Foreign Equities

Adaro Energy (Sept 18: IDR1,405)

DOWNGRADE TO SELL. Weak international coal prices, already down 40% year to date, are negative for Adaro Energy as 78% of its volume is exported. Domestically, although the selling-price cap at US$70 per tonne will expire by end-2019, we think it could be extended to 2020. We lower our 2020 earnings forecast to US$253 million (-29.3%), primarily to factor in lower coal prices of US$75 per tonne (-11.8%). Our new forecast also incorporates higher earnings, owing to higher average selling price, from the coking coal business, but the higher contributions could not offset declining earnings from the thermal coal business. We estimate that for every 1% change in our coal-price assumptions, our 2020E earnings forecast would change by 3.4%. A lower sum-of-the-parts price target of IDR1,200 after cutting forecasts to factor in weak coal prices. At the current coal price of US$60 per tonne, Ebitda is still positive but substantially lower than the past six quarters. — Maybank Kim Eng (Sept 17)

Advanced Info Service (Sept 18: THB229)

MAINTAIN BUY. We expect ADVANC’s earnings momentum to remain positive, supported by: (a) easing market competition for the mobile business, and (b) more cost savings related to the new telecommunications tower rental contract with TOT and 2G equipment rental fees. We expect the new investment cycle for 5G technology to begin in 2021-2022. ADVANC had already taken up a 700MHz licence and will be given a longer time to pay for 900MHz licences by the NBTC. However, ADVANC will be keeping its dividend payout ratio of at least 70% of net profit (1H2019 dividend payout was 72% of its net profit) as it prepares to bid for more 5G spectrum bands in the near future, as well as prepare capex for 5G deployment when Thailand is 5G ready. We have revised up our earnings forecasts in 20192020 by 3.1% and 8.6% respectively to reflect the cost savings on both telecommunications tower rental expenses and cost savings on 2G equipment rental expenses from November 2019 onwards. Price target of THB247 (from THB220 previously). — UOB Kay Hian (Sept 12)

Astro Malaysia (Sept 18: RM1.41)

MAINTAIN HOLD. Astro Malaysia’s 2QFY2020 core net profit came in at RM169.4 million ($55.7 million) (-7.9% q-o-q, +>100% y-o-y). 1HFY2020 net profit accounts for 56% of our and consensus’ full-year forecasts. While cost savings have driven up earnings significantly, the persistent contraction in subscription revenue clearly shows the vulnerability of pay-TV subscription to rising over-the-top competition and piracy (although churn rate has decelerated after a record drop in 1QFY2020). The stock’s upside is capped until pay-TV revenue stabilises. Second interim dividend of two sen a share (2QFY2019: 2.5 sen). This brings 1HFY2020 DPS to four sen (1HFY2019: five sen). We project a net DPS of nine sen for FY2020, in line with management’s targeted payout ratio of 75%, implying a net dividend yield of 6.7%. Price target of RM1.40, implying 12.4x FY2021F PER and 7.5x EV/Ebitda, with dividend yield of 6.1%. The company lacks meaningful rerating catalysts, such as effective anti-piracy regulation, while competition thrives (amid talks of more pay-TV licences to be issued). — UOB Kay Hian (Sept 13)

Cathay Pacific Airways (Sept 18: HK$10.30)

MAINTAIN SELL. Cathay Pacific’s (CX) fixed cash cover is likely to be below 1.0x in 2H2019 and the carrier also has HK$16 billion ($2.81 billion) in debt that is due by yearend, along with an estimated HK$7 billion in capex for the same period. Thus, CX will be facing a severe cash crunch unless it manages to raise further capital in the form of a medium term note or rights issue. Fuel volatility will also not be in CX’s favour, as the carrier has hedged only 30% of Brent fuel requirements for 2019. Post CX’s guidance of minor capacity cuts, we have revised up our 2H2019 pax traffic assumption from a 10% y-o-y decline in traffic to a 3.5% y-o-y decline. We have, however, lowered our fullyear pax yield assumptions from a 1.0% decline to a 2.2% decline. We now expect CX to report a loss of HK$1.2 billion in 2H2019. CX’s tight liquidity and weak cash flow is a pressing concern with no end in sight to the protests. Price target of HK$9.10. We continue to value CX at 0.5x 2019F book value. — UOB Kay Hian (Sept 16)

FPT Corp (Sept 18: VND56,400)

