8% 36.6% 11,126 13.6% 30.4% 183 10,877 -0.7% (2,860) 26.3% 6,264 -4.7% 1,258.0
(1,753)
FY12E 32,106 -12.2% 8,340 -37.7% 26.0% 5,922 -46.8% 18.4% (331) 9,532 -12.4% (1,683) 31.0% 6,581 5.1% 1,280.0
(1,268)
FY13E 36,228 12.8% 9,456 13.4% 26.1% 6,856 15.8% 18.9% (454) 5,934 -37.7% (1,840) 31.0% 2,519 -61.7% 1,280.0 1.97 (62.4%) 1,753 FY13E 4,442 3,642 4,064 12,527 61,915 84,849 5,891 7,871 14,626 32,201 52,586 41
1,018 (1,576)
FY14E 39,324 8.5% 11,148 17.9% 28.3% 8,428 22.9% 21.4% (484) 7,447 25.5% (2,308) 31.0% 3,385 34.4% 1,280.0
Cash flow statement $ in millions, year end Dec EBIT Depreciation & amortization Change in working capital Taxes Cash flow from operations Capex Disposals/(purchase) Net Interest Free cash flow
FY11 11,126 2,253 (159) (2,539) 11,593 (6,203) 533 (457) 3,236 (347) -297 (818) 6,460 11,732 334.27
FY12E 5,922 2,418 487 (2,783) 8,266 (5,509) (4,303) (331) (193) 0 2,771 (959) 11,732 6,623 439.89
FY13E 6,856 2,599 (209) (1,840) 8,361 (6,169) 0 (454) 70 0 0 (1,078) 6,623 4,442 481.27
481
FY14E 8,428 2,720 (215) (2,308) 9,953 (6,324) 0 (484) 1,036 0 0 (1,163) 4,442 2,859 534.25
534
FY11 11,732 3,674 3,517 19,302 40,549 72,442 5,098 8,178 11,855 29,253 43,189 34
1,018
FY12E 6,623 3,227 3,607 13,837 58,345 82,173 5,229 7,209 14,626 31,539 50,571 40
1,018
Equity raised/repaid Debt Raised/repaid Dividends paid Beginning cash Ending cash (1,754) DPS 2.64 DPS (ZARc) 34.4% 2,418 Ratio Analysis FY14E $ in millions, year end Dec 2,859 P/E 3,953 Net Profit margin 4,277 11,468 Sales per share growth Sales growth 65,519 Net profit growth 87,876 EPS growth 6,199 8,179 14,626 32,509 55,304 43
1,018 Interest coverage (x)
334
440
ST loans Payables Total current liabilities Long term debt Total liabilities Shareholders' equity BVPS
Dividend Yields Net debt to equity Assets/Equity EV/EBITDA P/BV ROE ROCE
60.8
17.9
15.1
17.4
3.0 0.9
4.9 0.8
4.9 0.8
4.3 0.7
437
Underweight
Price: 3,589c Price Target: 4,800c
(44-20) 7134-5945 alex.r.comer@jpmorgan.com Bloomberg JPMA COMER<GO> J.P. Morgan Securities plc
P r ic e P e r fo r m a n c e
7,000 6,000 c 5,000 4,000 3,000
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD -48.8%
1m -11.1%
3m -22.3%
12m -48.1%
Source: Bloomberg.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn)
Ratio Analysis R in millions, year end Dec EV/ Sales EV/EBITDA EV/EBIT EV/ Invested Capital ROCE EPS P/E Dividend Yield FCF Yield
FY12E 0.5 11.1 78.6 0.7 0.8% 6.05 593.2 0.0% 8.8%
FY13E 0.5 5.3 9.3 0.7 6.4% 357.52 10.0 2.0% 6.1%
FY14E 0.5 4.3 6.8 0.7 8.5% 497.89 7.2 2.8% 6.3%
439
ASUSTek Computer
www.asus.com
Company overview Asus is the worlds largest motherboards maker. Starting with MB business, Asus has grown quickly in the NB space, especially netbooks. The company's products include MB, NB, Eee PC, tablet PC and PC peripherals. Its key customers are channels and distributors in Europe and Asia. Investment case We are conservative on the NB market in 2013. In past two quarters, Asus growth in Notebook (incl EeePC) has slowed considerably. Given that tablet cannibalization of notebook market will only accelerate in 2013, we believe that Asuss Notebook growth is likely to settle at only 10% in 2013 and 2014. Besides, fiercer competition from other brands may impact negatively on Asuss top line as well as its margins. Key issues in an anemic growth environment We think Asustek outperformed its peer in 2012 thanks to outstanding development in tablets. However, the momentum is likely to be weaker in 2013 due to the threat from Samsung. We are not as optimistic on Asus' tablet foray. Samsung appears to be very aggressive and is already shipping 2x the volume of Asus the gap is likely to get even wider with the launch of Nexus 10 (cobranded with Samsung). In addition, route to meaningful profits in tablets is not clear for any PC vendor. Earnings risks in 2013 Key upside risk are touch notebooks creating a refresh cycle in NB and faster pickup for Windows 8 products, while a key downside risk is Samsung becoming a credible force in consumer PCs earlier than expected. Price target, and risks to our investment view Our Jun-13 PT of NT$300 is based on 10x FY13E vs. a historical range of 8-14x. We could turn more positive if we see touch-on-notebooks take off. In 2H13, with touch panel prices falling, this could emerge as a trend. We could turn more negative if Asuss core profit generator high-end notebooks (e.g. Zenbook) come under threat from competitors such as Samsung or Apple (if Apple drops prices on Macbook Air).
Bloomberg 2357 TT, Reuters 2357.TW
(Year-end Dec, NT$ bn) FY11 FY12E FY13E FY14E Sales 350.26 411.56 445.66 478.11 Operating Profit 18.18 21.92 23.41 25.19 EBITDA 19.78 23.52 25.01 26.79 Pretax Profit 20.06 26.47 27.21 29.34 Adj. Net Profit (New TW GAAP) 16.93 22.37 22.58 24.17 New TW GAAP EPS (NT$) 22.31 29.71 29.99 32.10 Net Debt / Equity NM NM NM NM Y/E BPS (NT$) 152.70 172.89 186.84 202.74 FY11 FY12E FY13E FY14E 14.4 10.8 10.7 10.0 2.1 1.9 1.7 1.6 15.3 18.3 16.7 16.5 11.8 12.1 16.0 16.2 1Q 2Q 3Q 4Q 4.41 4.78 6.22 6.48 6.65 6.40 8.92 7.74 6.61 6.26 8.52 8.61
Neutral
Price: NT$320.50 Price Target: NT$300.00
Abs Rel
1m 6.8% 10.7%
3m 15.7% 17.6%
Source: Bloomberg.
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
New TW GAAP P/E P/BV (x) ROE(%) Cash Div (NT$) Quarterly EPS (NT$) EPS (11) EPS (12) E EPS (13) E
Target Price (NT$) 52-Week range (NT$) Share Outstanding Free float Avg daily volume Avg daily val (USD) Dividend Yield (2012) QFII Holding (%) Market Cap(USD)
300 327.00 - 178.00 753mn 95.0% 68mn 39.30mn 3.8% 39.7% 8,316mn
440
Ratio Analysis NT$ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (reported) growth Interest coverage (x) Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC ROIC (net of cash) Cash flow statement NT$ in millions, year end Dec Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing
FY10 13.6% 4.7% 4.2% 5.1% 2.5% 6.8% 29.5% 203.4% 32.2% 32.2% -20.3% NM 1.48 10.84 11.8% 6.6% -
FY11 13.8% 5.6% 5.2% 4.8% 2.3% 6.3% 9.0% 33.3% 2.7% 5.2% -24.8% NM 1.71 0.00 15.3% 21.7% -
FY12E 13.5% 5.7% 5.3% 5.4% 2.2% 6.0% 17.5% 20.6% 32.1% 33.2% -26.7% NM 1.81 5.50 18.3% -
FY13E 13.6% 5.6% 5.3% 5.1% 2.2% 6.1% 8.3% 6.8% 0.9% 0.9% -30.8% NM 1.83 5.50 16.7% -
FY14E 13.5% 5.6% 5.3% 5.1% 2.2% 6.0% 7.3% 7.6% 7.0% 7.0% -34.7% NM 1.82 5.50 16.5% -
FY12E FY13E FY14E 44,748 54,216 64,014 55,460 59,167 64,382 56,720 60,512 65,845 23,003 24,541 26,704 179,931 198,437 220,945 49,166 47,402 45,726 4,532 4,532 4,532 235,789 252,531 273,363
9,430 9,538 9,767 63,022 67,236 73,161 28,754 30,676 33,380 101,207 107,450 116,307 0 0 0 0 0 0 Net change in cash 105,644 111,887 120,744 Beginning cash 130,145 140,643 152,618 Ending cash
FY10 FY11 FY12E FY13E FY14E 16,488.0 16,926.1 22,365.8 22,576.0 24,165.7 1,501 1,600 1,600 1,600 1,600 -6,816 -5,620 -9,866 -2,902 -4,081 -4,560 10,666 -14,130 384 541 11,173 12,906 14,100 21,274 21,685 -1,464 -1,267 -1,966 -1,600 -1,600 2,496 -460 -255 0 0 73,035 -7,270 -1,418 164 76 9,709 11,639 12,134 19,674 20,085 -62,197 1,157 0 0 0 0 -411 -1,070 108 229 -12,116 -260 1,971 0 0 -9,315 -8,918 -9,140 -12,078 -12,191 -83,629 -8,432 -8,239 -11,969 -11,963 579 39,759 41,395 -2,796 41,395 40,542 4,444 40,542 44,748 9,469 44,748 54,216 9,798 54,216 64,014
441
Underweight
Price: $26.10 Price Target: $28.00 End Date: Dec 2013
Company overview Santander Chile is the largest bank in Chile in terms of total assets, total deposits, loans, and shareholders equity. As of September 30, 2012, the bank had total assets of US$52.6 billion, gross loans of $39.0 billion, deposits of US$32.8 billion, and shareholders equity of US$4.4 billion. Also, the bank has the largest private branch network in Chile with 499 branches. Investment case Key drivers of underperformance include (1) continued market share losses; (2) likely low inflation, which adversely impacts the net interest margin; (3) regulatory pressure that will likely lead to NIM pressure and still sluggish consumer loan growth; and (4) reduced earnings estimates. Key issues in an anemic growth environment Though the stock has underperformed in 2012 (down 10.9% YTD), we think the valuation is rich at 2.6x 12E BV and 12.1x 2013E given declining ROE versus recent historical levels in the mid 20% range. Earnings risks in 2013 We think risks are to the downside given the potential for continued share losses, low inflation, and still elevated loan loss provisions. We think consensus earnings estimates of US$2.24 per ADR in 2013 are too high (JPM: US$2.16 per ADR). We have a downside bias to our estimates. Price target, and risks to our investment view We use two methodologies to establish our Dec 2013 price target of US$28 per share: (1) a residual income model and (2) a regression of risk-adjusted ROE (ROE estimates for 2013 and 2014 divided by estimated cost of equity) to price to book value using a cross-section of Latin American financial institutions. Our price target is based on target multiples of 13.4x 2014E earnings and 2.7x 2013E BV. Key upside risks include that it can often trade defensively in a recovery scenario; inflation could be higher than forecast, helping the NIM; and market share losses could stop and be reverted.
Source: Bloomberg.
Banco Santander Chile (BSAC;BSAC US) 2010A EPS - Reported ($) Q1 (Mar) 0.25 Q2 (Jun) 0.29 Q3 (Sep) 0.27 Q4 (Dec) 0.20 FY 1.01
Source: Company data, J.P. Morgan estimates.
2013E 1.06
Company Data Price ($) Date Of Price 52-week Range ($) Market Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date
442
FY12E 1,958 (881) 1,077 (351) 503 300 397 (290) (619) (2) 501 (71) 430 430 1.13 FY12A 1.82 4.81 1.13 (4.8%) 9.1% 12.5% 15.6% 5.1% 2.9% (2.8%) 101.4% 42.0% 109.9% 68.2% 8.1% 62.1%
-
FY13E 2,242 (1,008) 1,234 (393) 596 323 428 (289) (673) (2) 594 (95) 499 499 1.13 FY13E 2.16 5.32 1.13 18.9% 8.6% 12.9% 14.3% 5.1% 2.7% (2.6%) 99.2% 40.5% 108.2% 68.2% 8.0% 52.1%
-
FY14E 2,510 (1,122) 1,388 (448) 661 349 460 (318) (740) (2) 659
-
(105) 553 553 1.27 FY14E Valuation, Macro P/E 2.35 P/BV 5.86 Dividend yield 1.27 ROE ROA 8.6% Shares - ADRs 10.0% 12.0% 13.5% 5.1% 2.6% (2.5%) 98.0% 40.0% 107.4% 68.3% 7.9% 54.1%
Balance Sheet Securities Cash and Due from Banks Interbank Investment Loan and Leasing Operations Other Receivables and Assets Total assets Total deposits Demand deposits Savings deposits Interbank deposits Time deposits Interest bearing liabilities Other Current Liabilities Total Liabilities Minority Interest Shareholders' equity
FY11A FY12A FY13E FY14E 29.0 29.4 25.3 22.8 6.2 5.6 5.0 4.6 4.8% 4.2% 4.2% 4.7% 22.3% 20.0% 20.9% 21.0% 1.9% 1.6% 1.7% 1.7% 471 471 471 471 471 471 471 471
Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec
443
Bank of Baroda
www.bankofbaroda.com
Company overview Bank of Baroda is the fourth-largest public sector bank in India, with a loan book of cUS$55B. BOB is highly concentrated in west India with ~50% of its branches in Gujarat, Maharashtra and Rajasthan. It is present across all loan segments but is particularly focused on mid-corporate and SME lending, apart from a strong overseas business with a substantial presence in Africa and the Middle East. Investment case BOB is one of our key Underweights in Indian financials, as we believe the NPL situation is unlikely to improve in the coming quarters. While BOB is well into its weak credit quality cycle, we think issues from its SME and mid-corporate portfolio will continue for another 2-3 quarters at least. Key issues in an anemic growth environment An anemic growth environment would exacerbate BOBs asset quality issues, given its exposure to SMEs and the industrial economy in general. Moreover, it faces revenue growth issues as loan demand from key segments is likely to remain soft. Earnings risks in 2013 A key upside risk to earnings is quicker-than-expected recovery in GDP leading to an improvement in asset quality. Improvement in asset quality could also be triggered by policy support which helps in dealing with NPLs and restructured assets. A key downside risk to earnings is margin compression due to loss in deposit market share. Price target, and risks to our investment view Our Mar-13 PT for BOB of Rs600 is based on our 2-stage Gordon growth model and implies 0.9x FY13E book. Our valuation factors in a Cost of Equity of 14.9%, normalised ROE of ~14%, and terminal growth of 5%. Apart from the earnings risks stated above, a key upside risk to our UW rating and PT is a strong recovery in equity markets, which could drive a rerating of the stock despite fundamentals.
Bank of Baroda (Reuters: BOB.BO, Bloomberg: BOB IN) FY11A FY12A FY13E Operating Profit (Rs mn) 65,381 80,229 95,151 Net Profit (Rs mn) 42,417 50,070 45,106 Cash EPS (Rs) 108.26 121.79 109.38 Fully Diluted EPS (Rs) 99.76 109.51 103.10 DPS (Rs) 16.50 17.00 15.31 EPS growth (%) 29.4% 12.5% (10.2%) ROE 23.3% 19.1% 14.8% P/E (x) 7.2 6.4 7.1 BVPS (Rs) 504.55 668.34 729.29 P/BV (x) 1.5 1.2 1.1 Dividend Yield 2.1% 2.2% 2.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: Rs778.20 Price Target: Rs600
Abs Rel
1m -2.0% -1.8%
3m 18.2% 10.8%
Source: Bloomberg.
FY14E 115,570 49,966 121.16 112.68 16.96 10.8% 14.4% 6.4 830.61 0.9 2.2%
FY15E 137,857 55,708 135.09 132.66 18.91 11.5% 15.0% 5.8 943.57 0.8 2.4%
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Rs) Date Of Price 3M - Avg daily value (Rs mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) BSE30 Exchange Rate
881.00-605.55 319,934 5,877 411 Mar 778.20 07 Nov 12 595.96 10.9 0.83 1,8902.41 54.44
444
Per Share Data EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rs in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA
FY11 108.26 16.50 15.2% 504.55 392 FY11 2,286,764 (23,616) 2,310,380 31,525 114,354 62,254 3,107,779 3,571,722 3,054,395 115,591 0 2,814,279 3,170,838 197,682 2,098,901 1,829,906
FY12 121.79 17.00 14.0% 668.34 411 FY12 2,873,773 (29,211) 2,902,984 44,647 133,529 107,146 3,923,131 4,473,215 3,848,711 126,473 0 3,572,585 4,022,469 274,769 2,537,338 2,318,119
FY13E 109.38 15.31 14.0% 729.29 412 FY13E 3,304,839 (56,615) 3,361,454 83,257 143,019 116,845 4,660,616 5,103,124 4,410,794 146,196 0 4,266,087 4,788,169 300,749 2,917,938 2,727,638
FY14E 121.16 16.96 14.0% 830.61 412 FY14E 3,866,661 (96,478) 3,963,139 128,637 148,806 136,106 5,383,244 5,942,431 5,151,385 176,520 0 4,942,448 5,522,777 342,529 3,413,988 3,165,963
445
Bank Pekao SA
www.pekao.com.pl
Company overview Pekao is the second largest bank group in Poland and first privately owned (59% by Unicredit), with PLN148bn in total assets, PLN102bn loans (11% mkt share), PLN 107bn deposits (13% mkt share) and operates via >1000 branches, serving >4mn clients. Though concentrated in Poland, Pekao has small operations in Ukraine (c.2% of loan book). Primarily a corporate bank (c.58% loan book), Pekao is gradually expanding into the more profitable retail sector. Investment case Pekao offers a strong balance sheet (L/D <100%), high quality revenue stream (c.90% from NII and fees) and one of the highest capital ratios within CEEMEA banking space (c.19% core tier 1- 12E dividend yield of 6.4%; 13E 8%). However, these qualities in our view are reflected in the current valuations- 13E PNAV 1.9x, PE 11x and P/Preprovision profits of 8x. Given the deteriorating macro & asset quality outlook (in particular for the construction sector- Pekao has c.8% loan exposure to construction & timber industry), we expect Pekao to relatively underperform its CEEMEA counterparts. Key issues in an anemic growth environment Key issues: i) slowdown in Polish economy (JPM recently revised down 2013E GDP growth from 2% to 1.6%) ii) low rate environment negatively impacting margins- JPM expects 100bps rate cuts by mid-2013 iii) deterioration in asset quality (in particular for the construction sector). Price target, and risks to our investment view Our Dec-13 price target of PLN179 is based on a Gordon growth model and incorporates 4% long-term growth rate, 11% cost of equity and 18% normalized RoNAV (we add 2013 DPS of PLN12.5 to arrive at our PT). Key risks include i) Volatility within European banking sector, given Unicredit is the key shareholder ii) Currency volatility, given c.21% of loan book is in FX iii) Acceleration in asset quality deterioration iv) Upside risk from pick up in corporate loan growth
Bank Pekao SA (BAPE.WA;PEO PW) FYE Dec 2011A Adj. EPS FY (zl) 11.07 BV/Sh FY (zl) 82 Headline P/E FY 14.0 P/NAV FY 2.0 Tier One Ratio FY 17.0% Net Attributable Income 2,899 FY (zl mn) ROE FY 13.9% Gross Yield FY 3.6% Dividend (Gross) FY (zl) 5.54
Source: Company data, Bloomberg, J.P. Morgan estimates.
Neutral
Price: zl154.70 Price Target: zl179.00
zl
Abs
YTD 8.2%
1m -0.7%
3m -1.4%
12m 7.8%
Source: Bloomberg.
Company Data Price (zl) Date Of Price Price Target (zl) Price Target End Date 52-week Range (zl) Mkt Cap (zl bn) Shares O/S (mn)
446
Ratio Analysis FY10A FY11A FY12E FY13E FY14E zl in millions, year end Dec Per Share Data 4,104 4,558 4,929 5,393 5,874 EPS Reported 7.9% 11.1% 8.1% 9.4% 8.9% EPSAdjusted 3,114 3,173 3,225 3,477 3,815 % Change Y/Y 2,368 2,449 2,465 2,642 2,893 DPS 3.5% 3.4% 0.6% 7.2% 9.5% % Change Y/Y 680 658 691 760 836 Dividend yield -23.2% -3.3% 5.0% 10.0% 10.0% Payout ratio 66 67 69 75 86 BV per share 7,218 7,731 8,153 8,871 9,689 NAV per share 2.3% 7.1% 5.5% 8.8% 9.2% Shares outstanding -3,649 -3,672 -3,764 -3,851 -3,974 -0.6% 0.6% 2.5% 2.3% 3.2% Return ratios - RoRWA 3,569 4,060 4,390 5,020 5,715 Pre-tax ROE 5.6% 13.8% 8.1% 14.4% 13.8% ROE -589 -544 -600 -450 -500 RoNAV 3,102 3,593 3,882 4,681 5,348 Revenues 3.5% 15.8% 8.1% 20.6% 14.3% NIM (NII / RWA) (571) (684) (854) (1,030) (1,177) Non-IR / average assets 18.4% 19.0% 22.0% 22.0% 22.0% Total rev / average assets (5) (10) (8) (8) (8) NII / Total revenues 2,525 2,899 3,020 3,643 4,164 Fees / Total revenues Trading / Total revenues
FY10A FY11A FY12E FY13E FY14E 9.64 11.07 9.64 11.07 4.7% 14.8% 6.80 5.54 130.7% (18.6%) 4.1% 3.6% 70.5% 50.0% 75 82 77.4 78.9 261.9 261.9 0.03 16.1% 13.1% 13.6% 0.03 17.3% 13.9% 14.4% 11.53 11.53 4.2% 9.80 77.1% 6.4% 85.0% 83 80.5 261.9 0.03 18.0% 14.0% 14.5% 13.91 13.91 20.6% 12.52 27.7% 8.1% 90.0% 85 81.7 261.9 0.03 21.3% 16.6% 17.2% 15.90 15.90 14.3% 14.31 14.3% 9.3% 90.0% 86 83.2 261.9 0.03 23.9% 18.6% 19.3%
3.20% 3.39% 3.40% 3.46% 3.44% 2.35% 2.26% 2.26% 2.26% 2.26% 5.45% 5.51% 5.51% 5.51% 5.51% 56.85% 58.95% 60.45% 60.80% 60.62% 32.81% 31.67% 30.23% 29.79% 29.86% 9.42% 8.51% 8.47% 8.57% 8.63% FY10A FY11A FY12E FY13E FY14E 50.6% 47.5% 46.2% 43.4% 41.0% 0.0 0.0 0.0 0.0 0.0 20,783 20,357 20,357 20,459 20,561 85.1% 23.4% 60.3% 74.4% 0.9% 92.3% 20.4% 68.3% 74.0% 2.1% 94.3% 19.6% 70.4% 74.6% 2.4% 97.1% 101.8% 18.9% 18.1% 71.6% 73.0% 73.7% 71.7% 2.6% 2.9%
FY10A FY11A FY12E FY13E FY14E zl in millions, year end Dec Cost ratios 80,843 95,679 103,643 114,440 128,807 Cost / income 1.7% 18.4% 8.3% 10.4% 12.6% Cost / assets -4,052 -4,423 -4,823 -5,073 -5,373 Staff numbers 31,381 29,969 30,252 31,524 33,373 12,228 10,472 10,577 11,106 11,661 Balance Sheet Gearing -27.3% -14.4% 1.0% 5.0% 5.0% Loan / deposit 128,213 134,524 144,919 155,719 170,678 Investments / assets 55 55 55 55 55 Loan / assets 4,242 4,668 4,792 4,922 5,058 Customer deposits / liabilities 134,090 146,590 154,041 166,890 183,923 LT Debt / liabilities Asset Quality / Capital 99,807 108,437 114,978 123,072 131,863 Loan loss reserves / loans 2.6% 8.6% 6.0% 7.0% 7.1% NPLs / loans 1,177 3,044 3,653 4,383 5,260 LLP / RWA 7,641 5,901 6,137 6,443 6,830 Loan loss reserves / NPLs 110,913 116,115 124,882 133,750 144,100 Growth in NPLs 5,207 7,852 7,463 10,818 17,380 RWAs % YoY change 20,257 21,271 21,723 22,086 22,500 Core Tier 1 83 85 87 89 90 Total Tier 1 134,090 146,590 154,041 166,890 183,923
4.8% 4.4% 4.4% 4.2% 4.0% 7.0% 6.7% 6.8% 6.5% 6.2% 4.2% 4.3% 4.0% 3.9% 3.7% 65.9% 66.0% 65.6% 65.0% 64.6% (3.4%) 9.0% 9.8% 6.0% 6.6% 95,513 103,456 119,181 131,099 144,209 3.1% 8.3% 15.2% 10.0% 10.0% 17.6% 17.0% 16.0% 14.9% 13.8% 17.6% 17.0% 16.0% 14.9% 13.8%
447
Catcher Technology
www.catcher.com.tw/
Company overview Catcher is the leading aluminum and magnesium casing maker in Taiwan. It is principally engaged in manufacturing and sales of a wide spectrum of light metal casing products in 3C area. Its customers include Dell, Apple, Acer, and most tier-one NB brands. Investment case We think Catcher is in a downcycle (compared to Ju Teng) and will experience decline either in revenue or margins in 2013. First, we remain cautious on Catchers expectation of strong growth in composite casings since PC brands have typically chosen price over premium quality. Besides, we forecast CNC machine tightness will ease out in 2013, and could kill pricing dynamics in the industry. Third, we think Catchers iPad casing business is likely to be unsustainable due to heavy competition. Key issues in an anemic growth environment Catcher expects strong growth in non-Apple notebook casings, especially due to the take-off of composite casings for ultrabooks in 2013. However, we believe Ju Teng is likely to provide much better solutions at the lower end of the cost spectrum due to difference in technology. Even if Catcher takes these orders, they are likely to be margin dilutive. Second, Apples strategy of ramping up casing technology at EMS partners is likely to make Catchers stand-alone casing business unsustainable in the long term for high-volume Apple products. Earnings risks in 2013 Key upside risks are: (1) Improvement in sustainability in iPad casing business, (2) execution issues at competitors like Foxconn Tech. Price target, and risks to our investment view Our Jun-13 PT of NT$110 is based on 9x FY13E earnings. We use a lower multiple of 9x (vs. the historical range of 7-25x) as we expect limited potential for earnings growth in FY13. We see Catchers success in maintaining its competitiveness the biggest upside risk in 2013.
Bloomberg 2474 TT, Reuters 2474.TW
(Year-end Dec, NT$ bn) Sales Operating Profit EBITDA Pretax Profit Adj. Net Profit (New TW GAAP) New TW GAAP EPS (NT$) Net Debt / Equity Y/E BPS (NT$) FY11 FY12E FY13E 35.91 37.62 35.84 13.21 12.43 11.64 15.78 16.73 16.69 13.71 12.56 11.92 10.68 9.11 8.91 15.11 12.13 11.87 NM NM NM 74.61 87.10 93.97 FY14E 36.30 11.63 17.29 11.99 9.18 12.23 NM 101.20
Underweight
Price: NT$134.00 Price Target: NT$110.00
Abs Rel
1m 3.5% 7.4%
3m -10.1% -8.2%
Source: Bloomberg.
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
New TW GAAP P/E P/BV (x) ROE(%) Cash Div (NT$) Quarterly EPS (NT$) EPS (11) EPS (12) E EPS (13) E
FY11 FY12E FY13E FY14E 8.9 11.0 11.3 11.0 1.8 1.5 1.4 1.3 24.0 15.0 13.1 12.5 2.4 4.0 5.0 1Q 2Q 3Q 4Q 2.88 3.52 5.01 3.60 3.72 2.03 2.64 3.75 2.62 2.91 3.10 3.24
Target Price (NT$) 52-Week range (NT$) Share Outstanding Avg daily volume Avg daily val (USD) Dividend Yield (2012) QFII Holding (%) Market Cap (NT$) Market Cap(USD)
110 237.00 - 117.50 751mn 8mn 73.36mn 3.0% 54.0% 100.59mn 3,468mn
448
Profit and Loss Statement Ratio Analysis NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec Revenues 21,845 35,914 37,616 35,841 36,298 Gross margin Cost of goods sold 14,092 19,023 21,401 20,626 21,079 EBITDA margin Gross Profit 7,753 16,891 16,215 15,215 15,219 Operating margin R&D expenses -701 -781 -884 -753 -762 Net margin SG&A expenses -1,797 -2,651 -2,711 -2,645 -2,641 R&D/sales Operating profit (EBIT) 5,087 13,213 12,431 11,638 11,634 SG&A/Sales EBITDA 7,122 15,778 16,729 16,693 17,290 Interest income 226 380 608 506 559 Sales growth Interest expense -206 -254 -298 -357 -355 Operating profit growth Investment income (Exp.) 20 126 310 149 204 Net profit growth Non-operating income (Exp.) -167 -246 -189 -179 -181 EPS (reported) growth Earnings before tax 5,187 13,705 12,565 11,919 11,989 Tax -740 -3,040 -3,446 -2,977 -2,782 Interest coverage (x) Net income (reported) 4,429.8 10,677.2 9,106.5 8,914.0 9,179.4 Net debt to total capital Net income (adjusted) 4,430 10,677 9,107 8,914 9,179 Net debt to equity EPS (reported) 6.66 15.11 12.13 11.87 12.23 Asset turnover EPS (adjusted) 6.66 15.11 12.13 11.87 12.23 Working capital turns (x) BVPS 49.41 74.61 87.10 93.97 101.20 ROE DPS 2.00 2.35 4.00 5.00 ROIC Shares outstanding 665 751 751 751 751 ROIC (net of cash) Balance sheet Cash flow statement NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec Cash and cash equivalents 17,896 41,659 47,799 53,294 58,449 Net income Accounts receivable 9,560 12,490 14,957 14,033 15,208 Depr. & amortization Inventories 2,136 2,538 2,714 2,546 2,759 Change in working capital Others 4,868 1,308 4,666 4,378 4,744 Other Current assets 34,461 57,995 70,136 74,250 81,161 Cash flow from operations LT investments - Capex Net fixed assets 20,931 28,408 27,763 27,708 27,053 Disposal/(purchase) Others - Cash flow from investing Total Assets 58,094 89,278 100,005 104,297 110,806 Free cash flow Liabilities Equity raised/(repaid) ST Loans 13,562 17,993 17,690 17,356 17,626 Debt raised/(repaid) Payables 3,199 3,258 5,182 4,988 5,445 Other Others 2,386 4,500 2,800 2,627 2,847 Dividends paid Total current liabilities 19,147 25,751 25,672 24,970 25,918 Cash flow from financing Long-term debt 6,018 7,413 8,845 8,678 8,813 Other liabilities 74 110 105 105 105 Net change in cash Total Liabilities 25,240 33,273 34,622 33,753 34,836 Beginning cash Shareholders' equity 32,854 56,005 65,383 70,544 75,970 Ending cash Source: Company reports and J.P. Morgan estimates.
FY10 35.5% 32.6% 23.3% 20.3% 3.2% 8.2% 28.6% 42.9% 33.4% 32.6% 3.3% 5.1% 0.39 1.81 13.6% 12.2% 12.2%
FY11 FY12E FY13E FY14E 47.0% 43.1% 42.5% 41.9% 43.9% 44.5% 46.6% 47.6% 36.8% 33.0% 32.5% 32.1% 29.7% 24.2% 24.9% 25.3% 2.2% 2.4% 2.1% 2.1% 7.4% 7.2% 7.4% 7.3% 64.4% 4.7% (4.7%) 159.7% -5.9% -6.4% 141.0% -14.7% -2.1% 126.8% (19.7%) (2.1%) 1.3% -0.0% 3.0% 3.0%
-24.3% -24.5% -28.9% -32.2% NM NM NM NM 0.49 0.40 0.35 0.34 3.46 2.32 2.37 2.24 24.0% 15.0% 13.1% 12.5% 24.6% 19.5% 19.3% 19.4% 24.6% 19.5% 19.3% 19.4%
FY10 FY11 FY12E FY13E FY14E 4,429.8 10,677.2 9,106.5 8,914.0 9,179.4 2,035 2,564 4,299 5,055 5,655 584 2,401 -5,777 1,014 -1,079 827 2,113 -1,700 -173 220 7,065 15,630 7,641 15,011 13,783 -4,668 -10,042 -3,654 -5,000 -5,000 0 0 0 0 0 -3,863 -10,215 -2,884 -5,234 -5,253 2,397 5,588 3,987 10,011 8,783 0 857 1 0 0 1,444 5,826 1,129 -501 406 -2,348 13,304 3,249 -56 -56 -1,312 -1,675 -2,990 -3,725 -3,726 -2,217 18,348 1,384 -4,283 -3,375 986 17,896 23,763 6,140 5,495 5,155 41,659 47,799 53,294 58,449
449
Underweight
Price: NT$11.45 Price Target: NT$9.00
Abs Rel
1m 11.2% 16.1%
3m 24.6% 25.7%
Source: Bloomberg.
FY14E 469 Sales growth 15 OP growth 101 NP growth 11 Quarterly EPS (NT$) 1 EPS (11) 24 EPS (12) E 8.0 EPS (13) E 0.5 Price Target 6.1 Consensus PT 90 Difference (%)
FY12E FY13E FY14E Date of Price (5.6%) 0.3% (2.9%) 52-Week range -67.7% -155.2% 36.5% Market Cap -60.1% -119.6% 126.2% Market Cap 2Q 3Q 4Q Share Out. (Com) -2 -2 -3 Free float -1 -0 0 Avg daily val 0 0 0 Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
08 Nov 12 NT$17.43 - 8.45 NT$91B US$3,097MM 7,913MM 70.0% NT$0.6B 18.98MM 60.1MM shares 0.0 29.26
450
-6,261 -5,938 -3,408 EPS (reported) growth 210.5% 282.4% (61.1%) (118.6%) 126.2% -26,523 5,238 11,848 0 0 0 Interest coverage (x) 16.05 5.89 9.21 16.38 29.41 -25,710.6 5,037.1 11,394.7 Net debt to total capital 66.2% 50.9% 50.4% 37.1% 19.9% -25,977 5,037 11,395 Net debt to equity 87.8% 139.1% 142.7% 95.4% 47.0% (3.43) 0.64 1.44 Asset turnover 1.11 0.73 0.75 0.81 0.81 -3.46 0.64 1.44 Working capital turns (x) 1.11 0.73 0.75 0.81 0.81 22.18 22.81 24.25 ROE (8.3%) (27.9%) (13.7%) 2.8% 6.1% 0.00 0.00 0.00 ROIC -3.2% -11.0% -3.9% 2.2% 3.2% 7,913 7,913 7,913 ROIC (net of cash) -3.6% -12.0% -4.2% 2.6% 4.4% Cash flow statement FY12E FY13E FY14E NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E 38,198 110,275 160,518 Net income -14,835.4 -64,439.8 -25,710.6 5,037.1 11,394.7 71,298 68,538 66,581 Depr. & amortization 73,200 93,409 83,533 86,300 85,253 49,751 44,051 39,007 Change in working capital 16,577 -20,935 78 4,976 3,337 0 0 0 Other 20,161 -25,748 6,919 2,409 360 178,064 239,009 281,315 Cash flow from operations 75,563 7,714 57,633 96,314 99,984 22,772 22,780 22,787 Capex 0 0 0 0 0 353,489 285,189 217,936 Disposal/(purchase) 0 0 0 0 0 44,315 44,288 44,287 Cash flow from investing -491,404 -52,054 -33,027 -17,981 -18,005 598,641 591,266 566,324 Free cash flow 75,563 7,714 57,633 96,314 99,984 Equity raised/(repaid) 0 0 0 0 0 92,782 94,135 75,783 Debt raised/(repaid) 259,450 35,646 -43,572 -6,256 -31,736 99,632 93,740 89,715 Other 182,442 511 2,786 -0 0 125,091 118,934 114,334 Dividends paid 0 0 0 0 0 217,872 213,069 190,117 Cash flow from financing 441,892 36,157 -40,786 -6,256 -31,736 195,908 188,269 174,883 9,384 9,414 9,416 Net change in cash 26,051 -8,183 -16,180 72,077 50,243 423,165 410,752 374,416 Beginning cash 36,510 62,561 54,378 38,198 110,275 175,476 180,513 191,908 Ending cash 62,561 54,378 38,198 110,275 160,518
451
Underweight
Price: HK$7.16 Price Target: HKS6.75
Abs Rel
1m 7.2% 8.8%
3m -0.3% -3.1%
Source: Bloomberg
Cost of equity assumptions Risk free rate: Market risk premium: Cost of equity Terminal g: Fair P/B PV of Terminal Value PV of Dividends to 12E Equity/assets Normalised ROE
Source: J.P. Morgan estimates
FY13E 51,152 27,379 0.97 0.97 0.28 (6.1%) 16.3% 6.0 6.28 0.9 4.9%
Company Data 52-week Range (HK$) Market Cap (Rmb mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (HK$) Date Of Price 3M - Avg daily value (HK$ mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) H-SHARE Exchange Rate
8.23-5.35 153,730 24,678 26,714 Dec 7.16 13 Nov 12 284.02 29.5 43.43 1,3783.10 9.64
452
Growth Rates FY14E FY10 FY11 FY12E FY13E FY14E 2.9% Loans 19.8% 14.0% 13.8% 13.0% 12.0% 100.3% Deposits 25.6% 16.1% 13.0% 11.5% 12.0% 2.9% Assets 27.9% 22.2% 15.1% 13.5% 14.0% Equity 18.3% 24.5% 22.6% 12.2% 11.0% Net Interest Income 45,873 64,821 71,803 78,445 85,441 RWA 28.9% 25.1% 14.5% 11.9% 13.1% Total Non-Interest Income 8,593 17,375 19,855 22,866 25,962 Net Interest Income 42.3% 41.3% 10.8% 9.3% 8.9% Fee Income 8,289 15,101 17,517 19,970 22,366 Non-Interest Income 96.2% 102.2% 14.3% 15.2% 13.5% Dealing Income 83 484 100 100 100 of which Fee Grth 77.7% 82.2% 16.0% 14.0% 12.0% Revenues 48.7% 50.9% 11.5% 10.5% 10.0% Total operating revenues 54,466 82,196 91,658 101,311 111,403 Costs 24.3% 39.9% 18.0% 16.0% 15.0% Pre-Provision Profits 81.9% 61.1% 6.3% 5.6% 5.0% Operating costs (26,187) (36,645) (43,241) (50,160) (57,684) Loan Loss Provisions 10.7% 57.9% 21.1% 39.4% 17.0% Pre-Prov. Profits 28,279 45,551 48,416 51,152 53,720 Pre-Tax 46.8% 61.8% 3.0% (3.3%) 0.4% Provisions (5,303) (8,376) (10,141) (14,140) (16,543) Attributable Income 45.2% 58.8% 1.4% (3.3%) 0.4% Other Inc 0 0 0 0 0 EPS 28.3% 58.8% (1.6%) (6.1%) 0.4% Other Exp. - DPS 140.1% 199.9% (5.1%) (1.6%) (1.3%) Exceptionals 0 0 0 0 0 Associate 0 0 0 0 0 Balance Sheet Gearing FY10 FY11 FY12E FY13E FY14E Pre-tax 22,976 37,175 38,276 37,012 37,177 Loan/deposit 73.2% 71.6% 71.8% 72.5% 72.1% Tax (5,288) (8,732) (9,952) (9,623) (9,666) Investment/assets 10.4% 9.7% 10.8% 11.9% 11.9% Minorities (107) (523) (10) (10) (10) Loan/Assets 59.7% 55.8% 53.7% 53.3% 52.7% Attributable Income 17,581 27,920 28,314 27,379 27,501 Customer deposits/liab. 82.5% 78.5% 77.4% 75.9% 74.5% LT debt/liabilities 1.5% 1.4% 1.5% 1.5% 1.6% Per Share Data CNY FY10 FY11 FY12E FY13E FY14E Asset Quality/Capital FY10 FY11 FY12E FY13E FY14E EPS 0.66 1.05 1.03 0.97 0.97 Loan loss reserves/loans (1.9%) (2.2%) (2.6%) (3.1%) (3.6%) DPS 0.10 0.30 0.28 0.28 0.28 NPLs/loans 0.8% 0.7% 0.8% 1.1% 1.4% Payout 15.2% 28.7% 27.7% 29.0% 28.5% Loan loss reserves/NPLs 238.1% 314.5% 307.7% 259.9% 231.0% Book value 3.90 4.85 5.60 6.28 6.97 Growth in NPLs (0.8%) 2.7% 71.1% 49.3% 46.8% Fully Diluted Shares 26,714 26,714 27,539 28,364 28,364 Tier 1 Ratio 8.1% 7.9% 8.5% 8.5% 8.4% PPOP per share 1.06 1.71 1.76 1.80 1.89 Total CAR 10.5% 10.9% 11.3% 11.4% 11.3% Key Balance sheet Rmb in millions FY10 FY11 FY12E FY13E FY14E Du-Pont Analysis FY10 FY11 FY12E FY13E FY14E Net Loans 1,037,723 1,178,285 1,335,589 1,502,237 1,673,683 NIM (as % of avg. assets) 2.9% 3.3% 3.1% 3.0% 2.9% LLR (19,848) (26,936) (35,952) (47,605) (62,140) Earning assets/assets 95.9% 101.8% 99.8% 100.0% 100.3% Gross Loans 1,057,571 1,205,221 1,371,541 1,549,842 1,735,823 Margins (as % of Avg. Assets) 2.8% 3.4% 3.1% 3.0% 2.9% NPLs 7,339 7,539 12,898 19,253 28,263 Non-Int. Rev./ Revenues 15.8% 21.1% 21.7% 22.6% 23.3% Investments 181,419 212,072 305,847 344,170 395,070 Non IR/Avg. Assets 0.5% 0.9% 0.8% 0.8% 0.8% Other earning assets 54,104 84,828 93,311 102,642 112,906 Revenue/Assets 3.4% 4.1% 3.8% 3.7% 3.6% Avg. IEA 1,558,093 2,062,831 2,391,507 2,738,974 3,124,358 Cost/Income 48.1% 44.6% 47.2% 49.5% 51.8% Goodwill 0 0 0 0 0 Cost/Assets 1.6% 1.8% 1.8% 1.8% 1.9% Assets 1,823,737 2,229,064 2,565,153 2,911,649 3,317,944 Pre-Provision ROA 1.7% 2.2% 2.0% 1.9% 1.7% LLP/Loans (0.5%) (0.7%) (0.8%) (1.0%) (1.0%) Deposits 1,416,939 1,644,738 1,859,027 2,072,608 2,321,321 Loan/Assets 59.7% 55.8% 53.7% 53.3% 52.7% Long-term bond funding 21,496 31,030 35,685 42,821 51,386 Other Prov, Income/ Assets 0.0% 0.0% 0.0% 0.0% 0.0% Other Borrowings 5,911 15,753 0 0 0 Operating ROA 1.4% 1.8% 1.6% 1.4% 1.2% Avg. IBL 1,503,350 1,869,506 2,196,772 2,502,136 2,847,971 Pre-Tax ROA 1.4% 1.8% 1.6% 1.4% 1.2% Avg. Assets 1,625,065 2,026,401 2,397,108 2,738,401 3,114,797 Tax rate 23.0% 23.5% 26.0% 26.0% 26.0% Common Equity 104,108 129,597 158,824 178,133 197,691 Minorities & Outside Distbn. 0.1% 0.1% 0.2% 0.2% 0.1% RWA 1,280,847 1,602,301 1,834,084 2,052,713 2,322,561 ROA 1.1% 1.4% 1.2% 1.0% 0.9% Avg. RWA 1,137,310 1,441,574 1,718,193 1,943,398 2,187,637 RORWA 1.5% 1.9% 1.6% 1.4% 1.3% Equity/Assets 5.9% 5.8% 6.0% 6.2% 6.0% ROE 18.3% 23.9% 19.6% 16.3% 14.6% Source: Company reports and J.P. Morgan estimates.
