THB: Equity Research Reports - · PDF fileHong Leong Bank (HOLD, tp:RM13.50) ... Proprietary May VIP and mass table analysis: ... Silver lining in industry recovery & product upgrades

May 30, 2017

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Asia Pacific Daily - 30 May 2017

Equity Research Reports…

▌Australia Volpara Health Technologies (ADD, tp:A$0.81▼) - Impressive annual recurring revenue growth | P2 ————————————————————————————————————————————————————————————————————————————————————————— ▌China/Hong Kong CSSC Offshore and Marine Engineering (ADD, tp:HK$17.19▲) - Silver lining in industry recovery & product upgrades | P3 Sino Land Co Ltd (REDUCE, tp:HK$11.30) - Venturing into another new area | P4 Property - Overall (OVERWEIGHT) - Strong market despite higher mortgage rate | P5 ————————————————————————————————————————————————————————————————————————————————————————— ▌India Coal India (REDUCE, tp:Rs271.00) - 4QFY17 - disappointing on many fronts | P6 Tech Mahindra (ADD, tp:Rs475.00▼) - Worst likely over but higher margins needed | P7 ————————————————————————————————————————————————————————————————————————————————————————— ▌Indonesia Coal Mining (NEUTRAL) - Eyes on China's imports and Indonesia's supply | P8 ————————————————————————————————————————————————————————————————————————————————————————— ▌Malaysia Genting Malaysia (HOLD▼, tp:RM6.05▼) - Another delay for the outdoor theme park | P9 Genting Plantations (HOLD▼, tp:RM12.30) - Higher inventory a slight drag on 1Q17 results | P10 Hong Leong Bank (HOLD, tp:RM13.50) - 3QFY17: Recovery in BOC contribution | P11 Media Chinese Int'l (REDUCE, tp:RM0.53▼) - A decent end to a challenging FY17 | P12 Media Prima Bhd (REDUCE▼, tp:RM0.70▼) - Slipping into losses | P13 Salcon (HOLD▼, tp:RM0.67▼) - Slower billings and delayed infra catalysts | P14 Signature International (HOLD▼, tp:RM1.04▼) - 3QFY17: Taking the slow path | P15 Sunway Bhd (ADD, tp:RM3.91▲) - Construction outlook overshadows property | P16 WCT Holdings (HOLD, tp:RM2.10) - 1Q17: Construction offset property weakness | P17 ————————————————————————————————————————————————————————————————————————————————————————— ▌Singapore Valuetronics Holdings Ltd (ADD, tp:S$0.89▲) - 4Q17: new orders in ramp-up phase | P18 ————————————————————————————————————————————————————————————————————————————————————————— ▌Thailand Telco - Mobile (OVERWEIGHT) - A mid-year gift from the NBTC | P19

Showcasing CIMB Research Ideas

THB: Minor International 26/05 Strong growth from overseas hotels —————————————————————————————————————————

HKG: Property - Overall 25/05 Takeaways from marketing trip in US/Canada/Europe —————————————————————————————————————————

KR: S-1 Corporation 23/05 Secured for growth —————————————————————————————————————————

IN: Steel 22/05 European (dis)comfort? —————————————————————————————————————————

HKG: Gaming 19/05 Proprietary May VIP and mass table analysis: Lacking upside

Regional Equity Research Contacts

Michael GREENALL, CFP Regional Head of Research T: (60) 3 2261 9088 E: [email protected]

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CIMB Conference / Events 2017 |

CIMB HK/China Property Corporate Day 20 June 2017; HK/China; Hong Kong —————————————————————————————————————————

Invest Malaysia 2017 24 - 26 July 2017; Malaysia; Kuala Lumpur

http://www.efa.biz/

https://brokingrfs.cimb.com/Hdn_GeoZPKf0ZuCA0_JjMgO7bQ8_df-jHc3dd-EEAJrzG3F9dv_e4ksPO6VLzbuUBHYv8LDFha-y07hW0.pdf

https://brokingrfs.cimb.com/8w5zDgqfnB2n40C5qv3SZmEmZj9kq5MYd04_D84n8Uv3qXu5jd0g5_poY1CEzkFPS7bpetyf3wh5aBeX0.pdf

https://brokingrfs.cimb.com/0qNDyFjzVDFWhYgYBxNmNmO-XO60mmFutSQ6iN1KnvZ4tgV0SONTL60UHWHWsgPQX1oXdEqT3NZk5ZZS0.pdf

https://brokingrfs.cimb.com/XWLOwIp--WX0EY4HljK91jXhOkRUI4YTGb4GCS-8pFQy2WPfkdC7gTbtIdAIx-dqguWJtOUAnxiNDDfW0.pdf

https://brokingrfs.cimb.com/bpeObp0j1Nqi6Ak21L55WfmCA7n55qtjHok3aytN1_BT9wk0NNA1pP5K6R_us7uSrnhdO7vHC3J8GVs40.pdf

https://www.conference.cimb.com/calendar/

Healthcare - Overall│Australia│Equity research│May 29, 2017

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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Volpara

Impressive annual recurring revenue growth

VHT has successfully transformed itself from a breast density capital sales ■company to a cloud based Enterprise Quality assurance company operating with a SaaS model.

VHT has captured 1% of breast screening in the US annually and this is expected ■to grow to 3% in the next 12 months.

We have adjusted our forecasts to better reflect the IFRS15 recognition of SaaS ■revenue, resulting in a modest downgrade to valuation and price target.

Key catalysts include sales updates and major UK project decision. ■

Adoption of conservative accounting standard sees lower revenue VHT posted a net loss of NZ$9.6m (compared with our forecast of a net loss of NZ$9.0m) for FY17. Revenue recorded was NZ$2.0m (comprised of NZ$1.1m of annual recurring revenue (ARR), capital sales of NZ$0.7m and government grants of NZ$0.2m) which was below our forecast of NZ$2.6m. The main difference relates to NZ$0.5m higher share based expenses (non-cash), foreign exchange loss of NZ$$0.3m and lower recognised revenue as the company adopts the IFRS15 accounting standard for software-as-a-service (SaaS) revenue. The standard sees revenue lag contracted sales with a number of contracts being paid upfront resulting in a healthy cash position of NZ$12.9m.

Key highlights – SaaS contracts and recurring revenue As at 31 March the company had 14 signed VolparaEnterpriseTM SaaS contracts. The total contract value (TCV) signed in FY17 was NZ$4.1m compared to NZ$2.5m in FY16. The annual recurring revenue (ARR) now stands at NZ$1.1m, with management calling out ARR growth of over 200% in FY18. Approximately 1% of women screened in the US go through Volpara’s technology. Typical contracts range from US$30k to US$100k (average US$50k) and contract periods average three years.

Catalysts and forecast changes VHT recently announced the commercial launch of VolparaEnterpriseTM 2.0 software which is an enhanced version of its cloud based imaging analytics platform and, in our view, will encourage greater customer adoption. The software launch is timely as the FDA has stepped up its compliance standards. Further catalysts including a major UK project on breast density implementation are expected to be announced over the coming quarters together with quarterly sales updates. In line with guidance we have moderated our revenue recognition assumptions and lowered growth in the cost base, resulting in changes in OCF of +17%, -109%, -7% for FY18,19 and FY20, respectively.

Investment view positive stance maintained Following changes to forecasts and rolling forward our model, our DCF valuation has reduced to A$0.81 from A$0.87. Our price target is set at the same level. The key risk to our price target is a slower-than-expected take-up of VolparaEnterpriseTM. We maintain our Add recommendation on VHT.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

ADD (no change) Current price: A$0.35 Target price: A$0.81 Previous target: A$0.87 Up/downside: 132.3% Reuters: VHT.AX Bloomberg: VHT AU Market cap: US$37.87m A$50.82m Average daily turnover: US$0.02m A$0.03m Current shares o/s 154.8m Free float: 45.4%

Key changes in this note

FY18F NOCF increased by 17%. FY19F NOCF decreased by 109%. FY20F NOCF decreased by 7%.

Price performance 1M 3M 12M

Absolute (%) -12.5 -22.2 -26 Relative (%) -8.8 -22.1 -31.6 Scott POWER

T (61) 7 3334 4884 E [email protected] Dr Derek JELLINEK

T (61) 2 9043 7904 E [email protected]

Financial Summary Mar-16A Mar-17A Mar-18F Mar-19F Mar-20F

Revenue (NZDm) 2.60 2.00 3.20 9.04 18.90Operating EBITDA (NZDm) -4.42 -9.52 -8.81 -3.35 5.42Net Profit (NZDm) -5.77 -9.62 -8.90 -3.27 5.47Normalised EPS (NZD) (0.056) (0.075) (0.057) (0.021) 0.035Normalised EPS Growth 91.7% 32.9% (23.2%) (63.3%)FD Normalised P/E (x) NA NA NA NA 10.46DPS (NZD) - - - - - Dividend Yield 0% 0% 0% 0% 0%EV/EBITDA (x) NA NA NA NA 7.64P/FCFE (x) NA NA NA NA 5.47Net Gearing 1% (102%) (141%) (749%) (255%)P/BV (x) NA 4.55 14.37 80.53 9.26ROE 23% 70% (107%) (139%) 159%% Change In Normalised EPS Estimates (3%) (163%)Normalised EPS/consensus EPS (x) 1.03 -0.62

497295118140163186209

0.240.340.440.540.640.740.840.94

Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

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Aerospace & Defence│Hong Kong│May 29, 2017

Company Note │ Alpha series



CSSC Offshore and Marine Engineering Silver lining in industry recovery & product upgrades

We believe the earnings of COMEC’s civil shipbuilding business are close to trough, ■given the recovery in orders and building prices of certain vessel types YTD.

In our view, COMEC will also benefit from continuous product mix upgrades and ■reform catalysts.

We forecast revenue CAGR of 11% and net profit CAGR of 143% for FY16-19F. ■ We reiterate our Add rating on COMEC-H and raise our DCF-based target price to ■HK$17.19.

Global shipbuilding – early signs of bottoming out 2016 was the worst year in the past decade for global shipbuilding, as the number of new orders fell to trough level. That said, we see signs of the sector bottoming out this year, as evidenced by a qoq rebound in new orders, more order negotiation activities and uptick in prices of certain type of vessels (e.g. bulkers) YTD. We expect gradual but steady recovery in the shipbuilding industry’s new orders due to recovery in global trade, firming commodity prices and ongoing consolidation in industry capacity.

COMEC to benefit from product mix upgrade We are positive on COMEC’s product mix upgrade cycle, as the company’s earnings would be driven more by defence and high-value added vessels in the future, given: 1) China’s long-term plan for aircraft carrier battle groups that will underpin defence order demand; 2) COMEC’s initiative and capability to produce luxury cruise ships, smart vessels and green vessels in the next few years; and 3) the “One Belt, One Road” national strategy to lift future demand for auxiliary ships.

Potential reform catalysts for COMEC The government’s stance on the following appear unchanged but the timeline remains uncertain on: 1) potential consolidation of CSSC and CSIC (to reduce number of central SOEs, streamline China’s shipbuilding capacity and reduce domestic competition), and 2) further defence asset injection into COMEC (to improve military asset securitisation level of the group). We also believe the potential resolution of the horizontal competition issue within the parent group in the next 2-3 years could be positive for COMEC.

Reiterate Add, raise DCF-based TP to HK$17.19 Reiterate our Add rating on COMEC and raise our DCF-based target price to HK$17.19. We forecast revenue CAGR of 11% and net profit CAGR of 143% for FY16-19F, thanks to the likely trough of civil segment earnings in FY16 and upgrade in product mix to favour defence and high value-added products. COMEC-H now trades at 1.6x FY17F P/BV, the lowest level since it consolidated Longxue and Huangpu Wenchong Shipyard and at a discount to its A-share, as well as domestic and global defence peers.

Recent pullback provides a good entry point COMEC-H’s share price pulled back recently, triggered by the sluggish A-share defence sector performance and the COMEC-A share sell-off, rather than any changes to the fundamentals of the company. We believe the share price correction provides a good entry point and do not expect another big sell-off for A-share defence names because defence demand is still rising but valuations are attractive now. In addition, the trend of A/H share price convergence is positive for COMEC-H as well.