MAINTAIN OUTPERFORM. FPT Corp has released its 8M2019 business results, reporting revenues and profit before tax (PBT) of VND17,032 billion ($1 billion) (+21%) and VND2,992 billion (+28%) respectively. Software outsourcing continued its solid performance in 8M2019 with revenues of VND6,798 billion (+35% y-o-y) and PBT of VND1,064 billion (+38%). Margins were a major positive surprise, with PBT margins rising to 17.7% in August (+213bps y-o-y). Moreover, an improving trend continued for system integration, with revenues up 20% y-o-y in August. Telecom services also surprised on the positive, with PBT margins rising to 15.9% in August (+104bps m-om/+44bps y-o-y) and propelling year-to-date margins to 14.9%. We tweak 2019-2021E EPS by 2% to 6% and raise price target to VND64,000 (from VND57,400) to reflect stronger growth in outsourcing and higher margins for telecom and education. Attractive valuation at 2020E PER of 11.2x, and robust growth outlook of 2018-2021E Ebitda CAGR of 15.7%. — Credit Suisse (Sept 13)

Genting Plantations (Sept 18: RM10.08)

MAINTAIN SELL. Overall 2019 results would remain subdued despite the recent improvement in CPO prices and the likelihood of a better performance in 2H2019, mainly owing to slow production growth and increasing costs. Downstream operations would remain stable with steady sales volumes and utilisation rates in 2H2019. GENP should see higher local demand for biodiesel and the company is focusing on expanding its export markets for the downstream segment. We maintain our EPS forecasts of 28.6 sen, 39.9 sen and 43.7 sen for 2019-2021 respectively. Share price has increased about 6% from its recent low on Aug 6, 2019 in tandem with the CPO price recovery. However, the correlation between GENP’s share price and CPO prices is at 0.55, but over the last one year the correlation is at -0.19 as its performance is relatively muted due to the declining CPO price. We attribute this to support from the local shariah funds, whose plantation stocks are among the larger caps and offer decent dividend yield. Price target of RM7.60, based on 19x 2020F PER. — UOB Kay Hian (Sept 13)

LG Chem (Sept 18: KRW325,500)

MAINTAIN OUTPERFORM. We forecast 3Q2019E operating profit (OP) of KRW355 billion ($410 million) (-41% y-o-y) versus consensus’ OP of KRW484 billion. (1) Electric vehicle (EV) battery: According to our channel check, EV battery Poland factory’s stabilisation is still being delayed. Owing to unstable production yield, it is likely to see another deficit in 3Q2019E. We expect 4Q2019E OP to recover to 5% OP margin as more profitable order arrives. (2) Petrochemical: Weak 2Q2019 chemical spread (-24% q-o-q) will be an overhang, with lagging effect in 3Q2019E OP (Credit Suisse estimate: KRW317 billion versus KRW382 billion in 2Q2019). We revise down 2019/2020/2021E EPS by 16%/9%/4% and cut our price target to KRW420,000 (previously KRW450,000). We maintain outperform on the stock as the upcoming EV battery ramp-up will drive +75% EPS growth in 2020E. Current valuation of 1.4x forward P/BV is still in the low range versus historical average. — Credit Suisse (Sept 11)

Nanya Technology (Sept 18: NT$82.10)

OUTPERFORM (initiating coverage). We expect Dynamic Random Access Memory (DRAM) industry bit supply to grow 13% to 15% y-o-y in 2019 while demand is up only 10% to 12% y-o-y. The industry should see demand reaccelerating to 15% y-o-y growth in 2020 from 5G smartphone ramp-up, data centre investment and liquidation of inventory. Nanya Technology as a pure DRAM business should benefit from disciplined expansion on the consolidated landscape versus its peers with NAND exposure competing for share aggressively. Its “N-1 node” model allows it to focus on mobile and consumer applications, supporting a more stable business outlook. We estimate 2019/2020 sales of NT$53 billion/NT$60 billion and EPS of NT$4/NT$4.80. The stock is trading at 1.56x P/BV, in line with its peers on higher ROE and US$2 billion cash (30% of its market cap) and a 9% FCF yield in 2020. Price target of NT$100 based on 2.0x P/BV and 10x CS 2021E cash adjusted PER. — Credit Suisse (Sept 16)

Sun Hung Kai Properties (Sept 18: HK$114.30)

MAINTAIN BUY. FY2019 earnings are in line with expectations, with core profit of HK$32,398 million (+6.6% y-o-y). Sun Hung Kai Properties (SHKP) reported FY2019 contracted sales of HK$60 billion, up 40% y-o-y and trashing its HK$42.5 billion target. Seventy per cent of Hong Kong sales recognition planned for FY2020 has been locked in while management maintains the “medium-term” Hong Kong contracted sales target of HK$40 billion for FY2020. Despite ample land acquisitions made in FY2019, with the addition of 3.1 million sq ft gross floor area to its Hong Kong development landbank (25.1 million sq ft as at June 2019), the group’s net gearing ratio remained healthy at 12.9%. The group raised its final DPS by 7.2% to HK$3.70. Together with the interim dividend, FY2019 DPS is HK$4.95. This represents an attractive yield of 4.2% as of the last closing price. Price target of HK$148, based on a 35% discount to NAV of HK$227.70 a share. SHKP currently trades at a 49% discount to NAV, or -1.6 SD below mean NAV discount. — UOB Kay Hian (Sept 13)