453
Underweight
Price: HK$11.76 Price Target: HK$12.00
Abs Rel
1m 5.9% 6.4%
3m 2.3% -11.2%
Source: Bloomberg.
Company Data Shares O/S (mn) Market cap (Rmb mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3-mth trading volume (mn) 3-mth trading value (HK$ mn) 3-mth trading value ($ mn) MSCICNX-HLTH Exchange Rate Fiscal Year End
454
FY11 FY12E FY13E FY14E 2,515 2,706 2,767 3,157 264 265 299 339 187 188 212 240 87 116 398 399 3,052 3,276 3,676 4,135 166 1,127 4,427 0 163 506 669 0 0 669 3,758 4.54 169 1,423 4,942 0 164 512 677 0 0 677 4,266 5.16 172 1,617 5,532 0 185 519 704 0 0 704 4,827 5.84
FY11 FY12E FY13E FY14E 65.6% 63.0% 62.7% 62.5% 51.1% 50.3% 50.1% 49.6% 44.5% 41.6% 40.9% 40.3% 38.1% 36.3% 35.6% 35.9% 12.8% 12.8% 10.7% 10.7% 13.3% 13.3% 14.4% 14.4% -
Sales per share growth 176 Sales growth 1,835 Net profit growth 6,205 EPS growth Interest coverage (x) 0 210 Net debt to equity 526 Working Capital to Sales 736 Sales/assets 0 Assets/equity 0 ROE 736 ROCE 5,469 6.61
24.8% (2.6%) 0.6% 24.8% (2.6%) 0.6% 7.1% -8.0% -4.1% 7.1% (8.0%) (4.1%) -
-72.7% -66.9% -63.4% -57.3% -57.7% 14.5% 14.5% 14.5% 14.5% 14.5% 0.56 0.47 0.43 0.43 0.43 1.20 1.18 1.16 1.15 1.13 27.6% 21.6% 18.1% 17.6% 17.8% 31.7% 25.3% 20.7% 20.3% 20.0%
455
CSN
www.csn.com.br
Underweight
Price: $4.91 Price Target: $5.00 End Date: Dec 2013
Company overview CSN is an integrated flat steel producer (third largest) and an iron ore miner (largest in Brazil after Vale) in Brazil with crude and rolled steel capacity of 5.6Mt and 5.1Mt, respectively, and iron ore capacity of ~28Mtpy. The company is investing to increase iron ore capacity to 83Mtpy by 2016 and is also investing in railroad, cement, and long steel in Brazil. Investment case Among industry-specific drivers, continued overcapacity in steel and intensifying competition in Brazil should keep pricing power weak, while the iron ore outlook is less bullish given overall weaker demand. Among company-specific drivers, continued investment in non-core assets, lack of investment in core assets, delays in execution, as well as potential acquisition of CSA could be negative catalysts. Key attractions in an anemic growth environment Shares seem to be pricing in a somewhat improving scenario for the company both on steel (prices) as well as iron ore (prices and volumes). However, we believe the current state of steel overcapacity and intensifying competition in Brazil is unlikely to allow any room for price increases. On iron ore, we believe the ramp-up of the iron ore expansion is too optimistic. Earnings risks in 2013 We see downside risks to sell-side consensus estimates as we believe the expectations for iron ore prices and volumes ramp-up as well as for steel prices in Brazil are too optimistic and have to be adjusted downwards. Price target, and risks to our investment view We base our UW rating and Dec 2013 PT of $5.0 on a combination of DCF (80%) and multiple analysis (20%). In our DCF we use a 10.4% discount rate composed of a cost of equity of 12.8% and an after-tax cost of debt of 5.9%. For multiples analysis we use a target EV/EBITDA of 6.0x, a premium to the fair industry multiple of 5.0x given the companys growing iron ore exposure, on 2013E EBITDA. Our WACC calculation assumes an additional 75-bp equity risk premium to account for CSNs appetite for new and unrelated businesses. Key upside risks are better than expected demand from China, weaker than expected BRL, benign competition in the domestic market, and further import tariff hikes for steel products into Brazil, among others.
Companhia Siderrgica Nacional - ADR (SID;SID US) FYE Dec 2011A EPS - Recurring (R$) FY 2.38 Revenues FY (R$ mn) 16,520 EBITDA FY (R$ mn) 6,468 Bloomberg EBITDA FY (R$ mn) EV/EBITDA FY 3.9 P/E (USD) FY 3.7
Source: Bloomberg.
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.
Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date
456
FY11A
FY12E
17,780 20,450 21,543 (11,580) (12,985) (13,856) (1,387) (1,543) (1,646) (1,399) (1,694) (2,007) 4,814 5,922 6,041 27.1% 29.0% 28.0% 257 151 71 (2,249) (2,277) (2,412) 68 (161) (213) 0 0 0 0 0 0 951 1,347 882 (323) (345) (179) 0 0 0 0 0 0 628 1,002 703 628 1,002 703 3.5% 4.9% 3.3% 0.43 0.69 0.48 0.43 0.69 0.48 8.7% 15.0% 5.3% 15.3% 23.0% 2.0% (171.5%) 59.7% (29.9%) 94.3% (19.7%) (119.8%) 6,218 248 (3,248) 800 127.5% 4.4 35.0% 4,299 24.2% 5,781 1,822 2,003 833 2.6% (1.1%) 3.3% 12.4% 6,218 6,218
FY13E
FY14E
FY15E
Balance Sheet
Cash Accounts receivable Inventories Other current assets Total Current Assets Net PP&E Other assets Total assets
Short-term debt
FY11A
Accounts payable Other current liabilities Total Current Liabilities Long-term debt Deferred taxes Other liabilities Total liabilities Minority Interests Shareholders' equity Liabilities + Equity Net debt Net Debt/Capital Debt/Capital Net Debt/EBITDA
15,417 1,615 3,735 1,177 21,944 17,377 7,548 46,870 2,702 1,232 2,563 6,497 25,187 38 6,731 38,453 431 7,986 46,870 12,471 34.8% 77.7% 1.9
FY12E
11,955 1,847 3,950 1,087 18,839 21,056 7,359 47,253 2,438 1,623 1,698 5,759 26,935 162 6,448 39,304 417 7,532 47,253 17,418 47.2% 79.6% 4.2
FY13E
7,215 2,007 4,188 1,181 14,591 25,875 7,997 48,462 2,515 1,721 1,845 6,081 27,791 162 6,652 40,686 417 7,360 48,462 23,091 61.3% 80.5% 4.8
FY14E FY15E
3,697 2,308 4,697 1,358 12,061 30,661 9,197 51,919 2,646 1,929 2,122 6,697 29,230 162 7,650 43,740 417 7,762 51,919
3,801 2,432 5,012 1,431 12,675 32,604 9,689 54,968 2,866 2,059 2,236 7,160 31,662 162 8,059 47,044 417 7,507 54,968 30,727 73.1% 82.1% 5.1 7.9 22.2 1.1 6,774 6.2% 6.1% 9.4% 3.3% 39.2% 7.3 6.5% 1,458 1,458
FY11A
4,391 412 1,480 1,856 53.6% 4.7 26.6% 3,232 19.6% 4,895 1,935 1,820 1,321
4,187 819 (1,672) 1,200 (136.7%) 3.6 25.6% 4,052 24.8% 5,632 1,842 1,939 741 15.1% (4.8%) 6.6% (43.9%) 4,187 4,187
FY12E
FY13E
FY14E
6,480 523 (2,608) 600 59.9% 3.8 31.7% 4,823 23.6% 5,802 1,824 2,238 1,021 0.4% 0.1% 11.7% 22.6% 6,480 6,480
3,950 242 516 958 136.3% 2.0 18.3% 5,064 23.5% 5,826 1,842 2,378 1,037 0.4% 1.0% 6.3% 1.6% 3,950 3,950
FY15E
Valuation, Macro
EV/EBITDA P/E P/BV EV/tonne FCF yield Dividend yield ROE Net income margin Net revenue/Assets Assets/Equity ROIC Shares ADRs WACC Perpetual Growth Cost of equity Cost of debt
FY11A
3.9 8.0 8.3 7.5 3.7 NM 24.0 15.2 1.0 1.1 1.1 1.1 4,337 4,645 5,507 6,364 17.8% (20.1%) (39.0%) (31.3%) 11.8% 7.6% 5.1% 3.8% 43.4% (11.6%) 8.5% 12.9% 21.0% (5.4%) 3.5% 4.9% 35.2% 34.6% 36.7% 39.4% 5.9 6.3 6.6 6.7 12.9% 6.1% 5.9% 7.2% 1,458 1,458 1,458 1,458 1,458 1,458 1,458 1,458
FY12E
FY13E
FY14E FY15E
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data). Fiscal year ends Dec
457
Discovery
www.discovery.co.za
Company overview DSY is predominantly a health administrator and niche life insurer in SA. It is investing heavily into new ventures overseas, new life business in SA and into Insure (short-term insurance). In our view, its cash flows are stretched thin and its attention divided by the many simultaneous growth ventures. We do not like the aggressive earnings (e.g. profit taken at point-of-sale on uncertain distant prospects in UK) and EV accounting that we believe leave little scope for upside surprises and expose DSY to anticipated IFRS and EV reporting changes. Investment case DSY's complex interdependent products sold to the affluent SA client base through brokers expose it to regulatory changes (like Treating Customers Fairly), brand risk and economic conditions. Its aggressive accounting and discounting of distant future profits expose it to interest rate increases and IFRS changes. We do not believe the UK Health and Life ventures will generate excess returns on the large investments made. We expect ongoing CMA (regulatory/competition body) and public pressure for lower medical aid administration fees to reduce the high margins here. Key issues in an anemic growth environment While the defensive health administration business should see resilient revenues, the lower growth in membership and in Life premiums could lead to cost overruns or further margin reduction. We expect an intensification of competition for pure risk business, DSY's mainstay, as we saw in FY12 when APE volumes reduced 4% at DSY. Earnings risks in 2013 We see downside risk to consensus expectations from DSYs aggressive Life earnings accounting, especially in the UK business. DSY was 6% below consensus for 1H12 and 12% below for 2H12. Our expectations are again well below consensus. Price target, and risks to our investment view Valuation: We value each separate part of DSY on a SOTP CAPM-DCF basis. For our target price, we unwind our valuation to the target price date at the discount rate. Upside Risks to our Underweight recommendation come from lower interest rates and its China venture.
Discovery Holdings Limited (DSYJ.J;DSY SJ) FYE Jun 2011A Adj. EPS FY (c) 410.97 Adj P/E FY 13.5 Headline EPS FY (c) 365.46 Dividend (Net) FY (c) 90.00 NAV FY (R mn) 3,993 Embedded value FY (R 28,295 mn) Operating profit FY (R mn) 2,838 Bloomberg EPS FY (c) 371.30
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: 5,546c Price Target: 5,100c
(27-11) 507 0378 francois.x.dutoit@jpmorgan.com Bloomberg JPMA FTOIT<GO> J.P. Morgan Equities Limited
P r ic e P e r fo r m a n c e
6,000 5,500 c 5,000 4,500 4,000
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 24.9%
1m -0.0%
3m -2.6%
12m 31.9%
Source: Bloomberg.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn) Free Float
458
90.00 103.50 115.00 125.00 30.4% 15.0% 11.1% 8.7% 675.4 824.7 941.0 1,069.2 4,785.7 5,377.7 5,994.0 6,605.6 61.6% 62.7% 58.2% 55.4% 61.6% 62.7% 58.2% 55.4% 16.6% 10.7% 12.2% 11.2%
Ratio Analysis R in millions, year end Jun Key Ratios Debt to NAV ratio Value of New Business to EV Life Op'g margin on Assets AM Cost income ratio Life as % of Embedded Value Non Life as % of Embedded Value Banking as % of Embedded Value Asset Management as % of Embedded Value Debt as % of Embedded Value Other as % of Embedded Value
41.6% 42.9% 44.5% 51.8% 40.4% 36.2% 34.1% 31.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18.0% 21.0% 21.5% 16.3%
459
Dongbu Insurance
www.idongbu.com
Company overview Dongbu Insurance is the third-largest non-life insurer in Korea, with market share of 15.4% (as of 1Q12). Its business consists of LT (66.3%), auto (25.3%) and general (8.4%) insurance products. Investment case Dongbu has aggressively increased its market share in the auto line for the past two years, and sold the most single lump-sum savings-type products during FY11, which pushed up the long-term loss ratio due to high competition. Its business is largely dependent on private health insurance in the long-term line, and we are concerned about possible volume/margin contraction in the long-term line after the mandatory cheap private health insurance offering starts in Jan-13. Key issues in an anemic growth environment Due to faster-than-expected loss ratio increase in the long-term line and competitors improved expense ratio backed by their economies of scale, Dongbus competitive edge seems to have blurred. We are concerned about its risky asset allocation and investment income structure being less dependent on interest-bearing assets. Earnings risks in 2013 Due to wider-than-expected underwriting loss and unsustainable investments marked by the higher investment return from the AFS bond sales, we believe that Dongbus FY12/13 earnings growth will be much lower than consensus estimates. Price target, and risks to our investment view Our Dec-13 PT of W41,000 is at a 20% discount to the implied FY13E P/BV of 1.0x based on our SOTP targets of -0.4x FY13E P/BV for the non-life business and 1.0x FY13E P/EV for the life business. We apply a 20% discount to reflect its high NBV/earnings pressure. Key risks: (1) better-than-expected equity market performance; (2) alleviated regulatory control in private health insurance; and (3) milder-than-expected auto loss ratio worsening from 2013 onwards.
Dongbu Insurance (Reuters: 005830.KS, Bloomberg: 005830 KS) W in bn, year-end Mar FY11A FY12E Direct Premium Written (W bn) 8,368 9,610 DPW growth (%) 30.3% 14.8% Net Profit (W bn) 403 453 EPS (W) 5,694 6,391 EPS growth 41.7% 12.2% BVPS (W) 31,139 36,399 DPS (W) 1,200 1,250 P/E (x) 8.7 7.7 P/BV (x) 1.6 1.4 ROE (%) 20.4% 18.9% Dividend Yield 2.4% 2.5%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: W49,500 Price Target: W41,000
Abs Rel
1m 3.4% 7.3%
3m 22.7% 20.1%
Source: Bloomberg.
FY13E 10,757 11.9% 446 6,299 -1.4% 42,369 1,400 7.9 1.2 16.0% 2.8%
FY14E 12,124 12.7% 524 7,404 17.5% 49,362 1,500 6.7 1.0 16.1% 3.0%
Company Data 52-week Range (W) Market cap (W bn) Market cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily Value (W bn) 3M Avg daily Value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
54,000 - 38,550 3,505 3,211 71 Mar 49,500 02 Nov 12 62.0% 6.60 5.89 0 1,919 1,091.50
460
ROE decomposition FY14E ROA 85.5% Equity multiplier 65.0% ROE 86.8% 83.6% 17.1% 102.6% 4.1% FY14E 7,404 17.5% 49,362 1,500 20.3%
461
Underweight
Price: HK$9.73 Price Target: HK$7.50
Abs Rel
1m 9.3% 2.3%
3m -16.8% -23.5%
Source: Bloomberg.
FY13E 141,343 12,301 8,942 1.04 0.18 6.3% 2.3% 15.6% 7.6 1.1 2.3%
FY14E 148,032 13,106 9,484 1.10 0.16 4.7% 6.1% 14.6% 7.1 1.0 2.0%
Company Data 52-week Range (HK$) 15.80 - 8.54 Shares O/S (mn) 8,616 Market Cap (HK$ mn) 76,941 Market Cap (US) ($ mn) 9,927 Price (HK$) 9.73 Date Of Price 08 Nov 12 Free float (%) 33.0% 3mth Avg daily volume 28 Average 3m Daily Turnover (US) ($ mn) 33.30 HSCEI 10,813 Exchange rate (HK$/US$) 7.75
462
Cash flow statement FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 122,395 131,441 132,905 141,343 148,032 Profit before tax 33.4% 7.4% 1.1% 6.3% 4.7% Depreciation & amortization 26,362 26,390 25,708 27,037 28,302 Change in working capital 50.8% 0.1% -2.6% 5.2% 4.7% Others 21.5% 20.1% 19.3% 19.1% 19.1% Cash flow from operations 14,516 14,384 12,094 12,422 13,297 71.6% -0.9% -15.9% 2.7% 7.0% Purchase of fixed assets 11.9% 10.9% 9.1% 8.8% 9.0% Others -229 -402 -453 -416 -328 Cash flow from investment 14,583 14,361 11,996 12,261 13,174 73.4% -1.5% -16.5% 2.2% 7.4% 3,006 3,401 2,879 2,943 3,294 Equity raised/(repaid) 20.6% 23.7% 24.0% 24.0% 25.0% Debt raised/(repaid) 10,981 10,481 8,740 8,942 9,484 Other 75.7% -4.6% -16.6% 2.3% 6.1% Dividends paid 9.0% 8.0% 6.6% 6.3% 6.4% Cash flow from financing 8,616 8,616 8,616 8,616 8,616 Beginning cash 1.27 1.22 1.01 1.04 1.10 Ending cash 75.7% (4.6%) (16.6%) 2.3% 6.1% Ratio Analysis FY10 FY11 FY12E FY13E FY14E year end Dec 42,950 44,747 53,115 56,791 61,527 Gross margin 19,492 21,052 20,498 21,799 22,831 Operating margin 13,935 12,511 13,216 14,093 14,761 Net margin 4,660 5,706 10,454 11,502 13,530 82,337 84,016 97,283 104,184 112,649 1,394 1,832 1,832 1,842 1,852 Sales growth 18,551 21,578 25,449 29,217 32,069 Net profit growth 4,319 5,421 5,421 5,421 5,421 Gross profit growth 110,622 117,533 134,671 145,350 156,677 Operating profit growth 3,271 5,993 11,337 10,207 9,077 ROE 35,787 34,584 36,610 38,877 41,040 23,598 24,138 27,131 29,124 31,117 62,656 64,715 75,078 78,208 81,234 6,289 2,820 2,256 2,256 2,256 341 414 414 422 430 6,630 3,234 2,670 2,678 2,686 69,286 67,949 77,748 80,886 83,920 37,494 46,394 53,583 60,974 69,117 3,842 3,190 3,340 3,490 3,640
FY10 FY11 FY12E FY13E 14,583 14,361 11,996 12,261 3,985 3,114 1,129 1,232 3,980 -710 679 610 -4,645 -7,549 -2,636 -2,690 17,903 9,216 11,168 11,413
-3,927 -6,072 -5,000 -5,000 -4,000 -2,151 5,537 0 0 0 -6,078 -535 -5,000 -5,000 -4,000 0 -2,500 93 -898 -3,305 17,369 25,889 0 -701 156 -2,644 -3,189 25,889 31,381 0 -564 500 -1,733 -1,797 31,381 35,752 0 0 -1,000 -1,737 -2,737 35,752 39,428 0 0 -1,000 -1,539 -2,539 39,428 44,164
FY10 FY11 FY12E FY13E FY14E 21.5% 20.1% 19.3% 19.1% 19.1% 11.9% 10.9% 9.1% 8.8% 9.0% 9.0% 8.0% 6.6% 6.3% 6.4% 33.4% 7.4% 1.1% 6.3% 4.7% 75.7% -4.6% -16.6% 2.3% 6.1% 50.8% 0.1% -2.6% 5.2% 4.7% 71.6% -0.9% -15.9% 2.7% 7.0% 33.9% 25.0% 17.5% 15.6% 14.6%
463
Underweight
Price: NT$22.15 Price Target: NT$20.00
Abs Rel
1m -33.9% -29.0%
3m -31.0% -29.9%
Source: Bloomberg.
FY11 FY12E FY13E FY14E 38.4 25.1 33.4 34.6 7.0 -2.6 -0.4 -0.5 9.3 -0.6 1.8 1.9 6.5 -1.7 0.3 0.1 6.1 -1.6 0.3 0.1 26.1 21.2 21.5 21.5 3.7 NM 86.0 215.4 0.8 1.0 1.0 1.0 24.8 -6.7 1.2 0.5 4.6 8.8 9.6 10.2
Sales growth OP growth NP growth Quarterly EPS (NT$) EPS (11) EPS (12) E EPS (13) E Difference (%) Price Target Consensus PT
FY11 FY12E FY13E 52.6% (34.7%) 33.0% 61.7% -137.0% -85.5% 62.0% -126.1% -116.3% 1Q 2Q 3Q 1.6 1.2 2.1 -0.7 -0.8 -0.2 0.1 -0.0 0.0 -37.5 20 32
Date of Price 52-Week range Market Cap Market Cap Share Out. (Com) Free float Avg daily val Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
08 Nov 12 NT$67.50 - 23.30 NT$24B US$819MM 1,080MM 65.0% NT$0.2B 8.38MM 7.9MM shares 0.0 29.21
464
Profit and Loss Statement Ratio Analysis NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec Revenues 25,179 38,428 25,090 33,378 34,628 Gross margin Cost of goods sold -17,000 -26,401 -23,642 -29,736 -31,007 EBITDA margin Gross Profit 8,179 12,028 1,448 3,643 3,621 Operating margin R&D expenses -1,571 -1,762 -1,662 -1,669 -1,731 Net margin SG&A expenses -2,276 -3,260 -2,375 -2,336 -2,424 R&D/sales Operating profit (EBIT) 4,332 7,005 -2,595 -375 -540 SG&A/Sales EBITDA 6,726 9,268 -575 1,776 1,915 Interest income 16 44 181 153 147 Sales growth Interest expense -295 -201 -190 -254 -315 Operating profit growth Investment income (Exp.) -279 -156 -9 -101 -168 Net profit growth Non-operating income (Exp.) 510 -114 738 668 657 EPS (reported) growth Earnings before tax 4,843 6,891 -1,856 293 117 Tax 929 560 101 15 6 Interest coverage (x) Net income (reported) 4,028.0 6,526.8 -1,701.9 278.3 111.1 Net debt to total capital Net income (adjusted) 4,028 6,527 -1,702 278 111 Net debt to equity EPS (reported) 3.81 6.05 (1.58) 0.26 0.10 Asset turnover EPS (adjusted) 3.81 6.05 -1.58 0.26 0.10 Working capital turns (x) BVPS 22.64 26.10 21.24 21.50 21.49 ROE DPS 0.00 2.66 0.00 0.00 0.11 ROIC Shares outstanding 1,078 1,080 1,081 1,081 1,081 ROIC (net of cash) Balance sheet Cash flow statement NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec Cash and cash equivalents 5,767 4,374 4,234 3,323 2,623 Net income Accounts receivable 3,487 9,483 6,995 7,208 7,409 Depr. & amortization Inventories 6,565 5,773 8,822 9,542 9,762 Change in working capital Others 1,853 1,449 1,869 2,118 2,199 Other Current assets 17,672 21,079 21,920 22,192 21,993 Cash flow from operations LT investments 3,889 5,576 5,874 5,885 5,895 Capex Net fixed assets 31,466 32,062 32,934 34,934 36,934 Disposal/(purchase) Others 10,155 10,241 9,615 9,615 9,615 Cash flow from investing Total Assets 40,762 46,184 46,192 47,072 47,283 Free cash flow Liabilities Equity raised/(repaid) ST Loans 6,115 939 3,294 3,402 3,461 Debt raised/(repaid) Payables 5,056 5,563 5,298 5,277 5,404 Other Others 2,731 2,470 3,721 4,447 4,647 Dividends paid Total current liabilities 13,902 8,973 12,313 13,126 13,512 Cash flow from financing Long-term debt 1,585 8,027 9,776 9,527 9,344 Other liabilities 880 995 1,147 1,185 1,205 Net change in cash Total Liabilities 16,367 17,995 23,236 23,838 24,061 Beginning cash Shareholders' equity 24,395 28,189 22,956 23,234 23,222 Ending cash Source: Company reports and J.P. Morgan estimates.
FY10 32.5% 26.7% 17.2% 16.0% 6.2% 9.0% 56.7% -406.1% -457.2% (367.7%) 24.11 6.1% 7.9% 0.66 19.91 17.8% 11.9% 13.4% FY10 4,028.0 2,394 318 450 6,625 -1,325 -1,276 5,300 0 -1,908 -493 0 -2,401
FY13E FY14E 10.9% 10.5% 5.3% 5.5% (1.1%) (1.6%) 0.8% 0.3% 5.0% 5.0% 7.0% 7.0%
52.6% (34.7%) 33.0% 3.7% 61.7% -137.0% -85.5% 44.0% 62.0% -126.1% -116.3% -60.1% 58.7% (126.0%) (116.3%) (60.1%) 59.22 13.3% 16.3% 0.88 4.84 24.8% 18.2% 20.7% 66.69 24.1% 38.5% 0.54 2.31 (6.7%) -5.6% -6.1% 17.57 26.6% 41.3% 0.72 3.58 1.2% -0.3% -0.3% 11.40 28.2% 43.8% 0.73 3.95 0.5% -0.9% -0.9%
FY11 FY12E 6,526.8 -1,701.9 2,263 2,020 -4,554 5 143 831 4,039 67 -2,661 -1,345 -4,278 -1,186 1,378 -1,278 0 0 1,382 4,255 331 -3,277 -2,868 0 -1,155 978 -140 4,374 4,234
FY13E FY14E 278.3 111.1 2,151 2,455 -478 -174 477 120 1,952 2,392 -2,000 -2,000 -2,760 -2,865 -48 392 0 0 -103 -104 -0 -0 0 -123 -103 -227 -911 4,234 3,323 -700 3,323 2,623
465
Ecopetrol
www.ecopetrol.com.co
Underweight
Price: $56.46 Price Target: $52.00 End Date: Dec 2013
Company overview Ecopetrol is Colombias national oil company, producing ~762kboed (in 3Q12) with proved reserves of 1.9bn boe (YE12). The company has a market cap of $119bn with shares listed in both Colombia and the NYSE. In 2007 the company listed 10.1% of its shares in the first round of share issuance, while in 2011 it proceeded with an additional local share listing of 1.67% of outstanding shares. The company intends to promote another two supplementary share offer rounds that could result in additional dilution to current shareholders, but the timing for the offerings is uncertain. Investment case We believe the combination of deterioration in the security environment and the persistent delays in environmental concession processes are likely to impair the companys capacity to deliver significant production growth in the short to mid term. In this sense, we estimate consolidated production of 781kboed in 2013, up 3% y/y and close to the companys 2012 output target of 780kboed. Moreover, Ecopetrol trades at non-compelling multiples of 10.5x P/E and 9.5x EV/DACF for 2013E compared to Petrobras trading at 6.5x P/E and 5.8x EV/DACF for the same year. Key attractions in an anemic growth environment In our view, substantial production growth and solid results over the last few years resulted in Ecopetrol shares outperforming and a premium vs. its peers. However, with a production slowdown we believe the appeal of EC shares has decreased, and the company should no longer trade at a premium. Earnings risks in 2013 ECs main earnings risks are (1) oil prices decrease below JPMs Global Commodities Research estimate of $113/bbl for 2013; (2) disappointing production numbers impacted by delays in environmental licensing process and/or pipeline securities issues. Price target, and risks to our investment view Our Dec 2013 price target of $52 is based on a sum of-the-parts NAV model, valuing the largest portion of the portfolio, the E&P assets, with a reserve depletion model based on the existing proved reserves. We assume a production schedule that is lower than the companys target of 1.3mn boed by 2020.
Ecopetrol ADR (EC;EC US) FYE Dec EBITDA ($ mn) FY EV/EBITDA FY P/E FY ROE FY ROCE FY FV/EBITDA FY EPS Reported FY ($) Bloomberg EBITDA FY ($ mn) Bloomberg EPS FY ($)
Source: Bloomberg.
Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.
466
Source: Company reports and J.P. Morgan estimates. Note: $ in billions (except per-share data).Fiscal year ends Dec
FY11A FY12E FY13E FY14E Cash Flow Statement 35,570 37,926 40,827 - EBIT 60.4% 6.6% 7.6% - Depreciation - Working Capital changes - Taxes - CFO - Capex 16,267 17,667 19,907 - FCFF 93.7% 1.3% 10.8% - Net Interest Expense 48.0% 49.0% 50.8% - FCFE 12,792 13,669 16,177 - Equity raised/ (repaid) 96.0% 7.0% 15.4% - Debt raised/ (repaid) 41.0% 41.0% 43.4% - Dividends (496) (188) (176) - Other 12,792 13,669 16,177 101.2% 6.9% 18.3% - Change in cash (4,303) (4,727) (4,853) - Beginning cash 8,365 8,708 11,046 - Ending cash 82.2% 4.1% 26.9% 2,056 2,056 2,056 - DACF 4.10 4.24 5.37 - DPS,$/share FY11A FY12E FY13E FY14E Operating Data & Ratio Analysis 3,397 3,212 2,780 2,391 2,884 3,217 - Reserves (SEC), mn boe - Production,kboed 3,242 4,738 5,285 % change YoY 9,821 11,182 11,630 Liquids, kbd Gas, mcmd 22,494 24,431 33,098 - Prices 37,987 26,497 35,901 - Brent, US$/bbl - as per JPM 15,493 2,066 2,803 Dom. Realization price,US$/bbl 47,602 35,989 39,111 Discount to brent - Ratios 2,257 6,656 4,865 - SG&A/revenues, % - Interest Coverage 5,869 1,786 1,786 - Net Debt (incl.pension liab) 8,126 8,442 6,651 - Net Debt to Total Capital, % 4,111 5,585 5,585 - Net Debt to Equity, % 5,991 5,585 5,585 - Net debt to EBITDA, (x) 10,102 11,170 11,170 - Capex/Depreciation, (x) 18,228 19,612 17,821 - Net Margin 0 0 0 - Revenues/Assets, (x) 31,612 17,755 22,667 - Assets/Equity, (x) 47602.47 35988.92 39110.67 - ROE (%) ROCE (%) - Div. Yield (%) FCF Yield (%)
FY11A FY12E FY13E FY14E 12,792 13,669 16,177 2,494 3,040 3,032 1,091 (3,344) (2,671) 2,678 (4,423) (4,853) 12,625 9,513 12,484 (10,005) (6,354) (7,152) 2,620 3,159 5,332 (496.42) (188.47) (175.86) 2123.51 2970.71 5155.95 1,177 0 0 (53) 1,293 0 (3,212) (4,941) (5,764) 1,443 1,954 3,397 13,288 2 FY11A 2,310 722 17.2% 613.98 605 110.98 92.53 (16.62%) 3.3% 32.8 3.4% 2.3% 0.3 4.0 23.5% 0.7 1.5 31.4% 30.8% 2.8% (184) 3,397 3,212 9,767 2 FY12E 2,372 756 4.7% 636.45 669 110.59 101.69 (8.05%) 3.2% 93.7 13.1% 13.4% 0.3 2.1 23.0% 1.1 2.0 35.3% 32.0% 4.3% (432) 3,212 2,780 12,713 3 -
FY13E FY14E 2,390 781 3.4% 657.94 693 113.00 104.23 (7.76%) 3.4% 113.2 12.1% 12.4% 0.3 2.4 27.1% 1.0 1.7 54.7% 45.7% 5.0% -
467
Eletrobras
www.eletrobras.com
Company overview Eletrobras is the largest power generation and transmission company in Brazil, with 39.4GW of installed generation capacity representing ~40% of the countrys energy production and 37.4 miles of transmission lines representing 56% of Brazils high voltage lines. The company has its capital split between voting (80% of total capital) and non-voting preferred shares (20%). The federal government owns ~80% of Eletrobras voting shares and 17% of its non-voting shares and effectively exercises full control over the companys business plans and execution. Key drivers of performance in this equity market recovery Eletrobras is significantly affected by the recently announce MP579. MP579 proposes that companies accelerate the termination of their current concession contracts to Jan 2013 from 2015-2017 and receive a new 20-year concession with tariffs ~70% lower than the original concession contracts. We think that MP579, which affects ~65% of Eletrobras EBITDA, has a net negative effect on the value of the companies affected, and thus we expect companies to reject the proposal and carry on with the original concession contract until their expiration date. However, we think that Eletrobras role as a government-owned and controlled enterprise will prevail, and the company will likely accept the amendments proposed by MP579. How much recovery has already been priced in, what are the key metrics? Eletrobras two share classes, ELET3 (common) and ELET6 (preferred) have lost 43.8% and 44.0% ytd compared to the -6.8% performance for the utilities index. Nevertheless, we think that as the company moves into negative fcf as a result of MP579, this underperformance will continue well into 2013. Wheres the earnings risk for 2013? We think that the companys earnings erosion from MP579 will become evident as soon as 1Q13 when the government will announce the allocation of energy produced by the expired concessions. Price target and key recovery risks Our R$10 and R$13 Dec 2013 target prices for ELET3 and ELET6 are based on 7.8% discount rates (WACC) and the assumption that the company (1) does not cut into its bloated cost structure and (2) accepts MP579 as is.
ELETROBRAS (ON) (ELET3.SA;ELET3 BZ) FYE Dec EPS Reported (R$) FY
Source: Company data, Bloomberg, J.P. Morgan estimates.
Price: xx Price: R$9.48 Price Target: Price Target: R$10 xxxxxx End Date: Dec End Date: Dec 2013
Price: xx Price: R$13.11 Price Target: Price Target: R$13 xxxxxx End Date: Dec 2013 End Date: Dec
ELTROBRAS (ON)
P r ic e P e r fo r m a n c e
20 16 R$ 12 8
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Source: Bloomberg.
ELTROBRAS (PN)
P r ic e P e r fo r m a n c e
28 24 R$ 20 16 12
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Source: Bloomberg.
2012E 4.27
2013E 0.26
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
ELETROBRAS (PN) (ELET6.SA;ELET6 BZ) FYE Dec 2009A EPS Reported (R$) FY 0.80
Source: Company data, Bloomberg, J.P. Morgan estimates.
2010A 1.99
2011A 3.30
2012E 4.27
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
468
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
469
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
470
471
Genting Plantations
www.gentingplantations.com
Company overview Genting Plantations (GENP) is a 54%-owned listed plantation entity of Genting Bhd. GENP has 65,647ha of plantation land-bank in Malaysia, of which 70% is located in Sabah and 30% in Peninsula Malaysia. Its JVs in Indonesia since 2005/06 have a total land-bank of close to 100,000ha, of which 36,000ha has been planted as at end-1H12. Investment case We are expecting Y/Y CPO prices to soften to M$2,900/t for 2013E (from M$3,170/t for 2012E). GENPs Indonesian estates are expected to start contributing strongly to volume growth from FY13, but will only start to contribute to bottom-line profitability by FY14. Hence, we expect growth to remain lackluster in FY13, while stronger growth by FY14 is already priced-in given its premium valuations to the sector. Key issues in an anemic growth environment Of a total land-bank of about 100,000ha in Indonesia (1.5x the size of its Malaysian land-bank), over 36,000ha has been planted as at end-1H12. With the Indonesian estates coming into maturity, we expect FFB output growth to recover strongly from 1% in FY12E to 16% in FY13E and 14% in FY14E. But Indonesia is still loss-making with profitability expected to improve upon commissioning of its own mills by late2012, although meaningful contribution to group profits and growth we estimate is mainly by FY14. Earnings could also disappoint short term as consensus estimates remain high in our view (our FY13E forecast is 15% below consensus). Earnings risks in 2013 Stronger- or lower-than-expected CPO prices are a key risk to earnings. Every 10% change in the CPO price vs our forecast would impact our FY13E earnings by 19%. Price target, and risks to our investment view Our Jun-13E PT of M$8.30 is based on an FY13E P/E of 16x, in line with the sector's historical average. A key risk is stronger-than-expected CPO prices; every 10% rise would lift our FY13E EPS by 19%. We also expect CPO prices to be stronger by 1Q13 before it gets weaker from 2Q13 and hence we would look to sell on strength.
Genting Plantations (Reuters: GENP.KL, Bloomberg: GENP MK) M$ in mn, year-end Dec FY10A FY11A FY12E Revenue (M$ mn) 989 1,336 1,259 Net Profit (M$ mn) 324.3 442.0 375.0 EPS (M$) 0.43 0.58 0.50 DPS (M$) 0.09 0.12 0.10 Revenue growth (%) 30.8% 35.2% -5.8% EPS growth (%) 38.1% 35.7% -14.8% ROCE 15.3% 17.8% 13.3% ROE 12.0% 14.5% 11.1% P/E (x) 20.5 15.1 17.7 P/BV (x) 2.3 2.1 1.9 EV/EBITDA (x) 13.9 10.0 11.5 Dividend Yield 1.1% 1.4% 1.2%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: M$8.78 Price Target: M$8.30
Abs Rel
1m -2.1% -1.2%
3m -6.2% -7.1%
Source: Bloomberg.
FY13E 1,334 389.5 0.52 0.11 6.0% 3.9% 12.7% 10.6% 17.0 1.7 10.8 1.2%
FY14E 1,462 456.1 0.60 0.13 9.6% 17.1% 13.6% 11.3% 14.5 1.6 9.2 1.4%
Company Data Shares O/S (mn) Market cap (M$ mn) Market cap ($ mn) Price (M$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (M$ mn) 3M - Avg daily Value (USD) ($ mn) FBMKLCI Exchange Rate Fiscal Year End
759 6,663 2,179 8.78 07 Nov 12 29.0% 0.50 4.61 1.68 1,646 3.06 Dec
472
FY10 756 132 154 68 1,109 1,612 772 3,522 0 179 23 202 254 87 653 2,869 3.80
Cash flow statement FY11 FY12E FY13E FY14E M$ in millions, year end Dec 1,336 1,259 1,334 1,462 EBIT 35.2% (5.8%) 6.0% 9.6% Depr. & amortization 648 563 595 688 Change in working capital 37.1% -13.1% 5.7% 15.8% Taxes 603 507 524 603 Cash flow from operations 37.2% NM 3.3% 15.1% 45.1% 40.3% 39.3% 41.3% Capex -2 -2 -2 -2 Disposal/(purchase) 601 505 522 601 Net Interest 36.7% -15.9% 3.3% 15.1% Other -159 -127 -130 -141 Free cash flow 26.4% 25.2% 24.8% 23.5% 442.0 375.0 389.5 456.1 Equity raised/(repaid) 36.3% -15.2% 3.9% 17.1% Debt raised/(repaid) 759 756 756 756 Other 0.58 0.50 0.52 0.60 Dividends paid 35.7% (14.8%) 3.9% 17.1% Beginning cash Ending cash DPS Ratio Analysis FY11 FY12E FY13E FY14E M$ in millions, year end Dec 1,017 1,012 1,029 1,110 EBITDA margin 114 108 114 125 Operating margin 129 121 129 141 Net margin 147 147 147 147 1,407 1,388 1,419 1,523 Sales per share growth 1,777 1,777 1,777 1,777 Sales growth 882 1,176 1,456 1,721 Net profit growth 4,106 4,393 4,715 5,099 EPS growth Interest coverage (x) 0 0 0 0 203 191 203 222 Net debt to equity 28 27 27 27 Sales/assets 231 218 230 249 Assets/equity 427 427 427 427 ROE 96 96 96 96 ROCE 872 862 877 900 3,234 3,531 3,839 4,199 4.26 4.67 5.08 5.56
FY10 440 33 370 -115 722 -311 0 -0 77 260 67 188 77 -71 234 756 0.09 FY10 47.8% 44.0% 32.8%
FY11 603 44 -7 -159 473 -154 0 -2 15 149 16 173 15 -92 756 1,017 0.12 FY11 48.5% 44.7% 33.1%
FY12E FY13E FY14E 507 524 603 55 71 85 2 -2 -4 -127 -130 -141 420 444 521 -350 0 -2 0 74 0 0 0 -78 1,017 1,012 0.10 -350 0 -2 0 98 0 0 0 -81 1,012 1,029 0.11 -350 0 -2 -0 176 -0 0 -0 -95 1,029 1,110 0.13
FY12E FY13E FY14E 44.7% 44.6% 47.1% 39.2% 38.1% 39.9% 29.8% 29.2% 31.2%
31.2% 34.6% (5.4%) 6.0% 9.6% 30.8% 35.2% (5.8%) 6.0% 9.6% 37.6% 36.3% -15.2% 3.9% 17.1% 38.1% 35.7% (14.8%) 3.9% 17.1% 3,970.65 321.71 279.46 295.43 341.96 -17.5% -18.2% 0.31 0.35 1.07 1.07 12.0% 14.5% 15.3% 17.8% -16.6% -15.7% -16.3% 0.30 0.29 0.30 1.24 1.23 1.21 11.1% 10.6% 11.3% 13.3% 12.7% 13.6%
473
Globe Telecom
www.globe.com.ph
Company overview Globe is the #2 mobile operator in the Philippines with almost 80% of revenues coming from its mobile division in 2011. The company has a c.30% share of the mobile subscriber market, where more than half of the population owns a mobile phone. Investment case We think the investment case for Globe remains weak as we see limited opportunities to monetize its new network rollout given pricing pressures and market share defense. The potential synergies from the recently proposed acquisition of Banyan Telecoms debt remain too early to be seen. Globe is also trading at a premium against PLDT (14x consensus P/E versus 15x P/E) despite weaker EBITDA margin expectations for 2013 (flat for Globe versus margin recovery for PLDT). Key issues in an anemic growth environment While there is likely to be limited top-line impact for the sector in an anemic environment, competition is unlikely to ease, with market share defense as a key focus this year. We also expect the Philippines to see peak capex investment in 2012 which has historically led to price competition as operators push to fill empty networks. However, from a yield perspective, we note that Globe is trading at a 180bp yield spread above Philippine 10 year government bonds. Earnings risks in 2013 Market share defense for Globe remains a primary risk in our view given PLDTs expanded market share post Digitel consolidation. Should price competition further intensify in 2013, we expect earnings downside to be higher for Globe given weaker JPM/Street EBITDA margin expectations vis-a-vis PLDT. Price target, and risks to our investment view Our Dec-13 PT of Php1,000 is based on the sum of 1) potential upside/(downside) to consensus EPS vs. JPM EPS estimates, and 2) our estimated multiple expansion/ (contraction) based on peak P/E multiple. Earlier-than-expected decline in competition is the key upside risk to our price target. An aggressive market share gain by Globe is another upside risk to our UW recommendation.