[Add FP Header] [Add FP BodyText]

SOURCE: COMPANY DATA, CIMB FORECASTS

Hong Kong

ADD (no change) Consensus ratings*: Buy 4 Hold 1 Sell 0

Current price: HK$13.68 Target price: HK$17.19 Previous target: HK$15.04

Up/downside: 25.7% CIMB / Consensus: -13.1%

Reuters: 0317.HK Bloomberg: 317 HK Market cap: US$4,196m HK$32,699m Average daily turnover: US$4.61m HK$35.81m Current shares o/s: 1,414m Free float: 35.2% *Source: Bloomberg Key changes in this note

FY17/18F new orders decreased by 3%/3%. FY17/18F gross margin increased by

0.7%/1.0% FY17F/18F EPS increased by 99%/51%.

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) -13.9 -18.9 19.6 Relative (%) -18.2 -25.9 -6.1 Major shareholders % held China State Shipbuilding Corporation 60.0

Analyst(s)

Ben BEI

T (852) 2532 1116 E [email protected] Edith QIAN T (852) 2532 1112 E [email protected]

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Revenue (Rmbm) 25,519 23,350 24,607 27,626 32,296Operating EBITDA (Rmbm) (654) 577 1,054 1,487 2,012Net Profit (Rmbm) 98 71 374 656 1,026Core EPS (Rmb) 0.08 0.05 0.26 0.46 0.73Core EPS Growth (82%) (37%) 426% 75% 56%FD Core P/E (x) 149.6 238.9 45.4 25.9 16.6DPS (Rmb) 0.030 0.016 - - - Dividend Yield 0.249% 0.133% 0.000% 0.000% 0.000%EV/EBITDA (x) NA 33.27 16.78 10.99 6.93P/FCFE (x) NA 22.00 10.82 11.78 6.78Net Gearing (23.6%) 20.3% 5.0% (7.9%) (27.3%)P/BV (x) 1.65 1.64 1.59 1.50 1.37ROE 1.04% 0.69% 3.55% 5.93% 8.63%% Change In Core EPS Estimates 99.1% 50.5%CIMB/consensus EPS (x) 1.60 1.33 1.50

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Price Close Relative to HSI (RHS)

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Property Devt & Invt│Hong Kong│May 29, 2017

Company Note



Sino Land Co Ltd Venturing into another new area ■ Sino, COLI and K. Wah won the sizeable Kam Sheung Road project for HK$6,735/sf,

which is at the high end of market expectations. ■ The bid is the highest along the West Rail despite the vicinity also being the most

undeveloped. We expect the net margin to be thin at around 10%. ■ Sino has been more proactive in land banking since Jul 16 yet we believe most of the

new acquisitions are NAV-neutral given the rising land price. ■ Maintain Reduce on rich valuations.

Kam Sheung Road land price – highest along West Rail MTRC awarded the Kam Sheung Road Package 1 to a consortium of Sino, COLI and K. Wah for HK$8.3bn or HK$6,735/sf, at the high end of market expectations and the highest among all the West Rail projects tendered so far. The project will offer GFA of 1.2m sf and no less than 1,652 units. According to the government, Kam Sheung Road station, Pak Heung Maintenance Centre and the peripheral areas will offer a total of 33,700 units, of which 50% will be private housing.

Venturing into another new area Given the remote location and abundant supply in the area, we are cautious on Sino’s new venture. Recall that Sino was one of the first developers to enter the Pak Shek Kok area in 2007. The consortium bought 5 sites in this area for HK$4,700-7,300/sf in 2007-2009. However, the land price dropped to HK$3,300-4,600/sf when the government launched further residential sites in 2014-2016.

Project net margin of around 10%; no material impact on valuation We estimate the net margin will be around 10% by assuming ASP of HK$16,000/sf, which already takes into account future developments in the Kam Tin area, which may improve ancillary facilities. Recent launches in Tsuen Wan West and Yuen Long (more mature districts) range between HK$12,000/sf and HK$16,000/sf. Given the thin margin and long development timeline (expected completion 2023-2024), we project no material impact on Sino’s financials and valuation.

More proactive land banking but at narrower margins Sino has become more proactive in land banking since Jul 16. 6 sites have been purchased, with total GFA of 2.4m sf. Although we appreciate management’s efforts to replenish land bank, we believe an earnings gap will be inevitable in the coming three years as there will be no major launches until the Kwun Tong redevelopment project, which will be launched by end-2017 and booked by 2019. In addition, we expect the recent land banking to yield a thinner margin owing to the rising land cost.

Maintain Reduce on rich valuation As the newly-acquired land bank is largely NAV-neutral, we maintain our target price of HK$11.3, based on a 50% discount to NAV. We maintain our Reduce rating due to the rich valuation, i.e. 41% discount to NAV vs. peers’ 48%. Key upside risks: faster-than-expected launch pipeline and continued land banking for large-scale projects, which may increase production volume.


Hong Kong

REDUCE (no change) Consensus ratings*: Buy 8 Hold 9 Sell 4

Current price: HK$13.26 Target price: HK$11.30 Previous target: HK$11.30

Up/downside: -14.8% CIMB / Consensus: -19.1%

Reuters: 0083.HK Bloomberg: 83 HK Market cap: US$10,746m HK$83,745m Average daily turnover: US$7.19m HK$55.91m Current shares o/s: 6,165m Free float: 45.0% *Source: Bloomberg Key changes in this note

Not applicable.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0.6 -0.9 14.1 Relative (%) -3.7 -7.9 -11.6

Major shareholders % held Tsim Sha Tsui Properties 52.9

Analyst(s)

Siu Fung LUNG, CFA

T (852) 2539 1327 E [email protected] Raymond CHENG, CFA T (852) 2539 1324 E [email protected]

Financial Summary Jun-15A Jun-16A Jun-17F Jun-18F Jun-19F

Total Net Revenues (HK$m) 21,839 10,804 14,150 10,226 10,507Operating EBITDA (HK$m) 9,754 6,363 5,737 4,503 4,534Net Profit (HK$m) 9,372 7,090 5,417 4,767 4,283Normalised EPS (HK$) 0.88 0.88 0.88 0.77 0.69Normalised EPS Growth 4.3% (0.1%) 0.4% (12.0%) (10.2%)FD Normalised P/E (x) 15.13 15.18 15.09 17.15 19.09DPS (HK$) 0.50 0.51 0.52 0.53 0.54Dividend Yield 3.77% 3.85% 3.92% 4.00% 4.07%EV/EBITDA (x) 6.86 6.89 4.03 2.63 0.26P/FCFE (x) 7.65 7.79 8.25 7.60 7.63Net Gearing (11.5%) (18.7%) (25.6%) (32.5%) (39.2%)P/BV (x) 0.68 0.67 0.67 0.65 0.64ROE 4.61% 4.45% 4.45% 3.86% 3.37%Normalised EPS/consensus EPS (x) 1.04 0.93 0.86

83.090.097.0104.0111.0118.0

10.0011.0012.0013.0014.0015.00

Price Close Relative to HSI (RHS)

5101520


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Property│Hong Kong│May 29, 2017

Sector Note



Property - Overall Strong market despite higher mortgage rate ■ Market sentiment remains positive despite higher mortgage rates. Two residential

projects recorded strong sales over the weekend, with almost 100% sold out. ■ The strong market is mainly driven by end-user demand while some investors with

first-time buyer status also participated. ■ Banks just slightly raised mortgage rates by 10bp, which is well below market

expectations of up to a 50bp hike, due to excess liquidity and fierce competition. ■ Meanwhile, the high price the Kam Sheung Road residential site was sold at could

bump up future selling prices and support markets in Tsuen Wan and Yuen Long. ■ Maintain Overweight. Top picks: SHKP, NWD, CKP.

Overwhelming response for two primary projects The primary market saw one of its busiest weekends, i.e. 802 transactions on 26-28 May, since the government further tightened the screws on multi-unit transactions in Apr 17. Both market leader (CKP) and new player (K&K Prop) received overwhelming response on their debut launches, with CKP selling all the 496 units launched in Ocean Pride and K&K Prop selling 306 of the 307 units launched in Victoria Skype. Given the strong demand, we believe later phases of these projects will have some room to raise prices.

Buyer sentiment minimally affected by tightening measures In our view, end users form the key housing demand, which is expected to remain strong given the high employment rate in HK and the low mortgage rate. Indeed, according to CKP, about 65% of buyers are around 30 years old. Meanwhile, according to agents, around 20% of the buyers are investors, which is in line with the historical range of 20-30%. These figures suggest that the tightening measures introduced by the government/HKMA have not deterred investors from entering the market.

Banks raised mortgage rate by only 10bp HKMA raised the risk weighting for banks’ mortgage exposure last week and the market expected banks to raise mortgage rates by up to 50bp. However, HSBC, SCB, Hang Seng Bank and BOCHK, the four largest banks in the Hong Kong mortgage market, only raised their HIBOR-based mortgage rate by 10bp. We attribute this to excess liquidity in the banking system and fierce competition. Based on a mortgage rate of HIBOR+1.4%, the effective mortgage rate remains low at around 1.8%.

Kam Sheung Road residential land priced on the high end The Kam Sheung Road Station residential site previously received a total of eight offers from both HK (including CKP, SHKP, NWD, HLD, etc.) and Chinese developers (COLI). MTRC announced on Friday that the project was won by a consortium from Sino Land, K. Wah Property and COLI with AV of HK$6,735/sf, on the high end of the market’s expected range of HK$4,500-6,800/sf. We believe that such a high land price could bump up future selling prices.

Maintain Overweight; top picks: SHKP, NWD and CKP We maintain our positive view on home price in HK and expect it to rise by 10% by 2019 due to 1) strong local demand, 2) still-low mortgage rate despite rising interest rates, and 3) increasing land prices (likely bumping up future selling prices). We believe the large local developers have the most to gain given their sufficient land reserve (4-5 years). The key risks include faster-than-expected US rate hikes and rising unemployment rates.

Figure 1: Primary market remains hot despite tightening policies

SOURCES: CIMB RESEARCH, COMPANY

Hong Kong

Overweight (no change) Highlighted companies

Cheung Kong Property Holdings Ltd ADD, TP HK$66.00, HK$57.65 close CKP is one of the largest property companies in Hong Kong. It is also the second-largest office landlord in Central. Its flexible investment/ divestment strategy makes it the biggest potential beneficiary of the surge in Hong Kong property values, in our view. New World Development ADD, TP HK$12.10, HK$9.67 close Since its third generation assumed office in 2012, NWD has reshuffled its businesses and made some progress. We believe the changes will bear more fruit in the near term. NWD trades at an attractive valuation of a 55% discount to NAV and 5.0% yield. Sun Hung Kai Properties Ltd ADD, TP HK$135.0, HK$114.8 close SHKP is the largest property company in HK, with a diversified portfolio of 21m sf of development property (DP) and 29m sf of investment property (IP). SHKP enjoys a good reputation for its strong execution and shareholder value creation over the years. Summary valuation metrics

Analyst(s)

Raymond CHENG, CFA

T (852) 2539 1324 E [email protected] Siu Fung LUNG, CFA T (852) 2539 1327 E [email protected]

P/E (x) Dec-17F Dec-18F Dec-19F

Cheung Kong Property Holdings Ltd 10.86 8.67 8.12 New World Development 11.48 10.19 7.37 Sun Hung Kai Properties Ltd 12.43 12.00 10.73

P/BV (x) Dec-17F Dec-18F Dec-19F

Cheung Kong Property Holdings Ltd 0.77 0.72 0.68 New World Development 0.46 0.41 0.41 Sun Hung Kai Properties Ltd 0.68 0.66 0.63

Dividend Yield Dec-17F Dec-18F Dec-19F

Cheung Kong Property Holdings Ltd 3.09% 3.26% 3.43%New World Development 4.71% 4.81% 4.85%Sun Hung Kai Properties Ltd 3.62% 3.75% 4.19%

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Coal Mining│India

Company Flash Note



Coal India 4QFY17 – disappointing on many fronts

Coal India reported 4QFY3/17 adjusted EBITDA (excluding overburden and ■provisions) of Rs61.4bn, lower than our forecast of Rs69.4bn.

Higher overburden removal adjustment and provisions led to a 4QFY17 EPS of ■Rs4.3, lower than our/Bloomberg consensus estimates of Rs6.6/6.8.

Government of India cut its FY18F production volume guidance for CIL from 660mt to ■600mt, which is still better than our forecast of 582mt. Maintain Reduce.

4QFY17 results worse than estimates ● Coal India (CIL) reported 4QFY17 adjusted EBITDA (excluding overburden and

provisions) of Rs61.4bn, lower than CIMB estimate of Rs69.4bn. Higher overburden and provisions (up 35% yoy) further lowered EPS to Rs4.3, vs. our/Bloomberg consensus estimates of Rs6.6/Rs6.8.

● Also, in Apr 2017, the Coal Controller Organization (CCO) downgraded c.41% of CIL’s sampled minerals and retained/upgraded 51.5/8.0%. This could further increase provisions and lower realisation in the next 12 months, in our view.

Muted volume growth would endanger capacity expansion ● During 4QFY17, CIL reported muted sales volume growth of 4.4% yoy, still higher than

FY17 volume growth of 1.6% yoy. Additionally, the government of India lowered its production volume guidance by 60mt (c.9%) for FY18F.

● We believe the lower sales volume growth outlook would endanger its capacity addition plans and its stated target of producing 908mt coal in FY20F.

Cost pressures persist ● During FY17, CIL included additional provisions c.Rs21bn/0.9bn towards salaries and

wages of non-executive/executive employees for salary revisions. In the previous cycle (FY11-12), employee costs rose c.45% in FY12. We assume modest growth of c.15% in FY17-18F on the basis of the provisions. A higher-than-provisioned increase in employee costs would put further stress on the company’s profitability, in our view.

Indian coal demand will be adversely impacted by renewables ● The government of India targets 100GW solar and 60GW wind capacity by FY22. At

end-2016, it had c.9GW solar capacity. It has tendered out 19.3GW, of which LOI was issued for 13.9GW and power purchase agreements (PPAs) signed for 10.8GW. With policy support and ongoing technology innovation, we think the government can meet its targets, lifting renewables' share of India's energy mix from 5.2% in FY16 to 16.3% in FY22, with the potential to replace 154mt p.a. of thermal coal demand by FY22.

Renewables to replace global coal demand, affecting prices ● Solar power is already viable in many countries, including India. We believe falling

lithium ion battery prices will further reduce the demand for coal-fired electricity. In 2015, 103% of the world's incremental power demand was fulfilled by solar and wind power. Falling coal demand globally will lower seaborne coal prices, putting further pressure on coal e-auction prices in India, in our view.

Headwinds weigh on valuation; Maintain Reduce ● We value CIL using DCF (terminal growth rate of 0%, discount rate of 12.5%). A key

risk to our call is sub-optimal solar project execution resulting in a higher-than-expected rise in CIL's coal volume/ASP. Every 1% increase in ASP and FCF growth rate in the terminal year will raise our TP by 1.6% and 3.8%, respectively, based on our calculations.

Figure 1: Muted volume growth with falling profitability

SOURCES: CIMB, COMPANY REPORTS

-

100

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020406080

100120140160180200

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Rsmt

Production (mt) (LHS) Dispatch (mt) (LHS) EBITDA/T (RHS)

India

May 29, 2017 - 12:44 AM


Current price: Rs267.3 Target price: Rs271.0 Previous target: Rs271.0


Reuters: COAL.BO Bloomberg: COAL IN Market cap: US$25,726m Rs1,659,240m Average daily turnover: US$20.99m Rs1,367m Current shares o/s 6,316m Free float: 20.0% *Source: Bloomberg Key financial forecasts

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) -3.4 -17 -5 Relative (%) -7.4 -25.2 -21.7

Major shareholders % held Government of India 79.1 Life Insurance Corporation of India 6.6

Analyst(s)

Saurabh PRASAD

T (91) 22 6602 5186 E [email protected] Satish KUMAR T (91) 22 6602 5185 E [email protected]

Mar-17F Mar-18F Mar-19F

Net Profit (Rsm) 114,117 122,353 137,267Core EPS (Rs) 18.07 19.37 21.73Core EPS Growth (19.9%) 7.2% 12.2%FD Core P/E (x) 14.80 13.80 12.30Recurring ROE 33.3% 34.4% 36.2%P/BV (x) 4.86 4.64 4.28DPS (Rs) 14.00 14.00 14.00Dividend Yield 5.24% 5.24% 5.24%

71.0

91.8

112.7

250

300

350

Price Close Relative to SENSEX (RHS)

5101520


Vol m

6

IT Services│India│May 29, 2017

Company Note



Tech Mahindra Worst likely over but higher margins needed

TechM’s 4QFY17 EBIT margin was a big disappointment to us, overshadowing the ■higher-than-expected revenue growth during the quarter.

FY17 net profit was below expectations at 93% of our forecast with low EBIT margin. ■ In our view, TechM must buck up on margin management to convert improving sales ■growth prospects into higher earnings growth going forward.

Lower TP but maintain Add as we believe the worst of the company-specific issues is ■likely over and we deem its current FY19F P/E valuation of 11.4x inexpensive.

4QFY17: EBIT margin disappointed… TechM’s EBIT margin decline of 421bp qoq in 4QFY17 was a big disappointment to us. This was caused by non-recurring LCC/network-related restructuring charges (180bp impact), lower average price realisation for renewed contracts (140bp impact), higher depreciation and amortisation costs (50bp) and currency headwinds. Lower licence sales growth by Comviva (due to deferred spending by clients) also resulted in lower-than-expected EBIT margin in 4QFY17.

…Overshadowing improvement in sales growth TechM registered US$ sales growth (in constant currency, CC) of 0.9% qoq in 4QFY17, above our expectation of 0.6%. We estimate sales growth excluding abovementioned contract renewals and LCC was higher at 3.4% qoq and communication sales growth (in CC terms) of 4.1% (vs. reported CC decline of 0.4% in communication). The enterprise segment’s sales growth (in CC) was robust at 2.9% qoq, despite seasonal weakness.

LCC main culprit behind poor FY17 earnings… TechM reported a 225bp dip FY17 EBIT margin. Excluding LCC, we estimate EBIT margin decline was lower at 150-160bp, but this is still poor given deferred wage hikes. TechM has rationalised some of LCC’s loss-making businesses. We estimate FY17 US$ sales growth (excluding LCC) of 11-12% vs. consolidated growth of 7.8%. Organic growth, excluding the enterprise segment’s last three acquisitions and LCC, was higher at c.8%, based on our estimates.

…However, such business issues are likely over In our view, the ongoing restructuring of LCC is nearing completion and its impact on FY18F financials will not be as big as in FY17. LCC’s sales run rate in 4QFY17 is close to historical trough and management believes that post-restructuring, LCC will generate reasonable profitability. We also expect Comviva’s sales and margins to improve in FY18F (after EBIT margin declined to single digit in FY17 due to deferred licence spending in 4Q, which is seasonally higher vs. historical average of double-digit margin).

Sales growth prospects improving; Tight margin execution needed Given TechM’s potential catalysts as seen with strong turnaround in communication sales growth (excluding LCC) to c.5% in FY17 (-5.4% in FY16), its industry-leading organic enterprise sales growth of 11% in FY17 and consistent new business deal wins, we believe that the its sales growth prospects are improving. However, TechM must deliver tight margin execution, which management accepts as its top corporate agenda in coming years.

Maintain Add on inexpensive valuations We cut FY18F-FY19F EPS by 14-16% for lower currency and EBIT margin assumptions. Our lower target price is based on 12.5x 1-year forward P/E (at 20% discount to average of 1-year and 3-year means), instead of 13x previously, to factor in declining margin and return ratio. Any major adverse US visa-related regulation changes and challenges to acquisition integration are key downside risks.




Revenue (Rsm) 264,942 291,408 318,144 348,193 380,782Net Profit (Rsm) 29,929 28,129 28,742 33,819 37,640Core EPS (Rs) 34.46 32.09 32.57 38.02 42.03Core EPS Growth 24.6% (6.9%) 1.5% 16.7% 10.6%FD Core P/E (x) 12.86 13.71 13.40 11.39 10.24Price To Sales (x) 1.41 1.29 1.19 1.10 1.01DPS (Rs) 13.33 9.01 10.00 12.00 13.00Dividend Yield 3.11% 2.10% 2.33% 2.80% 3.03%EV/EBITDA (x) 7.80 8.09 7.60 6.21 5.40P/FCFE (x) 17.5 224.3 37.8 28.0 20.3Net Gearing (27.8%) (23.8%) (28.0%) (34.5%) (39.8%)P/BV (x) 2.56 2.29 2.07 1.87 1.68ROE 22.3% 18.1% 16.5% 17.4% 17.3%% Change In Core EPS Estimates (16.1%) (14.0%)CIMB/consensus EPS (x) 0.86 0.89 0.68

India


Current price: Rs429.2 Target price: Rs475.0 Previous target: Rs560.0


Reuters: TEML.BO Bloomberg: TECHM IN Market cap: US$6,491m Rs418,313m Average daily turnover: US$23.36m Rs1,525m Current shares o/s: 974.1m Free float: 63.8% *Source: Bloomberg Key changes in this note

FY18F-19F US$ sales increased by 0.2-1.7%.

FY18F-19F EPS decreased by 14-16%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0.5 -14.8 -20.9 Relative (%) -2.5 -22.2 -38.6

Major shareholders % held Mahindra & Mahindra Ltd and related entities 36.2 First State Investments Icvc 4.9 LIC of India and related entities 3.6

Analyst(s)

Sandeep SHAH


57.0

70.9

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98.7

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440

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540

Price Close Relative to SENSEX (RHS)

10203040


Vol m

7

Commodities│Indonesia

Sector Flash Note



Coal Mining Eyes on China’s imports and Indonesia’s supply

Market noise on China’s tighter restrictions for imported coal may worsen negative ■sentiment due to coal price correction but it is still early days, in our view.

Normalising Indonesia weather raises concerns about oversupply, but we view it as a ■boon for contractors’ revenues and margins.

Maintain sector Neutral; UNTR remains our top sector pick. ■

China: new possible rules on imported coal quality – still early days ● Following earlier market noise on tighter quality restrictions on imported coal two

weeks ago, China’s General Administration of Quality Supervision, Inspection, and Quarantine has stated that the new measures may involve greater focus on coal dust, radioactivity and trace elements. No timeline for implementation was specifically mentioned.

● While market participants interpreted the earlier noise as potentially targeting the low-CV Indonesian coal, the above statement from the related government agency implies that coal from Russia and Australia (which have flourine levels of above 200µg/g) may be affected the most, while Indonesia’s coal (with flourine levels of 20-100µg/g) may benefit from the new policy.

● If implemented, the new measure is a step forward in tighter quality checks for imported coal, following the 2015 rules which predominantly focused on ash content (only materials with less than 40%/30% ash for thermal/lignited allowed) and sulphur (3%/1.5% threshold for thermal/lignited).

China’s rising production drove further domestic price correction ● Coal production from China’s main producing provinces (Inner Mongolia, Shanxi,

Shaanxi) rose to 197Mt (+19% yoy) in Apr 17. Production in the earlier part of May was strong at an estimated 23% increase yoy. This reflects the impact of the lifting of the 276-day production schedule (which was in effect since May 2016) at end-2016.

● Domestic spot price at Qinhuangdao was reported to have fallen to Rmb565/t, at end of last week, down 14% wow, on rising domestic production and imported supplies.

Indonesia’s supply discipline is key; demand has potential upside ● Drier weather in Indonesia in late 2Q17 is expected by coal market traders to drive

mining activities, raising market concerns over a possible oversupply to the seaborne export market. This drove further correction in the Newcastle thermal coal index to c.US$74/t this week.

● The Indonesian government’s projection on domestic coal production implies more than 8% yoy growth to 470Mt, based on the numbers from the Work and Budget submission (RKAB).