Globe Telecom (Reuters: GLO.PS, Bloomberg: GLO PM) Php in mn, year-end Dec FY09A FY10A FY11A Revenue (Php mn) 74,319 75,734 81,519 EBITDA (Php mn) 36,462 33,539 35,105 EBITDA growth (%) -2.5% -8.0% 4.7% Recurring profit (Php mn) 12,401 9,442 10,286 Recurring EPS (Php) 93.33 70.93 77.44 EPS growth (%) 5.6% (24.0%) 9.2% DPS (Php) 79.68 62.00 65.00 EV/EBITDA (x) 1.1 1.3 1.2 P/E 12.2 16.1 14.8 Dividend Yield 7.0% 5.4% 5.7% FCF to mkt cap (%) 6.2% 4.5% 7.8%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: Php1,143.00 Price Target: Php1,000.00
Abs Rel
1m 1.2% -0.2%
3m 2.1% -1.9%
Source: Bloomberg.
FY12E 86,572 36,693 4.5% 11,620 87.48 13.0% 78.73 1.4 13.1 6.9% -2.2%
FY13E 91,551 39,175 6.8% 12,454 93.76 7.2% 84.38 1.2 12.2 7.4% 9.6%
Company Data 52-wk range (Php) 1,270.00 - 889.50 Mkt cap (Php mn) 151,328 Mkt cap ($ mn) 3,685 Shares O/S (mn) 132 Free float (%) 21.6% 3-mth avg trading volume: 58,368 Average 3m Daily Turnover ($ mn) 1.61 PSE 5,469 Exchange Rate 41.07 Price (Php) 1,143.00 Date Of Price 09 Nov 12
474
Balance Sheet statement FY10 FY11 FY12E FY13E FY14E Php in millions, year end Dec 75,734 81,519 86,572 91,551 96,749 Cash and equivalents 33,539 35,105 36,693 39,175 41,467 Accounts receivable (18,086) (18,941) (22,364) (23,120) (22,145) Others 15,453 16,164 14,330 16,055 19,322 Total Current assets 219 297 465 379 815 (1,982) (2,059) (2,122) (2,505) (2,768) ST loans 348 -304 35 0 0 Others 14,038 14,098 12,708 13,929 17,368 Total current liabilities (4,293) (4,266) (3,795) (4,318) (5,384) 0 0 0 0 0 Net working capital 9,745 9,831 8,913 9,611 11,984 9,442 10,286 11,620 12,454 14,154 Net fixed assets Other long term assets 133 133 133 133 133 Total non-current assets 73.21 74.01 67.10 72.36 90.22 70.93 77.44 87.48 93.76 106.56 Total Assets 62.00 65.00 78.73 84.38 95.90 85% 88% 117% 117% 106% Long-term debt Other liabilities 1.9% 7.6% 6.2% 5.8% 5.7% Total Liabilities (8.0%) 4.7% 4.5% 6.8% 5.9% (23.9%) 8.9% 13.0% 7.2% 13.7% Shareholders' equity (24.0%) 9.2% 13.0% 7.2% 13.7% (22.2%) 4.8% 21.1% 7.2% 13.7% Total liabilities and equity Net debt/(cash) Cash flow statement FY10 FY11 FY12E FY13E FY14E Php in millions, year end Dec 44.3% 43.1% 42.4% 42.8% 42.9% Cash flow from operations 9.1% 14.4% (3.9%) 15.9% 19.0% Capex Cash flow from other investing 20.0% 21.6% 24.0% 25.9% 29.4% Cash flow from financing 16.1% 16.3% 13.6% 14.2% 16.6% 7.3% 7.7% 8.2% 8.2% 9.0% Change in cash for year 30.6% 30.3% 29.9% 31.0% 31.0% Beginning cash (23.2%) (21.4%) (40.4%) (20.0%) (16.1%) Closing cash 51.8% 52.0% 56.0% 58.9% 58.5% 95.0% 84.2% 107.7% 100.5% 82.7% 19.0 19.9 22.1 18.4 21.2
(13,724) (18,988) (45,949) (50,546) (43,240) 101,837 100,637 113,286 108,488 101,906 3,958 3,958 3,958 3,958 3,958 109,043 107,843 120,492 115,694 109,112 130,628 136,558 148,224 155,294 157,708 41,694 2,135 83,759 46,869 33,701 2,135 88,161 48,397 19,162 10,663 10,663 2,135 2,135 2,135 99,598 107,566 109,254 48,625 47,728 48,453
130,628 136,557 148,223 155,293 157,707 44,502 40,751 52,356 47,971 40,056 FY10 FY11 FY12E FY13E FY14E 24,414 29,175 31,628 32,835 33,923 (17,552) (17,417) (35,013) (18,321) (15,564) 429 0 0 0 0 (7,438) (6,296) 777 (4,008) (11,259) 48 5,940 5,869 5,759 (2,144) 5,869 11,628 11,628 9,484 10,885 9,484 20,369 7,915 20,369 28,285
475
Group 5
www.g5.co.za
Company overview Group 5 is a mid-size SA construction company. It has one of the highest exposures to the SA construction sector (62% of current order book) of its peers. Investment case Group 5's primary driver is public sector South African infrastructure spend, which traditionally offers low margins as projects are placed on public tender. We expect its earnings to come under pressure as the government continues to delay the roll-out of projects while it deals with a growing public sector wage bill and social grant demands. Business confidence, which in our view, is a leading indicator of Private Sector GDFI is below 50, a level which we do not expect to result in growth of private sector spend. Key issues in an anemic growth environment In our view, the market has not sufficiently priced in Group 5s poor near-term earnings outlook given that its competitors are likely to compete aggressively in South Africa as growth in commodity-related projects declines. Earnings risks in 2013 The key earnings risk is continued delays in public sector spend; we expect in the national budget to occur in infrastructure spend. In addition, poor execution on projects remains a risk to Group 5s earnings. Price target, and risks to our investment view We use a through-the-cycle normalised earnings valuation as our key valuation methodology to establish our 12m price target. Key assumptions for this normalised earnings calculation are: Sustainable Return on Investec Capital (ROIC 15%), sustainable operating margins (EBIT 4.5%) and long-term growth in revenue (5%). The key risks are : If Group 5 manages to maintain operations in its construction division, earnings are likely to beat our projections. A quicker and stronger recovery in the construction materials division will enhance overall operating margins and lead to better than expected earnings. The main risk to our thesis is a swift and strong recovery of private sector GFCF.
Underweight
Price: 2,485c Price Target: 2,941c
Abs
YTD 10.3%
1m -0.0%
3m 12.7%
12m 11.7%
Source: Bloomberg.
Group Five Limited (GRFJ.J;GRF SJ) FYE Jun 2011A Adj. EPS FY (c) 359.86 DPS (Gross) FY (c) 138.0 Adj P/E FY 6.9 EBIT FY (R mn) 567 EBIT margin FY 6.5% EV/EBITDA FY 4.3 ROE FY 15.7% ROA FY -2.2%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn)
476
Ratio analysis FY13E FY14E FY15E R in millions, year end Jun 1,842 2,129 2,435 Valuation 5,382 5,903 6,198 Adj P/E multiple 0 0 0 EV/EBITDA 1,103 1,176 1,173 EV/EBIT 2,042 2,115 2,112 Price to cash flow 7,424 8,018 8,310 P/NAV FCF yield 102 102 102 Interest coverage (x) 4,321 4,607 4,594 Leverage 4,554 4,846 4,833 Net debt to equity 613 613 613 Net debt /EBITDA (x) 732 740 739 EBIT/Interest 5,286 5,586 5,572 Margins 2,138 2,432 2,738 EBITDA margin 132 207 287 EBIT margin 2,138 2,432 2,738 Net margin
-57.0% -79.9% -49.7% -53.6% -56.9% (1.7) (3.6) (1.8) (1.9) (2.2) 9.3 3.3 8.4 9.9 10.3 9.0% 6.5% NM 4.9% 3.0% NM 6.8% 4.6% 2.7% 7.6% 5.0% 2.8% 8.0% 5.3% 3.1%
477
Neutral
Price: W11,400 Price Target: W13,000
Abs Rel
1m -13.6% -10.2%
3m -20.0% -20.6%
Source: Bloomberg.
Hanjin Shipping Co Ltd (Reuters: 117930.KS, Bloomberg: 117930 KS) W in bn, year-end Dec FY10A FY11A FY12E FY13E Revenue (W bn) 9,625 9,523 10,301 10,846 Net Profit (W bn) 954 -835 -425 55 EPS (W) 11,986.57 (8,481.62) (3,399.69) 440.95 DPS (W) 0.00 0.00 0.00 0.00 Revenue Growth (%) 1340.8% -1.1% 8.2% 5.3% EPS Growth (%) NM NM NM NM ROCE 8.9% -5.3% 0.8% 4.4% ROE 41.5% -35.6% -23.9% 3.5% P/E 1.0 -1.3 -3.4 25.9 P/BV 0.3 0.7 0.9 0.8 EV/EBITDA 10.9 -71.8 20.7 11.0 Div Yield (%) 0.0% 0.0% 0.0% 0.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY14E 13,121 163 1,307.04 0.00 21.0% 196.4% 5.4% 9.6% 8.7 0.8 8.7 0.0%
Company Data Shares O/S (mn) Market Cap (W mn) Market Cap ($ mn) Price (W) Date Of Price Free float (%) Avg daily volume (mn) Avg daily value (W mn) Avg daily value ($ mn) KOSPI Exchange Rate Fiscal Year End
125 1,425,000 1,306 11,400 08 Nov 12 2.08 42,527.52 38.99 1,914 1,091 Dec
478
LT investments 878 951 951 Net fixed assets 6,701 7,920 9,950 Total Assets 10,651 11,197 12,496 Liabilities Short-term loans 1,176 1,551 1,551 Payables 844,507 695,527 708,142 Others 51 155 155 Total current liabilities 2,071 2,401 2,413 Long-term debt 5,625 6,539 8,239 Other liabilities 226 231 231 Total Liabilities 7,922 9,172 10,884 Shareholders' equity 2,702 1,988 1,563 BVPS 34,273.85 16,200.54 12,893.50 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY13E FY14E W in billions, year end Dec 10,846 13,121 EBIT 5.3% 21.0% Depr. & amortization 950 1,189 Change in working capital 88.4% 25.1% Taxes 506 651 Cash flow from operations 513.6% 28.7% 4.7% 5.0% Capex -450 -468 Disposal/(purchase) 78 206 Net Interest NM 162.3% Free cash flow -12 -31 15.0% 15.0% Equity raised/(repaid) 55 163 Debt raised/(repaid) NM 196.4% Other 125 125 Dividends paid 440.95 1,307.04 Beginning cash NM 196.4% Ending cash DPS Ratio Analysis FY13E FY14E W in billions, year end Dec 1,189 1,718 EBITDA margin 681,138 824,062 Operating margin 420 508 Net margin 458 458 2,783 3,543 Sales per share growth 951 951 Sales growth 10,005 9,968 Net profit growth 12,970 13,692 EPS growth Interest coverage (x) 1,551 1,551 715,068 862,260 Net debt to equity 155 155 Sales/assets 2,420 2,568 Assets/equity 8,639 9,039 ROE 231 231 ROCE 11,291 11,839 1,618 1,781 13,427.08 14,826.76
FY10 668 0 -155 459 -1,107 89 -299 -648 260 -84 735 -4 1,044 0.00
FY11 FY12E FY13E FY14E -514 82 506 651 390 422 444 537 25 -66 -48 -84 -406 -58 463 629 -1,078 309 -317 -1,484 0 0 0 -45 684 0.00 -1,500 0 -402 -1,558 0 0 0 0 826 0.00 -500 0 -450 -37 0 0 0 0 361 1,189 0.00 -500 0 -468 129 0 0 0 0 1,718 0.00
FY10 FY11 FY12E FY13E FY14E 6.9% -1.3% 4.9% 8.8% 9.1% 6.9% (5.4%) 0.8% 4.7% 5.0% 9.9% -8.8% -4.1% 0.5% 1.2% 1241.2% (20.0%) (14.8%) 1340.8% (1.1%) 8.2% NM NM NM NM NM NM 2.23 0.39 1.25 5.3% 5.3% NM NM 2.11 21.0% 21.0% 196.4% 196.4% 2.54
213.1% 372.6% 573.5% 556.3% 498.1% 1.04 0.87 0.87 0.85 0.98 2.34 5.63 8.00 8.02 7.69 41.5% (35.6%) (23.9%) 3.5% 9.6% 8.9% -5.3% 0.8% 4.4% 5.4%
479
Underweight
Price: Rs1,949.15 Price Target: Rs1,600.00
Abs Rel
1m 7.7% 8.4%
3m -1.5% -9.5%
Source: Bloomberg.
Hero Motocorp Ltd. (Reuters: HROM.BO, Bloomberg: HMCL IN) Rs in mn, year-end Mar FY09A FY10A FY11A FY12A Net sales (Rs mn) 123,566 158,560 193,978 235,790 EBITDA (Rs mn) 17,472 27,598 24,430 27,958 Net Profit (Rs mn) 12,817 22,317 19,277 23,781 ROE 33.7% 64.4% 65.2% 55.4% ROCE 43.4% 76.1% 52.8% 64.1% EPS (Rs) 64.18 111.76 96.53 119.09 DPS (Rs) 25.38 109.99 104.49 44.50 P/E (x) 30.4 17.4 20.2 16.4 EV/EBITDA (x) 18.7 11.0 12.7 11.5
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY13E 236,476 27,024 22,816 40.7% 47.6% 114.25 41.77 17.1 11.5
FY14E 261,061 30,653 24,555 34.8% 43.6% 122.96 43.76 15.9 9.8
Company Data 52-week Range (Rs) 2,279.00 - 1,662.00 Shares O/S (mn) 200 Market cap ($ mn) 7,278 Price (Rs) 1,949.15 Date Of Price 05 Nov 12 3mth Avg daily volume 0.41 Average 3m Daily Turnover ($ mn) 13.93 NIFTY 5,698
480
Cash flow statement FY10 FY11 FY12 FY13E FY14E Rs in millions, year end Mar 158,560 193,978 235,790 236,476 261,061 EBIT 28.3% 22.3% 21.6% 0.3% 10.4% Depr. & amortization Dec/(Inc) in Working Capital 27,598 24,430 27,958 27,024 30,653 Taxes 58.0% -11.5% 14.4% -3.3% 13.4% Cash flow from operations 17.4% 12.6% 11.9% 11.4% 11.7% -1,915 -2,324 -2,743 -3,320 -3,575 Net Capex 2,427 2,720 3,646 3,999 4,616 206 19 -213 -213 -213 Net Interest (Paid)/ Recd 28,316 24,046 28,647 27,490 31,480 Free cash flow 59.0% -15.1% 19.1% -4.0% 14.5% 5,999 4,769 4,866 4,673 6,926 Income from Investments 21.2% 19.8% 17.0% 17.0% 22.0% 22,317 19,277 23,781 22,816 24,555 Inc / (Dec) in Networth 74.1% -13.6% 23.4% -4.1% 7.6% Debt raised/(repaid) 111.76 96.53 119.09 114.25 122.96 74.1% -13.6% 23.4% -4.1% 7.6% Dividends paid 109.99 104.49 44.50 41.77 43.76 Cash generated 98.4% 108.2% 37.4% 36.6% 35.6% Beginning cash Ending cash Ratio Analysis FY10 FY11 FY12 FY13E FY14E %, year end Mar 58,329 52,003 40,411 50,238 60,659 EBITDA margin 1,084 1,306 2,723 1,283 2,833 Net profit margin 4,364 5,249 6,756 6,415 8,499 4,306 7,775 10,756 10,597 11,657 Sales growth 68,083 66,333 60,646 68,534 83,650 Net profit growth EPS growth 17,069 42,054 38,244 42,423 46,848 85,152 108,387 98,889 110,957 130,498 PE (x) Cash PE (x) EV/EBITDA (x) EV/Sales (x) 11,114 14,239 22,932 17,321 19,123 Price to Book Value (x) 37,200 47,208 30,977 35,462 38,722 48,314 61,448 53,908 52,783 57,845 Dividend Yield 660 327 0 0 0 Debt to equity 1,528 17,052 2,083 2,083 2,083 Sales/assets 50,502 78,827 55,991 54,866 59,928 399 399 399 399 399 ROE 34,650 29,561 42,898 56,091 70,568 ROCE 173.51 148.03 214.81 280.87 353.37
FY11 FY12 FY13E FY14E 22,106 25,214 23,704 27,077 2,324 2,743 3,320 3,575 9,883 476 1,634 -85 10737 -19830 -4673 -6926 45,050 8,604 23,985 23,642 1,067 -7,500 -8,000
-213 -213 -213 9,458 16,272 15,429 3,646 -0 -327 3,999 -0 0 4,616 0 0
-5,878 -25,676 -24,369 -10,444 -9,624 22,446 -6,326 -11,592 9,827 10,421 35,883 58,329 52,003 40,411 50,238 58,329 52,003 40,411 50,238 60,659 FY10 17.4% 14.1% FY11 12.6% 9.9% FY12 FY13E FY14E 11.9% 11.4% 11.7% 10.1% 9.6% 9.4% 21.6% 23.4% 23.4% 16.4 14.67 11.5 1.37 9.1 2.3% 0.00 2.38 55.4% 64.1% 0.3% 10.4% -4.1% 7.6% (4.1%) 7.6% 17.1 14.89 11.5 1.32 6.9 2.1% 0.00 2.13 15.9 13.84 9.8 1.16 5.5 2.2% 0.00 2.00
28.3% 22.3% 74.1% -13.6% 74.1% (13.6%) 17.4 16.06 11.0 1.92 11.2 5.6% 0.02 1.86 64.4% 76.1% 20.2 18.02 12.7 1.60 13.2 5.4% 0.01 1.79 65.2% 52.8%
481
Underweight
Price: W228,500 Price Target: W180,000
Abs Rel
1m -13.0% -9.1%
3m -3.2% -5.8%
Source: Bloomberg.
FY14E 14,671,702 1,276,364 614 19,273.00 1,751.00 -0.3% 4.8% 10.1% 9.0% 11.9 1.2 2.0 0.8%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily Value (W mn) 3M Avg daily Value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
398,000 - 218,000 7,280 6,551 32 Dec 228,500 02 Nov 12 42.7% 54,073.96 53.65 0.22 1,919 1,111.30
482
Income Statement Cash flow statement W in millions, year end Dec FY10 FY11 FY12E FY13E FY14E W in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Revenues 12,403,158 15,700,042 14,962,741 14,720,829 14,671,702 EBIT 1,263,218 1,491,062 770,974 788,959 815,969 % change Y/Y 44.3% 26.6% (4.7%) (1.6%) (0.3%) Depr. & amortization 289,920 378,616 405,876 433,135 460,395 EBITDA 1,553,137 1,869,678 1,176,850 1,222,094 1,276,364 Change in working capital -103,222 -3,286 133,170 8,082 -1,796 % change Y/Y 19.3% 20.4% -37.1% 3.8% 4.4% Taxes -292008 -393878 -203660 -208411 -215546 EBIT 1,263,218 1,491,062 770,974 788,959 815,969 Cash flow from operations 1,088,239 1,618,343 1,145,005 1,062,217 1,109,709 % change Y/Y 27.7% 18.0% NM 2.3% 3.4% EBIT Margin 10.2% 9.5% 5.2% 5.4% 5.6% Capex -338,364 -913,129 -600,000 -600,000 -600,000 Net Interest -18,077 -31,029 -14,250 -12,443 -2,208 Disposal/(purchase) 30,889 19,869 Earnings before tax 1,285,191 1,526,432 836,049 855,839 893,085 Net Interest -18,077 -31,029 -14,250 -12,443 -2,208 % change Y/Y 22.7% 18.8% -45.2% 2.4% 4.4% Other Tax -292,008 -393,878 -203,660 -208,411 -215,546 Free cash flow 749,874 705,214 545,005 462,217 509,709 as % of EBT 22.7% 25.8% 24.4% 24.4% 24.1% Net income (reported) 786 978 572 586 614 Equity raised/(repaid) % change Y/Y -1.5% 24.5% -41.5% 2.4% 4.8% Debt raised/(repaid) 533,184 214,974 -310,843 -248,674 -198,939 Shares outstanding 32 32 32 32 32 Other EPS (reported) 24,667.94 30,701.40 17,965.75 18,393.88 19,273.00 Dividends paid -72,755 -65,410 -65,410 -65,410 -65,410 % change Y/Y (1.5%) 24.5% (41.5%) 2.4% 4.8% Beginning cash 651,579 530,358 1,251,251 1,213,968 1,156,064 Ending cash 450,408 1,251,251 1,213,968 1,156,064 1,195,388 DPS 1,750.00 1,751.00 1,751.00 1,751.00 1,751.00 Balance sheet Ratio Analysis W in millions, year end Dec FY10 FY11 FY12E FY13E FY14E W in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Cash and cash equivalents 490,233 1,251,252 1,213,968 1,156,064 1,195,388 EBITDA margin 12.5% 11.9% 7.9% 8.3% 8.7% Accounts receivable 1,190,690 1,675,637 1,596,946 1,571,128 1,565,884 Operating margin 10.2% 9.5% 5.2% 5.4% 5.6% Inventories 1,066,762 1,266,628 1,207,145 1,187,629 1,183,665 Net margin 6.3% 6.2% 3.8% 4.0% 4.2% Others 143,192 136,652 136,652 136,652 136,652 Current assets 3,531,611 4,888,630 4,790,482 4,687,243 4,717,360 Sales per share growth 44.3% 26.6% (4.7%) (1.6%) (0.3%) LT investments 1,051,405 1,085,143 1,317,608 1,550,073 1,782,537 Sales growth 44.3% 26.6% (4.7%) (1.6%) (0.3%) Net fixed assets 3,700,938 4,307,765 4,501,889 4,668,754 4,808,359 Net profit growth -1.5% 24.5% -41.5% 2.4% 4.8% Total Assets 8,612,872 10,746,608 11,075,050 11,371,141 11,773,328 EPS growth (1.5%) 24.5% (41.5%) 2.4% 4.8% Liabilities Interest coverage (x) 85.92 60.26 82.59 98.21 578.17 Short-term loans 508,295 303,059 303,059 303,059 303,059 Payables 1,325,996 2,032,023 2,027,019 1,989,766 1,978,762 Net debt to equity 10.9% 0.9% -5.0% -7.5% -10.3% Others 332,498 393,398 393,398 393,398 393,398 Sales/assets 1.63 1.62 1.37 1.31 1.27 Total current liabilities 2,166,788 2,728,480 2,723,476 2,686,222 2,675,219 Assets/equity 1.26 1.29 1.83 1.73 1.65 Long-term debt 1,107,305 1,554,214 1,243,371 994,697 795,757 ROE 19.2% 19.7% 9.9% 9.3% 9.0% Other liabilities 352,178 306,139 306,139 306,139 306,139 ROCE 23.8% 22.3% 10.3% 10.2% 10.1% Total Liabilities 3,626,271 4,588,833 4,272,986 3,987,058 3,777,116 Shareholders' equity 4,454,320 5,462,573 6,046,862 6,567,481 7,124,100 BVPS 123,102.31 149,635.01 166,091.04 180,504.69 195,982.33 Source: Company reports and J.P. Morgan estimates.
483
Underweight
Price: M$14.42 Price Target: M$11.70
Abs Rel
1m 3.4% 4.3%
3m 6.8% 6.4%
Source: Bloomberg.
FY13E 2,279 1,725 0.92 0.31 (7.5%) 14.4% 15.7 6.68 2.16 2.1% 0.92
FY14E 2,463 1,803 0.96 0.38 4.5% 13.8% 15.0 7.26 1.99 2.7% 0.96
Company Data 52-week Range (M$) Market Cap (M$ mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (M$) Date Of Price 3M - Avg daily value (M$ mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) FBMKLCI Exchange Rate
14.98-10.02 27,108 8,855 1,880 Jun 14.42 06 Nov 12 9.89 3.2 0.72 1641.07 3.06
484
(1,212) (1,811) (1,895) (1,992) 1,340 2,082 2,279 2,463 (137) (111) (308) (416) 33 2 0 0 210 219 240 264 1,415 2,223 2,211 2,311 (278) (485) (486) (508) 0 0 0 0 1,137 1,648 1,725 1,803 FY11 FY12 FY13E FY14E 0.78 0.99 0.92 0.96 0.24 0.38 0.31 0.38 30.6% 38.3% 33.5% 40.1% 4.73 6.07 6.68 7.26 1,452 1,661 1,880 1,880 0.92 1.25 1.21 1.31 FY11 FY12 FY13E FY14E 81,455 88,193 96,933 106,772 (2,583) (2,423) (2,533) (2,730) 84,039 90,616 99,466 109,502 1,915 1,532 2,076 2,573 19,818 35,942 38,098 40,003 3,223 3,114 3,270 3,433 134,026 145,518 156,680 166,968 2,211 2,278 2,278 2,278 145,499 157,787 168,003 178,757 125,554 133,520 142,377 151,648 5,815 4,964 5,020 5,020 0 0 0 0 124,016 134,927 142,941 152,032 139,455 151,643 162,895 173,380 7,468 11,419 12,566 13,645 86,806 96,720 104,162 110,829 43,403 91,763 100,441 107,496
Growth Rates FY15E 1.8% Loans 96.4% Deposits 1.7% Assets Equity 3,191 RWA 1,548 Net Interest Income 681 Non-Interest Income 277 of which Fee Grth Revenues 4,739 Costs Pre-Provision Profits (2,112) Loan Loss Provisions 2,627 Pre-Tax (518) Attributable Income - EPS 0 DPS 291 Balance Sheet Gearing 2,399 Loan/deposit (528) Investment/assets 0 Loan/Assets 1,872 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 1.00 Loan loss reserves/loans 0.41 NPLs/loans 41.2% Loan loss reserves/NPLs 7.84 Growth in NPLs 1,880 Tier 1 Ratio 1.40 Total CAR FY15E Du-Pont Analysis 117,563 NIM (as % of avg. assets) (3,007) Earning assets/assets 120,571 Margins (as % of Avg. Assets) 3,121 Non-Int. Rev./ Revenues 42,003 Non IR/Avg. Assets 3,605 Revenue/Assets 177,780 Cost/Income 2,278 Cost/Assets 190,041 Pre-Provision ROA LLP/Loans 161,410 Loan/Assets 5,020 Other Prov, Income/ Assets 0 Operating ROA 161,549 Pre-Tax ROA 184,399 Tax rate 14,746 Minorities & Outside Distbn. 117,825 ROA 114,327 RORWA Equity/Assets ROE
FY11 FY12 FY13E FY14E FY15E 13.5% 7.8% 9.8% 10.1% 10.1% 9.4% 6.3% 6.6% 6.5% 6.4% 9.1% 8.4% 6.5% 6.4% 6.3% 16.2% 52.9% 10.0% 8.6% 8.1% - 11.4% 7.7% 6.4% 6.3% (29.8%) 57.1% 5.8% 7.6% 7.7% (28.5%) 44.2% 10.0% 5.0% 3.8% (31.1%) 51.0% 6.7% 5.0% 3.0% (29.3%) 52.6% 7.2% 6.7% 6.4% (31.9%) 49.5% 4.6% 5.2% 6.0% (26.8%) 55.4% 9.5% 8.0% 6.7% (49.9%) (19.0%) 177.3% 34.9% 24.6% (15.2%) 57.0% (0.5%) 4.5% 3.8% (14.4%) 44.9% 4.7% 4.5% 3.8% (14.4%) 26.7% (7.5%) 4.5% 3.8% 0.0% 58.3% (19.0%) 25.0% 6.7% FY11 64.9% 15.4% 56.7% 91.0% 2.9% FY11 (3.1%) 2.5% 116.4% (6.1%) 8.5% 17.5% FY11 1.2% 96.1% 1.2% 35.1% 0.6% 1.8% 47.5% 0.9% 1.0% (0.2%) 56.7% 0.2% 0.9% 1.0% 19.6% 1.3% 0.8% 2.6% 5.0% 16.4% FY12 66.1% 18.4% 57.6% 91.2% 3.8% FY12 (2.7%) 2.0% 145.2% (20.0%) 11.7% 19.2% FY12 1.8% 96.0% 1.7% 33.2% 0.9% 2.6% 46.5% 1.2% 1.4% (0.1%) 57.6% 0.2% 1.3% 1.5% 21.8% 0.0% 1.1% 1.8% 6.2% 17.5% FY13E 68.1% 22.7% 58.3% 91.6% 3.3% FY13E (2.5%) 1.9% 137.4% 35.5% 12.1% 19.1% FY13E 1.8% 96.2% 1.7% 34.0% 0.9% 2.6% 45.4% 1.2% 1.4% (0.3%) 58.3% 0.1% 1.2% 1.4% 22.0% 0.0% 1.1% 1.7% 7.4% 14.4% FY14E 70.4% 22.5% 60.3% 91.8% 3.1% FY14E (2.5%) 2.2% 113.2% 24.0% 12.5% 19.0% FY14E 1.8% 96.3% 1.7% 33.5% 0.9% 2.6% 44.7% 1.1% 1.4% (0.4%) 60.3% 0.2% 1.2% 1.3% 22.0% 0.0% 1.0% 1.7% 7.6% 13.8% FY15E 72.8% 22.2% 62.4% 92.1% 2.9% FY15E (2.5%) 2.5% 100.8% 21.3% 12.8% 19.0% FY15E 1.8% 96.4% 1.7% 32.7% 0.8% 2.6% 44.6% 1.1% 1.4% (0.5%) 62.4% 0.2% 1.1% 1.3% 22.0% 0.0% 1.0% 1.6% 7.7% 13.2%
485
HTC Corp
www.htc.com/tw/
Company overview HTC is a leading manufacturer of Windows Mobile and Google Android smartphones. The company began transforming from ODM to own-brand in early 2006. Its main markets are Europe, North America, and Asia. Its key customers include Vodafone, Verizon, T-Mobile, Sprint, AT&T, Telefonica, Orange, and Google. Investment case We believe HTC will underperform the market due to: 1) falling revenue leading to shrinking scale; 2) rising marketing expense to gamble on MWC 2013; 3) fierce competition due to shortening product life cycle, especially in China Key issues in an anemic growth environment According to its 4Q12 guidance, HTC spends a lot on marketing now. We suspect HTC is trying to keep their brand awareness high, ahead of high hopes in product launch for MWC 2013. We estimate the new product needs to sell a lot to justify such investments. Second, we think HTC needs to have a radical change since scale is the single most important factor in profitability, as seen in feature phone era. HTC also faces increasing challenge due to shortening product life cycle Samsung achieved the same camera features as One-series within three months, and their aggressive pricing also hurts other brands margin. Earnings risks in 2013 Key upside risks include: (1) HTCs success in MWC 2013 with powerful product show, and (2) significant breakthrough in China development, maybe through a merger possibility. Price target, and risks to our investment view Our Dec-13 PT is NT$100, based on 1x FY13E P/B. We believe that there is simply no way to get earnings forecasts correct. We use 1x as a similar situation at LG/ Nokia derated their valuations down to ~1x. Any revolutionary improvement or breakthrough would become upside risks to our PT in 2013.
Bloomberg 2498 TT, Reuters 2498.TW
(Year-end Dec, NT$ bn) FY11 FY12E FY13E FY14E Sales 465.79 291.55 274.26 290.69 Operating Profit 68.79 18.92 5.75 4.23 EBITDA 70.35 21.45 9.95 10.00 Pretax Profit 71.42 19.45 7.23 5.55 Adj. Net Profit (New TW GAAP) 61.98 16.67 6.14 4.72 New TW GAAP EPS (NT$) 71.94 19.63 7.21 5.54 Net Debt / Equity NM NM NM NM Y/E BPS (NT$) 117.73 114.17 99.76 96.16 FY11 FY12E 3.4 12.3 2.1 2.1 70.4 16.8 35.1 40.1 1Q 2Q 17.29 20.42 5.31 8.69 3.77 1.88 FY13E FY14E 33.5 43.6 2.4 2.5 06.8 05.7 15.7 5.8 3Q 4Q 21.27 12.84 4.55 1.08 0.82 0.74
Underweight
Price: NT$241.50 Price Target: NT$100.00
Abs Rel
1m -4.2% -1.9%
3m -2.6% -0.3%
Source: Bloomberg.
New TW GAAP P/E P/BV (x) ROE(%) Cash Div (NT$) Quarterly EPS (NT$) EPS (11) EPS (12) E EPS (13) E
Target Price (NT$) 52-Week range (NT$) Share Outstanding Free float Avg daily volume Avg daily val (USD) Dividend Yield (2012) QFII Holding (%) Market Cap(USD)
100 705.00 - 191.00 852mn 77.9% 12mn 162.97mn 16.6% 50.7% 7,093mn
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
486
Ratio Analysis NT$ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (reported) growth Interest coverage (x) Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC ROIC (net of cash) Cash flow statement NT$ in millions, year end Dec Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing
FY10 30.1% 16.1% 15.8% 14.2% 2.1% 9.6% 92.2% 81.9% 74.9% 75.9%
FY12E FY13E FY14E 25.2% 20.3% 18.8% 7.4% 3.6% 3.4% 6.5% 2.1% 1.5% 5.7% 2.2% 1.6% 3.3% 2.5% 2.5% 13.8% 14.7% 14.0%
67.2% (37.4%) (5.9%) 6.0% 56.4% -72.5% -69.6% -26.5% 56.8% -73.1% -63.2% -23.2% 57.1% (72.7%) (63.3%) (23.2%) -55.9% -28.0% NM NM 1.22 1.23 9.87 -340.24 16.8% 6.8% 35.3% 7.0% 58.7% 8.9% FY12E 16,672.5 2,533 -9,558 9,042 -11,862 -10,002 -21,864 -2,820 1,968 0 10,660 -34,082 -21,454 FY13E 6,142.5 4,203 7,221 17,567 -14,410 -15,000 -29,410 3,157 0 0 -4,792 -13,338 -18,130 -2.8% NM 1.29 -8.87 5.7% 4.3% 4.8% FY14E 4,720.2 5,769 3,571 14,060 -14,410 -15,000 -29,410 -350 0 0 -2,876 -4,914 -7,790
-107.3% -100.5% NM NM 1.80 2.09 5.54 9.88 56.3% 70.4% 350.1% 235.6% 9097.2% 891.8% FY10 39,533.6 843 5,676 46,064 -6,553 2,086 -4,467 39,511 -5,425 0 -4,887 -20,122 -30,434 11,163 64,192 75,355 FY11 61,975.8 1,564 24,852 88,069 -9,052 -31,934 -40,987 79,017 3,246 -24 -7,558 -30,253 -34,590
0 67,976 145,873 145,873 0 1,294 Net change in cash 147,167 Beginning cash 81,935 Ending cash
12,493 -34,276 -29,973 -23,140 75,355 88,494 55,430 25,457 88,494 55,430 25,457 2,317
487
Infosys
www.infosys.com
Company overview Infosys is one of Asias largest IT services companies with significant experience across vertical domains (BFSI, manufacturing, and telecom) and technology platforms. Infosys serves 700+ clients and has wide portfolio of service offerings and its skill-set straddles the entire IT services value chain from pure IT outsourcing to traditional application development and maintenance to package implementation to consulting assignments to complex turnkey projects to BPO. Investment case Infosys was not prepared for greater competitiveness in the market place after Lehman because of which the company lost meaningful market share particularly in multivendor accounts, in our view. We expect Infosys to continue losing market share in CY13 as the company is hesitant to go back on its Infosys 3.0 strategy, which focuses on high-end work at the price of traditional outsourcing, which generally has high volume growth potential. Also, we expect CY13 to be a better year than CY12 and Infosys decision to not give wage hike for two quarters might impact the companys ability to attract/retain quality talent to benefit from improved demand environment. Key issues in an anemic growth environment The 'bread and butter' services which make up about 70% of total IT services spending got ignored in an effort to grow consulting and system integration business. In a difficult market environment, 'bread and butter' services help drive revenue growth, where other large players such as TCS have better positioning. Moreover, competitors such as TCS have established formidable execution capabilities driven by tools, solutions, accelerators etc to fight pricing pressure, while Infosys might find it hard to maintain margins due to pricing pressures. Earnings risks in 2013 Further weakness in demand environment, supply side pressure due to higher attrition and wage hikes, meaningful rupee appreciation and further market share loss in current accounts. Price target, and risks to our investment view Our Mar-13 price target of Rs2,400 is based on a one-year forward P/E multiple of 14.5x, about a 20% discount to TCS target multiple of 18x. We believe the discount is justified as Infosys continues to face structural issues. Infosys revenue/volume growth and operating margins remain under pressure due to these issues. Negative risks: Further weakness in demand environment, rupee appreciation against the US$, and supply side pressures (higher attrition or wage increases). Positive risks: Better pricing & volume growth relative to expectations, rupee depreciation and a better-thanexpected demand environment
Bloomberg INFO IN, Reuters INFY.BO
(Year-end Mar, Rs mn) FY11 FY12 FY13E FY14E Revenue 274,989 336,921 398,125 434,570 Operating Profit 80,984 97,312 104,275 113,442 EBITDA 89,588 106,672 115,288 125,906 Net profit (Reported) 68,233.3 82,883.8 90,300.7 95,048.7 EPS 119.42 145.05 158.03 166.34 P/E (x) 19.7 16.2 14.9 14.1 EV/EBITDA (x) 13.5 10.9 9.9 8.7 Cash 168,097 209,676 234,245 279,378 Equity 273,041 334,587 395,250 449,919
Source: Company data, Bloomberg, J.P. Morgan estimates.
Neutral
Price: Rs2,348 Price Target: Rs2,400
Abs Rel
1m -7.4% -7.1%
3m 2.9% -3.9%
Source: Bloomberg.
ROE(%) CORE ROIC(%) Quarterly EPS (Rs) EPS (13) E EPS (14) E Local Abs. Perf.(%) Rel. Perf.(%) Target Price (31 Mar 13)
FY12 FY13E FY14E Date of Price 27.3 24.7 22.5 52-Week range 47.0 40.5 39.9 Share Out. (Com) 2Q 3Q 4Q Market Cap 41.37 37.45 39.29 Market Cap(US) 40.48 42.85 44.60 Free float 3M 12M Avg daily val 2.9% -17.2% Dividend Yield (3.9%) (26.1%) Index 2400.00 Exchange rate
09 Nov 12 2,981.25 - 2,060.55 574 1,348.70BN US$24,632MN 78.3% 341 2.4% 5,686 0.02
488
Profit and Loss Statement Ratio Analysis Rs in millions, year end Mar FY11 FY12 FY13E FY14E Rs in millions, year end Mar Revenues 274,989 336,921 398,125 434,570 Gross margin Cost of goods sold 159,496 188,441 246,484 269,395 EBITDA margin Gross Profit 115,808 138,778 151,641 165,174 Operating margin R&D expenses 0 0 0 0 Net margin SG&A expenses -34,824 -41,466 -47,366 -51,732 R&D/sales Operating profit (EBIT) 80,984 97,312 104,275 113,442 SG&A/Sales EBITDA 89,588 106,672 115,288 125,906 Interest income 11,612 18,375 19,793 19,493 Sales growth Interest expense 0 0 0 0 Operating profit growth Investment income (Exp.) 11,612 18,375 19,793 19,493 Net profit growth Non-operating income (Exp.) 12,143 19,126 21,602 19,493 EPS (reported) growth Earnings before tax 93,127 116,438 125,877 132,935 Tax -24,894 -33,554 -35,576 -37,887 Interest coverage (x) Net income (reported) 68,233.3 82,883.8 90,300.7 95,048.7 Net debt to total capital Net income (adjusted) 68,233 82,884 90,301 95,049 Net debt to equity EPS (reported) 119.42 145.05 158.03 166.34 Asset turnover EPS (adjusted) 119.42 145.05 158.03 166.34 Working capital turns (x) BVPS 477.85 585.56 691.72 787.40 ROE DPS 59.31 46.39 55.44 50.00 ROIC Shares outstanding 571 571 571 571 ROIC (net of cash) Balance sheet Cash flow statement Rs in millions, year end Mar FY11 FY12 FY13E FY14E Rs in millions, year end Mar Cash and cash equivalents 168,097 209,676 234,245 279,378 Net income Accounts receivable 46,518 58,817 73,798 79,917 Depr. & amortization Inventories 6,199 0 0 0 Change in working capital Others 9,857 15,264 18,189 19,697 Other Current assets 243,115 302,482 345,736 398,128 Cash flow from operations LT investments - Capex Net fixed assets 48,436 54,085 79,158 81,841 Disposal/(purchase) Others - Cash flow from investing Total Assets 312,646 383,483 453,355 507,893 Free cash flow Liabilities Equity raised/(repaid) ST Loans 0 0 0 0 - Debt raised/(repaid) Payables 455 241 354 369 - Other Others 36,394 47,675 56,886 56,778 - Dividends paid Total current liabilities 36,394 47,675 56,886 56,778 - Cash flow from financing Long-term debt 0 0 0 0Other liabilities 3,211 1,221 1,219 1,196 - Net change in cash Total Liabilities 39,605 48,896 58,105 57,974 - Beginning cash Shareholders' equity 273,041 334,587 395,250 449,919 - Ending cash Source: Company reports and J.P. Morgan estimates.