● Despite the government’s more aggressive expectation, we maintain our export growth projection of 5% for 2017F for Indonesia. This is based on the actual 1Q17 production (flat yoy) and unchanged mining plans for the large coal miners (which imply ~2% production growth for 2017).

● Indonesia’s state-owned electricity company (PLN) indicated potential increase in consumption of up to 12Mt in 2017 to 85Mt on the back of new capacity and rising utilisation. If it materialies, this translates into a slight upside compared to our forecast and could absorb any upside in production.

Maintain sector Neutral rating – UNTR top pick ● We keep our sector Neutral rating, as we expect stocks’ valuations (close to -1 s.d.) to

offer support. Our top picks are UNTR, on favourable earnings visibility and momentum, and ITMG on attractive yield. Key risks to our sector call: China’s stricter/looser domestic production policy which in turn may influence export coal price.

● UNTR recorded a strong increase in Apr 17 production with 18%/17% yoy increase in coal/overburden production as weather conditions improved. While 4M17 production is still behind our projection (28-29% of full-year forecast), the strong increase in Apr offers evidence of the company’s ability to ramp up production.

Figure 1: Implied valuation support and entry point, based on our FY18F P/E

SOURCES: CIMB RESEARCH, COMPANY

Indonesia May 29, 2017 - 3:04 PM

Neutral (no change)

Highlighted companies

Adaro Energy ADD, TP Rp1,750, Rp1,485 close

ADRO’s strong operating track record and proven cost savings offer comfort on earnings outlook. Currently, the stock trades at 16% discount to its historical 5-year mean P/E.

Indo Tambangraya Megah

ADD, TP Rp17,800, Rp16,000 close ITMG’s high-CV (calorie value) products imply higher production cost, which translates into greater leverage against coal price upside. Despite its short reserves life of less than eight years, our forward P/E valuation indicates it is trading at a 12% discount to historical 5-year mean P/E.

United Tractors ADD, TP Rp29,700, Rp24,575 close Under the current price correction environment, UNTR offers better visibility on earnings as normalising weather should drive better revenue and margin for the contractor. The stock trades at an attractive 19% discount to its 5-year mean.

Summary valuation metrics

Analyst(s)

Erindra KRISNAWAN, CFA

T (62) 21 3006 1732 E [email protected] Felica TRENSENO T (62) 21 3006 1722 E [email protected]


United Tractors 12.83 12.06 11.04 Indo Tambangraya Megah 7.40 8.75 11.07 Adaro Energy 8.65 9.36 13.78


United Tractors 2.09 1.93 1.79 Indo Tambangraya Megah 1.38 1.39 1.40 Adaro Energy 1.05 0.99 0.95


United Tractors 3.00% 4.44% 4.73%Indo Tambangraya Megah 8.17% 11.49% 0.00%Adaro Energy 2.86% 2.64% 1.80%

ADRO 1,485 9.5 -16% 7.9 -17% 1,240 PTBA 10,750 9.1 -25% 8.6 -5% 10,190 ITMG 16,000 8.6 -12% 6.9 -20% 12,730 UNTR 24,575 11.6 -19% 11.5 -1% 24,320

Discount to 5-

year mean P/E

Downside from

current P/E

Implied entry

point (Rp)Ticker Price (Rp)

Current P/E

(X)-1 s.d.

P/E (x)

8

Gaming│Malaysia│May 30, 2017

Company Note



Genting Malaysia Another delay for the outdoor theme park

GENM’s 1Q17 core earnings were below our and market’s expectations. ■ The group’s softer performance was mainly due to the weaker showing from its UK ■business, which experienced lower hold percentage and unfavourable forex.

We lower our FY17-18F EPS by 2-6% to account for higher operating costs and to ■factor in the delay of its outdoor theme park to end-1H18 (from end-2017).

Downgrade to Hold as we think the share price currently reflects the near-term ■earnings prospects from its Genting Integrated Tourism Plan (GITP) properties.

1Q17 failed to meet expectations GENM’s reported 1Q17 revenue and core net profit, which grew by 0.4% and 11.4% yoy to RM2.2bn and RM334.5m, respectively. This was below expectations, making up 18% of our and 21% of the market’s full-year forecasts. As expected, no dividend was declared during the quarter.

Domestic business impacted by higher operating costs GENM’s Malaysian gaming business experienced a revenue increase of 3% yoy to RM1.3bn but adjusted EBITDA declined 3.2% yoy to RM451.1m. This was mainly due to higher costs relating to the premium players business and costs incurred for the new facilities under its GITP. The VIP vs. mass market mix was 42%:58% for 1Q17. On a normalised hold-adjusted basis, revenue would have declined by 2% with EBITDA falling 13%. 1Q17 EBITDA margin would have been 34% (vs. reported 32.5%).

1Q17 visitor arrivals declined marginally by 2% yoy 1Q17 visitor arrivals decreased marginally by 2% yoy to 4.8m visitors. Meanwhile, GENM also saw an increase of 1% yoy in foreign hotel guest arrivals, particularly from Indonesia which saw a jump of 23% yoy, followed by Taiwan and Vietnam. Singapore visitor growth remained rather flat yoy but Chinese hotel guests saw a decline of 9% yoy. All in, 1Q17’s average room rates remained flat yoy at RM93/night and the majority of it was taken up by its loyalty card members (73%).

Overseas operations: mixed bag of results The group’s UK business saw revenue decline 11.7% yoy due to the weaker GBP vs. RM exchange rate as well as lower hold percentage in spite of a higher volume of business in its high-end markets. Accordingly, 1Q17 adjusted EBITDA fell 21.1% yoy which was partially mitigated by higher bad debts recovery in 1Q. On another note, GENM’s North American business registered higher 1Q17 adjusted EBITDA of RM41.4m on the back of higher revenue from Resort World New York (RWNY) and lower losses from Bimini.

We cut FY17-18F EPS forecasts by 2-6% Following the weaker-than-expected results, we lower our FY17-18F EPS forecast by 2-6% to account for: i) higher operating costs; ii) lower profits from Genting UK and iii) factoring in the delay of the opening of the outdoor theme park, which we understand has been pushed back to end-1H18 (from end-2017).

Downgrade to Hold; limited upside for now Accordingly, our RNAV-based target price is lowered slightly to RM6.05 (from RM6.14) after we adjust for lower FY18 EBITDA for Malaysia. Thus, we downgrade to Hold from Add as we believe the share price currently reflects the group’s near-term earnings prospects from its GITP properties. Key upside risk includes higher-than-expected visitor arrivals for its regional and domestic businesses while key downside risks include further delays in the construction of new properties under the GITP.


Malaysia

HOLD (previously ADD) Consensus ratings*: Buy 9 Hold 9 Sell 2

Current price: RM6.11 Target price: RM6.05 Previous target: RM6.14

Up/downside: -1.0% CIMB / Consensus: 2.0%

Reuters: GENM.KL Bloomberg: GENM MK Market cap: US$8,107m RM34,634m Average daily turnover: US$10.95m RM48.12m Current shares o/s: 5,938m Free float: 50.7% *Source: Bloomberg Key changes in this note

FY17-18F EPS forecasts cut by 2-6%

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 4.1 16.4 38.5 Relative (%) 4.3 12.2 30.7

Major shareholders % held Genting Berhad 49.3

Analyst(s)

Kristine WONG



Revenue (RMm) 8,396 8,932 10,124 11,460 13,132Operating EBITDA (RMm) 2,310 2,433 2,771 3,579 4,344Net Profit (RMm) 1,258 1,587 1,705 2,184 2,728Core EPS (RM) 0.23 0.29 0.29 0.37 0.46Core EPS Growth 1.7% 23.4% (0.2%) 28.1% 24.9%FD Core P/E (x) 26.22 21.24 21.28 16.61 13.30DPS (RM) 0.07 0.17 0.09 0.10 0.12Dividend Yield 1.16% 2.70% 1.47% 1.64% 2.00%EV/EBITDA (x) 15.73 13.93 12.49 9.16 6.92P/FCFE (x) 55.8 NA 206.7 15.6 10.8Net Gearing 0.1% (12.4%) (8.2%) (15.6%) (25.3%)P/BV (x) 1.90 1.87 1.75 1.61 1.47ROE 7.8% 8.9% 8.5% 10.1% 11.6%% Change In Core EPS Estimates (6.20%) (2.15%) 0.03%CIMB/consensus EPS (x) 0.99 1.04 1.12

90.099.0108.0117.0126.0135.0

4.004.505.005.506.006.50

Price Close Relative to FBMKLCI (RHS)

10

20

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Vol m

9

Agribusiness│Malaysia│May 29, 2017 Shariah Compliant

Company Note



Genting Plantations Higher inventory a slight drag on 1Q17 results

1Q17 core net profit was broadly in line with our and consensus’ expectations. ■ Plantation division was the key earnings driver in 1Q due to higher output and ASPs. ■ The group held more inventory in 1Q, leading to unrealised profit of approx. RM29m. ■ Expect slower output growth in future months due to higher production base. ■ Downgrade to Hold as most of the positives have been priced in at the current level. ■

1Q17 results broadly in line with expectations Genting Plantations’ 1Q17 core net profit was broadly in line with expectations at 23% of our full-year forecast and 22% of the Bloomberg consensus number. Its 1Q17 core net profit grew more than two-fold yoy to RM82m as higher plantation contributions more than offset the weaker property earnings. As expected, no dividend was declared in 1Q.

Sharper drop in qoq earnings due to weaker output On a qoq basis, core net profit fell 40% due mainly to weaker earnings from its plantations (due to seasonally-lower output) and property divisions. 1Q17’s reported profit fell at a higher rate of 62% qoq as 4Q16’s number included a disposal gain of RM131.8m from the sale of 582 acres of land in Semenyih, though this was partially offset by the write-off of intangible assets amounting to RM80.1m.

Plantation earnings impacted by higher inventory Plantation EBIT surged 131% yoy in 1Q17 due to higher CPO selling prices (+34% yoy) and a 29% jump in FFB output. The group revealed that its plantation earnings were impacted by unrealised profit of about RM29m due to higher palm oil stocks (approx. 18,000 tonnes) held at its new refinery and downstream facilities. The group may reduce its inventory holdings level if it is successful in ramping up the utilisation rate of its refinery (commissioned in Jan 17) from the current 20% to 40-50%.

Slower output growth in coming months At its results teleconference, the group maintained its guidance for a double-digit improvement in output of more than 15% for FY17. It said production growth is projected to slow from Jun onwards and is unlikely to match the strong 35% output growth recorded in 4M17. The group also revealed that ASPs for CPO and PK achieved by its Indonesian estates in 1Q17 were 11% and 14% lower, respectively, compared to those achieved by its Malaysian estates.

Lower costs of production due to higher output and PK credits The group’s blended all-in average CPO cost of production (after palm kernel credit) was RM1,350 per tonne, which is lower than 1Q16’s cost of production of RM1,600 per tonne due to higher output and palm kernel credits. The group planted only 20ha in 1Q17 due to the requirements of new planting policy procedures. This is below its 5,000ha new planting target for 2017. It also indicated plans to open its second premium outlet in Genting Highlands in Jun 2017.

Downgrade from Add to Hold as most of the positives priced in We maintain our earnings forecasts and SOP-based target price to RM12.30. However, we downgrade the stock from Add to Hold as we feel that most of the positive factors (stronger output growth vs. peers) have been priced in at the current level, with the stock offering just a 6% upside to our target price. Key upside/downside risks are higher-/lower-than-expected FFB output and selling prices of palm products.