FY11 42.1% 32.6% 29.5% 24.8% 0.0% 12.7% 20.8% 17.1% 9.7% 9.6% -65.4% -61.6% 0.93 6.98 26.6% 48.9% -
FY12 41.2% 31.7% 28.9% 24.6% 0.0% 12.3% 22.5% 20.2% 21.5% 21.5% -69.0% -62.7% 0.97 7.89 27.3% 47.0% -
FY13E 38.1% 29.0% 26.2% 22.7% 0.0% 11.9% 18.2% 7.2% 8.9% 8.9% -64.2% -59.3% 0.95 7.17 24.7% 40.5% -
FY14E 38.0% 29.0% 26.1% 21.9% 0.0% 11.9% 9.2% 8.8% 5.3% 5.3% -66.1% -62.1% 0.90 7.01 22.5% 39.9% -
FY11 FY12 FY13E FY14E 68,233.3 82,883.8 90,300.7 95,048.7 8,604 9,360 11,013 12,464 -15,763 -227 -8,694 -7,735 0 0 0 0 61,074 92,017 92,619 -7,735 -12,633 -15,010 -36,085 -2,682 0 0 0 0-11,279 -20,830 -37,631 -2,145 48,440 77,007 56,534 -10,418 -2,023 5,210 2,020 83,239 0 0 0 0-336 -1,990 -2 -23 -33,878 -26,548 -31,657 -28,570 -36,237 -23,328 -29,639 54,646 13,558 158,587 172,145 47,860 168,097 215,957 25,349 209,676 235,025 44,765 234,245 279,010 -
489
IOI Corp.
www.ioigroup.com
Company overview IOI Corp is the second largest plantations company by market cap in Malaysia, with 157,045ha of planted land-bank, 95% of which is in Malaysia with 5% in Indonesia. IOI is also involved in downstream manufacturing operations (i.e. refining, oleochemicals, specialty fats), and property development in Malaysia and Singapore. In FY12, plantations contributed 63% to operating profits, followed by property development and investment at 27% and downstream manufacturing at 10%. Investment case Growth for IOIs domestic plantation operations have peaked, while exposure to its stronger growth Indonesian estates can be obtained via 30%-owned Singapore listed, Bumitama. The environment remains competitive for downstream, while its overseas property forays are not without risk, with high capital commitments involved. Key issues in an anemic growth environment Average CPO output growth of 3% pa domestically over FY12-14E lags behind ASEAN peers, while contributions from its Indonesian estates acquired in 2007 are expected to remain small over FY13-14E despite their aggressive expansion mode. The recent US$600MM bond issue will largely be utilized for its overseas property projects (Singapore, China) where earnings contributions are unlikely to be material before FY14/15. Prospects remain challenging for the downstream unit though its exposure to specialty fats, where demand is more resilient, should mitigate risk here. Earnings risks in 2013 Our CPO forecast is M$2,900/t for 2013E (M$3,170/t for 2012E). Stronger- or lowerthan-expected CPO prices are thus a key risk to earnings. Every 10% change in the CPO price versus our forecast would impact our FY13E earnings by 9%. Price target, and risks to our investment view Our Jun-13E PT of M$4.60 is based on SOTP, which implies a 2013E P/E of 15x (historical mean: 17.7x). Key upside risk to PT is potential value accretion or special dividends from plans to re-list its property arm though this is a longer-term plan.
IOI Corporation Berhad (Reuters: IOIB.KL, Bloomberg: IOI MK) M$ in mn, year-end Jun FY11A FY12A FY13E Revenue (M$ mn) 16,154 15,640 16,455 Reported Net Profit (M$ mn) 2,223 1,789 1,941 Core Net profit (M$ mn) 2,043 1,761 1,941 Reported EPS (M$) 0.35 0.28 0.30 Adj. EPS (M$) 0.32 0.27 0.30 Net DPS (M$) 0.17 0.16 0.18 Revenue growth (%) 28.8% -3.2% 5.2% Adj. EPS growth (%) 21.3% -13.9% 10.2% ROE (%) 19.5% 14.5% 14.9% ROCE (%) 18.1% 13.2% 13.0% Adj P/E (x) 15.9 18.4 16.7 P/B (x) 2.6 2.5 2.4 EV/EBITDA (x) 11.0 13.3 12.5 Net Div yield (%) 3.4% 3.1% 3.5%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: M$5.05 Price Target: M$4.60
Abs Rel
1m -0.4% 0.5%
3m -1.6% -2.5%
Source: Bloomberg.
FY14E 17,306 1,982 1,982 0.31 0.31 0.19 5.2% 2.2% 14.3% 12.9% 16.4 2.2 12.5 3.8%
FY15E 18,266 2,175 2,175 0.34 0.34 0.20 5.5% 9.7% 14.8% 13.5% 14.9 2.1 11.8 4.0%
Company Data Shares O/S (mn) Market cap (M$ mn) Market cap ($ mn) Price (M$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (M$ mn) Average 3m Daily Turnover ($ mn) FBMKLCI Exchange Rate Fiscal Year End
6,430 32,466 10618 5.05 07 Nov 12 43.2% 2.78 14.06 5.11 1,646 3.06 Jun
490
Cash flow statement FY12 FY13E FY14E FY15E M$ in millions, year end Jun 15,640 16,455 17,306 18,266 Operating profit (3.2%) 5.2% 5.2% 5.5% Depr. & amortization 2,520 2,717 2,739 2,956 Change in working capital NM 7.8% 0.8% 7.9% Taxes paid 16.1% 16.5% 15.8% 16.2% Cash flow from operations -141 -166 -166 -168 2,379 2,551 2,573 2,787 Capex -16.9% 7.3% 0.9% 8.3% Net Interest -550 -561 -540 -557 Free cash flow 23.1% 22.0% 21.0% 20.0% 1,789 1,941 1,982 2,175 Equity raised/(repaid) -19.5% 8.4% 2.2% 9.7% Debt raised/(repaid) 1,761 1,941 1,982 2,175 Other -13.8% 10.2% 2.2% 9.7% Dividends paid 6,428 6,428 6,428 6,428 Beginning cash 0.27 0.30 0.31 0.34 Ending cash -13.9% 10.2% 2.2% 9.7% DPS 0.16 0.18 0.19 0.20 -8.8% 13.1% 8.1% 5.6% Ratio Analysis FY11 FY12 FY13E FY14E FY15E M$ in millions, year end Jun 2,786 4,361 3,568 2,831 2,184 EBIT Margin 1,756 1,704 1,793 1,885 1,990 Operating margin 2,652 2,511 2,642 2,779 2,933 Net margin 510 610 456 476 498 SG&A/Sales 7,703 9,186 8,459 7,972 7,606 Sales per share growth LT investments 1,995 3,353 3,420 3,489 3,562 Sales growth Net fixed assets 5,677 5,714 6,657 7,596 8,529 Net profit growth Total Assets 19,655 23,065 23,463 24,099 24,858 EPS growth Liabilities Interest coverage (x) ST Loans 791 830 603 645 689 Net debt to total capital Payables 1,192 1,244 1,306 1,385 1,455 Net debt to equity Others 116 55 55 55 55 Sales/assets Total current liabilities 2,288 2,332 2,166 2,288 2,402 Assets/equity Long-term debt 4,606 7,292 6,992 6,692 6,392 ROE Other liabilities 499 525 525 525 525 ROCE Total Liabilities 7,394 10,149 9,683 9,504 9,319 Minorities 262 288 338 388 443 Shareholders' equity 11,999 12,628 13,442 14,207 15,096 BVPS 1.92 2.02 2.15 2.27 2.41 Source: Company reports and J.P. Morgan estimates.
FY11 2,816 246 -1,162 -539 2,694 -1,320 -123 693 88 640 -88 -1,092 3,877 2,786 0.17
FY12 FY13E FY14E FY15E 2,366 2,533 2,554 2,771 251 256 261 267 98 -5 -170 -210 -515 -521 -502 -521 1,855 2,513 3,222 3,222 -287 -141 -347 -164 2,724 12 -996 2,786 4,361 0.16 -1,200 -166 1,111 0 -527 0 -1,127 4,361 3,568 0.18 -1,200 -166 1,817 0 -257 -0 -1,217 3,568 2,831 0.19 -1,200 -168 1,811 0 -256 0 -1,286 2,831 2,184 0.20
FY11 18.5% 17.4% 13.8% 28.0% 28.8% 22.0% 21.3% 26.33 15.9% 21.8% 0.87 1.74 19.5% 18.1%
FY12 FY13E FY14E FY15E 16.1% 16.5% 15.8% 16.2% 15.1% 15.4% 14.8% 15.2% 11.4% 11.8% 11.5% 11.9% (3.3%) (3.2%) -13.8% -13.9% 19.61 19.7% 29.8% 0.73 1.83 14.5% 13.2% 5.2% 5.2% 10.2% 10.2% 17.91 19.3% 30.0% 0.71 1.75 14.9% 13.0% 5.2% 5.2% 2.2% 2.2% 18.10 21.2% 31.7% 0.73 1.70 14.3% 12.9% 5.5% 5.5% 9.7% 9.7% 19.15 22.4% 32.4% 0.75 1.65 14.8% 13.5%
491
JSW
www.jsw.pl
Company overview JSW is the biggest producer of high- quality coking coal in the EU. In 2011 the company sold 8.7mn tones of coking coal and 3.8 mn tones of thermal coal from five deep coal mines in Poland, which places it among the top ten quoted coking coal producers in the world. It is also the largest coke merchant in the EU with 3mn tones of coke sold in 2011. Investment case We rate JSW Underweight on weak fundamentals for coking coal. On our price deck which assumes an 18% recovery in hard coking coal prices from Q412 benchmark of $170/t the company is trading at 2.9x P/NPV. At a time of depressed coking coal and coke prices, JSWs trade unions continue to exert wage pressures, which raise challenges for the managements efforts to increase efficiency. Key issues in an anemic growth environment We see a risk that coking coal prices will take longer than one quarter to stabilize at US$ 200/t, as it needs demand spark from China, which accounts for 40% of global coking coal consumption. Earnings risks in 2013 High operating leverage translates to high bottom line sensitivity to revised prices and volumes. If hard coking coal prices fail to recover as we estimate and stay at $170/175/t, our 13E EPS estimate would fall by approx 20%. A more dynamic rebound in coking coal prices would improve 13E earnings outlook. Our 13E EPS would also be significantly impacted if coal sales volumes stay flat in 13E vs. assumed 5% growth. Price target, and risks to our investment view We use a target 2013E multiple of 4.7x EV/EBITDA, which is broadly in line with the current global mining peer group median. We then subtract net debt, provisions and employee benefit obligations to derive our Sep13 PT of zl90. The key upside risk is hard coking coal price recovery beyond $200/t, as well as productivity gains through the introduction of the sixth working day.
Jastrzbska Spka Wglowa S.A. (JSW.WA;JSW PW) FYE Dec 2011A 2012E Adj. EPS FY (zl) 16.94 9.52 DPS (Net) FY (zl) 5.38 4.76 Adj EBITDA FY (zl mn) 3,510 2,575 Adj P/E FY 5.1 9.1 EV/Adj EBITDA FY (zl) 3.1 4.2 Div Yield FY 5.6% 5.0% Revenue FY (zl mn) 9,377 9,141 Net Att. Income FY (zl mn) 2,087 1,118
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: zl 86.20 Price Target: zl 90
zl
Abs
YTD 0.7%
1m -7.8%
3m -6.0%
12m -6.1%
Source: Bloomberg.
Company Data Price (zl) Date Of Price Price Target (zl) Price Target End Date 52-week Range (zl) Mkt Cap (zl bn) Shares O/S (mn)
492
FY12E FY13E 2,789 2,952 1,329 1,287 828 819 26 26 4,971 5,084 6,495 6,776 14,156 14,576 188 1,846 677 2,523 241 2,449 5,213 8,943 74 188 1,826 677 2,504 241 2,475 5,220 9,356 78
4,923 6,214 10,611 13,617 102 1,508 714 2,222 8 2,279 4,509 6,103 54 188 1,836 677 2,514 241 2,419 5,174 8,443 69
Cash flow statement FY14E zl in millions, year end Dec 8,854 EBIT -0.0% Depreciation & amortization - Change in working capital & Other 2,246 Taxes -4.7% Cash flow from operations 25.4% 1,146 Capex -12.4% Disposals/(purchase) 12.9% Net Interest (23) Free cash flow 1,124 -12.2% Equity raised/repaid (270) Debt Raised/repaid 24.1% Dividends paid 843 Other -12.2% 117.4 Beginning cash 7.18 Ending cash (12.2%) DPS Ratio Analysis FY14E zl in millions, year end Dec 3,309 EBITDA margin (%) 1,287 Operating margin (%) 833 Net margin (%) 26 SG&A/Sales 5,455 Sales per share growth - Sales growth (%) 7,001 Attributable net profit growth (%) 15,205 EPS growth (%) 188 Interest coverage (x) 1,858 Net debt to Total Capital 677 Net debt to equity 2,535 Sales/assets (x) 241 Total Assets/Equity 2,507 ROE 5,284 ROCE 9,922 82
FY11 FY12E FY13E FY14E 2,666 1,517 1,308 1,146 (844) (1,059) (1,050) (1,100) (108) (14) 57 50 (487) (358) (308) (270) 3,403 2,561 2,416 2,296
(782) (1,277) (1,370) (1,358) (1,358) (40) (470) 0 0 0 (203) (77) (27) (28) (23) 1,414 1,089 806 722 646 -228 (131) 788 1,856 1.63 64 (300) 1,856 2,615 5.38 (632) 2,615 2,789 4.76 (559) 2,789 2,952 2.45 (288) 2,952 3,309 2.15 FY14E 25.4% 9.5% -
FY10 FY11 39.0% 37.4% 20.9% 22.3% 63.1% 63.1% -335.7% (335.7%)
17.5% -1.0% -3.1% -0.0% 28.6% -2.5% -3.1% -0.0% 37.0% -46.4% -14.1% -12.2% 25.1% (45.6%) (14.1%) (12.2%)
24.9 77.0 56.2 46.0 50.6 -27.5% -25.3% -25.8% -26.3% -28.3% 1.7 1.6 1.6 1.6 1.5 29.2% 28.7% 13.2% 10.8% 9.0% 28.5% 29.8% 16.3% 13.6% 11.7%
493
Underweight
Price: Rs62.85 Price Target: Rs54.00
Abs Rel
1m 1.9% 2.6%
3m 21.4% 13.4%
Source: Bloomberg.
FY13E 77,967 6,626 4.04 27.4% 100.0% 11.8% 9.5% 15.56 1.7 8.6
FY14E 87,705 6,778 4.13 12.5% 2.3% 12.1% 10.5% 15.21 1.5 7.5
Company Data Shares O/S (mn) Market cap (Rs mn) Market cap ($ mn) Price (Rs) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (Rs mn) NIFTY Exchange Rate Fiscal Year End
1,640 103,078 1,915 62.85 05 Nov 12 23.3% 1.86 104.57 5,697.70 53.81 Mar
494
Cash flow statement FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 42,944 61,188 77,967 87,705 87,249 EBIT 82.3% 42.5% 27.4% 12.5% (0.5%) Depreciation & Amortization 15,641 14,478 25,011 27,330 26,837 Tax 28.9% -7.4% 72.8% 9.3% -1.8% Other income 36.4% 23.7% 32.1% 31.2% 30.8% Decrease in WC 12,973 9,444 18,528 19,859 19,152 Operating CF 20.4% NM 96.2% 7.2% NM 30.2% 15.4% 23.8% 22.6% 22.0% Capex 1,332 1,466 1,242 644 812 Change in investments -4,325 -7,172 -9,253 -11,177 -10,413 Investing CF 9,979 3,738 10,516 9,326 9,551 Free cash flow 15.0% -62.5% 181.3% -11.3% 2.4% -1,563 -419 -3,448 -2,095 -2,116 Change in equity 15.7% 11.2% 32.8% 22.5% 22.2% Change in debt 8,416 1,701 5,637 6,778 6,986 Other financing activities 12.9% -79.8% 231.5% 20.2% 3.1% Financing CF 8,707 3,313 6,626 6,778 6,986 Change in cash 16.8% -61.9% 100.0% 2.3% 3.1% Opening cash 1,640 1,640 1,640 1,640 1,640 Closing cash 5.13 1.04 3.44 4.13 4.26 (0.6%) (79.8%) 231.5% 20.2% 3.1% 5.31 2.02 4.04 4.13 4.26 2.9% -61.9% 100.0% 2.3% 3.1% Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 64,214 109,450 135,082 136,193 128,508 Revenue growth 70,518 36,702 16,006 11,638 17,958 EBITDA growth 4,842 4,971 6,088 6,088 6,088 9,779 6,686 2,951 6,336 8,540 PAT growth 3,077 -18,653 -7,130 -8,021 -7,979 EPS growth 0 0 0 0 0 152,600 151,975 167,260 167,196 168,811 EBITDA margin Dividend payout ratio 93,227 92,897 102,889 96,551 91,686 16,401 16,401 16,401 16,401 16,401 40,364 40,600 45,281 51,103 57,133 Sales/GFA (x) 56,765 57,001 61,682 67,504 73,533 GFA/Equity (x) 1,562 1,292 1,465 1,465 1,465 Debt/Equity (x) 724 500 943 1,396 1,845 Net debt/Equity (x) 95,112 94,475 104,636 98,297 93,433 ROE (%) ROCE (%) 34.61 34.76 37.61 41.16 44.84
FY13E FY14E FY15E 18,528 19,859 19,152 6,483 7,471 7,685 -3448 -2095 -2116 1,242 644 812 -11,522 891 -42 10,293 26,770 25,491
-21,806 -16,471 -11,420 -4,213 -6,320 -12,303 -16,600 -12,536 -4,213 -6,320 -18,489 19,171 -1,126 22,556 19,171 4,423 -13,675 0 0 0 14,526 -330 9,993 -6,339 -4,864 -6,232 -8,129 -11,485 -12,832 -12,103 12,717 -22,134 -1,492 -19,171 -16,967 3,730 -3,093 -3,735 3,385 2,204 6,048 9,779 6,686 2,951 6,336 9,779 6,686 2,951 6,336 8,540
FY12 FY13E FY14E FY15E 42.5% 27.4% 12.5% (0.5%) -7.4% 72.8% 9.3% -1.8% 20.2% 20.2% 31.2% 12.1% 3.1% 3.1% 30.8% 11.7%
12.9% -79.8% 231.5% (0.6%) (79.8%) 231.5% 36.4% 19.5% 23.7% 48.2% 32.1% 14.5%
0.31 0.40 0.49 0.52 0.52 2.69 2.67 2.71 2.48 2.30 1.64 1.63 1.67 1.43 1.25 147.0% 151.2% 162.0% 133.6% 113.1% 16.1% 3.0% 9.5% 10.5% 9.9% 9.4% 6.3% 11.8% 12.1% 11.6%
495
Liberty Holdings
www.liberty.co.za
Company overview Liberty is a specialist life insurance company servicing the affluent and the middle class in a mature industry. Its in-force policies are predominantly unit linked regular premium savings products. Its sales are mostly intermediated. Investment case LBH is focused on the retail affluent market and sells almost exclusively through brokers. This market segment is exposed to relentless competitive forces, regulatory risk and economic conditions. This market segment is over-penetrated and has led the decline in volumes in SA life insurance (SA Life insurance penetration has reduced from 16% to 9% the past decade). LBHs tight capital position and low margins on asset-geared liabilities pose Solvency II risks in our view. The non-life businesses EV carrying values are demanding in our view, also reducing upside potential in the priceto-EV rating. LBHs new life business does not generate excess returns given its IRR of 11%. The ROEV is low despite debt, insurance and operational gearing. Key issues in an anemic growth environment Aggressive accounting, low levels of tangible capital, debt gearing and low-margin asset-geared business expose LBH to market weakness. Its cost overruns of c.R300m relative to EV assumptions could deteriorate if growth and markets disappoint. Earnings risks in 2013 The earnings are geared to market performance through low-margin life savings products, 90:10 profit share products, high beta asset management businesses, negative reserves, debt and corporate costs. Price target, and risks to our investment view Our target price is based on our SOTP valuation and the risk discount rate to the target price date. Our fair value is our current CAPM-based SOTP value. Risks to our view: Changes in the mix of products sold, intermediary remuneration, increased pricing and improved persistency could improve new business profitability although we already allow for margins to improve towards LBH's targets. 2. Strong markets 3. Improving lapse rates.
Liberty Holdings Ltd (LBHJ.J;LBH SJ) FYE Dec Adj. EPS FY (c) Headline EPS FY (c) Dividend (Net) FY (c) Gross Yield FY NAV FY (R mn) Headline P/E FY P/NAV FY Embedded value FY (R mn) 2011A 930.80 930.80 480.00 4.8% 13,636 10.7 2.1 28,639 2012E 1,104.47 1,104.47 500.00 5.0% 14,898 9.1 1.9 31,108 2013E 950.27 950.27 500.00 5.0% 16,084 10.5 1.8 33,354
Underweight
Price: 10,000c Price Target: 8,400c
(27-11) 507 0378 francois.x.dutoit@jpmorgan.com Bloomberg JPMA FTOIT<GO> J.P. Morgan Equities Ltd
P r ic e P e r fo r m a n c e
10,500 10,000 9,500 c 9,000 8,500 8,000 7,500
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 20.9%
1m -2.5%
3m 4.3%
12m 22.8%
Source: Bloomberg.
Company Data Price (c) Date Of Price Price Target (c) Price Target End Date 52-week Range (c) Mkt Cap (R bn) Shares O/S (mn) Free Float
496
Cash flow statement FY12E FY13E FY14E R in millions, year end Dec FY10 FY11 FY12E FY13E FY14E 1,181 885 911 Shares Outstanding 286.0 286.0 283.5 283.9 284.3 11.5% (25.0%) 2.9% 397 501 560 Basic EPS 907.67 930.80 1104.47 950.27 986.42 (5.3%) 26.2% 11.8% % change Y/Y 1823.7% 2.5% 18.7% (14.0%) 3.8% (129) (129) (129) DPS 455.00 480.00 500.00 500.00 500.00 0.0% 0.0% 0.0% % change Y/Y 0.0% 5.5% 4.2% 0.0% 0.0% 392 412 433 17.1% 5.0% 5.0% Payout Ratio 50.1% 51.6% 45.3% 52.6% 50.7% 1,578 1,386 1,471 NAV/Share 4,363.7 4,768.5 5,254.5 5,664.8 6,092.5 6.7% -12.1% 6.1% EV/Share 9,100.7 10,015.0 10,971.6 11,747.0 12,553.6 1,314 1,050 1,053 34.3% (20.1%) 0.3% ROE 19.1% 18.4% 20.2% 16.1% 15.6% 3,155 2,719 2,828 RONAV 22.4% 21.3% 23.1% 18.3% 17.6% 18.5% -13.8% 4.0% ROEV 10.8% 10.2% 11.0% 8.7% 8.5% Ratio Analysis FY11 FY12E FY13E FY14E R in millions, year end Dec FY10 FY11 FY12E FY13E FY14E 15,636 16,898 18,084 19,323 Key Ratios 4,562 1,592 1,683 1,794 Debt to NAV ratio (16.0%) (14.7%) (13.4%) (12.4%) (11.5%) 3,292 6,313 6,646 7,082 Value of New Business to EV 1.1% 1.6% 1.8% 1.9% 1.9% 2,397 3,525 3,798 4,124 Life Op'g margin on Assets 0.6% 0.5% 0.6% 0.4% 0.4% 5,853 6,029 6,619 7,098 AM Cost income ratio 56.1% 55.6% 55.2% 54.6% 54.7% 0 0 0 0 -2,000 -2,000 -2,000 -2,000 Life as % of Embedded Value 86.0% 84.4% 85.5% 85.0% 85.0% -467 -561 -662 -775 Non Life as % of Embedded Value 0.0% 0.0% 0.0% 0.0% 0.0% Banking as % of Embedded Value 0.0% 0.0% 0.0% 0.0% 0.0% 13,549 15,003 16,210 17,269 18,371 Asset Management as % of Embedded Value 19.8% 20.4% 19.4% 19.8% 19.9% Debt as % of Embedded Value (7.7%) (7.0%) (6.4%) (6.0%) (5.6%) 261.0 410.0 516.1 589.5 636.6 Other as % of Embedded Value 3.6% 2.6% 2.1% 1.6% 1.2% 197,031 208,565 236,627 256,955 279,290
497
Neutral
Price: HK$14.08 Price Target: HK$11.70
Abs Rel
1m 17.3% 11.2%
3m 26.6% 14.3%
Source: Bloomberg.
FY13E 42,992 6,189 6,189 1.14 1.136 16.4% 0.23 19.5% 10.0 1.8 6.32 2.0%
FY14E 51,789 7,205 7,205 1.32 1.322 16.4% 0.26 19.3% 8.6 1.5 7.42 2.3%
Company Data Shares O/S (mn) Market cap (Rmb mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3M - Average daily volume 3M - Average daily Value (HK$ mn) Average 3m Daily Turnover ($ mn) HSI Exchange Rate (HK$/US$) Fiscal Year End
5,427 61,770 9,858 14.08 02 Nov 12 24.0% 14.90 178.15 20.89 21,822 7.75 Dec
498
LT investments 8,389 9,302 Net fixed assets 20,095 20,914 Total Assets 97,260 114,311 Liabilities ST Loans 3,580 7,221 Payables Others 47,002 49,163 Total current liabilities 50,582 56,384 Long-term debt 15,646 18,425 Other liabilities 6,937 7,604 Total Liabilities 73,165 82,413 Shareholders' equity 21,941 29,150 BVPS 4.26 5.37 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 9,309 Sales growth 28,501 Net profit growth 125,842 EPS growth Interest coverage (x) 7,000 Net debt to total capital - Net debt to equity 51,824 Sales/assets 58,824 Assets/equity 12,718 ROE 9,881 ROCE 81,424 40,278 7.42
499
LSR
lsrgroup.ru
Company overview LSR is one of the leading developers and building materials producers in Russia. Its operations are concentrated in St. Petersburg, Moscow, Moscow regions and the Urals. A distinct feature of the business model is vertical integration the company produces construction materials (cement, concrete, bricks) for its own needs and for third parties, acts as a construction company and develops high end and mass market properties. Investment case LSR outperformed the Russian market in 2012 (+45% ytd vs. +4% for MSCI Russia) on the ongoing recovery of the real estate market. Notably, the shares remain a source of beta, outperforming during market rise and underperforming in the downturns. We do not see company-specific catalysts that would justify further outperformance. On our more conservative estimates LSR trades on premium multiples, leaving fundamentals-oriented investors little upside. We thus recommend taking profits ahead of possible earnings downgrades by the sell-side (our forecasts are c.30% below Bberg consensus). Key issues in an anemic growth environment In 2013 we expect real estate market growth rates to slow as property prices have reached pre-crisis highs and affordability may suffer, meaning more competition among developers in the most lucrative geographies (Moscow region, St. Petersburg). Earnings risks in 2013 LSR plans to make up for lost market share in 2013, which may require margin sacrifices, in our view. Besides, the increasing share in the mix of projects at early stages of completion will likely mean lower profitability, we expect. Price target, and risks to our investment view We use an SOTP valuation to arrive at a PT for LSR: the companys business segments are valued using 10-year DCF models (16% COE, 13.3% WACC, 3% terminal growth rate) and the result is adjusted for the present value of inter-segment eliminations and unallocated expenses, net debt and minority interest. We derive a Dec-13 PT of $5.30/GDR for LSR. Key upside risks to our rating and target price are higher than expected sales volumes, prices and margins in LSRs business segments (real estate and building materials/aggregates), and a lower effective tax rate (we assume 30% in the model).
LSR Group (LSRGq.L;LSRG LI) FYE Dec 2011A Adj. EPS FY ($) 0.15 EBITDA FY ($ mn) 345 EBITDA margin FY 19.5% Net Attributable Income 84 FY ($ mn) Adj P/E FY 31.5 EV/EBITDA FY 10.8 ROE FY 4.8% FCF Yield FY -0.1% 2012E 0.23 415 21.3% 119 21.3 9.0 6.4% -3.6% 2013E 0.35 462 20.9% 181 14.0 8.1 8.2% 4.8% 2014E 0.43 510 18.2% 223 11.3 7.3 9.2% 13.2% 2015E 0.51 554 18.6% 267 9.5 6.7 9.9% 11.8%
Underweight
Price: $4.85 Price Target: $5.30
(7-495) 967-3888 elena.jouronova@jpmorgan.com Bloomberg JPMA JOURONOVA<GO> J.P. Morgan Bank International LLC
P r ic e P e r fo r m a n c e
6.0 5.5 5.0 $ 4.5 4.0 3.5 3.0
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 44.6%
1m -3.5%
3m 16.1%
12m 8.3%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
500
0 0 0 0 0 191 -50 -100 -250 -200 (70) 0 0 0 0 0 0 1 2 3 45 163 23 47 134 163 23 47 134 238 FY11A FY12E FY13E FY14E FY15E 28.2% 29.8% 31.1% 28.7% 29.7% 19.5% 21.3% 20.9% 18.2% 18.6% 15.1% 15.2% 16.9% 14.9% 15.3% 4.5% 6.0% 8.1% 7.9% 8.8% -13.4% -14.6% -14.1% -13.8% -14.4% 7.4% 10.1% 13.6% 26.9% 6.4% 20.6% 20.3% 11.5% 10.3% 8.6% 36.4% 47.9% 51.7% 23.6% 19.4% 36.4% 47.9% 51.7% 23.6% 19.4% 1.9 26.6% 62.5% 0.4 2.4 4.8% 9.2% 2.3 29.6% 66.3% 0.5 2.2 6.4% 10.1% 3.1 24.4% 50.8% 0.5 2.1 8.2% 11.9% 4.1 17.2% 32.2% 0.6 1.9 9.2% 13.2% 5.7 10.2% 17.9% 0.6 1.8 9.9% 14.1%
ST loans 87 250 Payables 987 977 Others 10 10 Total current liabilities 1,084 1,237 Long term debt 1,122 1,000 Other liabilities 58 58 Total liabilities 2,265 2,296 Shareholders' equity 1,676 1,852 Source: Company reports and J.P. Morgan estimates.
501
Underweight
Price: PhP268 Price Target: PhP225.00
Abs Rel
1m -3.2% -3.2%
3m 0.7% -1.7%
Source: Bloomberg.
FY13E 273,156 18,388.3 16.50 7.75 6.7% 6.5% 30.0% 24.6% 16.2 3.7 -1.2 2.9%
FY14E 291,612 18,352.3 16.47 8.25 6.7% -0.2% 27.3% 21.6% 16.3 3.3 -1.6 3.1%
Company Data Shares O/S (mn) Market cap (Php mn) Market cap ($ mn) Price (Php) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Php mn) 3M - Avg daily Value (USD) ($ mn) PSE Exchange Rate Fiscal Year End
1,127 302,063 7,314 268.00 07 Nov 12 10.0% 0.41 108.98 2.43 5,437 41.30 Dec
502
Revenues Purchased Power Admin & O&M costs Cost of Generated Power Cost of services Depreciation EBITDA (excl. Associates) Total EBITDA EBIT Interest expenses Interest income Earnings before tax Non-recurring income Tax Profit after tax Less: Minority Interest Recurring Net Income Balance sheet Php in millions, year end Dec EBITDA margin Operating margin Sales growth Net profit growth No of shares - year end Recurring EPS DPS Dividend payout ratio BVPS Debt / Equity Net debt to equity ROE ROCE EBITDA/Net Interest
-493 -1,445 -3,616 -3,312 1,719 2,264 1,835 2,003 14,437 19,642 25,416 27,085 0 0 0 0 -4,320 -5,939 -7,685 -8,190 9,685.0 13,283.6 17,270.1 18,388.3 -432 -419 -461 -507 FY10 9.4% 6.8% 32.8% 61.3% 1,115 5.55 63.9% FY11 12.5% 10.3% 4.6% 37.2% 1,115 8.85 74.3% FY12E 13.0% 10.4% 0.8% 30.0% 1,115 5.96 38.5% FY13E 12.7% 10.2% 6.7% 6.5% 1,115 7.75 47.0%
56.70 52.57 62.51 71.72 0.33 0.42 0.28 0.22 -5.2% -33.7% -44.6% -54.0% 15.6% 21.8% 26.9% 24.6% 20.4% 31.8% 31.2% 30.0% - 18.89 26.84
Balance sheet Php in millions, year end Dec Share capital Reserves & Surplus Shareholders' equity Minorities Long-term debt - Customer deposits - Other Non-current liabilities - Total Non-current liabilities -7,367 Property, plant and equipment Investments & advances to associates 34,618 Goodwill Other non-current assets 35,110 27,744 Current assets Cash and Bank balances -3,179 Accounts receivable 2,208 Other current assets 27,106 Current liabilities 0 Accounts Payables -8,196 Current portion of debt 18,352.3 Others -558 Total Assets Ratio Analysis FY14E Php in millions, year end Dec 11.9% EBITDA (excl. Associates) 9.4% Associate earnings 6.7% Less: Net Interest -0.2% Less: Tax Less: Change in working capital 1,115 Cash flow from operations 8.25 Capital Expenditure 50.1% Investments Cash flow from investments 80.43 Free cash flow 0.18 -61.9% Repayment of debt 21.6% Dividends paid to shareholders 27.3% Equity raised / write-offs / others 36.17 Cash flow from financing Exchange rate Movement in Net debt/Net cash
111,608 107,996 101,340 102,115 102,315 55,757 24,370 25,609 3,735 54,706 49,132 178,968 77,424 44,141 29,108 2,500 53,042 48,482 192,039 84,388 50,862 29,337 2,500 44,084 42,084 192,347 96,585 60,978 31,305 2,500 47,168 45,168 205,319 109,177 71,333 33,420 2,500 50,494 48,494 218,111
FY10 FY11 FY12E FY13E FY14E 21,251 31,415 33,036 34,587 34,618 169 1,365 -391 1,003 1,090 20,358 31,167 32,280 26,910 27,299 -8,510 -8,343 -7,796 -7,287 -7,000 -110 -251 -500 -500 -500 -6,292 -6,816 -8,296 -7,787 -7,500 11,848 22,824 24,484 19,623 20,299 -2,407 3,304 -4,560 -2,000 -2,000 -6,187 -9,866 -6,642 -8,635 -9,194 0 0 0 0 0 -6,764 -4,580 -17,263 -9,007 -9,444 7,302 19,771 6,721 10,116 10,355
503
Marfrig
www.marfrig.com.br
Underweight
Price: R$10.55
Company overview Marfrig (MRFG3) has moved from being a Brazilian beef player with $5bn annual revenues in 2009 to becoming a $12bn revenue company in just three years solely via acquisitions. It is today the second largest beef player after JBS in Brazil and is also the countrys largest poultry and pork player after Brasil Foods. It is also the largest poultry producer in the UK. Key drivers of underperformance going forward The asset swap with Brasil Foods seemed positive for Marfrig as well as cattle/beef price trends in YTD2012. Yet, high working capital needs plus interest expenses have not led to any FCF so far. In 2013, we believe its unlikely that a major trend reversal of this situation would take place. This plus the fact that Marfrig is highly leveraged at ~5x net debt/EBITDA (including the R$2.5bn convertibles) should continue to hinder its earnings growth. Also, although new equity issuance may lead to a reduction in debt, it would likely be earnings dilutive in the near term. Net net, we see limited positive catalysts for MRFG3 to outperform the sector. How much of the bad news is already been priced in? MRFG3 is up +15% year to date despite negative earnings so far, and it is currently trading at 6.7x EV/EBITDA for 2013E. If commodity prices continue to surge, cattle prices rise faster than beef, and working capital further deteriorates, then Marfrig may continue to face speed bumps in its deleveraging process. Another year of negative FCF might trigger another round of underperformance for the stock, in our view. Where could earnings surprise come from in 2013? Upside could come from the sustainment of the current high level of beef margins; reduction in working capital leading to consistent quarters of FCF generations. Other risks would be from positive tax rates, further weakening of the real, and lower commodity prices. Also lifting tariffs would be a key upside risk. We use a DCF-derived PT for Marfrig, which shows no upside Using 3% perpetuity growth and WACC of 12.6%, our DCF model indicates a Dec 13 PT of R$10 for MRFG3, implying ~10% downside. Some risks to our relative skepticism would be as mentioned above, fluctuations in commodity prices, improving export demand, or a rise in its interest rates, which impacts its financial expenses.
Marfrig Frigorificos e Comercio de Alimentos SA (MRFG3.SA;MRFG3 BZ) 2011A 2012E EBITDA (R$ mn) FY 1,774 2,143 Revenue FY (R$ mn) 21,885 23,752 EV/EBITDA (x) FY 8.8 7.3 P/E (x) FY NM 77.3 ROCE FY 7.3% 16.9% Bloomberg EBITDA FY (R$ 1,504 1,947 mn)
Source: Company data, Bloomberg, J.P. Morgan estimates.
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Market Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
504
FY11A FY12E FY13E FY14E Income Statement - Quarterly 21,885 23,752 26,344 28,895 Revenues (17,794) (19,488) (21,577) (23,732) Cost of goods sold 3,143 3,458 3,882 4,192 Gross profit (2,317) (2,122) (2,535) (2,630) SG&A (948) (806) (885) (970) D&A 826 1,337 1,346 1,562 Operating income 1,774 2,143 2,231 2,533 EBITDA (2,103) (1,635) (1,244) (1,388) Other income / (expense) (1,277) (298) 102 174 Pretax income 530 336 (35) (61) Income taxes (743) 49 67 112 Net income - GAAP (743) 49 67 112 Net income - recurring 347 347 347 347 Diluted shares outstanding (2.14) 0.14 0.19 0.32 EPS - GAAP (2.14) 0.14 0.19 0.32 EPS - recurring FY11A FY12E FY13E FY14E Ratio Analysis 3,477 3,891 3,669 3,778 Sales growth 1,303 1,473 1,562 1,713 EBITDA growth 3,238 3,661 3,957 4,424 EPS growth 1,341 1,516 1,608 1,763 9,359 10,541 10,795 11,678 Gross margin 7,095 7,344 7,289 7,272 EBIT margin 23,824 25,244 25,567 26,526 EBITDA margin Tax rate 10,603 11,663 11,530 11,753 Net margin 17,925 19,502 19,809 20,714 5,734 5,620 5,636 5,690 Net debt / EBITDA Net debt / capital (book) (747) 49 67 112 948 806 885 970 Return on assets (ROA) (78) (102) (266) (271) Return on equity (ROE) (4) (12) 1 1 Return on invested capital (ROIC) (270) (203) 795 898 (938) (823) (830) (954) 954 1,731 867 845 (1,488) (308) (870) (994) 1,359 925 (146) 204 0.00 0.00 0.04 0.06
1Q12A 2Q12A 3Q12E 4Q12E 5,233A 5,818A 6,159 6,542 (4,429)A (4,965)A (5,289) (5,610) 803A 853A 870 932 (579)A (286)A (590) (667) 224A 568A 280 265 224A 568A 280 265 (250)A (846)A (316) (145) (25)A (279)A (35) 120 54A 288A 0 (6) 34A 16A (35) 114 34A 16A (35) 114 347A 347A 347 347 0.10A 0.04A (0.10) 0.33 0.10A 0.04A (0.10) 0.33 FY11A FY12E FY13E FY14E 37.8% 8.5% 10.9% 9.7% 20.9% 20.8% 4.1% 13.5% (608.6%) (106.6%) 36.1% 66.1% 14.4% 14.6% 3.8% 5.6% 8.1% 9.0% (41.5%) (112.7%) (3.4%) 0.2% 401.7% 44.7% (3.2%) (12.3%) 7.3% 14.7% 5.1% 8.5% 33.7% 0.3% 14.5% 5.4% 8.8% 35.2% 0.4%
362.7% 352.3% 314.9% 46.2% 45.6% 46.1% 0.2% 0.9% 16.9% 0.3% 1.2% 5.2% 0.4% 2.0% 5.9%
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
505
Mobile Telesystems
www.mtsgsm.com
Company overview MTS is Russias leading mobile operator (both by revenue and number of subs). While the operator has telecom exposure in Ukraine and a few other CIS countries, a lions share of revenues is still generated in Russia. In mid-2012 MTS received FDD nationwide LTE licenses in Russia and already launched LTE in Moscow via TDD technology. The operator rapidly expanding a fixed-line business across the country and has the third-largest handset distribution chain in Russia. Investment case We like MTS's operating performance and FCF generation, but we are UW on the stock as we think the operator may face regulatory and competitive headwinds in early 2013. With the upcoming IPO of Megafon we think many current MTS shareholders may choose to divide their Russian exposure, which is likely to weigh on MTS shares in the coming months. Key issues in an anemic growth environment We forecast MTS to offer defensive characteristics of c6% dividend yield and steady growth prospects of 5% top-line CAGR in RUB terms during 2011-14E. Our estimates for 2012 are broadly inline with both management guidance and Bloomberg consensus. Additionally we think that the operator's ability to drastically reduce capex as a share of sales remains questionable as MTS enters a new stage of an LTE network roll-out. Earnings risks in 2013 Key upside risk for MTS shares include better macro conditions, beneficial regulatory changes, and improving dividend payout. Additionally we think that continued benign competition and further market repair may result in re-rating of MTS shares. Key shortterm catalyst would also include resumption of Uzbek operations and delay/cancellation of the Megafon IPO. Price target, and risks to our investment view Our end-13 (recurring FCF-yield based) PT (ex-div) is $20.5/ADR. Our price target is derived using a 2013E recurring FCF yield of 11% since this is approximately the average multiple that mature peers in Western Europe trade on.
Mobile Telesystems (MBT;MBT US) FYE Dec Adj. EPS FY ($) EV/EBITDA FY EV/Revenue FY Revenue FY ($ mn) EBITDA FY ($ mn) EBITDA margin FY EBIT FY ($ mn) DPS (Net) FY ($) 2011A 1.40 5.3 2.2 12,319 5,144 41.8% 2,809 1.20 2012E 1.57 5.3 2.3 12,123 5,131 42.3% 2,811 1.01 2013E 1.66 5.2 2.2 12,391 5,169 41.7% 2,795 1.40
Underweight
Price: $17.04 Price Target: $20.50
Abs
YTD 11.8%
1m -1.1%
3m -11.2%
12m 14.5%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn) Free Float
506
Cash flow statement FY12E FY13E FY14E FY15E $ in millions, year end Dec 12,123 12,391 13,130 13,935 Cash EBITDA -1.6% 2.2% 6.0% 6.1% Interest 5,131 5,169 5,496 5,870 Tax -0.3% 0.7% 6.3% 6.8% Other 42.3% 41.7% 41.9% 42.1% Cash flow from operations 2,811 2,795 3,061 3,428 0.1% -0.6% 9.5% 12.0% Capex PPE 23.2% 22.6% 23.3% 24.6% Net investments 731 749 721 733 CF from investments 2,184 2,292 2,591 2,961 Dividends 4.0% 4.9% 13.1% 14.3% Share (buybacks)/ issue 1,623 1,713 1,938 2,215 12.4% 5.5% 13.2% 14.3% CF to Shareholders 1033.0 1033.0 1033.0 1033.0 FCF to debt 1.57 1.66 1.88 2.14 12.4% 5.5% 13.2% 14.3% OpFCF (EBITDA - PPE) 1.01 1.40 1.57 1.66 EFCF pre Div, PPE Ratio Analysis FY12E FY13E FY14E FY15E $ in millions, year end Dec 824 842 892 947 EBITDA margin 822 852 916 986 EBIT Margin 783 801 848 900 Net profit margin 971 1,017 1,091 1,254 Capex/sales 3,399 3,511 3,747 4,087 Depreciation/Sales 3,276 2,585 2,337 2,146 8,548 9,139 9,565 9,884 Revenue growth 15,223 15,236 15,650 16,118 EBITDA Growth 1,105 1,105 1,105 1,105 EPS Growth 815 833 691 719 1,401 1,859 1,970 2,090 Net debt/EBITDA 3,320 3,796 3,765 3,914 CF to Shareholders 7,576 7,154 7,214 6,957 FCF to debt 547 559 592 629 11,443 11,509 11,571 11,499 OpFCF (EBITDA - PPE) 3,780 3,726 4,079 4,619 EFCF pre Div, PPE
FY11 5,144 (594) (532) 9 9,171 (2,807) 128 (2,679) (1,240) 297 (943) 405 2,337 1,348 FY11 41.8% 22.8% 11.7% 22.8% 0.2 9.1% 8.6% 4.6% 1.3 (943) 405 2,337 1,348
FY12E 5,131 (495) (491) (132) 9,145 (2,737) 250 (2,487) (1,040) 0 (1,040) 486 2,394 1,526 FY12E 42.3% 23.2% 13.4% 22.6% 0.2 -1.6% -0.3% 12.4% 1.4 (1,040) 486 2,394 1,526
FY15E 5,870 (467) (711) (84) 10,479 (2,532) 250 (2,282) (1,713) 0 (1,713) 614 3,338 2,326 FY15E 42.1% 24.6% 15.9% 18.2% 0.2 6.1% 6.8% 14.3% 1.1 (1,713) 614 3,338 2,326
(2,614) (2,573) 250 250 (2,364) (2,323) (1,444) (1,623) 0 0 (1,444) (1,623) 707 289 2,555 2,151 FY13E 41.7% 22.6% 13.8% 21.1% 0.2 2.2% 0.7% 5.5% 2,922 1,911 FY14E 41.9% 23.3% 14.8% 19.6% 0.2 6.0% 6.3% 13.2%
1.3 1.2 (1,444) (1,623) 707 289 2,555 2,151 2,922 1,911
507
Underweight
Price: 267p Price Target: 260p
Abs
YTD -45.2%
1m -1.3%
3m -9.7%
12m -47.0%
Source: Bloomberg.
Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap ( bn) Shares O/S (mn)
Cash flow statement FY14E in millions, year end Dec 1,551 EBIT 6.7% Depreciation & amortization 23.9% Change in working capital & Other 371 Taxes 20.6% Cash flow from operations 23.9% 194 Capex 48.5% Disposals/(purchase) 12.5% Net Interest (68) Free cash flow 126 113.6% Equity raised/repaid (37) Debt Raised/repaid 29.0% Dividends paid 89 Other 113.6% 274.4 Beginning cash 0.32 Ending cash 113.6% DPS Ratio Analysis FY14E in millions, year end Dec 493 EBITDA margin (%) 200 Operating margin (%) 79 Net margin (%) 7 SG&A/Sales 778 Sales per share growth 0 Sales growth (%) 431 Attributable net profit growth (%) 2,359 EPS growth (%) 122 Interest coverage (x) 197 Net debt to Total Capital 65 Net debt to equity 384 Sales/assets (x) 780 Total Assets/Equity 27 ROE 1,534 ROCE 825 3
FY10 298 170 (48) 9 420 (219) 125 (51) 159 0 -200 (56) 0 548 529 0.00 FY10 29.4% 23.3% 14.9% -
FY11 FY12E FY13E FY14E 278 80 131 194 176 177 177 177 (72) (35) 21 (18) (56) (38) (17) (37) 382 222 329 353 (194) 1 (57) 75 0 77 (141) 0 529 537 0.00 (210) 0 (53) (79) 0 -7 (35) 0 537 415 (168) 0 (72) 72 0 -14 (10) 0 415 463 (172) 0 (68) 76 0 -14 (33) 0 463 493 -
FY11 FY12E FY13E FY14E 27.8% 18.8% 21.1% 23.9% 16.9% 5.8% 9.0% 12.5% 7.9% 1.4% 2.9% 5.7% -
36.2% 2.9% -16.1% 6.6% 6.7% 42.4% 2.7% -16.5% 6.6% 6.7% -485.1% -45.6% -85.5% 122.8% 113.6% (330.7%) (20.7%) (85.6%) 122.8% 113.6% 2.6 3.1 1.5 1.8 2.9 29.0% 34.7% 41.2% 37.1% 33.2% -40.8% -53.2% -69.9% -59.0% -49.7% 0.7 0.7 0.6 0.6 0.7 2.8 3.2 3.1 3.0 2.9 23.9% 16.6% 2.5% 5.5% 11.2% 22.1% 19.6% 5.3% 8.8% 12.9%
509
NII Holdings
www.nii.com
Company overview NII Holdings (NIHD) provides wireless push-to-talk services in Latin America using an iDen network, and recently it started to implement and ramp-up a new infrastructure based on 3G. NIHDs largest operations are in Brazil and Mexico, and the company is also present in Argentina, Peru, and Chile. The company has a niche approach focusing on high-end postpaid users. Key drivers of performance in this equity market recovery Deterioration in the client base, margin pressure, and leverage should be the key drivers of performance in 2013, in our view, as NIHD is facing a tough competitive environment coupled with high expenses related to its 3G launch. We expect 2013 to be a tough year for the shares as the first positive results from new 3G network should appear in 2014. How much recovery has already been priced in, what are the key metrics? Despite a 70% decline in share price, NIHD still trades in line with its five-year historical EV/EBITDA multiples (1yr fwd) given contraction in reported and expected EBITDA as competitive intensity is driving prices down and increasing disconnection rates, while implementation of the 3G network is generating expenses that still have no associated revenues. Wheres the earnings risk for 2013? There is significant earnings volatility in NIHDs earnings projections for 2013 given declining revenue trends and difficulties to reduce costs as the company struggles to maintain its current iDen operations in a very competitive environment, especially in Brazil, while at the same time ramping up its 3G operations. Key recovery risks NIHD might surprise to the upside if a successful implementation of 3G takes place and the company is able to regain traction in mobile net adds. Also, lower competitive intensity in the high-end postpaid segment in Brazil might help to halt revenue erosion t th
NII Holdings Inc. (NIHD;NIHD US) FYE Dec 2011A EPS FY ($) 1.15 Bloomberg EPS FY ($) 1.52 Revenues FY ($ mn) 6,719 EBITDA FY ($ mn) 1,558 EBITDA Margin FY ($) 23% P/E FY 5.0 2012E (1.74) (1.17) 6,104 942 15% NM 2013E (1.54) (0.87) 5,990 978 16% NM 2014E (1.48) (0.46) 6,095 1,118 18% NM 2015E (2.03) 6,166 1,134 18% NM
Neutral
Price: $4.94
Source: Bloomberg.
Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Div. Yield Debt/Total Capital
510
FY11A FY12E FY13E FY14E FY15E 6,719 6,104 5,990 6,095 6,166 (5,161) (5,162) (5,012) (4,977) (5,032) 1,558 942 978 1,118 1,134 23% 15% 16% 18% 18% (653) (713) (806) (951) (1,048) 905 229 172 166 87 (288) (318) (303) (309) (322) (37) (29) (24) (24) (24) 542 (159) (159) (148) (242) (343) (141) (106) (106) (106) 0 0 0 0 0 199 (300) (264) (254) (348) 199 (299) (264) (254) (348) 173 172 172 172 172 1.15 (1.74) (1.54) (1.48) (2.03) 1.15 (1.74) (1.54) (1.48) (2.03) 20.0% (9.2%) (1.9%) 1.8% 1.2% 8.9% (39.5%) 3.7% 14.3% 1.5% (41.7%) (251.0%) (11.9%) (4.0%) 37.2% 578.1% 19.5% (52.3%) (22.8%) (63.5%)
FY11A FY12E FY13E FY14E FY15E (1,454) (1,450) (1,200) (1,214) (925) 200 (198) (0) (0) (0) (1050.56) (1254.95) (598.54) (462.13) (168.76) 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% FCF yield 0 0 0 0 0 Dividend yield 0 0 0 0 0 ROE 2.2 2.0 1.5 1.3 0.9 Net revenue/Assets 21.6% 23.8% 20.0% 19.9% 15.0% Assets/Equity 109 307 307 307 307 1.6% 5.0% 5.1% 5.0% 5.0% ROIC 3.0% (4.9%) (4.4%) (4.2%) (5.6%) Shares ADRs Lines in Service 0 0 0 0 0 Broadband Subs 0.0 0.0 0.0 0.0 0.0 Broadband Net Adds 0 0 0 0 0 WACC Mobile Subs 10,712 11,404 12,386 13,325 14,409 Perpetual Growth Mobile Net Adds 1,684 692 982 940 1,084 Cost of equity Mobile ARPU 48 39 35 33 31 Cost of debt Mobile MOU 0 0 0 0 0 Subsidiary Share PayTV subs 0.0 0.0 0.0 0.0 0.0 Fx, Avg 1.00 1.00 1.00 1.00 1.00 Quarterly Data 1Q12A 2Q12A 3Q12A 4Q12E Quarterly Data Revenue Revenue Net Income Net Income EPS EPS Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec
Balance Sheet Cash Accounts receivable Inventories Other current assets Net PP&E Other Assets Total assets Short-term debt Accounts payable Other current liabilities Long-term debt Deferred taxes Other liabilities Total liabilities Minority interest Shareholders' equity Liabilities + Equity Net Debt Adj. Net Debt Net Debt/Capital Debt/Capital Net Debt/EBITDA Valuation, Macro EV/EBITDA Adj. P/E P/BV
FY11A 2,666 858 0 780 3,482 2,020 9,807 573 378 1,152 4,253 320 6,676 0 3,131 9806.89 2,160 2,160 22.0% 49.2% 1.4 FY11A 2.1 5.0 0.4
FY12E FY13E FY14E FY15E 1,273 614 98 (128) 0 0 0 0 0 0 0 0 1,651 1,702 1,732 1,752 4,173 4,567 4,830 4,707 2,116 2,116 2,116 2,116 9,213 9,000 8,776 8,448 211 211 211 211 0 0 0 0 1,344 1,395 1,425 1,445 4,429 4,429 4,429 4,429 421 421 421 421 6,405 6,456 6,486 6,506 0 0 0 0 2,808 2,544 2,290 1,942 9212.98 9000.02 8776.04 8448.18 3,367 4,026 4,542 4,767 3,367 4,026 4,542 4,767 36.5% 44.7% 51.8% 56.4% 50.4% 51.6% 52.9% 54.9% 3.6 4.1 4.1 4.2 FY12E FY13E FY14E FY15E 4.8 5.3 5.1 5.2 (3.3) (3.7) (3.9) (2.8) 0.4 0.5 0.5 0.6
(89.9%) (108.2%) (51.6%) (39.8%) (14.5%) 0.0% 0.0% 0.0% 0.0% 0.0% 6.3% (10.7%) (10.4%) (11.1%) (17.9%) 0.7 0.7 0.7 0.7 0.7 3.1 3.3 3.5 3.8 4.4 7.1% 173 173 1.2% 172 172 0.9% 172 172 0.9% 172 172 (0.3%) 172 172
1Q13E -
2Q13E -
3Q13E -
4Q13E -
511
OdontoPrev
odontoprev.riweb.com.br/en/
Underweight
Price: R$10.85 Price Target: R$12.00 End Date: Dec 2013
Company overview OdontoPrev is Brazils leading dental care organization. The company has the largest dentist network in the country and is the result of the merger of Bradesco Dental and OdontoPrevs existing network. Key drivers of performance in this equity market recovery We are cautious on OdontoPrev in light of the market share losses in 2012 as well as main fundamental risks that put its business model at risk, including (1) pressure from dentists to raise prices of services rendered; (2) protests from unions that are complaining that the overuse of X-rays can lead to cancer. X-rays are one of the ways OdontoPrev audits claims and one of its main competitive advantages to reduce costs. How much recovery has already been priced in, what are the key metrics? ODPV is still trading at 29.3x 2013E P/E, 20% premium to healthcare peers in Brazil, despite the deceleration in EPS growth. We forecast a 2012-15 EPS CAGR of 16% for the company against 26% average for peers, which is unattractive. Wheres the earnings risk for 2013? There is significant volatility in ODPV costs as well as the rate of sales growth. Price target and key recovery risks We rate OdontoPrev Underweight and have a R$12 PT for Dec 2013. Our PT is based on a 10- year discounted free cash flow to equity at an 11.3% discount rate (nominal reais) and perpetuity growth of 6.0%. Key upside risks: 1) if ODPV is able to reaccelerate growth in 2013, (2) control the hike in costs, and (3) seal an accretive deal with Banco do Brasil, initially announced in August 2011.
Source: Bloomberg.
OdontoPrev (ODPV3.SA;ODPV3 BZ) FYE Dec Adj. EPS (R$) FY Bloomberg EPS FY (R$)
Source: Company data, Bloomberg, J.P. Morgan estimates. * Adj. P/E includes goodwill tax shield
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
512
Balance Sheet Cash Accounts receivable Inventories Other current assets Net PP&E Other assets Total assets Technical Reserves Short-term debt Accounts payable Other current liabilities Long-term debt Deferred taxes Other liabilities Total liabilities Minority Interests Shareholders' equity Liabilities + Equity
FY11A FY12E FY13E FY14E FY15E 7 11 12 12 13 0 11 0 (0) (1) 157 176 214 256 280 62 186 195 231 266 39.4% 108.3% 100.0% 100.0% 100.0% 1.1 2.0 1.6 1.2 1.1 0.8% 1.2% 1.1% 1.0% 0.9% (24) (12) (12) (12) (14) (2.9%) (1.3%) (1.1%) (1.0%) (0.9%) 48.2% 5,533 5,533 32.5% 7 47.3% 5,948 5,948 31.7% 11 46.4% 6,648 6,648 31.7% 12 45.9% 7,348 7,348 31.4% 12 45.7% 8,048 8,049 31.3% 13
Net debt Net Debt/Capital Debt/Capital Net Debt/EBITDA Valuation, Macro Adj.P/E EV/EBITDA P/BV P/S FCF yield Dividend yield ROE Net income margin Net revenue/Assets Assets/Equity ROIC Shares
(208) (183) (200) (220) (227) (27.2%) (25.1%) (26.4%) (28.0%) (28.4%) 0.0% 0.0% 0.0% 0.0% 0.0% (1.0) (0.7) (0.7) (0.6) (0.6) FY11A FY12E FY13E FY14E FY15E 37.4 34.4 30.3 25.6 22.2 27.8 23.6 20.1 17.0 14.6 7.9 8.2 7.9 7.6 7.5 7.2 6.3 5.5 4.7 4.1 2.7% 3.0% 3.7% 4.4% 4.9% 1.1% 3.1% 3.3% 3.9% 4.5% 19.6% 22.9% 26.3% 29.9% 33.6% 18.9% 17.9% 17.8% 18.2% 18.3% 84.1% 97.1% 104.5% 113.4% 123.2% 1.3 1.4 1.4 1.4 1.5 17.4% 22.1% 24.9% 28.2% 31.4% 531 531 531 531 531
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
513
Neutral
Price: E2.67 Price Target: E2.10
(971) 4428-1766 muneeza.z.hasan@jpmorgan.com Bloomberg JPMA HASAN<GO> JPMorgan Chase Bank N.A. Dubai Branch
P r ic e P e r fo r m a n c e
3.5 3.0 E 2.5 2.0 1.5 1.0
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD 145.0%
1m -2.6%
3m 32.8%
12m 96.3%
Source: Bloomberg.
Source: Company data, Bloomberg, J.P. Morgan estimates. PHDC freefloat is 35%.
Company Data Price (E) Date Of Price Price Target (E) Price Target End Date 52-week Range (E) Mkt Cap (E bn) Mkt Cap (US) ($ bn) Shares O/S (mn) 3Mnth Avg daily value (US$ MM)
2.67 01 Nov 12 2.10 31 Dec 13 3.42 - 1.04 2.8 0.5 1,048 3.28
514
1,048.3 1,048.3 0.30 62.2% FY13E 122 3,341 2,288 53 5,805 364 2,493 2,522 11,183 56 809 3,040 230 3,970 774 6,678 288 4,506 11,183
EPS (reported) -0.32 0.18 % change Y/Y (162.9%) (157.7%) Balance sheet FY11A FY12E in millions, year-end Dec Bank balance and cash 72 62 Accounts receivable 2,949 3,343 Work in progress 3,514 2,820 Other 53 53 Current assets 6,588 6,279 Property plant and equipment 421 393 investment property 2,393 2,443 Others 2,512 2,467 Total assets 11,914 11,582 ST loans 585 106 Payables 1,478 1,268 Customer Advances 2,271 2,763 Others 859 280 Total current liabilities 4,399 4,202 Long term debt 1,301 1,037 Total liabilities 7,984 7,423 Minorities 288 288 Shareholders' equity 3,931 4,159 Total Liabilities & Shareholders Equity 11,914 11,582 Source: Company reports and J.P. Morgan estimates.
-9 59 123 -47 -56 3 -56 3 126 FY12E FY13E FY14E 46.7% 33.4% 30.0% 13.2% 14.0% 41.9% 30.4% 27.9% 15.5% 12.0% 40.1% 30.5% 28.8% 19.4% 10.0%
-68.8% 153.3% 38.0% 58.2% -153.4% -220.9% 25.8% 58.7% (162.9%) (157.7%) 62.2% 97.9% 5.8 17.6 109.3% 0.0 3.3 -9.1% -5.6% 3.3 5.9 20.3 5.5 0.3 -5.6 78.7% 57.5% 34.7% 0.1 0.2 0.3 3.0 2.7 2.0 4.9% 7.4% 12.6% 5.9% 7.7% 12.4%
515
Underweight
Price: HK$6.90 Price Target: HK$5.60
Abs Rel
1m 6.6% -0.8%
3m -3.9% -13.7%
Source: Bloomberg.
FY13E 6,002 0.42 0.42 0.21 13.5% 8.5% 8.5% 8.5% 17.2% 19.2% 8.6% 13.4 2.5 85.7 3.7%
FY14E 6,800 0.47 0.47 0.23 13.3% 12.1% 12.1% 12.1% 17.8% 19.5% 8.8% 11.9 2.2 76.8 4.2%
Company Data Shares O/S (mn) Market cap (Rmb mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Average daily Value (HK$ mn) Average 3m Daily Turnover ($ mn) MSCI-Cnx Exchange Rate Fiscal Year End
2,810 15,676 2,502 6.90 08 Nov 12 48.4% 3.90 25.84 3.21 6,154 7.75 Dec
516
Capex Sale of assets Acquisition of subsidiaries/intangibles Other Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Dividends paid Other Cash flow from financing Net change in cash Ending cash flow DPS
-435 -389 -1,200 60 5 5 -32 0 0 -1,563 -678 225 -1,970 -1,062 -970 22 0 1,612 150 -451 -506 -1,306 -816 -145 -1,172 -436 2,323 0.16 -633 1,690 0.18 0 0 -539 -111 -650 176 2,568 0.19
FY12E FY13E FY14E 5,279 5,912 6,753 14 16 19 233 263 302 630 714 816 6,156 6,905 7,889 2,172 2,172 2,172 51 50 49 3,614 4,054 4,458 1,009 991 973 13,003 14,172 15,542 0 2,181 2,075 4,256 2,467 373 7,096 106 5,801 2.07 0 2,470 2,332 4,802 2,467 373 7,642 145 6,386 2.27 0 2,824 2,647 5,471 2,467 373 8,311 190 7,041 2.51
Ratio Analysis Rmb in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin Recurring net profit margin Gross Sales growth Sales growth Net profit growth Recurring net profit growth EPS growth Net debt to equity Sales/assets Assets/equity ROE ROCE
FY10 23.4% 11.7% 10.4% 7.0% 7.0% 14.1% 12.6% 8.9% 8.9% 8.7% -22.2% 0.37 2.40 23.5% 18.2%
FY11 22.5% 10.6% 9.2% 6.8% 6.9% 16.5% 12.2% 13.2% 13.2% 13.2% -50.0% 0.40 2.29 23.0% 18.3%
FY12E 22.3% 9.2% 7.6% 6.1% 6.8% 7.7% 7.1% -4.0% -4.0% (4.0%) -48.5% 0.42 2.24 19.5% 16.9%
FY13E 22.3% 9.0% 7.3% 5.8% 6.9% 13.2% 13.5% 8.5% 8.5% 8.5% -53.9% 0.44 2.22 19.2% 17.2%
FY14E 22.1% 8.7% 7.1% 5.7% 6.9% 14.3% 13.3% 12.1% 12.1% 12.1% -60.9% 0.46 2.21 19.5% 17.8%
517
Petkim
www.petkim.com.tr
Company overview Petkim is the sole petrochemicals producer in Turkey, controlling c.25% of domestic market share. Petkim has a long history and was established in 1965 under state ownership. The company was under state ownership until 2008 when under privatization Socar (State Oil Company of Azerbijan) & Turcas acquired a 51% stake for $2.04bn. More recently, Socar won the state stake sale in an auction for $169m, ending state ownership in Petkim. The company has a total gross capacity of more than 3mmt. Investment case Key points are as follows: i) Petkim is a cost disadvantaged producer- The company uses naphtha/LPG as the primary feedstock which puts the company on the upper half of the cost curve. Raw material contributes more than c.80% of the total cost for Petkim, ii) Benefit from additional volumes - we expect Petkim to benefit from debottlenecking/ongoing efficiency programs and capacity additions which will increase volumes by c.12% from 2012e-15e. We expect Turkish petrochemicals to grow by c.7%-8% from 2013e-15e, equivalent to 1.5x the long-term GDP growth rate of 5%. iii) Premium valuation-trades on 15.7x 2013e P/E vs its peer average of 10.7x. Key issues in an anemic growth environment In a soft demand environment, we expect lower product prices which imply relatively weak spreads and hence lower margins. With a high cost structure it would potentially translate into a net loss. Earnings risks in 2013 Higher than expected product prices which translates into higher spreads, soft end market demand, higher than expected operating rates. Price target, and risks to our investment view Valuation Methodology: We use a DCF-based valuation approach to derive our Dec13 PT TRY1.71. Our key assumptions of DCF are as follows: i) terminal growth rate of 3%, ii) weighted average cost of capital of 12.5%. Risks to Our Price Target and Rating: i) higher than expected product prices; ii) faster than expected economic recovery especially in Europe; iii) better than expected contribution from upcoming projects; iv) decrease in cheap imports from ME
PETKIM PETROKIMYA HOLDING AS (PETKM.IS;PETKM TI) FYE Dec 2011A 2012E Adj. EPS FY (TL) 0.10 (0.03) Revenue FY (TL mn) 3,891 4,619 EBIT FY (TL mn) 163 (23) Net Att. Income FY (TL 102 (30) mn) EV/EBITDA FY 11.1 50.6 Adj P/E FY 20.4 NM EV/Revenue FY 0.6 0.5 FCF Yield FY -16.6% -1.8%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: TL2.08 Price Target: TL1.71
TL
Abs
YTD 5.1%
1m 1.5%
3m 2.0%
12m -14.5%
Source: Bloomberg.
Company Data Price (TL) Date Of Price Price Target (TL) Price Target End Date 52-week Range (TL) Mkt Cap (TL bn) Shares O/S (mn)
518
FY11 FY12E FY13E FY14E 2,350 1,980 1,980 1,980 154 273 261 148 2,504 2,359 2,359 2,359 0.5 50.6 -102.2 NM -1.8% 0.06 3.0% NM 5.9 1.6 17.2% -1.0% 0.5 9.1 13.2 15.7 -1.2% 0.07 3.3% NM 1.0 13.7 15.1% 7.2% 0.5 7.9 11.2 12.9 2.5% 0.08 3.8% 22.1% 0.5 26.2 8.4% 8.3%
0.7 0.6 10.7 11.1 15.8 15.4 16.0 20.4 0.3% -16.6% 0.0% 2.4% NM (0.6) 9.9 -6.6% 8.0% 0.7 3.6 9.1% 7.7%
519
PetroChina
www.petrochina.com.cn
Company overview PetroChina is the largest oil company in China and one of the largest globally. PetroChina is integrated with E&P, R&C, Marketing and pipelines (NGP). In 2011, crude production was 2.42 mn BOPD and natural gas 1.09 mn BOEPD, refining throughout was 2.69 mn BOPD, olefin production 7.2 mn tonnes and operated over 40,000 km of pipelines (crude, products and natural gas). PetroChina has SEC proven reserves of 22.2bn BOE. PetroChina controls around 40% of the petroleum retail market with 20,000 retail stations, and presence primarily in north and west of China. Investment case PetroChina has had good recent share price performance on expectations of refining turnaround and gas price hike. While we believe refining turnaround is well under-way (which should benefit Sinopec more), we do not expect natural gas price de-control to materialize in 2013. In the absence of price decontrol, the stock trading at 12x 2013PE (at 30-40% premium to peers) is more than pricing in a one-off price hike. Key issues in an anemic growth environment An anemic growth environment should weigh in on the global crude demand and hence oil prices, which would impact upstream profit (in 2013 we expect almost 100% of profits from upstream while the other segments are expected to post losses), only to be partially offset by improving refining if NDRC actively follows-up on product prices. Policy driven (and contracted) gas imports volumes should continue to increase (piped+LNG) and further widen losses in 2013. Earnings risks in 2013 Higher-than-expected crude and gas prices pose upside risk to earnings. On the other hand higher-than-expected upstream cost inflation poses a downside risk. Price target, and risks to our investment view Dec-13 PT of HK$8.25 is based on 1.1x 2013E BV, which is a 10% discount to Sinopecs (SNP) valuations at our SNP PT which we believe is justified given Sinopec is expected to generate higher ROE than PetroChina. Risks are higher oil price, GRMs in China and upstream operational aspects in China.
PetroChina (Reuters: 0857.HK, Bloomberg: 857 HK) Rmb in mn, year-end Dec FY10A FY11A Revenue (Rmb mn) 1,465,415 2,003,843 Net Profit (Rmb mn) 139,992 132,961 EPS (Rmb) 0.76 0.73 DPS (Rmb) 0.29 0.35 Revenue Growth (%) 44% 37% EPS Growth (%) 35% (5%) ROCE 17% 15% ROE 16% 14% P/E 11.1 11.7 P/BV 1.7 1.5 EV/EBITDA 5.8 5.7 Dividend Yield 3.4% 4.1%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: HK$ 10.54 Price Target: HK$8.25
Abs Rel
1m 4.2% -3.9%
3m 11.8% 2.1%
Source: Bloomberg.
FY12E 1,620,582 128,952 0.70 0.32 (19%) (3%) 13% 12% 12.1 1.4 5.7 3.7%
FY13E 1,582,152 132,805 0.73 0.33 (2%) 3% 12% 12% 11.7 1.4 5.4 3.8%
FY14E 1,608,413 133,520 0.73 0.33 2% 1% 12% 11% 11.6 1.3 5.2 3.9%
Company Data Shares Outstanding (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) Avg Daily Volume (mn) Avg Daily Value (HK$ mn) Avg Daily Value ($ mn) HSCEI Exchange Rate Fiscal Year End
183,021 1,976,627 316,585 10.54 05 Nov 12 13.3% 126 1,411 182 10,834 7.75 Dec
520
Income Statement Cash flow statement Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec Revenues 1,465,415 2,003,843 1,620,582 1,582,152 1,608,413 EBIT % change Y/Y 44% 37% (19%) (2%) 2% Depr. & amortization EBITDA 300,986 320,534 329,880 343,907 351,401 Change in working capital % change Y/Y 28% 6% 3% 4% 2% Taxes EBIT 187,777 182,461 178,094 176,714 176,359 Cash flow from operations % change Y/Y 31% (3%) (2%) (1%) (0%) EBIT Margin 13% 9% 11% 11% 11% Capex Net Interest -4,338 -8,212 -9,696 -6,767 -7,167 Disposal/(purchase) Earnings before tax 189,305 184,215 178,909 181,030 180,876 Net Interest % change Y/Y 35% (3%) (3%) 1% (0%) Other Tax -38,513 -38,256 -37,154 -37,595 -37,562 Free cash flow as % of EBT 20.3% 20.8% 20.8% 20.8% 20.8% Net income (reported) 139,992 132,961 128,952 132,805 133,520 Equity raised/(repaid) % change Y/Y 35% (5%) (3%) 3% 1% Debt raised/(repaid) Shares outstanding 183,021 183,021 183,021 183,021 183,021 Other EPS (reported) 0.76 0.73 0.70 0.73 0.73 Dividends paid % change Y/Y 35% (5%) (3%) 3% 1% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec Cash and cash equivalents 45,709 61,172 40,226 29,303 73,831 EBITDA margin Accounts receivable 50,960 66,510 53,789 52,514 53,385 Operating margin Inventories 134,888 182,253 147,395 143,900 146,288 Net margin Others 54,835 72,776 58,937 57,549 58,497 Current assets 286,392 382,711 300,347 283,265 332,002 Sales per share growth LT investments - Sales growth Net fixed assets 1,238,599 1,372,007 1,520,222 1,595,173 1,653,631 Net profit growth Total Assets 1,656,487 1,917,586 1,983,437 2,041,307 2,148,501 EPS growth Liabilities Interest coverage (x) Short-term loans 102,268 137,698 137,698 117,698 137,698 Payables 270,191 302,600 244,724 238,921 242,886 Net debt to equity Others 57,277 119,740 119,740 119,740 119,740 Sales/assets Total current liabilities 429,736 560,038 502,162 476,359 500,324 Assets/equity Long-term debt 131,352 180,675 220,675 220,675 220,675 ROE Other liabilities 85,270 94,327 94,327 94,327 94,327 ROCE Total Liabilities 646,358 835,040 817,164 791,361 815,326 Shareholders' equity 938,926 1,002,745 1,073,668 1,146,711 1,220,147 BVPS 5.13 5.48 5.87 6.27 6.67
Source: Company reports and J.P. Morgan estimates.
-273,681 -291,452 -300,000 -242,145 -233,500 -4,338 -8,212 -9,696 -6,767 -7,167 47,098 1,377 6,779 75,606 91,780 0 52,656 -35,320 -53,198 86,925 45,709 0.29 FY10 21% 13% 10% 44% 44% 35% 35% 69.38 20% 0.94 1.66 16% 17% 0 90,619 2,077 -63,300 45,709 61,172 0.35 0 40,000 0 -58,028 61,172 40,226 0.32 0 0 -20,000 -59,762 40,226 29,303 0.33 0 0 20,000 -60,084 29,303 73,831 0.33
FY11 FY12E FY13E FY14E 16% 20% 22% 22% 9% 11% 11% 11% 7% 8% 8% 8% 37% 37% (5%) (5%) 39.03 26% 1.12 1.72 14% 15% (19%) (19%) (3%) (3%) 34.02 30% 0.83 1.85 12% 13% (2%) (2%) 3% 3% 50.82 27% 0.79 1.78 12% 12% 2% 2% 1% 1% 49.03 23% 0.77 1.76 11% 12%
521
PT Indosat Tbk
www.indosat.com
Company overview PT Indosat Tbk is a telecommunications and information service provider of cellular services, fixed data services or MIDI (Multimedia, Internet and Data Communications) and fixed voice services. It is the second-largest provider of wireless services in Indonesia, accounting for 18% of the mobile market. Investment case Our analysis shows that ISATs data unit price fell 33% YoY, in line with the 35% fall implied by EXCLs numbers. We also highlight insufficient incremental revenue to offset the aggressive network build (+15% YoY) with management guiding for network utilization over monetization. In addition, this rapid, un-monetized usage ramp is triggering capex upside. We also note that the stocks recent outperformance has been driven by multiples re-rating rather than earnings revision. Key issues in an anemic growth environment The recent 3Q12 prints highlight the dual risks to the Indonesian telecom sector caused by data mis-pricing, namely margin compression and capex upside. Together with additional margin compression from rising opex (tower leasing fees as well as SMS interconnect), we see downside risks for the sector for the year ahead, in our view. Earnings risks in 2013 Margin compression from escalating opex trends, together with limited pricing power mark the key risk to the stock in our view. Further inability to monetize incremental network capacity would also provide further top-line pressure as well. There also lies upside risk to initial capex guidance. Key upside risk would be through subscriber additions without price cuts, which would benefit margins given high its operating leverage. Price target, and risks to our investment view Our Dec-13 PT of Rp5,400 is based on the sum of 1) potential upside/(downside) to consensus EPS vs. JPM EPS estimates, and 2) our estimated multiple expansion/ (contraction) based on peak P/E multiple. Potential positive risks would be better then expected cost savings by leveraging QTel relationships, and an ability to aggressively ramp subscriber additions without cutting pricing.
PT Indosat Tbk (Reuters: ISAT.JK, Bloomberg: ISAT IJ) Rp in bn, year-end Dec FY10A FY11A Revenue (Rp bn) 19,797 20,577 EBITDA (Rp bn) 9,626 9,411 EBITDA growth (%) 9.7% -2.2% Recurring profit (Rp bn) 597 1,306 Recurring EPS (Rp) 110 240 EPS growth (%) (15.3%) 118.5% DPS (Rp) 59.55 76.98 EV/EBITDA (x) 5.3 5.3 P/E 59.1 27.0 Dividend Yield 0.9% 1.2% FCF to mkt cap (%) 1.0% 3.6%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: Rp6,500.00 Price Target: Rp5,400.00
Abs Rel
1m 9.2% 8.0%
3m 32.0% 27.1%
Source: Bloomberg.
FY12E 22,698 10,433 10.9% 670 123 (48.7%) 128.19 4.6 52.7 2.0% 2.9%
FY13E 25,382 11,337 8.7% 1,337 246 99.4% 122.96 4.1 26.4 1.9% 6.8%
FY14E 27,145 11,990 5.8% 2,012 370 50.5% 185.10 3.5 17.6 2.8% 14.8%
Company Data 52-wk range (Rp) Mkt cap (Rp bn) Mkt cap ($ mn) Shares O/S (mn) Free float (%) 3-mth avg trading volume: Average 3m Daily Turnover ($ mn) JCI Exchange Rate Price (Rp) Date Of Price
7,000 - 3,425 35,321 3,666 5,434 29.9% 3,316,573 1.96 4,334 9,634.00 6,500 09 Nov 12
522
7.6% 3.9% 10.3% 9.7% (2.2%) 10.9% (15.3%) 118.6% (48.7%) (15.3%) 118.5% (48.7%) (56.8%) 29.3% 66.5%
FY10 FY11 FY12E FY13E 48.6% 45.7% 46.0% 44.7% 1.7% 6.2% 4.5% 9.5% 3.3% 7.2% 3.6% 6.8% 7.6% 6.8% 4.7% 8.7% 1.1% 2.5% 1.3% 2.8% 33.1% 21.1% 2.1% 28.0% (32.8%) (29.4%) (31.0%) (29.1%) 57.4% 56.0% 52.3% 46.3% 123.2% 115.3% 98.7% 84.7% 4.5 5.5 6.1 8.1
Balance Sheet statement FY14E Rp in billions, year end Dec 27,145 Cash and equivalents 11,990 Accounts receivable (7,816) Others 0 Total Current assets 4,175 4 ST loans (1,223) Others (1,219) Total current liabilities 2,956 (828) Net working capital 2,012 2,012 Net fixed assets Other long term assets 5,434 Total non-current assets 370 370 Total Assets 185 50% Long-term debt Other liabilities 6.9% Total Liabilities 5.8% 50.5% Shareholders' equity 50.5% 50.5% Total liabilities and equity Net debt/(cash) Book value per share Cash flow statement FY14E Rp in billions, year end Dec 44.2% Cash flow from operations 19.3% Capex 9.6% Cash flow from other investing 10.9% Cash flow from financing 4.1% 28.0% Change in cash for year (18.3%) 44.6% Beginning cash 57.6% Closing cash 9.8
FY11 FY12E FY13E FY14E 2,224 2,101 315 4,976 1,446 1,595 1,783 1,907 2,910 3,078 3,317 3,484 6,579 6,773 5,415 10,367
4,282 4,840 6,340 6,340 6,340 7,665 7,112 7,667 8,459 9,010 11,947 11,952 14,007 14,799 15,350 (5,788) (5,373) (7,234) (9,384) (4,983) 43,571 42,573 39,603 39,078 36,231 3,088 3,020 3,020 3,020 3,020 46,659 45,593 42,622 42,098 39,251 52,818 52,172 49,395 47,513 49,618 19,780 18,563 14,848 11,133 11,133 2,855 2,841 2,841 2,841 2,841 34,968 33,810 32,253 29,446 30,113 17,851 18,362 19,329 20,254 21,692 52,818 52,172 51,582 49,700 51,805 21,987 21,179 19,087 17,158 12,497 3,285 3,379 3,557 3,727 3,992 FY10 FY11 FY12E FY13E FY14E 6,839 7,320 8,054 9,811 10,211 (6,495) (6,048) (7,030) (7,396) (4,969) 524 10 1,486 0 0 (1,630) (1,135) (2,633) (4,412) (668) (761) 2,836 2,075 150 2,075 2,224 (123) (1,996) 2,224 2,101 2,101 105 4,574 105 4,678
523
Underweight
Price: Rs806.15 Price Target: Rs675.0
Abs Rel
1m -6.0% -5.1%
3m 2.6% -5.2%
Source: Bloomberg.
FY14E 3,570,885 187,067.58 57.83 10.00 -6.3% -4.4% 8.9% 12.0% 13.9 1.6 7.4 1.2%
FY15E 3,598,065 233,560.58 72.20 11.00 0.8% 24.9% 10.4% 13.5% 11.2 5.8 1.4%
Company Data Shares O/S (mn) Market Cap ($ mn) Price (Rs) Date Of Price Free float (%) 3-mth trading value (Rs mn) 3-mth trading value ($ mn) 3-mth trading volume (mn)
524
Cash flow statement Rs in millions, year end Mar EBIT Depr. & amortization Change in working capital Taxes Others Cash flow from operations Capex Disposal/(purchase) Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Rs in millions, year end Mar EBITDA margin Operating margin Net margin
FY11 FY12 239,228 221,070 141,208 124,010 -35,546 -189,350 -44124 -52260 298,377 131,830
-295,891 -244,240 -200,100 -201,050 -195,000 2,486 211,590 205,312 113,186 168,657 30,869 -28,260 -28,000 0 0 300,425 11,609 -20,534 -49,709 -46,188 -34,729 -38,142 -37,688 -37,688 -41,457 8.00 10.00 10.00 10.00 11.00 FY11 14.3% 9.0% 7.3% 30.3% 30.5% 21.8% 21.7% 17.5% 26.8% 1.08 1.53 17.3% 12.9% FY12 FY13E FY14E FY15E 9.6% 9.0% 9.5% 11.3% 6.2% 6.0% 6.2% 7.5% 5.5% 5.1% 5.2% 6.5% 22.8% 34.9% 2.3% (6.8%) 6.1% 9.7% 1.26 1.43 15.4% 10.2% 7.6% 6.3% -0.7% 0.5% -1.5% -2.4% 1.26 2.08 13.8% 9.7% (6.3%) 0.8% (6.3%) 0.8% -4.4% 24.9% (4.4%) 24.9% -4.6% -9.2% -7.0% -13.1% 1.14 1.11 1.94 1.82 12.0% 13.5% 8.9% 10.4%
Sales per share growth - Sales growth 1,390,714 1,473,988 1,533,388 Net profit growth 3,099,991 3,180,465 3,327,633 EPS growth Interest coverage (x) - Net debt to total capital - Net debt to equity 535,059 507,837 506,239 Sales/assets 535,059 507,837 506,239 Assets/equity 937,555 887,846 841,658 ROE 130,851 138,876 141,726 ROCE 1,603,465 1,534,559 1,489,624 1,488,536 1,637,916 1,830,020 462.60 508.78 565.69
525
Riyad Bank
www.riyadbank.com.sa
Company overview Riyad Bank is #4 bank by assets in Saudi Arabia commanding a loans & deposits market share of around 11%-12%. It has a domestic network of over 250 branches, >2,600 ATMs and over 12,700 POS. Investment case We see the risk-reward in Riyad Bank shares as relatively less attractive vs. peer Saudi and CEEMEA bank stocks and the current forecast P/E (10.1x12E, 8.8x13E) is higher vs. peer average while potential tangible ROE through FY14E (12%12E to 14% 14E) is relatively lower vs. peers (e.g. Samba and BSFR to book like Riyad but lower on earning while offering higher ROEs). We are hence Neutral on the stock. That said, div yield in Riyad Bank shares is attractive at >6% 12E, 13E. Key issues in an anemic growth environment From our investor interaction, we deduce that investor concerns on Riyad Bank remain mainly on the following key points: i) Increase in European exposure of Riyad Bank over FY11 from c.4% of assets to 8% - mainly underlying increase in the European exposure of its investments book (which grew from 2% of assets to 5% in this period); and ii) high C/I ratio which though improving from 40% 11A to 34% 14E still remains 4-5pp higher vs. peers. Earnings risks in 2013 Upside risks to earnings for Riyad in 13E could come primarily from better than expected improvement in cost efficiency (the bank seems to be steadily improving on that stance) and faster than expected lending growth (Riyad's loan growth at c.8%yoy avg. 12E-14E is about half of current lending growth rate of the system overall). Beyond 13E, mortgages could be an earnings growth driver and these are not fully built into our estimates. Price target, and risks to our investment view We value Riyad Bank shares at SAR26.0 through Dec-13E on a Gordon Growth model (using c.13% ROE, 5% growth rate and c.12% COE). Key downside risks could come from higher than expected margin pressure, lower economic expansion and higher than expected asset quality deterioration. Upside risk to our rating could come from strategic moves e.g. higher lending book growth leading to a faster than expected ROE expansion.