Malaysia



Up/downside: 6.0% CIMB / Consensus: 3.5%

Reuters: GENP.KL Bloomberg: GENP MK Market cap: US$2,181m RM9,316m Average daily turnover: US$2.10m RM9.24m Current shares o/s: 783.8m Free float: 26.9% *Source: Bloomberg Key changes in this note

None.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 1.6 1 9 Relative (%) 1.8 -3.2 1.2

Major shareholders % held Genting 53.5 Employees Provident Fund 14.6 Kumpulan Wang Persaraan 5.0

Analyst(s)

Ivy NG Lee Fang, CFA



Revenue (RMm) 1,375 1,480 1,861 2,083 2,241Operating EBITDA (RMm) 337.2 598.3 593.6 656.4 656.5Net Profit (RMm) 189.8 367.5 352.3 409.2 394.1Core EPS (RM) 0.27 0.39 0.45 0.52 0.50Core EPS Growth (45.5%) 42.4% 15.3% 16.2% (3.7%)FD Core P/E (x) 43.65 29.76 25.81 22.22 23.07DPS (RM) 0.06 0.21 0.15 0.15 0.15Dividend Yield 0.48% 1.83% 1.28% 1.28% 1.28%EV/EBITDA (x) 29.26 17.38 17.01 15.18 15.01P/FCFE (x) 10.46 NA 27.93 54.09 61.60Net Gearing 19.2% 20.9% 14.2% 11.0% 8.5%P/BV (x) 2.13 1.94 1.85 1.75 1.66ROE 5.07% 6.87% 7.36% 8.10% 7.38%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 0.96 1.02 0.88

94.0

97.0

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103.0

106.0

10.00

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12.00Price Close Relative to FBMKLCI (RHS)

1234


Vol m

10

Banks│Malaysia│May 29, 2017

Company Note



Hong Leong Bank 3QFY17: Recovery in BOC contribution

At 73% of our FY6/17F forecast and Bloomberg consensus estimates, Hong Leong ■Bank’s (HLB) 9MFY17 net profit was within expectations.

We are positive on the strong recovery in pretax profit contribution from the Bank of ■Chengdu (BOC), which rose +25.9% yoy in 3QFY17.

Loan growth eased from 4.6% yoy at end-Dec 16 to 3.9% yoy at end-Mar 17. ■ Gross impaired loan ratio inched up from 0.86% in Dec 16 to 0.88% in Mar 17. ■ Maintain Hold due to its unattractive FY18F P/E valuation of 12.4x, which is above ■the 5-year average of 11.7x.

Within expectations At 73% of our full-year forecast and Bloomberg consensus estimates, HLB’s 9MFY6/17 net profit was within expectations. As per norm, no dividend was declared in 3QFY17. We retain our FY17F-19F EPS forecasts and DDM-based target price of RM13.50. Strong earnings growth in 9MFY17 due to… HLB’s net profit jumped by 23.6% yoy in 9MFY17, mainly due to the absence of the RM172m cost booked in 2QFY16 for its mutual separation scheme (MSS). Excluding the MSS cost, we estimate net profit would still have expanded by a healthy rate of 12.8% yoy in 9MFY17. The key earnings driver in 9MFY17 was the strong 9.7% yoy rise in operating revenue, emanating from the 13.9% yoy increase in non-interest income.

Recovery in BOC contribution As guided by the company and highlighted in our report titled “Expect BOC to lift 2HFY17 earnings” dated 17 Apr 17, there was strong recovery in the earnings contribution from its 19.99%-owned associate company in China, the Bank of Chengdu (BOC). BOC’s contributions to HLB’s pretax profit jumped by 25.9% yoy to an estimated RM112.8m in 3QFY17 (16.2% of HLB’s 3QFY17 pretax profit). Another positive take for 3QFY17 was the 23bp yoy expansion in HLB’s net interest margin to 2.14%.

Slower and below-industry loan growth Loan growth eased from 4.6% yoy at end-Dec 16 to 3.9% yoy at end-Mar 17, below the industry’s pace of 6%. The slowdown was mainly attributable to the wider contractions in auto and working capital loans, which both declined by circa 3% yoy at end-Mar 17. The key driver for loan growth was the 11.2% yoy expansion in residential mortgages at end-Mar 17, slightly slower than the 11.4% yoy registered at end-Dec 16.

Stable asset quality The bank’s gross impaired loan ratio inched up from 0.86% at end-Dec 16 to 0.88% at end-Mar 17. Meanwhile, loan loss coverage dropped slightly from 106.8% at end-Dec 16 to 105.6% at end-Mar 17. Maintain Hold We are positive on HLB’s strong earnings growth in 3QFY17 and the recovery in BOC contribution, which were largely in line with our expectations. However, HLB remains a Hold, given its unattractive valuations. Its FY18F P/E of 12.4x is above the 5-year average of 11.7x. The upside/downside risks to our call are a pick-up/slowdown in loan growth and expansion/contraction in margins.


Malaysia

HOLD (no change) Consensus ratings*: Buy 7 Hold 9 Sell 2



Reuters: HLBB.KL Bloomberg: HLBK MK Market cap: US$6,689m RM28,555m Average daily turnover: US$3.71m RM16.26m Current shares o/s: 2,168m Free float: 23.1% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) 1.3 2.6 4.2 Relative (%) 1.1 -1.8 -4.5

Major shareholders % held Hong Leong Financial Group 63.6 EPF 13.3 State Street Bank & Trust Company 1.4

Analyst(s)

Winson NG, CFA



Net Interest Income (RMm) 2,741 2,655 2,812 3,064 3,239Total Non-Interest Income (RMm) 1,326 1,523 1,587 1,689 1,781Operating Revenue (RMm) 4,067 4,178 4,399 4,752 5,020Total Provision Charges (RMm) 51.9 (52.6) (136.2) (118.4) (147.3)Net Profit (RMm) 2,233 1,903 2,263 2,446 2,613Core EPS (RM) 1.19 1.01 1.04 1.13 1.21Core EPS Growth 6.2% (15.1%) 3.5% 8.1% 6.8%FD Core P/E (x) 11.75 13.84 13.37 12.37 11.58DPS (RM) 0.41 0.41 0.42 0.45 0.48Dividend Yield 2.94% 2.94% 2.99% 3.23% 3.45%BVPS (RM) 8.93 9.74 10.50 11.36 12.27P/BV (x) 1.56 1.43 1.33 1.23 1.14ROE 14.3% 10.8% 10.3% 10.3% 10.2%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 1.00 1.02 1.03

91.093.495.898.2100.6103.0

12.0012.5013.0013.5014.0014.50


2468


Vol m

11

Media - Integrated│Malaysia│May 29, 2017 Shariah Compliant

Company Note



Media Chinese Int'l A decent end to a challenging FY17 ■ MCIL’s FY3/17 core net profit was broadly in line with expectations at 98% of our and

Bloomberg consensus estimates. ■ FY17 core EPS fell 26% yoy due to weaker adex on the back of poor consumer

sentiment in Malaysia, the depreciation of the RM/US$ rate and rising cost of living. ■ The adex outlook for 2017 remains sluggish given the persistent weakness in

consumer sentiment and shift in adex from traditional to digital platforms. ■ While we like management’s initiatives to grow the digital segment, we are wary of

the execution risks and long gestation period. ■ Maintain Reduce, with a lower RM0.53 target price. Switch to Astro.

4QFY3/17 results in line with expectations 4QFY3/17 revenue fell marginally by 0.2% yoy as favourable forex movements offset the 3.5% yoy drop in contribution from print advertising expenditure (adex). Stripping off the currency impact from foreign operations, revenue dropped 12% yoy. However, MCIL posted a higher core net profit of RM19.6m in 4QFY3/17 vs. RM18.4m in 4QFY3/16, after adjusting for RM15.9m in goodwill impairment. It declared a second interim DPS of 1.6 sen for the quarter, bringing FY17 DPS to 3.1 sen, below our expectation of 3.3 sen.

FY17 core net profit fell 26% yoy FY17 revenue declined 1.7% yoy due to lower contribution from both its print advertising and travel segments, which dropped 5% and 1%, respectively. Malaysian printing and publishing sales, which accounted for 54% of the group’s FY17 revenue, fell 1.4% yoy due to lower adex on the back of weakening consumer sentiment amid uncertainty in the domestic economy. Overall, MCIL’s core net profit fell 26% yoy to RM83m in FY17.

Tepid adex outlook in 2017F We expect adex outlook to remain subdued in 2017, given the domestic economic uncertainties amid currency volatility and weak domestic consumer sentiment. Moreover, we see the structural shift in consumption towards digital platform taking away adex share from print. Overall, we expect the group’s print adex to fall 5% in FY18.

Muted growth prospects for travel segment The travel segment posted decent revenue growth of 20% in 4QFY17 due to its success in promoting new tour destinations, such as South Africa and America, which offset the decline in tours sales to Europe. However, we expect muted growth in the travel segment in FY18 due to weaker consumer sentiment in Hong Kong and reduced demand for European tours amid security concerns following the recent terrorists attack in Europe.

Still in the midst of expanding its digital platform MCIL will continue to invest in digital platforms to grow its online presence and capture the shift in its readership base. Management highlighted that the group’s online business posted double-digit revenue growth in FY17, driven by its growing presence in the online platform through e-paper, mobile apps and video portal. However, the segment’s contribution remained small at less than 10% of total group revenue in FY17.

Maintain Reduce with a lower RM0.53 target price We tweak our FY18-19F EPS by 1-5% to account for lower print adex. Following the earnings revision, our target price declines to RM0.53, still based on 9x CY18F P/E (40% discount to our target market P/E). We maintain our Reduce rating on the stock. Switch to Astro for better exposure to the media sector due to its relatively more defensive earnings. Key upside risks to our call are stronger adex and a pick-up in travel sales.


Malaysia




Reuters: MDCH.KL Bloomberg: MCIL MK Market cap: US$229.1m RM978.6m Average daily turnover: US$0.03m RM0.14m Current shares o/s: 1,687m Free float: 45.1% *Source: Bloomberg Key changes in this note

FY18-19F EPS decreased by 1-5%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -7.2 -5.7 -20 Relative (%) -7 -9.9 -27.8

Major shareholders % held Tan Sri Datuk Tiong Hiew King 50.0 EPF 4.9

Analyst(s)

Mohd Shanaz NOOR AZAM



Revenue (RMm) 1,362 1,338 1,298 1,272 1,234Operating EBITDA (RMm) 205.4 156.1 163.2 171.3 171.7Net Profit (RMm) 104.0 67.0 94.8 101.6 102.7Core EPS (RM) 0.066 0.049 0.056 0.060 0.061Core EPS Growth (26.6%) (25.6%) 14.2% 7.2% 1.0%FD Core P/E (x) 8.77 11.79 10.33 9.63 9.53DPS (RM) 0.044 0.031 0.034 0.036 0.037Dividend Yield 7.52% 5.26% 5.81% 6.23% 6.29%EV/EBITDA (x) 4.40 5.33 4.52 3.97 3.89P/FCFE (x) 5.74 NA NA 23.68 13.07Net Gearing (11.4%) (18.6%) (26.1%) (30.2%) (29.6%)P/BV (x) 1.18 1.14 1.04 0.99 0.95ROE 13.5% 9.8% 10.5% 10.5% 10.2%% Change In Core EPS Estimates (4.91%) (1.47%)CIMB/consensus EPS (x) 4.68 4.63

67.0

80.3

93.7

107.0

0.500

0.600

0.700

0.800Price Close Relative to FBMKLCI (RHS)

1

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Vol m

12

Media - Integrated│Malaysia│May 29, 2017

Company Note



Media Prima Bhd Slipping into losses

Media Prima’s 1Q17 results were below our and consensus’ expectations due to ■lower-than-expected adex and higher operating cost for digital business initiatives.

Media Prima slipped into a core net loss of RM38.2m in 1Q17 compared to a core ■net profit of RM17.7m in 1Q16 due to lower adex and higher opex.

We cut FY17-19F EPS by 30-62% to account for the lower adex. ■ We expect a challenging outlook for Media Prima in 2017 due to sluggish consumer ■demand and the ongoing shift in adex towards digital platforms.

Downgrade to Reduce from Hold with a lower RM0.70 target price. Switch to Astro. ■

Media Prima slips into a loss in 1Q17 Revenue in 1Q17 fell by 10.5% yoy due to on-going weakness in adex (-21%) and lower circulation sales (-29%). Meanwhile, the group’s operating cost increased by 10.1% yoy due to higher costs related to digital business initiatives. Overall, Media Prima swung into a core net loss of RM38.2m in 1Q17 (vs. a core net profit of RM17.7m in 1Q16), far short of our earlier forecast of a RM88.6m core net profit for the full year. As expected, there was no dividend declared in 1Q17.

Persistent weakness in TV and print Across its media platforms, TV and print remained the weakest segments for Media Prima. The TV segment swung into a loss of RM23m in 1Q17 vs. a RM5.9m profit after tax in 1Q16 on the back of lower TV adex (-23% yoy). Meanwhile, the print segment posted a wider loss of RM17m in 1Q17 vs. RM0.9m in 1Q16 due to lower adex and circulation volume. Circulation revenue fell 29% yoy, in line with the shift to digital.

Cutting FY17-19F EPS by 30-62% We cut our FY17-19F EPS by 30-62% to account for larger declines in traditional print and TV adex. We expect another challenging year in 2017 due to the sluggish adex outlook given the persistent weakness in consumer sentiment from uncertainties in the domestic economy. Moreover, the ongoing shift in consumer preference towards digital media is also negatively affecting the adex share for traditional platforms.

Embarking on a new Odyssey Media Prima is embarking on a revenue expansion drive known as the Odyssey strategy. Odyssey has four specific targets over the next 3-5 years: 1) Media Prima plans to double the contribution of non-adex revenue from 20 to 40%. 2) Media Prima expects the revenue contribution from the non-TV and print segment to grow from 20% to 40%. 3) It targets to raise the digital revenue contribution from 5% to 20%. 4) It targets to enlarge the slice of revenue from outside Malaysia from 2% to 10%.

Growing its digital platform portfolio with Rev Asia acquisition Media Prima recently announced the acquisition of 100% of Rev Asia Holdings for RM105m in cash. We are positive on the Rev Asia acquisition as it will be earnings accretive for the group. Rev Asia’s assets portfolio will create a larger digital audience reach of about 9m unique visitors per month and allow Media Prima to command higher adex rates going forward.

Downgrade from Hold to Reduce with a lower RM0.70 target price Following the earnings revision, we downgrade the stock to Reduce with a lower RM0.70 target price, still based on 13x CY18 P/E, a 20% discount to the target market P/E. Key upside risk is a stronger pick-up in adex. While we like the group’s initiative to grow its digital platform, the gestation period may be lengthy and it may not be enough to offset the adex decline in its traditional platforms. Switch to Astro for better exposure in media.


Malaysia

REDUCE (previously HOLD) Consensus ratings*: Buy 3 Hold 4 Sell 9



Reuters: MPRM.KL Bloomberg: MPR MK Market cap: US$288.4m RM1,231m Average daily turnover: US$0.56m RM2.46m Current shares o/s: 1,105m Free float: 67.0% *Source: Bloomberg Key changes in this note

FY17-19F Revenue decreased by 7%. FY17-19F EPS decreased by 30-62%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -7.5 7.8 -23.5 Relative (%) -7.7 3.2 -31.8

Major shareholders % held EPF 18.4 Gabungan Kesturi 14.4

Analyst(s)

Mohd Shanaz NOOR AZAM



Revenue (RMm) 1,428 1,289 1,237 1,264 1,307Operating EBITDA (RMm) 317.4 170.7 160.3 201.2 239.1Net Profit (RMm) 138.7 59.1 33.4 57.6 80.9Core EPS (RM) 0.13 0.05 0.03 0.05 0.07Core EPS Growth 0.4% (58.5%) (43.4%) 72.4% 40.3%FD Core P/E (x) 8.64 20.85 36.82 21.36 15.23DPS (RM) 0.10 0.06 0.03 0.04 0.06Dividend Yield 9.01% 5.39% 2.66% 3.89% 5.45%EV/EBITDA (x) 3.05 6.06 6.83 5.39 4.47P/FCFE (x) NA 13.40 NA 15.66 11.16Net Gearing (7.37%) (5.03%) (1.39%) (2.65%) (4.47%)P/BV (x) 0.76 0.84 0.84 0.84 0.83ROE 8.87% 3.83% 2.29% 3.93% 5.47%% Change In Core EPS Estimates (62.2%) (45.3%) (29.5%)CIMB/consensus EPS (x) 0.42 0.63 0.85

60.0

72.9

85.7

98.6

0.900

1.100

1.300

1.500


10

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Vol m

13

Construction│Malaysia│May 30, 2017 Shariah Compliant

Company Note



Salcon Slower billings and delayed infra catalysts

Salcon incurred RM3.8m net loss in 1Q17 vs. our RM22m full-year net profit forecast. ■1Q17 progress billings were seasonally slow.

We consider 1Q17 results broadly in line, as we expect stronger earnings in 2H17F, ■driven by cost writeback of RM2.3m and profit from Res 280 of RM7m in 3Q17F.

Salcon still targets 20-30% success rate for its RM1.5bn worth of domestic tenders. ■ Delay in Selangor water deals to Oct is a dampener to job wins, in our view; Langat 2 ■water treatment plant (WTP) phase 2 may be delayed as a result.

Given the limited re-rating catalysts, we downgrade Salcon to Hold and lower target ■price to RM0.67, now based on a steeper 40% RNAV discount (30% previously).

1Q17 core net loss due mainly to slower billings Salcon reported a 1Q17 net loss of RM3.8m vs our FY17F net profit forecast of RM22m. We deem the results broadly in line as 1Q17 is typically a slow period for billings, which we expect to accelerate in the coming quarters. The weak numbers were also exacerbated by the losses sustained by the property development segment due to higher cost and delays in recognising c.RM7m net profit from completion of Res 280. We expect the lump-sum property profit from completion of Res 280 to be recognised in 3Q17.

Potential writeback of RM2.3m in 3Q17F from land sale While there could be a slight improvement in 2Q17F earnings, we expect 2H17F net profit to be strong. Apart from the recognition of the c.RM7m profit from the Res 280 property development project in 3Q17F, we expect a RM2.3m writeback for marketing expenses related to the South Yarra property project in Australia, as the group has signed a deal to sell an 80% stake in the project to Eco World International (EWI). Salcon will eventually own a 20% stake in the RM728m GDV project.

Still aims for 20-30% success rate for RM1.5bn domestic tenders Management’s 20-30% success rate target for the RM1.5bn total domestic water infra tenders is intact, suggesting potential total wins of up to RM450m, vs. our unchanged RM500m wins forecast for 2017F. Our forecast 2017F can be considered conservative if we take into account the group’s prospects of securing the RM800m Langat 2 phase 2 WTP in Selangor, which is potentially a big-ticket contract for Salcon in 2H17F. If this materialises, outstanding order book of RM645m could more than double by end-2017F.

Delay in Selangor water deals a dampener The postponement of the Selangor water deals to the new Oct 2017F deadline could spell delays in major water tenders in the state. This may negatively affect the timing of phase 2 of the Langat 2 WTP, in our view. Nevertheless, we continue to expect Salcon to be the frontrunner for phase two of the Langat 2 WTP, given its current role in phase 1. Based on our checks, the tenders for Langat 2 phase 2 are still ongoing but with no clear indication of the award timeline yet.

Downgrade from Add to Hold; Slower job win momentum for now We maintain our FY17F-19F EPS forecasts but downgrade to Hold due to the likely delays in job flows in the medium term. Although we continue to like Salcon for its niche water exposure, net cash position and earnings expansion from new ventures, the excitement from water plays is only likely to revive once the water deals in Selangor are concluded. We cut our TP as we apply a steeper RNAV discount of 40%. Upside risks are stronger job flows and quarterly earnings. Downside risks are prolonged losses.


Malaysia




Reuters: SLCN.KL Bloomberg: SALC MK Market cap: US$94.74m RM404.8m Average daily turnover: US$0.41m RM1.82m Current shares o/s: 665.4m Free float: 89.0% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -3.8 4.1 7.7 Relative (%) -3.6 -0.1 -0.1

Major shareholders % held Naga Muhibbah Sdn Bhd 11.0

Analyst(s)

Sharizan ROSELY



Revenue (RMm) 125.4 101.2 204.7 210.3 221.7Operating EBITDA (RMm) 4.56 (32.52) 33.80 35.96 37.91Net Profit (RMm) 5.56 11.17 21.92 23.94 24.37Core EPS (RM) 0.008 0.017 0.032 0.035 0.036Core EPS Growth 101% 96% 9% 2%FD Core P/E (x) 76.40 38.04 19.39 17.76 17.44DPS (RM) 0.020 - 0.020 0.025 0.030Dividend Yield 3.17% 0.00% 3.17% 3.97% 4.76%EV/EBITDA (x) 44.29 NA 5.93 5.66 5.48P/FCFE (x) NA NA 200.8 NA NANet Gearing (33.1%) (27.3%) (37.3%) (36.4%) (35.1%)P/BV (x) 0.74 0.87 0.86 0.85 0.83ROE 0.98% 2.10% 4.46% 4.80% 4.82%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 1.02 1.01 1.00

91.097.0103.0109.0115.0121.0

0.5000.5500.6000.6500.7000.750


10

20

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Vol m

14


Company Note



Signature International 3QFY17: Taking the slow path

At 51% of our full-year forecast, Signature’s 9MFY17 net profit came in below our ■expectations, mainly due to weaker-than-expected project revenue recognised.

The company is taking a more cautious approach to new orders due to potential ■collection problems.

The company’s balance sheet is in a net debt position to the tune of RM15.6m after it ■bought the Bandar Baru Enstek industrial land for RM50.8m.

We cut FY17-19F EPS by 18-30% to reflect slower business growth prospects. ■ We downgrade our rating to Hold from Add; this is our first downgrade since we ■initiated on the stock at end-2013.

9MFY17 net profit down 35% yoy Signature’s 9MFY17 revenue fell 14% yoy to RM132.75m mainly due to a slowdown in project sales, while its net profit declined by 34.6% yoy to RM10.2m. We believe the soft 9MFY17 net profit was due to weak project revenue and high rubberwood prices, as rubber prices surged more than 30% qoq in 3QFY17. Rubber prices have since stabilised in 4QFY17. In addition, the company was hit by a RM1.8m ESOS expense, although this was offset by a RM2.7m write-back of doubtful debts.

Management cautious on potential business opportunities No interim DPS was declared, in line with our expectations. The orderbook is strong at RM242m. While the current trend of developers launching fully- or semi-furnished affordable condominiums should be a boon for Signature, we believe the company is rather selective about its customers and has been turning down potential business. We understand this is mainly due to the fear of collection difficulties in the future, as some of its property developer customers are currently facing cashflow problems.

To grow export sales With the expected slowdown in project sales, we believe Signature has targeted the export market to grow its sales. We understand that the company is negotiating a few major export jobs. To minimise project risk, Signature only supplies raw materials to its export customers and installation will be done by its export customers.

Net debt balance sheet The balance sheet was in a RM15.6m net debt position or 0.1x net gearing as at end-Mar. This compares to a RM48m net cash as at end-Dec. The net debt position was mainly due to debt raised to finance the purchase of the 38.9 acres of industrial land in Bandar Baru Enstek (BBE), close to the KLIA.

Buys land in Bandar Baru Enstek The company acquired the BBE land for RM50.8m, which is at an average of RM30psf. Signature had proposed to buy this land in 2014. Since then, our channel checks indicate that the market price for this industrial land has doubled to around RM60psf or RM100m. Management has yet to decide whether to develop or sell the land.

Downgrade from Add to Hold While we think Signature’s cautious new jobs strategy is the right one in this uncertain economic environment, it may hurt its immediate earnings prospects. As such, we cut our FY17-19F EPS forecasts by 18-30% to reflect weak earnings growth outlook. Our TP falls to RM1.04, based on an unchanged 30% discount to SOP. We downgrade from Add to Hold. Upside risks are strong export sales. Downside risks are continued weak sales. We prefer EITA for exposure in this sector.