Riyad Bank (1010.SE;RIBL AB) FYE Dec Adj. EPS FY (SRls) Adj P/E FY P/NAV FY RoNAV FY ROA FY Gross Yield FY Tier One Ratio FY Net Attributable Income FY (SRls mn) 2011A 2.10 11.0 1.2 11.1% 1.8% 6.1% 14.8% 3,149 2012E 2.27 10.2 1.2 11.6% 1.8% 6.3% 14.5% 3,400 2013E 2.60 8.9 1.1 12.7% 2.0% 6.5% 14.2% 3,906 2014E 2.94 7.8 1.0 13.6% 2.1% 6.7% 14.0% 4,414
Neutral
Price: SAR23.05 Price Target: SAR26.00
Abs
YTD -1.7%
1m 0.4%
3m 0.0%
12m -3.6%
Source: Bloomberg.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn) Mkt Cap ($ bn)
526
Ratio Analysis FY10A FY11A FY12E FY13E FY14E SRls in millions, year end Dec Per Share Data 4,142 4,197 4,251 4,445 4,705 EPS Reported -4.7% 1.3% 1.3% 4.6% 5.8% EPSAdjusted 1,839 2,124 2,606 2,875 3,129 % Change Y/Y 1,418 1,589 1,932 2,157 2,365 DPS 16.0% 12.1% 21.6% 11.7% 9.6% % Change Y/Y 355 423 478 502 528 Dividend yield 151.6% 19.2% 13.0% 5.0% 5.0% Payout ratio 65 112 195 215 236 BV per share 5,980 6,321 6,856 7,320 7,833 NAV per share 0.3% 5.7% 8.5% 6.8% 7.0% Shares outstanding -2,297 -2,490 -2,466 -2,555 -2,660 5.1% 8.4% -1.0% 3.6% 4.1% Return ratios (8) (20) (22) (24) (27) RoRWA 3,675 3,811 4,369 4,741 5,147 Pre-tax ROE -2.4% 3.7% 14.6% 8.5% 8.6% ROE -850 -662 -968 -835 -733 RoNAV 2,825 3,149 3,400 3,906 4,414 Revenues -6.8% 11.5% 8.0% 14.9% 13.0% NIM (NII / RWA) 0 0 0 0 0 Non-IR / average assets - Total rev / average assets 0 0 0 0 0 NII / Total revenues 2,825 3,149 3,400 3,906 4,414 Fees / Total revenues Trading / Total revenues
FY10A FY11A FY12E FY13E FY14E 1.88 2.10 2.27 2.60 2.94 1.88 2.10 2.27 2.60 2.94 -6.9% 11.7% 8.0% 14.9% 13.0% 1.35 1.40 1.45 1.50 1.55 (0.7%) 3.9% 3.6% 3.4% 3.3% 5.9% 6.2% 6.4% 6.6% 6.8% 71.7% 66.7% 64.0% 57.6% 52.7% 19 20 21 22 23 18.7 19.3 20.0 21.0 22.3 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 0.02 9.8% 9.8% 10.2% 0.02 10.6% 10.6% 11.1% 0.02 11.1% 11.1% 11.6% 0.02 12.2% 12.2% 12.7% 0.02 13.0% 13.0% 13.6%
2.83% 2.80% 2.66% 2.60% 2.55% 1.05% 1.20% 1.40% 1.46% 1.48% 3.42% 3.57% 3.69% 3.72% 3.71% 69.26% 66.40% 62.00% 60.73% 60.06% 23.71% 25.14% 28.18% 29.47% 30.19% 5.94% 6.70% 6.98% 6.86% 6.74% FY10A FY11A FY12E FY13E FY14E 38.6% 0.0 83.5% 19.5% 61.1% 88.0% 1.3% 39.7% 0.0 80.8% 20.2% 62.5% 92.8% 0.0% 36.3% 0.0 83.8% 20.8% 63.2% 90.2% 0.0% 35.2% 0.0 83.2% 20.7% 63.9% 91.6% 0.0% 34.3% 0.0 81.8% 20.4% 64.8% 94.3% 0.0%
FY10A FY11A FY12E FY13E FY14E SRls in millions, year end Dec Cost ratios 106,035 112,973 120,308 130,124 141,917 Cost / income -0.5% 6.5% 6.5% 8.2% 9.1% Cost / assets - Staff numbers 33,822 36,616 39,623 42,079 44,697 - Balance Sheet Gearing - Loan / deposit 146,239 150,110 160,085 170,745 184,320 Investments / assets - Loan / assets - Customer deposits / liabilities 173,556 180,887 190,356 203,524 218,864 LT Debt / liabilities Asset Quality / Capital 126,945 139,823 143,546 156,357 173,487 Loan loss reserves / loans 1.3% 10.1% 2.7% 8.9% 11.0% NPLs / loans 1,874 0 0 0 0 LLP / RWA 10,637 6,242 6,866 7,553 8,308 Loan loss reserves / NPLs - Growth in NPLs - RWAs % YoY change 29,233 30,158 31,196 32,818 34,871 Core Tier 1 0 0 0 0 1 Total Tier 1 173,556 180,887 190,356 203,524 218,864
2.1% 1.8% 1.9% 2.0% 2.0% 1.7% 1.6% 1.5% 1.3% 1.2% 0.5% 0.4% 0.5% 0.4% 0.3% 126.2% 106.3% 128.7% 148.0% 152.9% 44.7% 3.6% (5.0%) (4.8%) 4.1% 163,785 181,052 192,340 207,569 225,289 2.5% 10.5% 6.2% 7.9% 8.5% 16.0% 14.8% 14.5% 14.2% 14.0% 16.0% 14.8% 14.5% 14.2% 14.0%
527
Rossi
www.rossiresidencial.com.br
Company overview Rossi has over 30 years of experience in the sector and is controlled by the Rossi family, which holds a 37% stake in the company. Over the last four years Rossi traded at a discount to peers given earnings disappointments. The company is present in all income segments and has its land bank concentrated in the South, Southeast, Mid-West, specially Brasilia, as well as the Northeast with the acquisition of Norcon. Key drivers of performance in this equity market recovery Despite its discounted valuation, trading at 0.5x current P/BV and its high beta, we believe that Rossi will underperform next year given many uncertainties regarding its accounting practices. YTD the stock is down 47% vs -41% for PDG and +3% for the IBOV, and we believe there are other attractive names for investors looking for high beta and discounted names, but which dont have the same problems that Rossi has now regarding uncertainties on future profitability. How much recovery has already been priced in, what are the key metrics? The company is up only 14% from its 52-weeks low reached in July 2012, and we dont see positive catalysts in the near term that could lead to a re-rating. Also, we believe that it will take a long time for the company to regain investors confidence. Wheres the earnings risk for 2013? The company had a R$715mn write-off on equity (26% cut on equity) mainly explained by overstated profits in the prior two years due to aggressive accounting practices with regards to revenue and margin recognition. We see the main risk to next years earnings expectations on higher than expected profitability and margins given the large write-off already recognized. Price target and key recovery risks Currently Rossi is trading at 4.8x 2013E P/E and 0.5x P/BV, which compares with the sector average of 8.5x (Ex-Gafisa) and 1.0x respectively, including Cyrela and MRV. In our view the discount on P/BV is justified by low visibility on earnings and recent revisions to accounting practices. The main upside risk for sentiment relies on better than expected results. In addition, better than expected margins and higher than expected cash generation are also upside risks to our estimates and thesis.
Rossi Residencial S.A. (RSID3.SA;RSID3 BZ) FYE Dec 2011A EPS Reported (R$) FY 1.27 EBITDA FY (R$ mn) 570 P/E FY 3.3 Revenues FY (R$ mn) 3,072 Bloomberg EPS FY (R$) 1.26
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: R$4.02
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn)
528
FY11A 3,072 (1,964) 921 30.0% (526) (265) (261) (6) 570 18.5% 141 (89) 0 428 (88) 0 0 340 11.1% 1.27 23.1% 10.3% (2.9%) 0.0% FY11A (1,059) (662) 87 25.7% 4,877 158.8% 4,214 3,481 18,680 0% 0%
FY12E 3,237 (2,007) 955 29.5% (498) (253) (245) (28) 722 22.3% 112 (187) 0 344 (106) 0 0 238 7.4% 0.63 5.4% 26.7% (30.0%) 0.0% FY12E 21 629 85 35.7% 4,856 150.0% 2,500 2,814 9,679 0% 0%
FY13E 2,982 (1,849) 909 30.5% (480) (260) (220) (25) 643 21.6% 162 (232) 0 324 (92) 0 0 231 7.8% 0.61 (7.9%) (10.9%) (2.7%) 0.0% FY13E 389 883 59 25.7% 4,466 149.8% 3,000 3,057 11,168 0% 0%
FY14E 2,967 (1,839) 905 30.5% (470) (251) (219) (25) 647 21.8% 186 (233) 0 353 (92) 0 0 261 8.8% 0.69 (0.5%) 0.6% 12.6% 0.0% FY14E 69 568 58 22.2% 4,398 148.2% 3,150 2,954 11,275
Balance Sheet Cash Accounts receivable Inventories Land bank Real Estate & Construction Others current assets Net PP&E Other assets Total Assets ST Loans Accounts Payables Suppliers Land Payables Other current liabilities LT Debt Deferred taxes Other liabilities Total Liabilities Minority Interests Shareholders Equity Liabilities and Equity Net debt Net Debt/Equity Debt/Equity NetDebt/EBITDA Valuation, Macro EV/EBITDA P/E P/BV FCF yield Dividend yield Capex/Revenues Inventory/Revenues Assets/Equity Coverage (EBIT/Interest)
FY11A 1,239 3,408 2,011 1,115 896 621 88 1,914 7,450 909 542 94 448 728 2,335 80.3 728 4,666 0 2,784 7450.24 2,004 72.0% 116.5% 3.5 FY11A 7.2 3.3 0.5 (44.3%) 7.8% (1.9%) 65.5% 2.7 12.8% 7.4% 268
FY12E 1,797 3,459 2,071 1,170 900 741 122 1,940 8,279 1,575 674 89 585 457 2,569 133.9 457 5,664 0 2,614 8278.64 2,347 89.8% 158.5% 3.3 FY12E 6.2 6.7 0.8 29.7% 5.3% (1.9%) 64.0% 3.2 8.8% 9.3% 379
FY13E 2,327 3,104 2,058 1,229 829 741 154 1,795 8,473 1,575 696 82 614 457 2,569 133.9 457 5,687 0 2,786 8472.84 1,817 65.2% 148.7% 2.8 FY13E 6.1 6.9 0.8 41.8% 3.7% (1.9%) 69.0% 3.0 8.6% 7.4% 379
FY14E 2,567 2,926 2,198 1,290 908 741 186 1,737 8,706 1,575 726 81 645 457 2,569 133.9 457 5,717 0 2,989 8705.90 1,577 52.8% 138.6% 2.4 FY14E 5.7 6.1 0.7 26.9% 3.6% (1.9%) 74.1% 2.9 9.0% 7.3% 379
Days receivable 405 390 380 Days inventory 374 377 406 Days payable 64 76 85 Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
529
Neutral
Price: SRls12.25 Price Target: SRls13.00
Abs
YTD -27.5%
1m -2.3%
3m -12.5%
12m -30.7%
Source: Bloomberg.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn)
530
(2,744) (1,131) (353) (0) (74) (100) (2,744) (666) 1,393 (5,736) (3,051) (1,200) 0 (113) (520) (8,494) (3,913) (327) -8,494 -3,913 -327 7,002 3,421 200 0 0 0 967 469 342 0.00 0.00 0.00
FY10 FY11 FY12E FY13E 27,705 26,775 18,450 18,450 25,149 29,041 28,839 25,302 52,942 55,935 47,412 47,412 -3,717.8 NM 23.3 120.3 -996.0 NM 5.4 27.2 -537.9 NM -4.6% 0.00 0.0% NM 4.1 12.5 21.6 11.4 10.0% 0.00 0.0% NM
0.0 62.5 16.5 6.6 4.5 0.5 0.2 4.4 6.7 162.6% 190.9% 200.7% 164.4% 115.8% -0.0% -0.1% -0.2% 4.9% 7.7%
531
Shanda Games
www.shandagames.com/
Company overview Shanda Games is one of the leading game operators in China. The company has one of the largest gaming communities in China with ~3.8MM active paying accounts as of the end of 2Q12. Mir 2, WOOOL, and Dragon Nest are its three most popular games. Investment case We believe Mir2 and Woools are still building up new content to attract and retain gamers (or to maintain healthy lifecycle of the game), after recent revenues decline. In addition, we do not expect Dragon Nest drivers to come by end-2012. We are cautious about whether these games can reach the previous revenue level. We dont expect any of the new games to be blockbusters that could offset the weakness in older games. Without new hit games as the share price driver, we expect stock to trade sideways. Key issues in an anemic growth environment While game market is not closely correlated with macro outlook, Shanda Games see its own issues. Key game for 2012 as Rift. Final Fantasy XIV, Age of Wushu, and World Zero are delayed to 2013. Other games in 2013 include Eyedentitys Dungeon Striker, Ghosts'n Goblins Online. Earnings risks in 2013 Upside risks to our earnings and PT include: (1) positive re-rating of the game sector, and (2) privatization or acquisition target. Downside risks include: (1) slower-thanexpected revenue growth due to an aging game portfolio and Shanda Games failing to launch successful new games or new upgrade packs, (2) increased competition in the game industry, and (3) disruption in the distribution contract with Shanda Interactive. Price target, and risks to our investment view Our Dec-13 PT of US$4 is based on the industry average forward P/E of 5.5x and implies 5.8x FY12E, 5.9x FY13E, and 5.5x FY14E diluted adjusted EPS. Excluding net cash of US$288MM (or US$1/sh), our PT implies 4.8x FY12E, 5.0x FY13E, and 4.7x FY14E diluted adjusted EPS.
Bloomberg GAME US, Reuters GAME
(Year-end Dec, $ mn) Net Sales Operating Profit (EBIT) EBITDA Pre Tax Profit Reported Net profit Reported EPS ($) P/E (x) Adj. EPS ($)* Adj. P/E (X) EV/EBITDA (x) P/B (x) Y/E BPS ($) FY11 822.6 229.5 298.6 277.4 197.0 0.69 5.0 0.74 4.7 2.5 1.9 1.81 FY12E 743.9 225.9 278.9 259.3 192.4 0.66 5.3 0.68 5.1 2.7 0.9 3.70 FY13E 755.3 220.9 269.8 263.8 197.6 0.65 5.4 0.68 5.1 2.8 0.8 4.38 FY14E 836.6 243.9 300.8 288.4 216.2 0.70 4.9 0.73 4.7 2.5 0.7 5.13 FY11 FY12E 37 25 31 18 433.0 1,141.7 521.1 1,066.6 1Q 2Q 0.168 0.166 0.191 0.174 0.153 0.158 1M 3M -5.5% 1.8% (0.2%) 5.5%
Neutral
Price: $3.47 Price Target: $4.00
Evan Zhou
(852) 2800 8505 evan.z.zhou@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
1m -5.4% -0.2%
3m 1.8% 5.6%
Source: Bloomberg.
ROE(%) ROIC(%) Cash Equity Qtr GAAP EPS ($) EPS (11) EPS (12) E EPS (13) E Abs. Perf.(%) Rel. Perf.(%)
FY13E FY14E 18 16 13 12 1,315.0 1,511.5 1,262.9 1,479.2 3Q 4Q 0.189 0.172 0.143 0.152 0.166 0.168 12M -24.4% (35.2%)
52-Week range Shares Outstg Market Cap(US) Free float Avg daily vol. Avg daily val ($) Dividend Yield Index (NASD) Price Target Price Date
5.92 - 2.95 280.2MN US$ 972MN 30.0% 0.5MM shares 1.79MN 0.0% 2,905 4.00 09 Nov 12
Source: Company, J. P. Morgan estimates, Bloomberg. *Note: Excluding share-base compensation, amortization from acquisition and one-time items.
532
USD
Ratio Analysis FY11 FY12E FY13E FY14E $ in millions, year end Dec 823 744 755 837 Gross margin 320 280 288 320 EBITDA margin 502 464 467 517 Operating margin -108 -96 -98 -109 Net margin -165 -141 -148 -164 R&D/sales -14 -8 -9 -9 SG&A/Sales 230 226 221 244 299 279 270 301 Sales growth 21 16 24 28 Operating profit growth 0 0 - Net profit growth 27 17 19 17 Diluted EPS growth 277 259 264 288 -76 -60 -60 -66 197.0 192.4 197.6 216.2 Net debt to total capital 211 200 207 226 Net debt to equity
(2.4%) 19.7% (9.6%) 1.5% 10.8% -20.0% 12.9% -1.6% -2.2% 10.5% -7.6% 0.2% -2.4% 2.7% 9.4% (8.8%) 0.9% (5.4%) (1.8%) 8.8% -54.0% -45.7% -54.5% -58.6% -62.4% -54.0% -57.4% -73.0% -75.4% -77.7% 0.82 0.72 0.48 0.38 0.38 2.74 3.47 1.35 0.83 0.76 40.8% 36.8% 25.1% 17.8% 16.5% 39.9% 31.1% 18.5% 12.7% 12.1% FY10 196.6 46 63 -39 266 -561 -3 -565 -295 18 -2 224 0 240 -44 374 331 FY11 FY12E FY13E FY14E 197.0 192.4 197.6 216.2 55 45 39 47 -122 -62 -5 -5 88 15 16 16 218 190 247 275 -404 2 -61 -68 -1 2 0 0 -405 4 -61 -68 -186 192 186 207 4 -37 -9 -9 134 227 0 0 148 317 -2 -1 0 0 0 0 286 508 -12 -11 102 331 433 709 433 1,142 173 1,142 1,315 197 1,315 1,511
Diluted EPS (GAAP) 0.69 0.69 0.66 0.65 0.70 Asset turnover Adj. Diluted EPS* 0.75 0.74 0.68 0.68 0.73 Working capital turns (x) BVPS 2.13 1.81 3.70 4.38 5.13 ROE DPS 0.00 0.00 0.00 0.00 0.00 ROIC Shares outstanding (mn) 285.41 283.60 292.62 306.06 307.73 Balance sheet Cash flow statement $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec Cash and cash equivalents 331 433 1,142 1,315 1,511 Net income Accounts receivable 67 75 56 62 68 Depr. & amortization Inventories 0 0 0 0 0 Change in working capital Others 120 389 350 391 428 Other Current assets 518 896 1,547 1,769 2,008 Cash flow from operations LT investments 5 6 4 4 4 Capex Net fixed assets 30 36 56 78 98 Other investing cashflow Others LT assets 482 301 240 239 239 Cash flow from investing Total Assets 1,034 1,239 1,846 2,089 2,349 Free cash flow Liabilities Equity raised/(repaid) ST Loans 0 134 363 363 363 Debt raised/(repaid) Payables 20 18 14 15 17 Other Others 307 466 350 391 428 Dividends paid Total current liabilities 327 617 727 770 808 Cash flow from financing Long-term debt 0 0 0 0 0 Other liabilities 58 59 5 5 5 Net change in cash Total Liabilities 384 676 731 774 812 Beginning cash Total shareholder equity 613 521 1,067 1,263 1,479 Ending cash Minority interests 36 42 49 52 58 Total Liabilities and shareholder equity 1,034 1,239 1,846 2,089 2,349 Source: Company reports and J.P. Morgan estimates. *Note: Excluding share-based compensation expenses.
533
S-Oil Corp
www.s-oil.com/siteEng/index.asp
Company overview S-Oil is one of the largest oil refiners in Korea, with three divisions: Refining, Petrochemicals and Lubricants. S-Oil exports around 50% of their products and has around 15% of the petroleum retail market share in South Korea with 1,800 retail stations under its brand. S-Oil is owned by Saudi Aramco and a Hanjin consortium, and sources most of its crude from Saudi Arabia. S-Oil has the highest complexity in South Korea, primarily due to large scale desulphurization equipment. Investment case We are UW on S-Oil as we are negative on the outlook for all three of its division while the stock still trades at mid-cycle valuations. We believe refining margins are not sustainable at this years high levels due to abnormal amount of unexpected outages in 2012 and capacity additions will accelerate in 2013. Similarly we are forecasting PX spreads to fall by 20% in 2013 due to new capacity additions. Key issues in an anemic growth environment In a benign but anemic growth environment, we believe demand growth for refined products petrochemicals will only go back to historical trend. This is particularly true for China as they could export more refined products in 2013 after being out of the export market for quite some time, which would be negative for regional GRMs. Earnings risks in 2013 Our 2013 EPS is 27% below consensus estimates as the latter is looking for 42% Y/Y earnings growth in 2013. We believe this is too optimistic even though we are also forecasting Refining division earnings growth as we do not include the negative inventory impact of falling oil in 2013. Price target, and risks to our investment view Dec-13 PT of W78,000 is based on 1.4x 2013E BV, which is 10% below -1SD to historical valuations. We believe 1.4x BV is fair as we estimate S-Oil 2013 ROE to be around 15%. At current valuation of 1.8x, we prefer SKI (cheaper with similar risks) or LGC (cheaper with lower earnings volatility). Upside risk to our call is continued strength in PX spreads in 2013 and less volatility to S-Oils quarterly earnings.
S-Oil Corp (Reuters: 010950.KS, Bloomberg: 010950 KS) W in bn, year-end Dec FY10A FY11A FY12E Revenue (W bn) 20,530 31,914 34,666 EBITDA (W bn) 1,058 1,973 1,453 Net Profit (W bn) 695 1,172 841 EPS (W) 6,176 10,413 7,472 DPS (W) 2,500.00 4,800.00 4,000.00 Revenue growth 18% 55% 9% EPS growth 210% 69% (28%) ROCE 13% 20% 13% ROE 16% 24% 15% P/E (x) 16.1 9.6 13.3 P/BV (x) 2.5 2.2 2.0 EV/EBITDA (x) 12.2 7.0 9.3 Dividend Yield 2.5% 4.8% 4.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: W99,500 Price Target: W78,000
Abs Rel
1m -5.2% -1.3%
3m 2.2% -0.4%
Source: Bloomberg.
FY13E 31,781 1,536 918 8,156 4,050.00 (8%) 9% 14% 16% 12.2 1.8 8.2 4.1%
FY14E 30,135 1,449 877 7,784 4,100.00 (5%) (5%) 12% 14% 12.8 1.7 8.2 4.1%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free float (%) 3M Avg daily Value (W bn) 3M Avg daily Value ($ mn) 3M Avg daily vol KOSPI Exchange Rate
145,000 - 86,400 11,202 10,270 113 Dec 99,500 02 Nov 12 37.0% 38 35 364 1,919 1,091
534
Cash flow statement W in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis W in billions, year end Dec EBITDA margin Operating margin Net margin
0 0 0 0 0 -83 1,007 -500 0 0 0 0 0 0 0 -291 -559 -466 -472 -477 895 919 701 1,648 2,336 2,500.00 4,800.00 4,000.00 4,050.00 4,100.00 FY10 5% 4% 3% 18% 18% 210% 210% 38% 2.16 2.62 16% 13% FY11 6% 5% 4% 55% 55% 69% 69% 111.98 50% 2.75 2.95 24% 20% FY12E 4% 3% 2% 9% 9% (28%) (28%) 57.50 42% 2.57 2.44 15% 13% FY13E 5% 4% 3% (8%) (8%) 9% 9% 164.16 23% 2.30 2.27 16% 14% FY14E 5% 3% 3% (5%) (5%) (5%) (5%) 11% 2.16 2.15 14% 12%
1,937 3,055 2,555 2,555 2,542 3,528 4,292 3,934 0 0 0 0 4,592 7,236 7,500 7,142 684 488 488 488 0 0 0 0 0 0 0 0 4,523 5,225 5,632 6,110 40,167.48 46,406.07 50,015.52 54,260.07
Sales per share growth - Sales growth 3,519 Net profit growth 14,081 EPS growth Interest coverage (x) 2,555 3,731 Net debt to equity 0 Sales/assets 6,939 Assets/equity 488 ROE 0 ROCE 0 6,540 58,084.97
535
Underweight
Price: Bt67.50 Price Target: Bt53
Abs Rel
1m 7.6% 8.0%
3m 13.9% 4.8%
Source: Bloomberg.
FY13E 412,446 9.4 4.60 3.40 -7.8% -1.3% 9.6% 11.2% 14.7 1.6 8.4 5.0% 4.60 14.7
FY14E 400,225 8.6 4.20 3.45 -3.0% -8.7% 8.8% 10.0% 16.1 1.6 8.6 5.1% 4.20 16.1
Company Data Shares O/S (mn) Market Cap (Bt mn) Market Cap ($ mn) Price (Bt) Date Of Price Free float (%) 3-mth trading value (Bt bn) 3-mth trading value ($ mn) 3-mth trading volume (mn) SET Exchange Rate Fiscal Year End
2,040 137,702 4,490 67.50 05 Nov 12 50.0% 1.0 32.2 6.9 1,307 30.67 Dec
536
-5,801 -4,797 0 0 838 406 5,525 9,665 0 0 588 1,664 2,286 1,766 -4,284 -5,508 9,238 14,035 14,035 19,292 2.00 3.30 FY10 4.6% 2.5% 2.8% FY11 6.1% 4.6% 3.3%
-7,350 -6,860 -8,964 0 0 0 39 347 525 2,394 14,263 9,147 0 0 0 -5,500 -4,500 -4,500 496 35 36 -6,732 -6,834 -6,936 19,292 9,286 12,186 9,286 12,186 9,847 3.35 3.40 3.45 FY12E FY13E FY14E 4.3% 4.6% 4.6% 2.7% 2.8% 2.6% 2.1% 2.3% 2.1%
12.1% 40.2% 0.2% (7.8%) (3.0%) -25.4% 65.1% -36.0% -1.3% -8.7% (25.4%) 65.1% (36.0%) (1.3%) (8.7%) 42.0% 33.2% 2.24 2.96 1.87 1.71 13.0% 19.7% 7.2% 17.1% 37.6% 27.7% 24.7% 2.86 2.65 2.62 1.92 1.82 1.75 11.8% 11.2% 10.0% 9.9% 9.6% 8.8%
537
Neutral
Price: Bt45.50 Price Target: Bt49.00
Abs Rel
1m -1.1% -1.2%
3m 15.2% 6.1%
Source: Bloomberg.
FY14E 8,679 4,707 6.47 6.47 3.00 12.3% 21.4% 7.0 31.91 1.4 6.6%
Company Data 52-week Range (Bt) Market Cap (Bt mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Bt) Date Of Price 3M - Avg daily value (Bt mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) SET Exchange Rate
49.25-32.25 33,120 1,078 728 Dec 45.50 02 Nov 12 112.65 3.7 2.55 1306.60 30.72
538
(4,518) (4,935) 5,905 5,864 (1,947) (1,291) 201 282 4,159 4,856 (1,256) (1,563) (14) (26) 2,888 3,267 FY10 3.97 2.25 56.7% 20.30 727 8.12 FY10 145,570 (4,162) 149,732 2,359 6,481 4,384 152,702 0 171,408 48,533 101,619 0 136,235 155,106 14,777 111,550 96,329 FY11 4.49 2.35 52.4% 22.25 728 8.06 FY11 180,585 (4,428) 185,014 2,214 3,706 3,075 194,300 0 220,709 37,979 159,875 0 174,003 196,058 16,199 135,557 123,553
FY10 FY11 FY12E FY13E FY14E 299.9% 475.5% 519.2% 539.8% 561.4% 5.1% 2.6% 1.5% 1.4% 1.2% 85.1% 85.4% 85.3% 87.7% 89.7% 31.0% 18.6% 17.5% 17.1% 16.7% 59.1% 72.4% 78.9% 79.8% 80.3% FY10 FY11 FY12E FY13E FY14E (2.8%) (2.4%) (2.8%) (3.3%) (3.8%) 1.8% 1.4% 1.3% 1.5% 1.7% 136.7% 187.8% 202.8% 207.9% 211.7% (4.1%) (6.1%) 35.9% 33.6% 31.0% 9.2% 9.0% 8.9% 9.1% 9.3% 14.5% 13.6% 13.2% 12.9% 12.6% FY10 FY11 FY12E FY13E FY14E 4.5% 3.5% 3.2% 3.1% 3.2% 98.5% 99.1% 99.9% 100.4% 101.1% 4.4% 3.5% 3.2% 3.2% 3.2% 34.2% 36.0% 38.0% 37.8% 37.3% 2.3% 2.0% 2.0% 1.9% 1.9% 6.7% 5.5% 5.2% 5.1% 5.1% 43.3% 45.7% 46.4% 45.7% 44.6% 2.9% 2.5% 2.4% 2.3% 2.3% 3.8% 3.0% 2.8% 2.8% 2.8% (1.5%) (0.8%) (0.9%) (1.0%) (1.0%) 85.1% 85.4% 85.3% 87.7% 89.7% 0.1% 0.1% 0.0% 0.0% 0.0% 2.6% 2.3% 2.1% 1.9% 1.9% 2.7% 2.5% 2.1% 1.9% 1.9% 30.2% 32.2% 23.0% 20.0% 20.0% 0.1% 0.0% 0.0% 0.0% 0.0% 1.9% 1.7% 1.6% 1.5% 1.5% 3.0% 2.6% 2.6% 2.5% 2.5% 8.8% 7.9% 7.2% 7.1% 7.1% 21.2% 21.1% 21.8% 21.5% 21.4%
539
Underweight
Price: PhP112.80 Price Target:PhP97.00
Abs Rel
1m 6.5% 6.5%
3m 11.7% 9.3%
Source: Bloomberg.
FY14E 8,627 7,254 11.31 2.81 0.6% 12.8% 10.0 92.62 1.2 2.5% 11.31
Company Data 52-week Range (Php) Market Cap (Php mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Php) Date Of Price 3M - Avg daily value (Php mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) PSE Exchange Rate
140.00-60.50 72,333 1,761 641 Dec 112.80 07 Nov 12 21.51 0.5 0.20 5470.70 41.07
540
541
United Tractors
www.unitedtractors.com
Company overview UNTR is a 59.5% subsidiary of Astra International. UNTR is the exclusive distributor of Komatsu in Indonesia, and also provides service and spares, along with certain other brands of heavy equipment. 100% subsidiary PAMA is the largest mining contractor in Indonesia and produces close to a quarter of all the coal that is mined in Indonesia. The company has been acquiring coal concessions over the last couple of years, but they are still a small contributor to overall operations. Investment case 9MFY12 Komatsu volumes are down 15% y/y. UNTRs mining contracting clients are looking to pare down costs by cutting strip ratios, potentially pressuring margins. Even in this environment, consensus estimates still imply 10% y/y growth in FY13E, which we see as untenable. Though we see UNTR as a high-quality company, we think expectations need to be reassessed lower and hence we rate it an UW. Key issues in an anemic growth environment 1) Komatsu volume outlook remains uncertain, especially among mining clients; 2) declining stripping ratios at mining contracting clients could impact margins as well as equipment future demand; 3) we forecast EPS to decline 4% y/y for 2013, while street estimates still project growth; and 4) capex uncertainty among miners. Earnings risks in 2013 UNTR's business is highly leveraged to the coal cycle a reversal in coal prices could be followed by a demand reversal. Weaker currency could be a source of upside risk. Price target, and risks to our investment view We apply the current consensus 12M Fwd P/E (11.5x) to our below-consensus EPS estimate to arrive at our Rp17,000 Dec-13 PT. Beyond coal prices, one of the risks to our view is that our DCF valuation of UNTR is above the current stock price, but we think this requires growth to return to be credible as a valuation lodestone.
PT United Tractors tbk (Reuters: UNTR.JK, Bloomberg: UNTR IJ) Rp in bn, year-end Dec FY10A FY11A FY12E Revenue (Rp bn) 37,324 55,053 56,527 Net Profit (Rp bn) 3,831.5 5,900.9 5,787.1 EPS (Rp) 1,151.67 1,656.57 1,551.45 DPS (Rp) 465.67 662.63 620.58 Revenue growth (%) 27.6% 47.5% 2.7% EPS growth (%) 0.4% 43.8% -6.3% ROCE 26.2% 28.8% 23.3% ROE 25.6% 27.8% 20.6% P/E (x) 17.2 12.0 12.8 P/BV (x) 4.1 2.7 2.5 EV/EBITDA (x) 0.6 -0.2 -0.0 Dividend Yield 2.4% 3.3% 3.1%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Underweight
Price: Rp19,800 Price Target: Rp17,000
Abs Rel
1m 4.3% 2.9%
3m -5.3% -11.1%
Source: Bloomberg.
FY13E 60,672 5,557.1 1,489.77 595.91 7.3% -4.0% 19.2% 17.7% 13.3 2.2 -0.4 3.0%
FY14E 70,703 7,058.8 1,892.37 756.95 16.5% 27.0% 22.2% 20.0% 10.5 2.0 -0.5 3.8%
Company Data Shares O/S (mn) Market cap (Rp mn) Market cap ($ mn) Price (Rp) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Rp mn) 3M - Avg daily Value (USD) ($ mn) JCI Exchange Rate Fiscal Year End
3,730 73,856,670 7,670 19,800 09 Nov 12 40.5% 6.68 138,795.10 14.41 4,334 9,629.00 Dec
542
Cash flow statement Rp in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Rp in billions, year end Dec EBITDA margin Operating margin Net margin
FY10 FY11 FY12E FY13E FY14E 5,163 7,615 7,622 6,934 8,880 2,857 3,426 4,022 4,617 5,107 -3,894 1,141 -1,131 -534 -1,292 -1176 -1885 -1729 -1660 -2108 2,974 10,569 8,775 9,738 10,972 -4,282 -3,835 -5,764 -3,902 -4,907 222 1,127 264 902 907 -140 -39 -31 -100 -15 -318 -6,197 -2,000 0 0 -1,308 6,734 3,011 5,835 6,065 0 6,023 0 0 0 1,942 -1,008 0 0 0 -159 2,595 0 0 0 -1,549 -2,360 -2,315 -2,223 -2,824 2,776 1,385 7,172 5,868 9,481 1,385 7,172 5,868 9,481 12,723 465.67 662.63 620.58 595.91 756.95 FY10 FY11 FY12E FY13E FY14E 21.5% 20.1% 20.6% 19.0% 19.8% 13.8% 13.8% 13.5% 11.4% 12.6% 10.3% 10.7% 10.2% 9.2% 10.0% 27.6% 27.6% 0.4% 0.4% 57.20 37.8% 47.5% 54.0% 43.8% 284.54 (1.9%) 7.3% 16.5% 2.7% 7.3% 16.5% -1.9% -4.0% 27.0% (6.3%) (4.0%) 27.0% 370.90 115.12 954.06
Balance sheet Rp in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets Liabilities Short-term loans Payables Others Total current liabilities Long-term debt Other liabilities Total Liabilities Shareholders' equity BVPS
2,982 2,587 4,203 4,203 5,531 10,303 6,969 7,480 1,324 2,039 3,562 3,823 9,837 14,930 14,735 15,507 2,730 2,116 500 500 483 1,304 1,404 1,504 13,536 18,936 17,225 18,097 16,136 26,320 29,793 33,127 4,850.29 7,389.00 7,987.03 8,880.90
Sales per share growth 2,616 Sales growth 14,505 Net profit growth 58,611 EPS growth Interest coverage (x) 4,203 8,717 Net debt to equity 4,455 Sales/assets 17,375 Assets/equity 500 ROE 1,604 ROCE 20,065 37,362 10,016.32
29.8% -7.2% -1.9% -12.7% -19.9% 1.38 1.45 1.19 1.21 1.27 1.67 1.55 1.51 1.58 1.57 25.6% 27.8% 20.6% 17.7% 20.0% 26.2% 28.8% 23.3% 19.2% 22.2%
543
Vale Indonesia
www.pt-inco.co.id
Company overview Vale Indonesia (INCO) is the largest nickel producer in Indonesia. It is controlled by Vale Inco (59%) and Sumitomo Metal Mining (20%) and owns nickel ore deposit in three major provinces in Sulawesi with a total area of 218,529ha and 2p reserves of 153MM tons (1.77% grade). INCO sells its annual nickel production to its parent, Vale Inco, under a must-take contract. It is one of the lowest-cost producers in the world as it uses hydro power (275MW). Its new hydro plant (Karebbe project) will add about 90MW of capacity pa, but INCO will need to debottleneck its processing plant. It is also embarking on pulverized coal to replace oil in its dryers. Investment case Positives drivers: (1) Volume ramp-up from 70,800 tons in FY12E to 80,000 tons in FY13E. (2) Cost decline from US$12,365/ton to US$11,598/ton. (3) Nickel price rose from US$17,884/ton in FY12 to US$19,250/ton in FY13E. Negative drivers: (1) Current low spot price at US$16,000/ton. (2) Support from dividend is diminishing. Key issues in an anemic growth environment If the current spot price of US$16,000 persists, 1H13 EPS could fall by 67.5%. The expected 1.5% yield in FY13E is unattractive compared to the 2.6% of our universe. Earnings risks in 2013 Our operating profit estimate of US$262MM is 12.1% below consensus, implying that consensus is estimating a lower cost. In 9M12, one of the reasons the result was below consensus is that consensus forecasted a much lower cost, which did not materialize. Price target, and risks to our investment view Our DCF-based Dec-13 PT of Rp2,600 implies 48.4x FY12E P/E and 15.5x FY13E P/E. Upside risks: (1) a higher-than-expected recovery in nickel prices; (2) costs come in lower than US$11,637/ton. Downside risks: (1) earnings estimate revisions by consensus cause underperformance; (2) concession losses.
Vale Indonesia (Reuters: INCO.JK, Bloomberg: INCO IJ) $ in mn, year-end Dec FY09A FY10A FY11A Revenue ($ mn) 761 1,276 1,243 Net Profit ($ mn) 170 437 334 EPS ($) 0.02 0.04 0.03 DPS ($) 0.01 0.03 0.02 Revenue growth (%) -42.0% 67.7% -2.6% EPS growth (%) -52.6% 156.6% -23.7% ROCE 14.3% 33.5% 24.9% ROE 11.0% 26.8% 19.4% P/E (x) 16.1 6.3 8.2 P/BV (x) 1.7 1.6 1.5 EV/EBITDA (x) 8.3 3.6 4.5 Dividend Yield 3.9% 12.4% 8.9%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Neutral
Price: Rp2,650 Price Target: Rp2,600
Abs Rel
1m -7.0% -7.9%
3m 9.3% 2.8%
Source: Bloomberg.
FY12E 982 56 0.01 0.01 -20.9% -83.3% 5.3% 3.2% 49.2 1.6 13.0 3.1%
FY13E 1,190 174 0.02 0.00 21.1% 212.2% 12.8% 9.6% 15.8 1.5 7.3 1.5%
FY14E 1,311 231 0.02 0.01 10.2% 33.3% 15.4% 11.9% 11.8 5.9 3.1%
Company Data Shares O/S (mn) Market cap ($ bn) Market cap ($ mn) Price (Rp) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (Rp mn) 3M - Avg daily Value (USD) ($ mn) JCI Exchange Rate Fiscal Year End
9,936 3 2,735 2,650 07 Nov 12 21.0% 6,983,976.00 18,597.57 1.93 4,350 9,626.00 Dec
544
Cash flow statement $ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis $ in millions, year end Dec EBITDA margin Operating margin Net margin
FY10 596 88 315 -144 641 -133 -0 508 0 -0 0 -339 261 404 0.03 FY10 53.6% 46.7% 34.3%
FY11 485 98 -81 -119 304 -209 0 96 0 150 0 -243 404 399 0.02 FY11 46.9% 39.0% 26.9%
FY12E FY13E FY14E 106 262 339 100 110 114 -24 -40 -28 -20 -63 -83 147 218 318 -167 -16 -21 0 -38 0 -85 399 267 0.01 -179 -16 40 0 0 0 -40 267 283 0.00 -199 -16 119 0 0 0 -83 283 337 0.01
FY10 404 199 102 7 712 14 1,465 2,190 9 41 107 158 141 212 510 1,680 0.17
FY11 399 75 163 143 781 61 1,579 2,421 38 84 57 179 255 219 652 1,769 0.18
FY12E FY13E FY14E 267 283 337 135 163 180 137 144 151 135 163 180 673 754 846 13 1,647 2,333 0 80 62 142 218 234 594 1,739 0.18 75 1,716 2,544 0 84 81 166 255 250 671 1,873 0.19
FY12E FY13E FY14E 21.0% 31.2% 34.6% 10.8% 22.0% 25.9% 5.7% 14.6% 17.6%
Sales per share growth 75 Sales growth 1,800 Net profit growth 2,722 EPS growth Interest coverage (x) 0 88 Net debt to equity 90 Sales/assets 178 Assets/equity 255 ROE 268 ROCE 701 2,021 0.20
67.7% (2.6%) (20.9%) 21.1% 10.2% 67.7% (2.6%) (20.9%) 21.1% 10.2% 156.6% -23.7% -83.3% 212.2% 33.3% 156.6% (23.7%) (83.3%) 212.2% 33.3% 171,140.77 13.23 23.25 28.37 -15.1% 0.60 1.29 26.8% 33.5% -6.0% 0.54 1.33 19.4% 24.9% -2.8% 0.41 1.36 3.2% 5.3% -1.5% -4.0% 0.49 0.50 1.38 1.35 9.6% 11.9% 12.8% 15.4%
545
Weg
www.weg.net.br
Underweight
Price: R$23.50 Price Target: R$18.00 End Date: Dec 2013
Company overview Weg is a leader in the electric-electronic motors industry, with a 75% share of Brazils market and a 4% share of the global market. The company can be divided into four business divisions broadly defined as (1) industrial electro-electronic equipment, (2) heavy-duty transformer and sub-station systems, (3) home appliances, and (4) paints and varnishes. Global clients for the company include OEMs and capital goods manufacturers as well as clients in steel, mining, pulp and paper, and oil and gas. Wegs business will grow alongside levels of investments in fixed capital and Brazilian GDP growth. Given its market position, we believe the company will be able to achieve top-line growth of approximately R$17 bln by 2020 (vs R$6 bln in 2012) assuming normal growth rates in Brazil. A recovery in capital goods investment would be less dynamic than in trucks, leading us to believe that there will be few surprises to the upside. We see downside to current estimates Even if Weg grows its business in line with Brazil growth expectations, we see little room for margin expansion as we expect competitors to be drawn to the market, which has few barriers to entry. Compared to international peers, WEGE3 trades at a 40% premium on EV/EBITDA, which we do not view as justified given the companys lower pricing power and lack of diversified products compared to major foreign players. Acquisitions can have a significant effect on earnings A major driver of growth for WEGE3 continues to be acquisitions, which could have a significant positive or negative effect on the companys earnings. We are UW on WEGE3 with a Dec 2013 PT of R$18.00 We estimate the equity value of Weg using a finite FCF to firm calculation (DCF) with explicit forecasts to 2020 and a perpetual value calculation thereafter. Upside risks to our rating include accretive acquisitions and the reduction of raw material and labor t
Weg SA (WEGE3.SA;WEGE3 BZ) FYE Dec EPS Reported (R$) FY Revenues FY (R$ mn) EBITDA FY (R$ mn) P/E FY 2011A 0.95 5,189 882 24.8 2012E 1.05 6,253 1,063 22.5 2013E 1.27 7,011 1,243 18.5
Thomas McElwee
(55-11) 4950 6719 thomas.mcelwee@jpmorgan.com Banco J.P. Morgan S.A. Bloomberg JPMA LUCIN <GO>
P r ic e P e r fo r m a n c e
24 22 R$ 20 18 16
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Source: Bloomberg.
Company Data Price (R$) Date Of Price 52-week Range (R$) Mkt Cap (R$ mn) Fiscal Year End Shares O/S (mn) Price Target (R$) Price Target End Date
546
Source: Company reports and J.P. Morgan estimates. Note: R$ in millions (except per-share data).Fiscal year ends Dec
547
Wintek Corporation
www.wintek.com.tw
Company overview Wintek (TWSE: 2384) was founded in 1990 and is one of the leading manufacturers of handset display modules and touch panels in Taiwan. Its major products can be divided into: (1) touch panel; and (2) display, including small- and medium-sized TFT-LCD panels, MSTN and CSTN. Investment case Despite rising touch panel demand, we believe Wintek could continue to suffer from low technology investment and yield rate challenge in tablet/NB touch panels. Rapid technology change in iPad touch panels would be another challenge for Wintek since Apple remains Winteks biggest customer. We believe earnings visibility remains weak for Wintek going forward and equity value could come down further. Key issues in an anemic growth environment The companys ROE would continue to stay in the red for the rest of 2012 as well as in 2013/2014, in our view. Continuous declines in equity value would also lead to an increasing net-gearing ratio, hence the need to raise equity capital again if the earnings visibility continues to show limited improvement. Earnings risks in 2013 Given there are dual design-in options for next years 9.7 iPad, there is a risk that Wintek might not receive the order if the new model switches to film-based solution. Under the worst-case scenario, there will be a reduction in Wintek's 2013/2014 revenue by 20%/40% assuming Apple adopts film-based solution for its new model. Price target, and risks to our investment view Our Dec-13 PT of NT$10 is based on 0.5x 2013E P/BV, the historical trough. We expect limited upside catalysts for the share price given low earnings visibility. Key upside risks include: (1) new order wins from tablets; (2) earlier-than-expected take-off of Win 8 touch NBs; and (3) significant yield rate improvement.