Malaysia




Reuters: SGNA.KL Bloomberg: SIGN MK Market cap: US$53.36m RM228.0m Average daily turnover: US$0.19m RM0.82m Current shares o/s: 240.0m Free float: 50.3% *Source: Bloomberg Key changes in this note

FY17-19F EPS decreased by 18-30%

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -4.3 15.7 -9.6 Relative (%) -4.1 11.5 -17.4

Major shareholders % held Tan KC 24.9 Chooi Yoey Sun 24.8 Value Partners Group 5.6

Analyst(s)

Nigel FOO



Revenue (RMm) 272.9 198.1 181.0 186.4 190.2Operating EBITDA (RMm) 49.40 64.00 21.60 22.90 24.90Net Profit (RMm) 36.10 47.80 14.68 15.23 16.30Core EPS (RM) 0.12 0.16 0.05 0.05 0.05Core EPS Growth 103% 32% (69%) 4% 7%FD Core P/E (x) 8.27 6.24 20.34 19.61 18.31DPS (RM) 0.05 0.12 0.03 0.03 0.03Dividend Yield 5.0% 12.1% 2.5% 2.5% 2.5%EV/EBITDA (x) 6.32 3.71 13.44 12.63 11.52P/FCFE (x) 31.23 7.73 NA 35.75 28.65Net Gearing 6.6% (41.5%) (9.5%) (10.2%) (11.6%)P/BV (x) 2.09 1.89 1.79 1.70 1.61ROE 27.6% 31.8% 9.0% 8.9% 9.0%% Change In Core EPS Estimates (26.4%) (29.9%) (18.2%)CIMB/consensus EPS (x) 0.63 0.49 0.52

66.074.082.090.098.0106.0

0.7000.8000.9001.0001.1001.200


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Vol m

15


Company Note



Sunway Bhd Construction outlook overshadows property

Sunway’s annualised 1Q17 core net profit was in line with our and consensus full-■year forecasts.

We expect better quarters ahead, driven by SunCon’s solid order book of RM4.6bn ■and its target of RM2bn worth of order wins this year.

RM125m property sales achieved in 1Q17; RM1.1bn sales target for FY17F intact. ■ Potential upside to SunCon’s order book from LRT 3 and BRT 2, in our view. ■ Job wins key catalyst; Maintain Add with higher TP. ■

1Q17 broadly in line; better quarters ahead Sunway’s annualised 1Q17 core net profit made up 77% of our full-year forecast and 74% of consensus. We deem the results broadly in line as 1Q is traditionally a weaker quarter. We expect better quarters ahead on the back of stronger billings from construction. 1Q17 net profit grew 5.7% yoy despite the contraction in property development earnings as it was largely driven by robust construction pretax margin of 12%. It did not announce a dividend, as expected.

Segmental performance led by construction No major surprises across all divisions. 1Q17 property pretax profit contracted 64% yoy as the Avant project was completed and fully sold in FY16, while new ventures have yet to contribute to earnings. Though construction pretax profit dropped 2% yoy, the flattish pretax margin of 12% implies that higher-margin jobs are likely to flow through in the coming quarters, offsetting the lower but still commendable 17% property margin.

Sales target of RM1.1bn unchanged Sunway’s RM1.1bn sales target for FY17F is intact. The group achieved RM125m in effective property sales in 1Q17. We gather that out of the RM2bn worth of launches slated for this year, 50% are priced below RM1m given the still-challenging property market. Also, integrated development properties form a large portion of the launches this year. As at end-1Q17, effective unbilled sales were RM1.1bn.

RM4.6bn outstanding order book for SunCon Sunway Construction’s (SCGB MK, NR; reinstated as shariah-compliant) construction order book stood at RM4.6bn as at end-1Q17, including RM0.9bn of total wins YTD. The group targets to secure RM2bn worth of new contracts this year (2016: RM2.7bn), implying RM1.1bn worth of potential wins in the rest of FY17F. We believe the group has a good chance of securing an LRT 3 package given its MRT credentials. We believe other potential wins could include Pan Borneo Sabah and Bus Rapid Transit (BRT) KL.

Notable contracts secured YTD Of the RM894m total jobs secured YTD, key ones include RM212m MRT 2 station works, RM18m bore pilling contract for Suke highway, and RM16m bore piling contract for Dash highway.

Construction still the main appeal; Retain Add We maintain our FY17-19F EPS but raise our target price as we update balance sheet items, market values of its listed subsidiaries, and new land bank (still pegged to a 20% discount to RNAV). Retain Add recommendation. Key potential re-rating catalysts include job wins and new land bank acquisitions. Downside risks to our Add call are delays in job wins and weaker property sales.


Malaysia



Up/downside: 8.9% CIMB / Consensus: 12.5%

Reuters: SWAY.KL Bloomberg: SWB MK Market cap: US$1,711m RM7,309m Average daily turnover: US$1.65m RM7.21m Current shares o/s: 2,031m Free float: 36.5% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 3.5 11.1 18.5 Relative (%) 3.7 6.9 10.7

Major shareholders % held Tan Sri Dato' Seri Dr. Jeffrey Cheah & family 58.3 EPF 5.2

Analyst(s)

Sharizan ROSELY



Revenue (RMm) 4,451 4,726 5,103 5,299 5,508Operating EBITDA (RMm) 541.5 531.1 567.2 613.7 683.7Net Profit (RMm) 732.4 586.0 570.6 605.0 659.3Core EPS (RM) 0.42 0.29 0.28 0.30 0.32Core EPS Growth 45.6% (32.0%) (2.6%) 6.0% 9.0%FD Core P/E (x) 8.46 12.44 12.78 12.05 11.06DPS (RM) 0.49 0.12 0.13 0.13 0.13Dividend Yield 13.6% 3.4% 3.6% 3.6% 3.6%EV/EBITDA (x) 17.59 18.25 15.81 14.22 12.41P/FCFE (x) 41.74 47.68 28.47 22.76 17.96Net Gearing 48.9% 40.9% 48.1% 43.9% 40.1%P/BV (x) 1.11 0.98 1.22 1.16 1.10ROE 10.4% 8.4% 8.5% 9.9% 10.2%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 0.99 0.96 1.05

90.095.0100.0105.0110.0115.0

2.702.903.103.303.503.70


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Vol m

16


Company Note



WCT Holdings 1Q17: Construction offset property weakness ■ 1Q17 core net profit in line; strong construction earnings flowing through. ■ RM5bn-6bn construction bid book presents upside to order book. ■ Property market remains challenging, with likely downside risks to margins. ■ Expect more details on REIT strategy in its analyst briefing on Tuesday. ■ EPS forecasts unchanged. Maintain Hold with unchanged TP (30% RNAV discount)

1Q17 core net profit broadly in line; strong construction earnings WCT’s 1Q17 core net profit made up 28% of our and Bloomberg consensus full-year forecasts. We consider the results as broadly in line as we expect subsequent quarters to be weaker. Construction earnings should continue to be strong, driven by higher-margin contracts, but this will likely be mitigated by margin risks from property development due to its re-pricing strategy. No dividends were declared, as expected. We should get more details on the group’s prospects during its results briefing tomorrow (30 May).

Construction earnings surged despite revenue decline Segmentally, construction EBIT surged to RM30m (1Q16: RM3.7m) due to strong billings from higher-margin infra contracts. This underpinned the higher EBIT margin of 4% in 1Q17 vs. only 1% in 1Q16. We expect more upside to construction margins, supported by new infra contracts. The drop in property development EBIT margin from 20% in 1Q16 to 15% in 1Q17 was due to the re-pricing strategy.

RM5bn-6bn total construction bid book WCT recently clinched an RM186m contract for package TD1 of the LRT3 project, i.e. the construction of Johan Setia Depot (Phase 1). This is the group’s first contract win for 2017. Encouragingly, WCT has also tendered for other larger-value LRT 3 packages worth RM400m-500m. It is also bidding for more MRT 2 jobs, though likely smaller than the RM893m V204 package secured in late 2016. We are optimistic about WCT’s job flow prospects in 2H17. We retain our forecast of RM1.5bn job wins in FY17.

Property market still challenging as at 1Q17 We envisage the property sales market to stay challenging in the medium term. We still expect WCT to make no new launches this year, apart from promotions to clear its existing RM1bn unsold inventory. As at April, property sales were off to a good start, with RM133m sales secured under its re-pricing and rebate sales strategy. The challenge now is to sustain and boost property sales to meet its internal target of RM500m for the full-year. Property with relatively higher land cost could yield lower margins, in our view.

Expecting more color on REIT strategy Our medium-term focus continues to be the group’s REIT plans. From our recent check with management, we understand that it is maintaining its guidance that the RM1.1bn REIT deal could be realised either by: 1) formation of a new REIT vehicle, or 2) an outright asset injection into an existing REIT, into the much talked-about Pavilion REIT. Under the new REIT vehicle scenario, WCT will likely retain a 30-40% stake. We expect more updates in WCT's results briefing.

Maintain Hold with unchanged TP We remain optimistic about WCT’s job flow outlook. However, this could be mitigated by property sales risks and uncertainty surrounding its REIT plans, in our view. We retain our FY17-19 EPS forecasts and fully-diluted RNAV-based target price (30% discount to RNAV). WCT remains a Hold. Key upside risk is stronger job wins surpassing our RM1.5bn target, while a downside risk is weaker property sales.


Malaysia

HOLD (no change) Consensus ratings*: Buy 4 Hold 11 Sell 4


Up/downside: -1.9% CIMB / Consensus: 7.2%

Reuters: WCTE.KL Bloomberg: WCTHG MK Market cap: US$697.5m RM2,977m Average daily turnover: US$2.46m RM10.63m Current shares o/s: 1,258m Free float: 62.3% *Source: Bloomberg Key changes in this note

No changes

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -4 13.2 47.6 Relative (%) -3.8 9 39.8

Major shareholders % held Tan Sri Desmond Lim Siew Choon 19.7 Lembaga Tabung Haji 10.2 EPF 7.9

Analyst(s)

Sharizan ROSELY



Revenue (RMm) 1,668 1,934 2,138 2,143 2,148Operating EBITDA (RMm) 88.7 120.6 122.8 126.4 132.1Net Profit (RMm) 219.1 68.4 136.5 141.6 153.6Core EPS (RM) 0.22 0.05 0.11 0.11 0.12Core EPS Growth 146% (75%) 100% 4% 8%FD Core P/E (x) 10.10 46.53 26.00 25.07 23.11DPS (RM) 0.042 - 0.043 0.045 0.049Dividend Yield 1.95% 0.00% 2.03% 2.10% 2.28%EV/EBITDA (x) 52.40 42.33 39.67 38.24 36.32P/FCFE (x) NA NA NA NA NANet Gearing 77.9% 90.3% 75.7% 72.9% 70.2%P/BV (x) 1.03 0.97 0.90 0.88 0.86ROE 11.4% 2.5% 4.7% 4.7% 5.0%CIMB/consensus EPS (x) 1.00 0.95 0.92

89.0

114.0

139.0

1.30

1.80

2.30


10203040


Vol m

17

Tech Manufacturing Services│Singapore│May 29, 2017

Company Note



Valuetronics Holdings Ltd 4Q17: new orders in ramp-up phase

FY3/17 core net profit of HK$151m was ahead of our/consensus full-year numbers. ■ We expect both CE and ICE segments to continue their double-digit sales growth in ■FY18F, thanks to the roll-out of newly-launched products.

Lower operating cash flow in FY17, but cash conversion cycle steady at 42 days. ■ Maintain Add with a higher TP of S$0.89 (11x CY18 P/E, a narrower discount of 10% ■to peers’ average). VALUE currently trades at 11.2x FY18 P/E (6.3x ex-cash).

Results beat by a better-than-expected 4Q17 VALUE reported a FY3/17 topline of HK$2,275m (+16.5% yoy) and core net profit of HK$151m (+25.1% yoy), above our forecasted HK$2,123m and HK$137m respectively. The results beat mainly came from a stronger-than-expected 4Q17, as sales climbed 44.0% yoy and 8.3% qoq, due to the building of inventory ahead in 3Q17 and delivered in 4Q17. Gross margin dipped to 14.2% (3Q17:15.5%) during the seasonally-weaker quarter, leading to a 5.3% qoq fall in 4Q17 core net profit (HK$40.9m, +36.4% yoy).