Bloomberg 2384 TT, Reuters 2384.TW
(Year-end Dec, NT$ bn) Sales Operating Profit EBITDA Net profit EPS BPS (NT$) P/E (x) P/BV (x) ROE (%) Net Debt
Underweight
Price: NT$11.70 Price Target: NT$10.00
Abs Rel
1m -19.9% -15.0%
3m -18.5% -17.4%
Source: Bloomberg.
FY11 FY12E FY13E FY14E 93.0 103.5 88.1 110.4 -1.6 -0.8 -1.2 -2.4 6.0 7.6 7.1 5.5 -1.9 -1.7 -1.7 -2.8 -1.2 -0.9 -0.9 -1.5 21.8 19.6 18.7 17.1 NM NM NM NM 0.5 0.6 0.6 0.7 -5.9 -4.6 -4.9 -8.6 24.9 31.7 37.6 41.5
Sales growth OP growth NP growth Quarterly EPS (NT$) EPS (11) EPS (12) E EPS (13) E Difference (%) Price Target Consensus PT
FY11 FY12E FY13E 45.6% 11.2% (14.9%) -158.0% -49.5% 53.0% -192.5% -12.2% 4.0% 1Q 2Q 3Q 0.2 -0.2 0.2 0.1 -0.5 -0.4 -0.2 -0.2 -0.2 -17.5 10 12
Date of Price 52-Week range Market Cap Market Cap Share Out. (Com) Free float Avg daily val Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
08 Nov 12 NT$28.30 - 11.40 NT$22B US$739MM 1,848MM 0.0% NT$0.4B 13.59MM 26.1MM shares 0.0 29.26
548
Profit and Loss Statement Ratio Analysis NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec Revenues 63,886 93,032 103,498 88,118 110,394 Gross margin Cost of goods sold 57,984 90,644 100,495 86,073 108,719 EBITDA margin Gross Profit 5,903 2,388 3,003 2,045 1,675 Operating margin R&D expenses -908 -1,460 -1,421 -1,168 -1,464 Net margin SG&A expenses -2,235 -2,529 -2,391 -2,115 -2,649 R&D/sales Operating profit (EBIT) 2,759 -1,601 -809 -1,238 -2,438 SG&A/Sales EBITDA 9,070 5,993 7,610 7,071 5,485 Interest income 61 111 59 31 28 Sales growth Interest expense -516 -659 -913 -947 -1,061 Operating profit growth Investment income (Exp.) -455 -549 -854 -916 -1,034 Net profit growth Non-operating income (Exp.) -156 -162 -721 -847 -948 EPS (reported) growth Earnings before tax 2,603 -1,762 -1,530 -2,085 -3,386 Tax 533 109 104 -345 -556 Interest coverage (x) Net income (reported) 2,058.7 -1,904.9 -1,672.8 -1,740.1 -2,830.1 Net debt to total capital Net income (adjusted) 2,047 -1,939 -1,712 -1,740 -2,830 Net debt to equity EPS (reported) 1.70 (1.23) (0.95) (0.94) (1.53) Asset turnover EPS (adjusted) 1.69 -1.25 -0.97 -0.94 -1.53 Working capital turns (x) BVPS 22.07 21.78 19.60 18.66 17.13 ROE DPS 0.00 0.00 0.00 0.00 0.00 ROIC Shares outstanding 1,297 1,648 1,848 1,848 1,848 ROIC (net of cash) Balance sheet Cash flow statement NT$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E NT$ in millions, year end Dec Cash and cash equivalents 6,224 8,095 8,031 6,378 8,258 Net income Accounts receivable 10,984 15,509 13,274 17,239 18,930 Depr. & amortization Inventories 10,336 11,647 12,152 16,366 18,023 Change in working capital Others 3,010 3,651 2,651 3,557 3,953 Other Current assets 30,554 38,901 36,108 43,541 49,165 Cash flow from operations LT investments 471 252 231 231 231 Capex Net fixed assets 36,683 47,741 55,875 57,567 57,644 Disposal/(purchase) Others 1,791 2,117 1,960 1,960 1,960 Cash flow from investing Total Assets 69,499 89,012 94,174 103,298 109,000 Free cash flow Liabilities Equity raised/(repaid) ST Loans 12,184 18,389 25,814 28,825 27,781 Debt raised/(repaid) Payables 10,738 13,729 12,364 16,906 18,809 Other Others 5,656 6,434 5,848 7,951 8,826 Dividends paid Total current liabilities 28,577 38,552 44,025 53,683 55,415 Cash flow from financing Long-term debt 12,300 14,565 13,926 15,133 21,932 Other liabilities 0 1 0 0 0 Net change in cash Total Liabilities 40,877 53,117 57,951 68,816 77,347 Beginning cash Shareholders' equity 28,622 35,894 36,223 34,483 31,652 Ending cash Source: Company reports and J.P. Morgan estimates.
FY14E 1.5% 5.0% (2.2%) -2.6% 1.3% 2.4% 25.3% 97.0% 62.6% 62.6%
133.2% 45.6% 11.2% (14.9%) -234.2% -158.0% -49.5% 53.0% -178.5% -192.5% -12.2% 4.0% (173.7%) (172.3%) (22.7%) (0.9%) 19.94 36.0% 63.8% 1.03 6.73 7.9% 3.1% 3.5% 10.92 40.8% 69.3% 1.17 7.12 (5.9%) -4.2% -4.7%
8.92 7.72 5.30 43.8% 48.7% 51.9% 87.5% 109.0% 131.0% 1.13 0.89 1.04 8.15 5.41 6.18 (4.6%) (4.9%) (8.6%) -3.4% -3.3% -4.7% -3.9% -3.6% -5.1%
FY10 FY11 FY12E FY13E FY14E 2,058.7 -1,904.9 -1,672.8 -1,740.1 -2,830.1 6,310 7,594 8,419 8,308 7,923 -814 -2,708 778 -2,438 -968 1,221 138 413 1,198 478 7,567 3,015 7,563 4,130 4,124 -9,619 -18,652 -16,553 -10,000 -8,000 0 0 0 0 0 -10,270 -18,758 -16,375 -10,000 -8,000 -2,052 -15,637 -8,990 -5,870 -3,876 0 9,786 3,000 0 0 -541 8,471 6,786 4,217 5,755 3,315 -643 -1,038 0 0 0 0 0 0 0 2,774 17,614 8,748 4,217 5,755 71 6,153 6,224 1,870 6,224 8,095 -64 8,095 8,031 -1,652 8,031 6,378 1,880 6,378 8,258
549
X5 Retail Group
x5.ru
Company overview X5 is Russia's largest retailer by revenue: with 3,475 stores under operation, the group holds a 5.7% market share. X5 is a multi-format retailer present in discounter, supermarket and hypermarket segments. Geographically, X5 focuses on Russias most prosperous cities; in particular, X5 holds a >25% market share in St. Petersburg and is the largest player in Moscow. Investment case X5 underperformed in 2012 as growth lagged expectations and significant reshuffling was taking place in the management team. We see no reason for long-term fundamentals-oriented investors to build positions in X5 despite attractive valuations (28% discount to Magnit on 2013E P/E) as sales growth trends remain disappointing and the companys efforts to address the problem are not bearing fruit yet. Bruised sentiment is not an easy fix and certain events could send the stock to lower levels (management resignations or earnings downgrades). That said, the appointment of a permanent CEO or pick up in expansion and LFL sales growth in 2013 (low base effect) may create positive momentum that value-hunters could be eager to play. Key issues in an anemic growth environment Operationally X5 is a less efficient retailer compared to Magnit (lower margins and ROE), and it is also more leveraged. Finally, the company has yet to develop its organic expansion capabilities, all this amidst changing its management and restructuring logistics functions, assortment and supply. Hence we expect X5 to lag Magnit in terms of growth and profitability during times of sluggish global growth. Earnings risks in 2013 Further erosion of LFL traffic, deterioration of hypermarkets' sales densities, cannibalization and competition, operating cost inflation could affect X5's earnings in 2013. Price target, and risks to our investment view Our DCF-based Dec-13 PT is $22.50/GDR. We use (1) a 6.4% after-tax cost of debt, (2) COE of 15% (13% base COE + 100bp liquidity premium + 150bp premium for low earnings visibility), (3) target leverage of 30% to derive a WACC of 12.8%. Terminal growth rate is assumed at a conservative 3% beyond the 10-year forecasting period. A turnaround in X5s operating performance is the key upside risk to our view.
X5 Retail Group N.V. (PJPq.L;FIVE LI) FYE Dec 2011A Adj. EPS FY ($) 1.11 Revenue FY ($ mn) 15,455 EBITDA FY ($ mn) 1,130 EBITDA margin FY 7.3% EBIT FY ($ mn) 702 Net Att. Income FY ($ mn) 302 FCF FY ($ mn) 32 Adj P/E FY 17.2 EV/EBITDA FY 8.0 2012E 0.83 15,737 1,070 6.8% 629 226 (346) 23.0 8.4 2013E 1.22 18,614 1,331 7.1% 810 330 (473) 15.7 6.8 2014E 1.45 21,553 1,541 7.1% 938 394 (451) 13.2 5.9 2015E 1.74 24,616 1,760 7.1% 1,071 472 (188) 11.0 5.1
Neutral
Price: $19.15 Price Target: $22.50
(7-495) 967-3888 elena.jouronova@jpmorgan.com Bloomberg JPMA JOURONOVA<GO> J.P. Morgan Bank International LLC
P r ic e P e r fo r m a n c e
30 28 26 $ 24 22 20 18
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs
YTD -15.6%
1m -10.4%
3m -2.3%
12m -25.8%
Source: Bloomberg.
Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn)
550
(952) (1,563) (1,674) (1,583) 0 0 0 0 (346) (473) (451) (188) 486 0 0 141 500 0 0 27 500 1 0 49 200 2 0 12
FY12E FY13E FY14E FY15E 23.5% 23.5% 23.5% 23.5% 6.8% 7.1% 7.1% 7.1% 4.0% 4.4% 4.4% 4.4% 1.4% 1.8% 1.8% 1.9% -20.6% -20.2% -20.2% -20.2%
37.0% 1.8% 18.3% 15.8% 14.2% 34.0% -5.3% 24.4% 15.8% 14.2% 28.8% -10.3% 28.6% 15.8% 14.2% 7.6% (24.9%) 45.8% 19.4% 19.7% 3,614 4,104 4,604 5,104 5,304 3,229 3,574 4,047 4,498 4,686 2.9 3.3 3.0 2.9 2.7 2.4 1.9 2.2 2.3 2.4 147.0% 149.2% 147.5% 143.3% 129.8% 1.8 1.6 1.7 1.7 1.8 4.0 4.0 4.0 4.0 3.8 14.2% 9.9% 12.9% 13.4% 14.0% 3.4% 2.4% 3.2% 3.3% 3.6% 9.1% 7.7% 8.8% 9.0% 9.4%
551
Underweight
Price: HK$12.30 Price Target: HK$9.00
Lun Zhang
(852) 2800 8561 lun.zhang@jpmorgan.com Bloomberg JPMA ZHANG<GO> J.P. Morgan Securities (Asia Pacific) Limited
P r ic e P e r fo r m a n c e
22 HK$ 18 14 10
Nov-11 Feb-12 May-12 Aug-12 Nov-12
Abs Rel
1m 1.3% -3.4%
3m -4.2% -14.2%
Source: Bloomberg.
FY13E 61,017 3,570.6 3,571 0.73 0.73 10.6% -36.7% 22.4% 13.7 1.0 10.3 2.2%
FY14E 64,600 5,191.7 5,192 1.06 1.06 5.9% 45.4% 45.4% 9.4 0.9 8.0 3.2%
Company Data Shares O/S (mn) Market cap (Rmb mn) Market cap ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume 3M - Avg daily Value (HK$ mn) 3M - Avg daily Value (USD) ($ mn) HSI Exchange Rate Fiscal Year End
1,958 19,423 3,108 12.30 05 Nov 12 47.0% 27.91 334.68 39.20 22,111 7.75 Dec
552
Cash flow statement FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 47,066 55,174 61,017 64,600 EBIT 38.7% 17.2% 10.6% 5.9% Depr. & amortization 39.9% 22.7% 23.3% 26.0% Change in working capital 15,470 10,605 11,254 13,984 Cash flow from operations 19.0% -31.4% 6.1% 24.3% 32.9% 19.2% 18.4% 21.6% Capex 12,484 6,474 6,106 8,217 Disposal/(purchase) 22.1% NM NM 34.6% Net Interest 26.5% 11.7% 10.0% 12.7% Free cash flow -482 -684 -854 -480 12,521 5,971 5,252 7,737 Equity raised/(repaid) 0.3% -52.3% -12.0% 47.3% Debt raised/(repaid) -3,545 -247 -1,313 -1,934 Other 28.3% 4.1% 25.0% 25.0% Dividends paid 8,928.1 5,644.6 3,570.6 5,191.7 Beginning cash -3.8% -36.8% -36.7% 45.4% Ending cash - DPS 1.82 1.15 0.73 1.06 (3.8%) (36.8%) (36.7%) 45.4% Ratio Analysis FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 8,145 11,488 11,293 15,659 Gross margin 7,312 8,572 9,480 10,036 EBITDA margin 1,391 1,631 1,804 1,910 Net profit margin 13,582 8,443 8,942 9,247 SG&A/Sales 30,431 30,133 31,518 36,852 Sales growth 7,375 11,467 11,467 11,467 Net profit growth 31,274 39,729 42,618 42,407 66,720 79,265 81,617 80,849 Current ratio 97,152 109,398 113,134 117,701 Quick ratio Interest coverage (x) 19,592 2,241 12,889 34,721 14,869 53,827 14,370 3,380 17,037 34,787 24,209 63,232 45,476 27,091 9.25 14,370 3,709 18,567 36,647 24,209 65,091 47,353 27,286 9.63 14,370 3,788 18,934 37,093 24,209 65,537 Total debt to total asset Net debt to equity Sales/assets Assets/equity
FY10 FY11 FY12E FY13E FY14E 10,228 12,484 6,474 6,106 8,217 2,776 2,986 4,132 5,148 5,767 -5,333 3,923 3,894 280 -522 5,400 17,977 9,728 9,367 11,048 -3,406 -8,614 -11,274 -7,500 -5,000 205 58 0 0 0 -416 -482 -684 -854 -480 1,993 9,363 -1,546 1,867 6,048 455 12,345 4,118 0 0 -2 -2 -79 -369 -611 -1,230 -2,902 -2,804 -1,693 -1,071 8,522 6,771 8,145 11,488 11,293 6,771 8,145 11,488 11,293 15,659 0.59 0.57 0.34 0.22 0.32
FY11 FY12E FY13E FY14E 39.9% 22.7% 23.3% 26.0% 32.9% 19.2% 18.4% 21.6% 19.0% 10.2% 5.9% 8.0% 14.0% 13.7% 13.7% 13.7%
64.2% 38.7% 17.2% 10.6% 5.9% 125.4% -3.8% -36.8% -36.7% 45.4% 2.40 31.25 0.88 32.12 0.87 15.50 0.86 13.18 0.99 29.15
57.8% 57.5% 55.7% 59.6% 57.6% 44.5% 0.53 2.41 12.8% 5.5% 0.55 2.39 0.56 2.29
553
Zain KSA
www.sa.zain.com
Company overview Zain KSA, 37% owned associate of Zain Group, is Saudi Arabias 3rd mobile operator providing mobile voice, data and internet services. As a single-country operator, Zain KSA has c.15% customer market share and covers over 90% of the populated area with its mobile network. Investment case Following Zain KSA's balance sheet restructuring, we believe Zain KSA is likely to refocus on the growth opportunities in the Saudi telecom market. The telco is currently in the process of adopting a new operational and financial strategy. This, in our view, is most likely to result in Zain KSA refocusing on its marketing effort and network investment. Key issues in an anemic growth environment Zain KSA has secured an additional 2-mth extension of its existing SR9.75bn Murabaha credit facility up to 28 Nov-12. While this extension should allow the planned implementation of a new ~SR9bn refinancing facility, it still carries some refinancing risk, in our view. After 7-8 quarters of weaker-than-expected financial performance, we believe the stock is unlikely to outperform over the next 12 months while the market evaluates the details of its upcoming new operational and financial strategy as well as the deliverance on key objectives. Earnings risks in 2013 Based on our f/c of healthy rev growth and margin improvements from 2013E onwards, we expect Zain KSA to still break-even only in 2016E. We believe there could be downside risk to our f/c as Zain KSA is still in the process of adopting a new operational and financial strategy. Price target, and risks to our investment view Our Dec 2013 PT of SR10.0 is derived from our DCF-based valuation analysis (riskadj WACC 11.1%, terminal growth 2%). Key regulatory risks include licensing, termination fees and access to infrastructure. Any potential change to the economic environment is likely to have an impact on our f/c. Our f/c already factor in reasonable levels of competition. However, less or irrational competition could impact our growth and margin forecasts more than expected. Zain is in advanced refinancing negotiations on a new ~SR9bn refinancing facility this carries some refinancing risk in our view.
Mobile Telecommunications Company Saudi Arabia (7030.SE;ZAINKSA AB) FYE Dec 2011A 2012E Revenue FY (SRls mn) 6,699 6,391 EBITDA FY (SRls mn) 899 959 EBITDA margin FY 13.4% 15.0% EBIT FY (SRls mn) (811) (804) Adj. EPS FY (SRls) (1.38) (1.35) DPS (Gross) FY (SRls) 0.00 0.00 EV/EBITDA FY 32.3 23.2 Dividend Yield FY 0.0% 0.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Neutral
Price: SRls8.75 Price Target: SRls10.00
Abs
YTD 59.6%
1m -25.3%
3m -29.0%
12m 54.0%
Source: Bloomberg.
Company Data Price (SRls) Date Of Price Price Target (SRls) Price Target End Date 52-week Range (SRls) Mkt Cap (SRls bn) Shares O/S (mn) Mkt Cap ($ bn) 3M Avg Daily Trading Val (USD mn)
8.75 02-Nov-12 10.00 31 Dec 13 24.30 - 8.80 9.5 1,080 2.5 61.00
554
Cash flow statement FY11 FY12E FY13E FY14E FY15E SRls in millions, year end Dec 6,699 6,391 7,005 7,624 8,208 Cash EBITDA 12.9% -4.6% 9.6% 8.8% 7.7% Interest 899 959 1,401 1,830 2,298 Tax 171.9% 6.7% 46.1% 30.6% 25.6% Other 13.4% 15.0% 20.0% 24.0% 28.0% Cash flow from operations (811) (804) (428) (132) 203 -30.3% -0.9% -46.7% -69.2% -254.3% Capex PPE -12.1% -12.6% -6.1% -1.7% 2.5% Net investments (1,114) (868) (728) (650) (643) CF from investments -1,925 -1,672 -1,157 -781 -440 Dividends -18.4% -13.2% -30.8% -32.4% -43.7% Share (buybacks)/ issue -1,925 -1,672 -1,157 -781 -440 (18.4%) (13.2%) (30.8%) (32.4%) (43.7%) CF to Shareholders 1,400.00 1,240.02 1,080.03 1,080.03 1,080.03 FCF to debt (1.38) (1.35) (1.07) (0.72) (0.41) NM NM NM NM NM OpFCF (EBITDA - PPE) 0.00 0.00 0.00 0.00 0.00 EFCF pre Div, PPE Ratio Analysis FY11 FY12E FY13E FY14E FY15E SRls in millions, year end Dec 780 4,454 4,358 4,756 5,613 EBITDA margin 1,007 959 1,051 1,144 1,231 EBIT Margin - Net profit margin 645 536 587 639 688 Capex/sales 2,432 5,948 5,996 6,539 7,532 Depreciation/Sales 20,253 19,318 18,384 17,450 16,515 4,059 3,870 4,026 4,066 3,972 Revenue growth 26,744 29,136 28,405 28,054 28,020 EBITDA Growth 10,664 13,185 13,185 13,185 13,185 EPS Growth 1,609 1,176 1,289 1,403 1,511 3,238 3,217 3,529 3,846 4,143 Net debt/EBITDA 15,511 17,578 18,004 18,434 18,840 CF to Shareholders 2,224 506 506 506 506 FCF to debt 4,716 2,385 2,385 2,385 2,385 22,451 20,469 20,895 21,325 21,731 OpFCF (EBITDA - PPE) 26,744 29,136 28,405 28,054 28,020 EFCF pre Div, PPE
FY11 FY12E FY13E FY14E FY15E 1,710 1,763 1,829 1,962 2,095 (184) (868) (728) (650) (643) 0 0 0 0 0 (803) (167) 282 285 269 (899) (880) 527 1,334 2,127 (721) (639) (1,051) (1,067) (1,067) 2 0 0 0 0 -720 -639 -1,051 -1,067 -1,067 0 0 0 0 0 0 6,000 0 0 0 0 6,000 -807 5,285 177 -807 FY11 13.4% -12.1% NM 10.8% 0.1 320 -715 FY12E 15.0% -12.6% NM 10.0% 0.1 0 -96 350 -96 FY13E 20.0% -6.1% NM 15.0% 0.1 0 398 762 398 0 857 1,231 857
FY14E FY15E 24.0% 28.0% -1.7% 2.5% NM NM 14.0% 13.0% 0.1 0.1
12.9% -4.6% 9.6% 8.8% 7.7% 171.9% 6.7% 46.1% 30.6% 25.6% NM NM NM NM NM 18.1 11.5 0 6,000 -807 5,285 177 -807 320 -715 7.9 0 -96 350 -96 5.8 0 398 762 398 4.3 0 857 1,231 857
555
Underweight
Price: HK$10.08 Price Target: HK$7.50
Abs Rel
1m 5.2% 1.6%
3m 10.9% 3.4%
Source: Bloomberg.
FY14E 67,868 2,990 1,655 0.87 0.12 11.7% 26.1% 13.9% 9.4 1.4 1.5%
Company Data 52-week Range (HK$) Shares O/S (mn) Market Cap (HK$ mn) Market Cap (US) ($ mn) Price (HK$) Date Of Price Free float (%) 3mth Avg daily volume Average 3m Daily Turnover (US) ($ mn) HSI Exchange rate (HK$/US$)
17.18 - 7.95 1,908 18,226 2,352 10.08 08 Nov 12 29.6% 2.94 3.80 22,100 7.75
556
FY10 FY11 FY12E FY13E FY14E 4,244 6,389 7,032 7,919 8,263 984 1,958 2,178 2,392 2,579 3,453 6,380 6,410 7,578 8,436 1,918 3,145 3,720 4,306 4,949 10,599 17,872 19,340 22,194 24,227
FY10 FY11 FY12E FY13E FY14E 9.4% 10.2% 8.6% 8.9% 9.2% 6.6% 6.5% 4.4% 4.7% 5.0% 4.2% 3.4% 1.9% 2.1% 2.4% 76.7% 119.0% 94.4% 116.5% 73.6% 22.1% 18.6% 11.7% 37.4% -32.1% 36.4% 26.1% 87.9% 2.8% 22.7% 15.6% 70.6% -16.7% 26.6% 19.0% 10.9% 12.9% 13.9%
Sales growth 225 177 277 377 477 Net profit growth 1,789 3,887 5,494 6,142 6,759 Gross profit growth - Operating profit growth 16,200 27,860 31,306 35,177 38,197 ROE 4,924 9,992 10,242 10,492 10,742 2,995 5,682 6,333 7,497 8,413 1,143 1,939 2,268 2,603 2,938 9,062 17,613 18,843 20,593 22,094 423 1,969 3,069 3,669 3,269 9,485 19,583 21,913 24,262 25,363 6,715 8,278 9,393 10,915 12,834 -
23.3% 18.9%
557
558
Global* USA Europe* Japan* Emerging Markets* EMF Asia EMF LatAm* EMF EMEA* China Brazil* Korea Taiwan South Africa* India Russia* Mexico* Malaysia Chile* Indonesia Turkey* Thailand Poland* Czech Republic* Egypt* Philippines Hungary*
Source: I/B/E/S, MSCI, J.P. Morgan. Updated 14 Nov 2012 * Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. IBES Estimates are not available for Morocco, Jordan, Peru and Colombia. For all other markets, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest. Hist.^ refers to the historically lowest valuation of the MSCI indices since Jan 1991. Trough PE represents the lowest 12 month trailing PE. For dividend yield the highest values are taken to represent the best multiple. USA, Europe and Japan PE are I/B/E/S aggregate estimates. Japan Valuation estimates are for the financial year ending March P / EPS (Trend) uses the trend EPS for the indices calculated by the linear regression on the natural log of trailing EPS. For more, please refer to 'Welcoming the Weakness - Perspectives and Portfolios', 5 May 2009, Mowat et al. P / EPE (Trend)' is NM for indices where the modeled relationship is weak with a less than 0.50 R-square. The start dates China and Singapore models are modified to make them more relevant. Sector indices inputs have not been altered.
560
Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecoms Utilities Region / Country Benchmark Change vs dollar
11.8% 8.1% -4.4% 14.7% 11.0% 4.8% 7.3% -1.1% 0.7% -5.7% 6.4%
15.3% 5.4% -3.0% 13.9% 12.0% 5.7% 7.5% 1.0% 11.0% -5.1% 7.2%
17.8% 11.0% -6.3% 17.1% 9.3% 9.5% 11.7% 3.5% -11.4% -5.8% 6.8% 1.7%
-0.4% 8.6% -12.2% 14.4% 8.0% -3.7% -12.4% -10.9% 2.8% -23.9% -0.8% -4.0%
7.9% 15.5% -3.8% 11.4% 26.4% 6.7% 19.0% -4.4% 4.7% -2.3% 7.0%
4.6% 15.1% 4.1% 13.6% 24.6% 2.8% 19.1% -2.2% 8.3% 20.9% 10.6%
-3.1% 14.6% -16.1% -2.8% 0.0% 18.8% 15.0% -2.8% -2.2% -17.1% -2.0%
37.0% 20.6% -3.9% 20.7% 38.8% 20.6% -11.5% -11.4% 4.2% -17.8% 6.6%
4.6% 15.1% 4.1% 13.6% 24.6% 2.8% 19.1% -2.2% 8.3% 20.9% 10.6%
-4.7% 11.7% 12.0% -3.5% 0.0% -7.5% 23.3% -13.0% 8.6% 18.0% 4.4% 6.2%
11.1% 10.8% -14.6% -1.9% -8.9% 5.8% -13.5% 1.0% 1.2% 4.2%
1.1% 5.8% 5.6% 12.8% 30.5% 6.7% 47.6% 3.4% 4.3% 24.0% 10.6% 1.1%
39.3% 45.7% 12.2% 38.7% 25.8% 26.3% -3.8% 17.6% -11.5% 10.4% 22.1% -3.3%
-8.8% -9.4% 21.1% 6.5% -4.5% 7.6% 19.9% 18.2% 4.0% 3.4% Czech Republic
4.7% 14.6% -32.9% 15.5% 0.0% -20.2% 23.2% 33.0% 44.1% 10.6% -5.8%
South Africa
EM Europe & ME
Argentina
Colombia
YTD 2012
Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecoms Utilities Region / Country Benchmark Change vs dollar
-3.1% 14.6% -16.1% -2.8% 0.0% 18.8% 15.0% -2.8% -2.2% -17.1% -2.0%
17.1% 21.9% -12.6% -1.3% 0.0% 28.1% 27.3% -3.5% -8.4% -17.9% -0.3% -9.7%
-62.0% -17.0%
20.5%
25.3% 42.7% -1.6% 26.2% 28.4% 51.9% -11.5% 9.2% -2.3% -17.8% 7.7%
52.3% 16.5% -6.5% 23.2% 56.4% 17.7% -13.0% 17.7% 14.6% -9.2%
-7.5% -10.1% 24.3% 14.3% -15.5% 41.3% -29.7% -14.7% 9.6% 5.3%
0.0% 13.7%
Source: Bloomberg, MSCI. 14 Nov 2012. Notes: Regional headings first sorted by regional weights in the MSCI EMF and then country headings from left to right by relative weights within the MSCI EMF Indices: Regions in US$ and countries in local currency. Local currency movements against the dollar: appreciation / (depreciation). Country and sector cross sections in italic blue have outperformed their indices by more than 2%; numbers in red have underperformed their indices by more than 2%.
Morocco
Hungary
Mexico
Poland
Russia
Turkey
Egypt
Brazil
Chile
Peru
Indonesia
EMF Asia
EMF Asia
Malaysia
Thailand
Europe
Taiwan
Global
EMEA
Japan
Korea
China
India
EMF
8 7 6 5 4 3 2 1 0
Source: Bloomberg, J.P. Morgan. Notes: Market cap uses all exchanges covered by Bloomberg for a specific country and primary security of company only. The latest one week average is red (gray box in B&W, dark blue in blue scale) if less than 90% of the three month average or blue (solid black box in B&W, light blue in blue scale) if greater than 110% of the three month average. To calculate the free float we use the MSCI free float factor for all markets except for Hong Kong, Russia and South Africa where we calculate the free float for the Hong Kong Composite Index, MICEX, and JSE. Trading value calculation for Russia, Mexico and Brazil, includes value of depository receipts traded (DR) along with local stock exchange turnover. South Africa and Australia market capitalization and trading value includes only local listed portion of dual listed stocks. Velocity Ratio = (Trading Value / Free float market cap) * 100 Updated 14 Nov 2012
562
CPI (%)
FOOD CPI (YOY) 3M ann Previou Latest sss 5.0 0.0 0.0 5.6 0.0 5.7 (6.7) 5.8 8.3 3.8 4.6 7.2 14.2 1.5 2.5 3.5 2.4 11.0 6.5 2.0 5.1 3.6 6.4 5.7 4.0 (2.0) 5.3 6.0 15.1 1.9 2.6 (0.6) (3.2) 5.2 2.3 2.5 4.0 6.6 7.9 na 2.8 4.6 3.7 6.5 10.8 9.5 3.6 10.1 6.2 8.3 7.3 7.7 4.8 7.3 5.1 10.4 1.5 2.7 (0.9) (1.1) 4.4 2.1 1.8 5.0 6.5 6.6 na 2.4 4.0 3.4 4.2 11.0 10.4 3.5 9.8 5.2 9.1 7.2 7.9 4.3 7.3 6.1 7.9
CORE CPI (%) YoY 2.0 1.5 (0.6) na 3.6 5.4 1.7 1.5 4.2 6.0 1.0 2.5 2.9 1.1 na 5.3 na 3.6 2.1 2.1 1.6 5.1 1.9 5.8 4.7 6.1
Policy Rate
Policy Rate Last Change 16 Dec 08 (-87.5bp) 5 Jul 12 (-25bp) 5 Oct 10 (-5bp) 2 Oct 12 (-25bp) 17 Dec 08 (-100bp) -
Policy Rate Next Change On hold On hold On hold 4 Dec 12 (-25bp) On hold -
3M ann Current 1.2 0.7 (0.4) na 3.7 3.2 2.3 1.1 4.5 9.1 0.7 1.2 1.7 2.6 na 7.4 na 2.5 1.5 2.2 (0.7) 2.6 0.8 6.7 4.9 4.5 0.13 0.75 0.05 3.25 0.50 6.00 2.75 5.75 8.00 3.00 3.50 2.75 1.88 7.25 4.75 4.50 4.25 5.00 0.05 6.25 4.50 5.50 5.00 5.79
7 Jul 12 (-31bp) On hold 11 Oct 12 (-25bp) On hold 9 Feb 12 (-25bp) On hold 17 Apr 12 (-50bp) Jan 13 (-25bp) 5 May 11 (+25bp) On hold 25 Oct 12 (-25bp) 13 Dec 12 (-25bp) 17 Oct 12 (-25bp) On hold 30 Jun 11 (+12.5bp) On hold 10 Oct 12 (-25bp) 24 Aug 12 (-25bp) 17 Jul 09 (-25bp) 12 May 11 (+25bp) 12 Jan 12 (-25bp) 1 Nov 12 (-20bp) 30 Oct 12 (-25bp) 7 Nov 12 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) 4Q 13 (+25bp) On hold On hold On hold On hold On hold 4Q 12 (-25bp) 5 Dec 12 (-25bp) On hold On hold -
Source: J.P. Morgan Economics, Bloomberg. Note: Current inflation data for countries which outside/above target range is highlighted. # Countries where central banks target is not available. We have given J.P. Morgan Economic estimates. No target is available for China, but general expectation is that the Central Bank would continue raising rates when the headline CPI rises above 3.0 % In case of Taiwan, Estimate by DGBAS,CB targets M2 growth (2.5-6.5% for 2011) Russia's CBR is not yet in a full-fledged inflation targeting, so they can change the target during the year. Updated as of 14 Nov 2012
563
Positive Record-low interest rates, QE3 and healthy corporate balance sheets Interest rates low for long, strong corporate profits, low corporate bond yields, attractive relative valuation of equities vs. bonds, Housing recovering Cheap valuation, consensus UW, ECB turning more accomodative Defensive market composition, BoE conducting QE, stronger-than-expected consumer Leveraged to global industrial production cycle, post earthquake rebuild spending, low valuations relative to history, extension of asset purchase program Low sovereign debt, monetary policy flexibility, capex cycle underpinning growth and currency Recovery of property transaction, slower land sales, falling inflation rate. Closer integration to Pearl River Delta is positive in the long run. Strong hub for intra-Asia growth, significant flexibility around monetary policy, stable macroeconomic outlook to underpin growth in higher-value added sectors in the long-term
Negative European stress, high fiscal deficits and sovereign debt of Developed Markets Fiscal drag Economy in recession, political risk, fiscal tightening, banks deleveraging Fiscal tightening, high consumer leverage Earthquake cost adding to fiscal deficit Fiscal retrenchment, high debt levels, house price risk, exposure to bulk commodity price correction, continued dependence on wholesale funding of banks Lower GDP growth. Financial sector slowing down, putting pressure on office demand. Retail sales to start from a high base. Casino visitation continued to fall Slowing growth, increasing volatility of EPS given greater dominance of global price-takers in market composition, persistent core inflationary environment to add further cost pressures
South Africa India Russia Mexico Malaysia Indonesia Turkey Thailand Poland Czech Republic Philippines Hungary
Source: J.P Morgan 564
Median Median -
2013 2013 -
2013 17.1 17.1 17.7 4.3 14.6 16.8 20.5 NA 32.3 11.3 NA 2013 1.5 NA 17.1 0.1 1.5 NA NA NA 9.5 6.5 14.4
Median Median -
2013 2013 -
2013 20.2 59.2 30.1 34.5 11.9 35.2 23.3 11.4 25.3 5.2 -8.6 2013 -7.1 8.3 14.0 10.7 -0.5 NA NA 0.1 -18.2 -15.0 -25.7
Median Median -
2013 2013 -
2013 15.8 24.4 18.5 NA 20.2 NA 2.7 NA 41.3 5.8 NA 2013 12.0 13.2 20.1 5.8 12.7 NA 12.1 NA 22.8 2.6 NA
Source: I/B/E/S, MSCI, J.P. Morgan estimates. Note: Average earnings growth calculated based on earnings aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by J.P. Morgan under J.P. Morgan forecasts calculation. Median numbers are for the year 2012. Updated as of 14 Nov 2012.
565
EM Asia
120 2 110 2013 100
EM Europe
120 110 100
2013 2012
2012
95 85 75 Feb-11
2012
90
2012
90 80 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
Aug-11
Jan-12
Jun-12
Nov-12
80 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
Aug-11
Jan-12
Jun-12
Nov-12
EM Latin America
120
Korea
2 2013
110 100 90 80
Taiwan
115
2013
China
2013
110 100
2013 105
2012
90 80 Feb-11
2012
70 60
2012
2012 95
Aug-11
Jan-12
Jun-12
Nov-12
Aug-11
Jan-12
Jun-12
Nov-12
50 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
85 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
Brazil
105 2013 95 85 75 65 Feb-11 2012
130 120
Russia
120 115
South Africa
2013 2
Mexico
170 150 2
2013
Aug-11
Jan-12
Jun-12
Nov-12
Aug-11
Jan-12
Jun-12
Nov-12
85 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
70 Feb-11
Jun-12
Nov-12
Source: I/B/E/S. Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2011 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ term. Updated as of 14Nov 2012
566
Malaysia
115
125 120
Thailand
110
2013
Poland
105 100 95 2012 2013
105
2013
115 110
95
2012
105 100
2012
90 85
Aug-11
Jan-12
Jun-12
Nov-12
85 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
95 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
80 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
Chile
120 110 100 90 80 70 Feb-11 2012 2013
Turkey
115
110
Philippines
125
2013
Indonesia
105 2012
2013
100 2012
2013
2012
95
Aug-11
Jan-12
Jun-12
Nov-12
85 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
90 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
Aug-11
Jan-12
Jun-12
Nov-12
Hungary
120 110 100 90 80 70 60 Feb-11 2013
Czech. Republic
105
100
2013 2012
95 2
2012
90
Aug-11
Jan-12
Jun-12
Nov-12
85 Feb-11
Aug-11
Jan-12
Jun-12
Nov-12
Source:I/B/E/S Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2011 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ term. Updated as of 14 Nov 2012
567
130 2013
2013 2012
2013
115
115 105
2013 2012
100 90 80
100
2012
95 85 Feb 11
Sep 11
Apr 12
Nov 12
85 Feb 11
Sep 11
Apr 12
Nov 12
70 Feb 11
Sep 11
Apr 12
Nov 12
Sep 11
Apr 12
Nov 12
Financials
120 110 100 90 80 70 Feb 11
Health Care
Industrials
Information Technology
120
2013
110 100 2013 2012 90 80 70 Apr 12 Nov 12 60 Feb 11 Sep 11 Apr 12 Nov 12 2012 2013
105 90
2012
75
Apr 12 Nov 12
Sep 11
60 Feb 11
Sep 11
Materials
110 100 90 80 70 60 50 Feb 11 Sep 11 Apr 12 Nov 12 2012 2013
Telecom
135 125 115 105 95 85 75 Feb 11 2012 2013
Utilities
115 105 95 85 75 2012 2013
Sep 11
Apr 12
Nov 12
65 Feb 11
Sep 11
Apr 12
Nov 12
Source:I/B/E/S Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2011 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items. Sector earnings revisions are in US$. Updated as of 14 Nov 2012
568
14.1 15.2 11.8 11.3 12.8 12.9 12.0 12.5 16.0 15.0 12.3 12.6
10.5 20.9 7.1 9.2 20.1 11.7 11.8 11.2 12.3 11.6 10.2 10.4
16.4 19.7 4.7 9.2 16.9 10.3 8.7 9.5 10.6 8.9 7.8 9.0
16.7 22.2 9.7 10.5 25.4 17.3 15.6 11.3 11.7 10.9 12.0 12.5
9.4 20.0 10.5 9.0 20.9 11.5 11.6 12.4 13.3 15.0 10.9 11.1
6.4 15.6 10.6 7.7 17.2 9.8 8.4 11.1 10.5 NA 8.4 9.4
13.2 18.6 35.7 11.8 NA 13.2 13.1 19.8 16.7 NA 14.0 15.2
12.9 21.9 9.9 7.5 19.9 10.9 21.8 10.5 12.1 11.5 9.6 11.0
10.8 16.7 19.5 12.8 38.6 13.6 NA 13.1 20.0 15.9 13.9 14.1
15.4 18.8 12.1 11.9 24.4 14.1 NA 17.2 14.6 14.9 14.0 13.6
Czech Republic*
South Africa*
EMF LATAM*
EMF EMEA*
Hungary*
Mexico*
Poland*
Russia*
Turkey*
Brazil*
12-month forward PE
Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Market Aggregate Sector Neutral**
16.4 19.7 4.7 9.2 16.9 10.3 8.7 9.5 10.6 8.9 7.8 9.0
17.0 19.3 8.4 11.1 17.8 11.1 NA 9.7 12.5 NA 11.6 11.4
12.1 8.9 10.1 12.1 NA NA 8.7 8.3 18.3 9.5 10.8 10.6
16.7 22.2 9.7 10.5 25.4 17.3 15.6 11.3 11.7 10.9 12.0 12.5
15.6 22.2 9.1 9.5 25.4 18.0 15.6 8.2 12.8 9.3 10.4 11.4
Source: IBES, MSCI, J.P. Morgan. Note: Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. IBES Estimates are not available for Morocco, Jordan, Peru and Colombia. **Sector neutral PE are calculated by using sector weights of MSCI EM and sector PE of respective markets (MSCI EM sector PE used where country sector does not exist)
Chile*
569
Global* USA* Europe* Japan* Emerging Markets* China Brazil* Korea Taiwan South Africa* India Russia* Mexico* Malaysia Chile* Indonesia Turkey* Thailand Poland* Czech Republic* Egypt* Philippines Hungary*
Quartiles Median 14.2 14.9 13.4 14.4 13.5 11.5 15.1 11.5 14.6 13.5 15.5 7.5 22.9 15.9 18.1 16.5 10.9 12.3 10.7 10.6 11.7 17.2 9.2 Quartiles Median 2.4 1.8 3.3 2.4 2.3 2.1 3.0 1.1 3.4 3.4 1.5 2.3 1.6 2.9 3.4 2.3 2.0 3.2 4.0 6.5 3.0 2.1 3.3
Higher 18.8 19.8 17.3 18.5 19.3 17.3 25.2 16.3 19.6 20.8 22.6 10.3 27.7 21.9 23.4 19.7 12.4 17.7 14.1 12.8 12.6 22.1 10.7
Max 494.6 494.6 463.1 81.7 470.6 198.8 55.0 49.5 470.6 167.6 78.3 25.1 58.4 60.4 91.5 47.8 34.0 34.6 25.5 15.1 14.6 33.5 14.8
Weighted Global* USA* Europe* Japan* Emerging Markets* China Brazil* Korea Taiwan South Africa* India Russia* Mexico* Malaysia Chile* Indonesia Turkey* Thailand Poland* Czech Republic* Egypt* Philippines Hungary*
Average
1.6 1.9 1.4 0.9 1.5 0.0 1.4 1.3 1.7 2.3 2.4 0.6 2.8 2.1 2.0 3.5 1.7 2.1 1.2 1.6 1.0 2.8 0.9
Quartiles Higher 2.8 3.4 2.9 1.3 2.9 2.0 3.8 1.8 2.5 4.0 4.4 1.3 4.2 2.8 3.0 4.5 2.7 2.8 1.8 1.8 2.3 3.7 1.1
Max 92.1 92.1 24.4 5.7 63.3 11.9 36.4 7.9 9.0 10.2 26.7 5.2 13.2 63.3 3.7 35.8 15.4 20.8 7.6 1.9 2.4 5.3 1.5
Global* USA* Europe* Japan* Emerging Markets* China Brazil* Korea Taiwan South Africa* India Russia* Mexico* Malaysia Chile* Indonesia Turkey* Thailand Poland* Czech Republic* Egypt* Philippines Hungary*
Weighted Average 2.9 2.3 3.9 2.7 2.9 3.1 3.6 0.9 3.5 3.5 1.6 4.2 1.9 3.0 3.1 2.4 2.8 3.4 5.2 7.2 3.8 2.4 3.6
Higher 3.8 3.1 4.9 3.0 3.9 3.5 4.8 2.1 4.9 4.8 2.1 3.6 2.8 3.6 4.5 3.7 3.1 4.0 6.0 8.7 4.8 2.4 5.6
Max 17.7 16.1 17.0 5.6 17.7 7.4 16.0 7.3 17.7 7.4 4.1 9.8 5.0 6.2 6.1 9.2 9.9 6.4 10.7 11.0 10.5 6.9 12.2
Global* USA* Europe* Japan* Emerging Markets* China Brazil* Korea Taiwan South Africa* India Russia* Mexico* Malaysia Chile* Indonesia Turkey* Thailand Poland* Czech Republic* Egypt* Philippines Hungary*
Weighted Average 12.5 15.3 12.0 4.5 13.3 0.4 10.9 14.0 9.9 17.8 16.1 13.7 15.5 14.4 11.3 23.2 16.0 18.0 12.4 16.4 13.3 16.0 9.8
Quartiles Median Higher 12.1 18.6 14.3 21.7 13.7 19.9 6.8 9.4 13.3 19.1 12.7 18.3 11.7 20.6 10.4 15.0 10.4 17.4 19.6 27.3 16.6 21.5 13.9 17.1 16.2 22.9 13.4 16.6 15.2 19.4 22.8 27.4 14.9 19.3 16.3 19.3 12.3 17.2 15.4 16.4 12.8 18.5 16.2 21.8 9.7 10.1
Max 633.8 633.8 140.0 47.3 172.1 36.5 121.3 33.9 38.2 79.5 72.3 52.7 55.4 223.6 24.3 88.7 45.4 132.8 30.5 17.4 20.5 27.3 10.7
Source: Datastream, IBES, MSCI, J.P. Morgan estimates. Updated as of 14 Nov 2012 Note: Weighted average numbers based on aggregate of MSCI constituents. Consensus numbers area used for stocks not covered by J.P. Morgan. * only consensus numbers are used 570
18.7 6.8 2.8 15.3 3.7 0.9 10.6 2.2 61.0 0.3 0.4 0.3 0.1 1.4 5.7 7.7 1.8 17.8 12.5 1.8 1.2 5.0 0.6 21.2 100.0
90 80 70 60 50 40
Relative to EM (rhs)
180 100 20
Oct-96
Jul-03
Apr-10
-60
Relative to EM (rhs)
150 100 50
0 Jan-90
Oct-96
Jul-03
Apr-10
EM Global Price Taker Sector Absolute and relative (vs EMF) Index
450 380 310 240 170 100 30 -40 Jan-90 Oct-96 Jul-03 Apr-10 115
100 85 70 55 40 25 10
Source: Datastream, MSCI. J.P. Morgan. MSCI emerging markets companies have been classified in five categories. Of the five categories, Global Consumer/Capex (Tech-Hardware) weighting equally divided between Global consumer and Global Capex. The above table contains MSCI free float market capitalization as a percentage of MSCI emerging markets. Charts show the relative absolute and relative performance of emerging markets sectors by demand classification. Updated 14 Nov. 2012
571
Bond Yield To Maturity 6.4 5.2 3.5 4.0 1.5 6.4 8.3 5.8 3.4 5.7 4.7 3.8 7.0 7.2 3.3 6.9
Earnings Yield 9.3 6.3 10.1 5.3 9.6 12.2 7.1 7.1 7.0 6.1 7.9 9.4 19.8 8.5 8.8 9.5
Dividend Yield 3.8 3.1 3.2 3.8 7.0 4.4 1.7 2.8 3.3 1.9 4.0 4.9 4.0 3.9 3.8 3.1
DDM Implied Growth 10.1 7.6 5.4 6.6 -0.6 7.6 11.0 8.2 5.3 7.9 NA 3.2 8.3 9.0 5.4 9.3
Source: Bloomberg, J.P. Morgan, DataStream, MSCI, IBES Note: GBI-EM Bond Maturity and Yield to Maturity are used for each country. Updated as of 14 Nov. 2012.
572
US Euro Japan China Brazil S Korea Taiwan South Africa India Russia Mexico Malaysia Chile Indonesia Turkey Thailand Poland Czech Republic Peru Colombia Philippines Hungary
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
2.80 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20 1.00
Source: Bloomberg, J.P. Morgan estimates. Updated 14 Nov 2012 Note: Consensus estimates for Jordan, Egypt, and Pakistan sourced from WES and Morocco from EIU.
573
16 Dec 08 (-87.5bp) 5 Jul 12 (-25bp) 5 Oct 10 (-5bp) 10 Oct 12 (-25bp) 17 Jul 09 (-25bp) 12 Jan 12 (-25bp) 1 Nov 12 (-20bp) 30 Oct 12 (-25bp) 7 Nov 12 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) 7 Jul 12 (-31bp) 11 Oct 12 (-25bp) 9 Feb 12 (-25bp) 17 Apr 12 (-50bp) 5 May 11 (+25bp) 25 Oct 12 (-25bp) 17 Oct 12 (-25bp) 30 Jun 11 (+12.5bp)
-750
-550
-350
-150
50
Source: J.P. Morgan Economics, Bloomberg. Bold figures on next column indicate tightening. Updated 14 Nov. 2012.
574
Euro (EUR)
J.P.Morgan forecast: end Dec 12: 1.30 end Mar 13: 1.30 end Jun 13: 1.32 J.P. Morgan
120 110 100 90 80
1.52
J.P. Morgan J.P. Morgan forecast: end Dec 12: 78 end Mar 13: 79 end Jun 13: 79 Mar 07 May 09
J.P. Morgan
Consensus
70
60 Jan 05
1.4 Jan 05
J.P. Morgan
J.P. Morgan
Consensus
Consensus
43.0 39.0
Consensus
Consensus Sep 13
Sep 13
5.0 Jan 05
Mar 07
May 09
Jul 11
Sep 13
Jul 11
Sep 13
35.0 Jan 05
Mar 07
May 09
Jul 11
Sep 13
2.6 Jan 05
4.1 J.P.Morgan forecast: 3.9 end Dec 12: 3.15 3.7 end Mar 13: 3.23 3.5 end Jun 13: 3.18 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 Jan 05 Mar 07 May 09
J.P. Morgan forecast: end Dec 12: 41.20 end Mar 13: 41.15 end Jun 13: 40.50 J.P. Morgan
48 44 40
Consensus
Jul 11
Sep 13
36 Jan 05
1.1 Jan 05
Mar 07
May 09
Jul 11
Sep 13
44 42 40 38 36 34 32 30 28 26 Jan 05
Consensus
Jul 11
Sep 13
J.P. Morgan
THB
ARS
PHP
CZK
JPY
IDR
INR
MYR
TWD
KRW
MXN
CNY
COP
RUB
ZAR
TRL
EUR
HUF
BRL
ILS
PLN
13 Jan 05
Sep 13
2.5 Jan 05
-6
575
China Brazil Korea Taiwan South Africa India Russia Mexico Malaysia Chile Indonesia Poland Turkey Thailand Czech Republic Peru Egypt* Colombia Philippines Hungary Morocco* Emerging Asia Emerging Europe Latin America
External (2011E) Current Account External Debt 2012F** 2013F** 2012F** 2013F** % GDP % GDP (US$bil) %GDP
3.6 -2.4 3.0 7.8 -5.7 -3.2 4.2 -0.4 3.9 -4.6 -2.4 -4.4 -7.4 -0.2 -3.3 -4.7 na -2.9 3.1 3.1 na 2.5 -0.5 -1.2 3.3 -2.6 2.0 7.5 -5.0 -2.9 2.5 -0.7 4.2 -7.0 0.4 -4.2 -6.6 1.2 -3.7 -4.1 na -3.0 2.6 3.5 na 2.3 -1.2 -1.3 661 530 422 94 80 376 584 219 60 95 207 381 322 90 108 43 na 63 67 162 na 1976 1743 1224 8 24 37 20 20 19 30 19 20 34 23 77 40 25 49 21 na 17 27 123 na 14 46 24
Fiscal Position Fiscal Deficit Public Sector Debt 2012F** 2013F** 2012F 2013F % GDP % GDP % GDP % GDP
-2.0 -2.7 1.0 -2.0 -4.7 -5.5 -0.2 -2.4 -4.7 1.0 -2.1 -3.2 -2.2 -3.5 -3.5 0.5 na -0.8 -2.5 -2.8 na -2.0 -1.9 -2.7 -1.7 -3.1 1.9 -1.3 -4.6 -5.4 -1.0 -2.2 -5.2 1.1 -1.9 -3.3 -1.7 -4.1 -3.4 0.4 na -2.2 -1.8 -3.6 na -1.7 -2.2 -2.5 18.6 54.5 33.9 na 40.1 46.1 4.8 34.6 54.1 5.2 28.1 58.0 25.7 37.4 41.4 18.6 na 45.1 45.6 60.7 na 29.0 27.5 41.2 15.9 52.5 31.8 na 40.9 45.3 4.3 34.7 55.0 5.0 25.9 57.5 24.2 39.3 42.9 17.7 na 45.1 44.1 60.4 na 27.1 27.0 40.7
Sovereign Ratings (Long Term Foreign Debt) Rating Moodys Action Date Rating
AABBB
Aa3 (+) Baa2 (+) Aa3 Aa3 Baa1 (-) Baa3 Baa1 Baa1 A3 Aa3 Baa3 A2 Ba1 (+) Baa1 A1 Baa2 (+) B2 (-) Baa3 Ba2 (+) Ba1 (-) Ba1 -
Affirmed, O/L (+) Affirmed, O/L (+) Upgrade, O/L chngd to stable Affirmed, O/L stable Downgrade, O/L (-) Affirmed, O/L stable Affirmed, O/L stable Affirmed, O/L stable Affirmed, O/L stable Affirmed, O/L stable Affirmed, O/L stable Affirmed, O/L stable Upgrade, O/L (+) Affirmed, O/L stable Affirmed, O/L stable Upgrade, O/L (+) O/L chngd to (-), Affirmed Affirmed, O/L stable O/L chngd to (+), Affirmed Downgrade, O/L (-) Affirmed, O/L stable -
Apr-15-12 Apr-30-12 Aug-27-12 Aug-25-11 Sep-27-12 Jun-25-12 May-10-12 Aug-18-11 Jun-07-12 Apr-24-12 Jul-16-12 Jan-05-10 Jun-20-12 Apr-16-12 Jul-17-12 Aug-16-12 Sep-12-12 Feb-14-12 May-29-12 Nov-24-11 Mar-15-12 -
Upgrade, O/L stable Upgrade, O/L chngd to stable Upgrade, O/L stable Affirmed, O/L stable O/L chngd to (-), Affirmed O/L chngd to (-), Affirmed Affirmed, O/L stable Upgrade, O/L stable Affirmed, O/L stable O/L chngd to (+), Affirmed Affirmed, O/L (+) Affirmed, O/L stable O/L chngd to stable, Affirmed O/L chngd to stable, Affirmed Affirmed, O/L stable O/L chngd to (+), Affirmed O/L chngd to (-), Affirmed O/L chngd to (+), Affirmed Upgrade, O/L chngd to stable Downgrade, O/L (-) Upgrade, O/L stable -
S&P Action
Dec-16-10 Nov-17-11 Sep-13-12 Aug-08-12 Mar-28-12 Apr-25-12 Jun-27-12 Dec-17-10 Jul-27-11 Dec-16-10 Apr-23-12 Aug-07-12 May-01-12 Dec-09-10 Aug-24-12 Aug-28-12 Aug-23-12 Aug-15-12 Jul-04-12 Dec-21-11 Mar-23-10 -
Date
A+ AABBB+ () BBB- (-) BBB BBB AA+ (+) BB+ (+) ABB BBB+ AABBB (+) B (-) BBB(+) BB+ BB+ (-) BBB-
Nov-11
Mar-12
Jul-12
Yield
3.0 Nov-12
Spread (L)
Spread (L)
Source: CEIC, JP Morgan estimates, Moody's, Standard & Poor's, Bloomberg * Data from World Economic Outlook for April 2012 for Current Account data, ** F denotes forecast Note: Forex reserves as of October 2012 or latest available data. Updated 14 Nov. 2012
576
Debt/Equity
0.56 0.52 0.26 0.27 0.40 0.74 0.30 0.64 0.56 0.57 0.42 0.67 0.72 0.25 0.54 0.19 0.50 0.34 0.86 0.48 0.46
Debt/Assets
0.25 0.26 0.15 0.16 0.21 0.31 0.20 0.30 0.29 0.28 0.24 0.25 0.34 0.15 0.26 0.13 0.21 0.25 0.37 0.25 0.19
Debt/Market. Cap
0.68 0.59 0.21 0.14 0.14 0.29 0.39 0.35 0.27 0.14 0.08 0.32 0.28 0.23 0.31 0.04 0.32 0.19 0.29 0.46 0.12
Asset Turnover
0.82 0.44 0.96 1.10 0.89 0.69 0.44 0.65 0.50 0.59 0.91 0.85 1.16 0.91 0.40 0.47 0.33 0.43 0.45 0.79 0.46
Current Ratio
1.09 1.67 1.22 1.32 1.35 1.46 1.61 1.51 1.78 1.08 1.57 1.13 1.41 1.32 0.97 3.17 1.28 0.94 1.67 1.35 1.48
Interest Coverage
12.8 4.6 11.5 26.8 6.3 7.5 18.3 5.9 6.5 4.9 14.2 6.3 7.9 11.9 11.1 22.2 4.6 4.7 4.7 6.2 52.5
Altman Z Score
4.1 3.7 4.5 4.4 5.1 5.2 4.2 4.5 4.8 3.0 8.1 4.4 5.4 3.4 3.3 8.6 2.2 3.6 2.8 3.2 3.3
Malaysia
Russia
South Africa
Indonesia
Philippines
Source: Datastream, Bloomberg, J.P. Morgan. Data as of February 2012 Note: 1. All ratios are calculated from latest financial reports available ex Financial sector and calculations are based on weighted average of companies in the MSCI EMF universe. For Altman z-score, its application on company level is such that a score of less than 1.8 indicates bankruptcy likely, between 1.8-2.7 bankruptcy likely within 2 years and more than 3 most likely safe from bankruptcy. For market as a whole, the ratio is a weighted average of companies' z-score, thereby giving a general quality of companies in the market.2. For the debt to equity distribution chart, each box indicates quartile levels and markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates weighted average for each market. 3. Quartile Distribution Charts: each quartile is separated by a line, with the exception of the top quartile which is subdivided in order to show the top decile of companies, shaded in blue. Markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates the weighted mean for each market.
Colombia
Thailand
Czech Republic
Morocco
Mexico
Turkey
Brazil
Chile
Hungary
Taiwan
China
India
Poland
Korea
Peru
Egypt
577
Source: CEIC, Datastream, Bloomberg, US Consensus Bureau, World Bank, UNESCO, J.P. Morgan estimates * Age dependency ratio defined as dependents to working-age population. ** Gross Enrollment Ratio is defined as pupils enrolled in a secondary level, regardless of age expressed as a percentage of the population in the relevant official age group *** 10-year CAGR for period 2002-2012, in local currency. Population data based on IMF estimate as on October 2009. Data for Gross enrollment data for 2004 except for Malaysia, Brazil and Argentina which is for 2003. Updated Oct 2012.
578
Markets Concentration Stocks constituting 75% of Country Market Cap Number 33 30 23 34 21 26 9 9 19 11 11 10 11 8 6 12 3 4 3 2 3 Stocks constituting 75% of Country Market Cap (%) 23 29 30 30 42 36 35 43 43 44 52 42 55 38 43 63 75 50 75 67 100
JPM EMBI Global Market Cap US$ Bn 10.0 na 44.9 na 13.8 na 59.9 69.1 8.2 40.1 na 46.4 11.4 14.0 17 34.4 13.2 2.2 na na na 385 Issues Number 10 na 19 na 9 na 22 29 6 25 na 20 14 6 8 19 6 3 4 na na 200
Russia 6%
EM Asia 61%
579
Perspective: MSCI Emerging Market Index Composition by Country and Sector Number of Companies:
Consumer Discretionary MSCI Emerging Markets Free Index
818
Consumer Staples
China Korea Taiwan India Malaysia Indonesia Thailand Philippines Asia South Africa Russia Turkey Poland Egypt Czech Republic Hungary Morocco EMEA Brazil Mexico Chile Colombia Peru LatAm Total
1.0 2.6 0.4 0.6 0.4 0.5 0.1 0.0 5.5 1.4 0.1 0.0
1.0 0.9 0.3 0.7 0.4 0.3 0.3 0.0 4.0 0.5 0.2 0.2 0.1
3.3 0.5 0.1 0.8 0.2 0.2 0.5 5.5 0.7 3.3 0.1 0.2 0.1
7.0 2.0 1.6 2.0 1.2 0.9 0.9 0.3 15.9 2.0 0.8 1.0 0.7 0.2 0.1 0.1 0.1 5.0 3.1 0.6 0.3 0.5 0.3 4.8 25.7
1.2 1.9 0.4 0.4 0.5 0.1 0.3 4.8 0.3 0.2 0.1
0.9 1.6 1.3 0.6 0.2 0.2 0.3 5.1 1.4 0.6 0.1 0.3
13.8
0.0
0.1 0.4 0.1 0.6 0.6 0.3 0.2 1.0 6.4 0.0 0.3 2.3 2.4 1.0 0.3 0.2 0.4 4.3 11.6
2.3 0.1 0.6 0.1 0.5 0.3 0.2 0.1 4.3 1.0 0.4 0.2 0.1 0.1 0.1 0.0 0.0 1.9 0.4 1.3 0.1 1.8 7.9
0.5 0.2 0.3 0.4 0.1 0.0 0.1 1.7 0.2 0.2 0.2 0.5 0.8 0.4 0.1 1.3 3.5
0.1 1.3
0.3 14.1
580
Top Picks
Adani Ports and Special Economic Zone .................................................................192 Advanced Petrochemical .........................................................................................194 Air China .................................................................................................................196 AirAsia BHD ...........................................................................................................198 AmBev .....................................................................................................................200 Anhanguera ..............................................................................................................202 ASE ..........................................................................................................................204 Aspen .......................................................................................................................206 Axis Bank ................................................................................................................208 Ayala Corporation....................................................................................................210 Ayala Land, Inc........................................................................................................212 Baidu.com ................................................................................................................214 Bank Central Asia ....................................................................................................216 Baoxin Auto Group Limited ....................................................................................218 Beijing Capital International Airport .......................................................................220 Brilliance China Automotive ...................................................................................222 CCR .........................................................................................................................224 Cebu Air, Inc............................................................................................................226 Charoen Pokphand Foods ........................................................................................228 China Foods .............................................................................................................230 China Shenhua Energy .............................................................................................232 China Shipping Container Lines ..............................................................................234 CIMB Group Holdings ............................................................................................236 Coronation Fund Managers Limited ........................................................................238 Credicorp .................................................................................................................240 CSR Corp Ltd. .........................................................................................................242 Cyrela .......................................................................................................................244 Dialog Group Bhd ....................................................................................................246 Duratex ....................................................................................................................248 Electricity Generating Company (EGCO) ...............................................................250 Emaar Properties ......................................................................................................252 Emlak Konut ............................................................................................................254 Erajaya Swasembada Tbk PT ..................................................................................256 Erste Bank ................................................................................................................258 Far EasTone Telecommunications ...........................................................................260 Fibria ........................................................................................................................262 First Gulf Bank ........................................................................................................264 Fleury .......................................................................................................................266 Federal Grid Company (FSK) ..................................................................................268 Fubon Financial Holdings ........................................................................................270 Geely Automobile Holdings Ltd. .............................................................................272 HCL Technologies ...................................................................................................274 HOMEX ...................................................................................................................276 Hyundai Mipo Dockyard .........................................................................................278
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Hyundai Motor Company ........................................................................................280 ICICI Bank ...............................................................................................................282 IJM Land ..................................................................................................................284 Industrial and Commercial Bank of China...............................................................286 Industries Qatar ........................................................................................................288 Iochpe Maxion .........................................................................................................290 ITC Limited .............................................................................................................292 Jollibee Foods Corp. ................................................................................................294 Ju Teng International Holdings Limited ..................................................................296 KEPCO ....................................................................................................................298 KPJ Healthcare Berhad ............................................................................................300 Kroton ......................................................................................................................302 Kunlun Energy Company Limited ...........................................................................304 Lenovo Group Limited ............................................................................................306 LG Display...............................................................................................................308 LG Electronics .........................................................................................................310 Localiza....................................................................................................................312 LW Bogdanka ..........................................................................................................314 Magnit ......................................................................................................................316 Mahindra and Mahindra ...........................................................................................318 MediaTek Inc. ..........................................................................................................320 Mega Holdings .........................................................................................................322 Metalrgica Gerdau .................................................................................................324 Metro Pacific Investments Corp. .............................................................................326 Mindray Medical......................................................................................................328 Mobily......................................................................................................................330 Naspers Limited .......................................................................................................332 Natura ......................................................................................................................334 Novatek ....................................................................................................................336 Novatek Microelectronics Corp. ..............................................................................338 Oberoi Realty ...........................................................................................................340 Orion ........................................................................................................................342 Pacific Basin Shipping .............................................................................................344 Pacific Rubiales Energy ...........................................................................................346 Ping An Insurance Group .........................................................................................348 Pruksa Real Estate Pcl .............................................................................................350 PTT Exploration and Production (PTTEP) ..............................................................352 PZU ..........................................................................................................................354 Quanta Computer Inc. ..............................................................................................356 Rosneft .....................................................................................................................358 Samba Financial Group............................................................................................360 Samsung Electronics ................................................................................................362 Samsung Engineering ..............................................................................................364 Samsung Life Insurance ...........................................................................................366 SASOL .....................................................................................................................368 Saudi Arabian Fertilizer Company ..........................................................................370
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Saudi Industrial Investment Group ..........................................................................372 Sberbank ..................................................................................................................374 Semen Gresik ...........................................................................................................376 Sesa Goa ..................................................................................................................378 Siam Commercial Bank ...........................................................................................380 Sino Biopharmaceutical ...........................................................................................382 Sinopec Corp.- H .....................................................................................................384 Skyworth Digital ......................................................................................................386 Summarecon Agung.................................................................................................388 Tata Consultancy Services .......................................................................................390 Televisa ....................................................................................................................392 Tencent ....................................................................................................................394 Thai Union Frozen Products ....................................................................................396 Tim Participaes ....................................................................................................398 TMK ........................................................................................................................400 TPK Holding Co., Ltd. .............................................................................................402 Tractebel Energia .....................................................................................................404 TSMC ......................................................................................................................406 Turkcell ....................................................................................................................408 Unimicron Technology Corp. ..................................................................................410 Vakifbank ................................................................................................................412 Vodacom Group Limited .........................................................................................414 Wipro .......................................................................................................................416 Yanbu National Petrochemical Company ................................................................418 Yandex .....................................................................................................................420 Yapi Kredi ...............................................................................................................422 Youku Tudou Inc. ....................................................................................................424 ZTE Corp .................................................................................................................426
583
Stocks to Avoid
ABB Ltd...................................................................................................................430 ALL..........................................................................................................................432 Alliance Oil ..............................................................................................................434 Anglo American (AGL SJ.J)....................................................................................436 ArcelorMittal South Africa ......................................................................................438 ASUSTek Computer ................................................................................................440 Banco Santander Chile .............................................................................................442 Bank of Baroda ........................................................................................................444 Bank Pekao SA ........................................................................................................446 Catcher Technology .................................................................................................448 Chimei Innolux Corporation ....................................................................................450 China Minsheng Banking - H ..................................................................................452 China Shineway Pharmaceutical Group Limited .....................................................454 CSN..........................................................................................................................456 Discovery .................................................................................................................458 Dongbu Insurance ....................................................................................................460 DongFeng Motor Co., Ltd. ......................................................................................462 E Ink Holdings Inc. ..................................................................................................464 Ecopetrol ..................................................................................................................466 Eletrobras .................................................................................................................468 Genting Plantations ..................................................................................................472 Globe Telecom.........................................................................................................474 Group 5 ....................................................................................................................476 Hanjin Shipping Co Ltd ...........................................................................................478 Hero Motocorp Ltd. .................................................................................................480 Honam Petrochemical Corp .....................................................................................482 Hong Leong Bank ....................................................................................................484 HTC Corp ................................................................................................................486 Infosys......................................................................................................................488 IOI Corp. ..................................................................................................................490 JSW ..........................................................................................................................492 JSW Energy Ltd. ......................................................................................................494 Liberty Holdings ......................................................................................................496 Longfor Properties Co. Ltd. .....................................................................................498 LSR ..........................................................................................................................500 Manila Electric Company ........................................................................................502 Marfrig .....................................................................................................................504 Mobile Telesystems .................................................................................................506 New World Resources .............................................................................................508 NII Holdings ............................................................................................................510 OdontoPrev ..............................................................................................................512 Palm Hills Developments ........................................................................................514 Parkson Retail Group Ltd ........................................................................................516 Petkim ......................................................................................................................518
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PetroChina ...............................................................................................................520 PT Indosat Tbk.........................................................................................................522 Reliance Industries Ltd ............................................................................................524 Riyad Bank ..............................................................................................................526 Rossi ........................................................................................................................528 Saudi Kayan Petrochemical Company .....................................................................530 Shanda Games..........................................................................................................532 S-Oil Corp ................................................................................................................534 Thai Oil Public Company ........................................................................................536 Tisco Financial Group Pcl. ......................................................................................538 Union Bank of the Philippines .................................................................................540 United Tractors ........................................................................................................542 Vale Indonesia .........................................................................................................544 Weg ..........................................................................................................................546 Wintek Corporation .................................................................................................548 X5 Retail Group .......................................................................................................550 Yanzhou Coal Mining - H........................................................................................552 Zain KSA .................................................................................................................554 Zhongsheng Group Holdings ...................................................................................556
585
586
587
588
Companies Recommended in This Report (all prices in this report as of market close on 20 November 2012, unless otherwise indicated) Advanced Petrochemical (2330.SE/SRls23.35/Overweight), Alliance Oil Company (AOILsdb.ST/Skr51.90/Underweight), Anglo American (AGLJ.J) (AGLJ.J/23750c/Underweight), Antofagasta (ANTO.L/1254p/Overweight), ArcelorMittal South Africa (ACLJ.J/2530c/Underweight), Aspen (APNJ.J/15446c/Overweight), Bank Pekao SA (BAPE.WA/zl157.30/Neutral), Commercial International Bank (Egypt) (COMI.CA/E36.92[19 November 2012]/Overweight), Coronation Fund Managers Ltd (CMLJ.J/3692c/Overweight), DASA (DASA3.SA/R$12.80[19 November 2012]/Neutral), Discovery Holdings Limited (DSYJ.J/5751c/Underweight), Dongbu Insurance (005830.KS/W45500/Underweight), E.ON Russia JSC (EONR.RTS/$0.08100[24 October 2012]/Overweight), Ecopetrol S.A. (ECO.CN/Col$5330.0[19 November 2012]/Underweight), Emaar Properties (EMAR.DU/Dh3.65/Overweight), Emlak Konut (EKGYO.IS/TL2.77/Overweight), Erste Bank (ERST.VI/20.59/Overweight), FSK (FEES.RTS/$0.00580[28 June 2012]/Overweight), Fibria (FIBR3.SA/R$19.72[19 November 2012]/Neutral), First Gulf Bank (FGB.AD/Dh10.30/Overweight), Garanti (GARAN.IS/TL8.16/Neutral), Gazprom (GAZP.RTS/$4.40[14 November 2012]/Neutral), Globaltrans (GLTRq.L/$16.32/Overweight), Group 5 (GRFJ.J/2443c/Underweight), Hanjin Shipping Co Ltd (117930.KS/W10350/Neutral), Honam Petrochemical Corp (011170.KS/W199000/Underweight), Hyundai Mipo Dockyard (010620.KS/W107000/Overweight), Hyundai Motor Company (005380.KS/W212500/Overweight), Industries Qatar (IQCD.QA/QR150.20/Overweight), JSW (JSW.WA/zl84.20/Underweight), KB Financial Group (105560.KS/W34900/Overweight), KEPCO (015760.KS/W27300/Overweight), Koc Holding (KCHOL.IS/TL8.42/Overweight), LG Display (034220.KS/W36050/Overweight), LG Electronics (066570.KS/W79300/Overweight), LSR (LSRGq.L/$4.13/Underweight), LW Bogdanka (LWBP.WA/zl131.30/Overweight), Liberty Holdings Ltd (LBHJ.J/10197c/Underweight), MTN Group Limited (MTNJ.J/16970c/Overweight), Magnit (MGNTq.L/$35.89/Overweight), Magnit (MGNT.MM/R4574.60/Overweight), Mechel (Preference) (MTL_P/$2.08[19 November 2012]/Underweight), Metalurgica Gerdau (GOAU4.SA/R$22.57[19 November 2012]/Overweight), Mobile Telesystems (MBT/$17.78[19 November 2012]/Underweight), Mobily (7020.SE/SRls73.75/Overweight), Naspers Ltd (NPNJn.J/53850c/Overweight), New World Resources (NWRS.L/235p/Underweight), Novatek (NVTKq.L/$106.80/Overweight), Orion (001800.KS/W1060000/Overweight), PGE (PGEP.WA/zl18.25[19 November 2012]/Neutral), PZU (PZU.WA/zl389.00/Overweight), Palm Hills Developments (PHDC.CA/E2.46/Neutral), Petkim (PETKM.IS/TL2.14/Underweight), Riyad Bank (1010.SE/SRls22.80/Neutral), Rosneft (ROSNq.L/$8.00/Overweight), S-Oil Corp (010950.KS/W97200/Underweight), Safaricom Ltd (SCOM.NR/K Sh4.70/Overweight), Samba Financial Group (1090.SE/SRls44.10/Overweight), Samsung Electronics (005930.KS/W1364000/Overweight), Samsung Engineering (028050.KS/W145000/Overweight), Samsung Life Insurance (032830.KS/W93300/Overweight), Sasol (SOLJ.J/37862c/Overweight), Saudi Arabian Fertilizer Co. (2020.SE/SRls195.00/Overweight), Saudi Industrial Investment Group (2250.SE/SRls21.60/Overweight), Saudi Kayan Petrochemical Company (2350.SE/SRls12.05/Neutral), Sberbank (SBER.MM/R87.00/Overweight), TMK (TRMKq.L/$14.43/Overweight), Totvs (TOTS3.SA/R$39.95[19 November 2012]/Overweight), Turk Telekom (TTKOM.IS/TL6.46/Overweight), Turkcell (TCELL.IS/TL10.80/Overweight), Vakifbank (VAKBN.IS/TL4.30/Overweight), Vodacom Group (VODJ.J/11815c/Overweight), X5 Retail Group (PJPq.L/$17.17/Neutral), Yanbu National Petrochemical Company (2290.SE/SRls42.40/Overweight), Yandex (YNDX/$22.17[19 November 2012]/Overweight), Yapi Kredi (YKBNK.IS/TL4.51/Overweight), Zain KSA (7030.SE/SRls8.40/Neutral)
Disclosures Conflict of Interest This research contains the views, opinions and recommendations of J.P. Morgan research analysts. J.P. Morgan has adopted research conflict of interest policies, including prohibitions on non-research personnel influencing the content of research. Research analysts still may speak to J.P. Morgan trading desk personnel in formulating views, opinions and recommendations. Trading desks may trade, or have traded, as principal on the basis of the research analysts views and research. Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflict with your interests. As a general matter, J.P. Morgan and/or its affiliates trade as principal in connection with making markets in fixed income securities discussed in research reports. Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
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expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. In compliance with Instruction 483 issued by Comissao de Valores Mobiliarios (the Brazilian securities commission) on July 6, 2010, the Brazilian primary analyst signing this report declares: (1) that all the views expressed herein accurately reflect his or her personal views about the securities and issuers; (2) that all recommendations issued by him or her were independently produced, including from the entity in which he or she is an employee; and (3) that he or she will set forth any situation or conflict of interest believed to impact the impartiality of the recommendations herein, as per article 17, II of Instruction 483.
Important Disclosures
Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in Zain KSA, Yapi Kredi, Yanbu National Petrochemical Company, Yandex, X5 Retail Group, Vodacom Group, Vakifbank, Turkcell, Turk Telekom, TMK, Saudi Industrial Investment Group, Sberbank, Saudi Kayan Petrochemical Company, Saudi Arabian Fertilizer Co., Sasol, Samba Financial Group, Safaricom Ltd, Rosneft, Riyad Bank, PZU, Petkim, Palm Hills Developments, Novatek, New World Resources, Naspers Ltd, Mobily, Mobile Telesystems, Magnit, Magnit, LW Bogdanka, LSR, Liberty Holdings Ltd, Koc Holding, JSW, Industries Qatar, Group 5, Globaltrans, Garanti, FSK, First Gulf Bank, Erste Bank, Emlak Konut, Emaar Properties, E.ON Russia JSC, Discovery Holdings Limited, Coronation Fund Managers Ltd, Bank Pekao SA, Aspen, ArcelorMittal South Africa, Antofagasta, Anglo American (AGLJ.J), Alliance Oil Company, Advanced Petrochemical, Commercial International Bank (Egypt), Gazprom, PGE, Mechel (Preference), MTN Group Limited.
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Yapi Kredi, Vakifbank, Turk Telekom, Sberbank, Saudi Kayan Petrochemical Company, Sasol, Samsung Electronics, Rosneft, KEPCO, Hyundai Motor Company, Globaltrans, Garanti, Erste Bank, ArcelorMittal South Africa, Cheung Kong Infrastructure, China Shanshui Cement, Country Garden Holdings, Gazprom, Hutchison Whampoa Limited, KB Financial Group, Tencent within the past 12 months.
Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of Country Garden Holdings: Soo Lim. The following analysts (and/or their associates or household members) own a long position in the shares of Gazprom: David Aserkoff.
Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of Metalurgica Gerdau, Hyundai Motor Company, DASA, Alliance Oil Company. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Zain KSA, Yapi Kredi, Yandex, X5 Retail Group, Vodacom Group, Vakifbank, Turkcell, Turk Telekom, Totvs, TMK, Sberbank, Saudi Kayan Petrochemical Company, Saudi Arabian Fertilizer Co., Sasol, Samsung Life Insurance, Samsung Engineering, Samsung Electronics, Samba Financial Group, Rosneft, Riyad Bank, PZU, Petkim, Orion, Novatek, New World Resources, Naspers Ltd, Mobily, Mobile Telesystems, Metalurgica Gerdau, Magnit, Magnit, LSR, LG Electronics, LG Display, Koc Holding, KEPCO, JSW, Industries Qatar, Hyundai Motor Company, Hyundai Mipo Dockyard, Honam Petrochemical Corp, Hanjin Shipping Co Ltd, Globaltrans, Garanti, FSK, First Gulf Bank, Fibria, Erste Bank, Emaar Properties, Ecopetrol S.A., Dongbu Insurance, Discovery Holdings Limited, DASA, Coronation Fund Managers Ltd, Aspen, ArcelorMittal South Africa, Antofagasta, Anglo American (AGLJ.J), Alliance Oil Company, Advanced Petrochemical, Commercial International Bank (Egypt), Gazprom, KB Financial Group, PGE, Mechel (Preference), MTN Group Limited.
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Yapi Kredi, Vakifbank, Turk Telekom, Sberbank, Saudi Kayan Petrochemical Company, Sasol, Samsung Electronics, Rosneft, PZU, LG Electronics, Koc Holding, KEPCO, JSW, Hyundai Motor Company, Hanjin Shipping Co Ltd, Globaltrans, Garanti, Erste Bank, Emaar Properties, ArcelorMittal South Africa, Gazprom, KB Financial Group.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Yapi Kredi, Vakifbank, Turkcell, Turk Telekom, TMK, Sberbank, Saudi Kayan Petrochemical Company, Sasol, Samsung Life Insurance, Samsung Engineering, Samsung Electronics, Samba Financial Group, Rosneft, Riyad Bank, PZU, Orion, Novatek, New World Resources, Naspers Ltd, Mobile Telesystems, Metalurgica Gerdau, Magnit, Magnit, LG Electronics, LG Display, Koc Holding, KEPCO, Hyundai Motor Company, Hyundai Mipo Dockyard, Hanjin Shipping Co Ltd, Garanti, First Gulf Bank, Fibria, Erste Bank, Ecopetrol S.A., Dongbu Insurance, DASA, Coronation Fund Managers Ltd, ArcelorMittal South Africa, Antofagasta, Anglo American (AGLJ.J), Commercial International Bank (Egypt), Gazprom, KB Financial Group, Mechel (Preference).
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Turk Telekom, TMK, Sberbank, Samsung Life Insurance, Samsung Electronics, Rosneft, Riyad Bank, Novatek, Naspers Ltd, Metalurgica Gerdau, LG Electronics, Koc Holding, KEPCO, Hyundai Motor Company, First Gulf Bank, Fibria, ArcelorMittal South Africa, Gazprom, KB Financial Group.
590
Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Yapi Kredi, Vakifbank, Turk Telekom, Sberbank, Saudi Kayan Petrochemical Company, Sasol, Samsung Electronics, Rosneft, PZU, LG Electronics, Koc Holding, KEPCO, JSW, Hyundai Motor Company, Hanjin Shipping Co Ltd, Globaltrans, Garanti, Erste Bank, Emaar Properties, ArcelorMittal South Africa, Gazprom, KB Financial Group.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Yapi Kredi, Vakifbank, Turk Telekom, Totvs, TMK, Sberbank, Saudi Kayan Petrochemical Company, Sasol, Samsung Electronics, Rosneft, PZU, Naspers Ltd, Metalurgica Gerdau, LG Electronics, Koc Holding, KEPCO, JSW, Industries Qatar, Hyundai Motor Company, Hanjin Shipping Co Ltd, Globaltrans, Garanti, Erste Bank, Emaar Properties, Ecopetrol S.A., ArcelorMittal South Africa, Antofagasta, Gazprom, KB Financial Group, PGE, Mechel (Preference), MTN Group Limited. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Yapi Kredi, Vakifbank, Turkcell, Turk Telekom, TMK, Sberbank, Saudi Kayan Petrochemical Company, Sasol, Samsung Life Insurance, Samsung Engineering, Samsung Electronics, Samba Financial Group, Rosneft, Riyad Bank, PZU, Orion, Novatek, New World Resources, Naspers Ltd, Mobile Telesystems, Metalurgica Gerdau, Magnit, Magnit, LG Electronics, LG Display, Koc Holding, KEPCO, Hyundai Motor Company, Hyundai Mipo Dockyard, Hanjin Shipping Co Ltd, Garanti, First Gulf Bank, Fibria, Erste Bank, Ecopetrol S.A., Dongbu Insurance, DASA, Coronation Fund Managers Ltd, ArcelorMittal South Africa, Antofagasta, Anglo American (AGLJ.J), Commercial International Bank (Egypt), Gazprom, KB Financial Group, Mechel (Preference).
Broker: J.P. Morgan Securities plc acts as Corporate Broker to New World Resources, Antofagasta. J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of S-Oil Corp and owns 10,503,760 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Samsung Life Insurance and owns 3,599,990 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Samsung Engineering and owns 13,836,440 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Samsung Electronics and owns 55,939,770 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of LG Electronics and owns 36,778,510 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of LG Display and owns 42,564,830 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of KEPCO and owns 36,060,300 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Hyundai Motor Company and owns 55,026,340 as of 20-Nov-12.
J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Honam Petrochemical Corp and owns 16,037,970 as of 20-Nov-12. J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of KB Financial Group and owns 3,599,990 as of 20-Nov-12.
MSCI: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.
"J.P. Morgan Securities plc and/or its affiliates (J.P. Morgan) is acting as Joint International Coordinators, Bookrunners and Lead Manager to PTT Exploration and Production Public Company Limited (PTTEP) for its proposed preferential public offering as announced on 27 September 2012. J.P. Morgan will be receiving fees for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for PTTEP or its associates and may have other interests in or relationships with PTTEP or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein is not intended to serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is based solely on publicly available information. No representation is made that it is accurate or complete.
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Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing research.disclosure.inquiries@jpmorgan.com with your request. Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.morganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of September 28, 2012
Overweight (buy) 44% 52% 42% 69% Neutral (hold) 44% 46% 48% 61% Underweight (sell) 12% 34% 10% 53%
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. Explanation of Credit Research Ratings: Ratings System: J.P. Morgan uses the following sector/issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark), Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. Morgan's Emerging Market research uses a rating of Marketweight, which is equivalent to a Neutral rating. Valuation & Methodology: In J.P. Morgan's credit research, we assign a rating to each issuer (Overweight, Underweight or Neutral) based on our credit view of the issuer and the relative value of its securities, taking into account the ratings assigned to the issuer by credit rating agencies and the market prices for the issuer's securities. Our credit view of an issuer is based upon our opinion as to whether the issuer will be able service its debt obligations when they become due and payable. We assess this by analyzing, among other things, the issuer's credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capital investment). We also analyze the issuer's ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and earnings growth rates, margins, and the composition of the issuer's balance sheet relative to the operational leverage in its business. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
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General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised September 29, 2012.
Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
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19 Feb 90, 239 9 Apr 90, 198 Decline 17% Duration 36 days
22 Apr 92, 353 24 Aug 92, 286 Decline 19% Duration 89 days Brazilian Fall
22 Sep 94, 586 9 Mar 95, 396 Decline 33% Duration 121 days Mexican Tequila Crisis
26 Feb 07, 940 5 Mar 07, 844 Decline 10% Duration 8 days A-shares fall, US profit fears
4July 2011, 1169 4 October 2011, 824 Decline 29% Duration 91 days S&P downgrade of US credit outlook, heightened Euro sovereign stress and China hardlanding fears 31 October 2007, 1338 27 October 2008, 454 Decline 66% Duration 268 days Credit Crisis and EM Inflation
25% rally
23 July 07, 1163 16 August 07, 957 Decline 18% Duration 19 days US sub-prime and global credit market concerns
4.4 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12