CE and ICE firing up Both industrial & commercial electronics (ICE) and consumer electronics (CE) segments registered strong growth in FY17 at 14.1% and 19.7% yoy respectively, driven by the automotive (AU) connectivity modules and wireless lighting with IoT features. We expect such sales momentum to be sustained into FY18F as these new products enter mass production and initial phase of product lifecycle respectively, underpinning our FY18-20F sales forecasts of 10-12% p.a. We also estimate gross margins to trend downwards.

Qualification by another automaker still underway VALUE also announced a recent award win for supplier excellence with its major AU customer (tier-1 automotive parts manufacturing company), reflecting its integral role as part of the supply chain for two years. While the audit completion by a new OEM for its AU connectivity modules has been postponed to end-FY18, we think this could give the firm another leg-up when the new orders kick in.

Lower operating cash flow, but steady cash conversion cycle VALUE recorded an FY17 operating cash flow of HK$161m, lower than FY16’s HK$289m as a result of more cash tied up in working capital. Its cash conversion cycle was stable at 42 days in FY17, vs. 45 days in FY16. The company remains in a net cash position (with zero borrowings), that makes up c.39% of its market cap (excluding AFS assets).

Potentially limited dividend upside in the near-term The company declared a final DPS of 15 HKcts and special DPS of 5 HKcts, implying a 4.4% FY17 dividend yield. We suspect near-term upside to dividend payout may be capped (30-50% dividend policy) as higher business activities may require more working capital, and key customers ask for more favourable credit terms. There is a possibility of a non-renewal of the Danshui factory lease (expires by end-2020), which may result in setting aside more capex should management decide to look for an alternative site.

Maintain Add on higher EPS estimates We raise our FY18-19F EPS estimates by 5.7-12.9%, to factor in higher sales growth, gradually declining gross margins and lower operating costs. We also introduce FY20 forecasts, and our TP thus increases to S$0.89 (adjusted for 1:10 bonus issuance). This is pegged to 11.0x CY18 P/E (prev. 9.8x), now at a smaller 10% discount to industry average of 12.2x. The stock offers 4.3-4.8% FY18-20F dividend yields. Risks to our Add call include unexpected order pushback.


Singapore


Current price: S$0.82 Target price: S$0.89 Previous target: S$0.72

Up/downside: 9.6% CIMB / Consensus: na

Reuters: VLUE.SI Bloomberg: VALUE SP Market cap: US$247.9m S$342.7m Average daily turnover: US$0.66m S$0.93m Current shares o/s: 420.5m Free float: 74.3% *Source: Bloomberg Key changes in this note

FY18F EPS increased by 5.7%. FY19F EPS increased by 12.9%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 10 31.8 74.1 Relative (%) 8.8 28 59.4

Major shareholders % held Chong Hing Tse 18.1 Hsbc 10.1 Kok Kit Chow 7.6

Analyst(s)

NGOH Yi Sin

T (65) 6210 8604 E [email protected] William TNG, CFA T (65) 6210 8676 E [email protected]


Revenue (HK$m) 1,953 2,275 2,558 2,821 3,103Net Profit (HK$m) 120.4 154.1 174.2 198.4 220.5Core EPS (HK$) 0.29 0.37 0.41 0.47 0.52Core EPS Growth (20.4%) 26.8% 12.6% 13.7% 11.2%FD Core P/E (x) 15.89 12.56 11.15 9.80 8.81Price To Sales (x) 0.98 0.84 0.75 0.68 0.62DPS (HK$) 0.20 0.20 0.20 0.20 0.22Dividend Yield 4.35% 4.35% 4.35% 4.35% 4.79%EV/EBITDA (x) 7.31 5.94 5.29 4.45 3.74P/FCFE (x) 7.50 14.09 23.96 13.49 12.45Net Gearing (80.4%) (80.2%) (72.9%) (70.9%) (68.9%)P/BV (x) 2.24 2.05 1.88 1.69 1.51ROE 14.5% 17.2% 17.7% 18.3% 18.2%% Change In Core EPS Estimates 5.7% 12.9% CIMB/consensus EPS (x) 1.13 1.21 1.46

84102120138156174

0.4000.5000.6000.7000.8000.900

Price Close Relative to FSSTI (RHS)

2468


Vol m

18

Telecommunications│Thailand

Sector Flash Note



Telco - Mobile A mid-year gift from the NBTC

The National Broadcasting and Telecoms Commission (NBTC) plans to lower the ■universal service obligation (USO) fee from 3.75% of total income to 2.5% on 1 Jun 17.

We think this fee reduction would boost the telcos’ core net profits and target prices. ■ Maintain Overweight on Thailand mobile sector, with AIS as our top pick. ■

USO fee reduction from 3.75% to 2.5% ● According a local newspaper today, the NBTC plans to lower the USO fee from 3.75%

of telco operators’ total income to 2.5% effective on 1 Jun 17. ● We gather from our contact in the Office of the NBTC that the NBTC derived the new

USO rate from its expected annual USO spending in the future and revenue from telecom services. The newly-established Digital Economy Board is reviewing the licence fee rate and we believe higher rates (1.5% of service revenue currently) is a risk moving forward.

Positive financial impact on telcos ● The reduction of the USO fee from 3.75% to 2.5% is clearly positive for telcos, in our

view. In 1Q17, regulatory cost as a percentage of service revenue net interconnection (IC) was 5.78% for AIS, 15.8% for DTAC and 4.47% for True.

● Based on USO fee of 3.75%, our current estimates indicate that AIS’s FY18F-20F EBITDA will increase by 2.6-2.7% and core net profit will rise by 5.0-5.5%. As for DTAC, we project that FY18F-20F EBITDA will rise by 3.2-4.0% and core net profit will increase by 19.4-33.2%. For True, we currently estimate FY18F-20F EBITDA growth of 4.4-5.5% and core net profit growth of 27.0-39.2%.

● Based on the reduced USO fee of 2.5%, we estimate our FY17F DCF-based target price for AIS would rise by 4.4% from THB186 to THB194. Similarly, our target price for DTAC would increase by 12.2% from THB42.40 to THB47.60. Our target price for True would also rise by 10.6% from THB5.25 to THB5.81.

● The USO fee reduction would benefit Thaicom and Jasmine too, in our view. Applying the new USO fee of 2.5%, we estimate our FY18F-20F core net profit forecasts for Thaicom would increase by 0.6-0.7%. Similarly, our FY18F-20F core net profit estimates for Jasmine would rise by 3.4-4.3%. This translates into a 2.2% increase in our DCF-based target price for Thaicom from THB28.10 to THB28.70 and a 5.5% increase in our DCF-based target price for Jasmine from THB7.90 to THB8.30.

● Our FY18F-20F EPS and target prices are unchanged for now, pending confirmation from NBTC and telcos on the change in USO fee.

Maintain Overweight and AIS as our top pick ● We maintain our Overweight call on Thailand mobile sector and AIS (Add, TP

THB186) as our top pick. We think DTAC winning the 2.3GHz deal from TOT would improve DTAC’s competitiveness and bring it to be in line with AIS and True. We view this as a sign of improving competitive parity in the sector. We believe that better competition intensity would allow telcos to monetise rising data usage more effectively.

● Key risks to our Overweight sector rating include: 1) delay in the passage of the Frequency Allocation Act (FAA) through the National Assembly of Thailand, and 2) near-term surge in competition from AIS and True attempting to steal as many DTAC subscribers as possible before it launches its 2.3GHz service, likely by late 4Q17F.

Figure 1: Potential impact from USO fee reduction from 3.75% to 2.5%

SOURCES: CIMB, COMPANY REPORTS

2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F

Total revenue (THB m) 157,820 162,090 167,811 83,747 87,635 91,971 138,054 149,098 160,281EBITDA (THB m)

-Base case (3.75% USO) 77,026 82,086 87,993 33,126 27,016 30,446 28,456 39,283 43,882-2.5% USO 79,070 84,241 90,271 34,178 28,142 31,650 30,028 41,022 45,793% change 2.7% 2.6% 2.6% 3.2% 4.2% 4.0% 5.5% 4.4% 4.4%

EBITDA margin (%)

-Base case (3.75% USO) 48.8% 50.6% 52.4% 39.6% 30.8% 33.1% 20.6% 26.3% 27.4%-2.5% USO 50.1% 52.0% 53.8% 40.8% 32.1% 34.4% 21.8% 27.5% 28.6%Core net profit (THB m)

-Base case (3.75% USO) 32,447 31,187 33,348 2,697 2,713 4,956 -4,218 3,550 5,659-2.5% USO 34,082 32,911 35,170 3,539 3,614 5,919 -2,961 4,942 7,188% change 5.0% 5.5% 5.5% 31.2% 33.2% 19.4% -29.8% 39.2% 27.0%

DCF-based TP (THB)

-Base case (3.75% USO) 186 42.4 5.25-2.5% USO 194 47.6 5.81% change 4.4% 12.2% 10.6%

AIS DTAC True Corp

Thailand May 29, 2017 - 2:00 PM

Overweight (no change)

Highlighted companies

Advanced Info Service ADD, TP THB186.0, THB178.0 close AIS is the largest mobile operator in Thailand, with 46% subscriber market share and 50% revenue market share in 2016. It had 41m subscribers, with THB251 ARPU in 2016. The company's major shareholders are Intouch (40.5%) and SingTel (23.5%). Total Access Communication HOLD, TP THB42.40, THB43.75 close DTAC is the second-largest mobile operator in Thailand, with 27% subscriber market share and 25% revenue market share in 2016. It had 24m subscribers, with THB220 ARPU in 2016. The company is 56.9%-owned by Telenor.

True Corporation REDUCE, TP THB5.25, THB6.25 close True is the third-largest mobile operator in Thailand, with 27% subscriber market share and 25% revenue market share in 2016. It had 25m subscribers, with THB213 ARPU in 2016. True also operates a fixed broadband business (3m subscribers) and a pay-TV business (2m). Its major shareholders are CP Group (64%) and China Mobile (18%).

Summary valuation metrics

Analyst(s)

Pisut NGAMVIJITVONG



Advanced Info Service 18.55 15.90 16.53 Total Access Communication 128.56 38.41 38.15 True Corporation NA NA NA


Advanced Info Service 10.35 8.66 7.48 Total Access Communication 3.76 3.58 3.42 True Corporation 1.81 1.90 2.16


Advanced Info Service 3.77% 4.40% 4.24%Total Access Communication 0.39% 1.30% 1.31%True Corporation 0.00% 0.00% 0.00%

19

Asia Pacific Daily│May 30, 2017

7

REGIONAL HEAD

Michael William GREENALL Regional Head of Research +60 (3) 2261 9088 [email protected]

COUNTRY HEADS OF RESEARCH

Ivy NG, CFA Siew Khee. LIM Erwan TEGUH Kasem PRUNRATANAMALA, CFA Michael KOKALARI, CFA Malaysia Singapore Indonesia Thailand Vietnam +60 (3) 2261-9073 +65 6210-8664 +62 (21) 3006-1720 +66 (2) 657-9221 +84 907-974408 [email protected] [email protected] [email protected] [email protected] [email protected] Ben BEI Dohoon LEE Satish KUMAR Ralph Christian G. BODOLLO Yolan SEIMON Hong Kong/China South Korea India Philippines Sri Lanka +852 2532-1116 +82 (2) 6730-6121 +91 (22) 6602-5185 +63 (2) 888-7118 +94 (11) 230-6273 [email protected] [email protected] [email protected] [email protected] [email protected] Coverage via partnership arrangement with Coverage via partnership arrangement with

REGIONAL SECTOR HEADS

K J KWANG Ivy NG, CFA Raymond YAP, CFA Offshore & Marine Plantations Transportation +82 (2) 6730-6123 +60 (3) 2261-9073 +60 (3) 2261-9072 [email protected] [email protected] [email protected]

20


8

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Recipients of this report are to contact CIMB Research Pte Ltd, 50 Raffles Place, #19-00 Singapore Land Tower, Singapore in respect of any matters arising from, or in connection with this report. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents.

If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following : (a) Section 25 of the FAA (obligation to disclose product information); (b) Section 27 (duty not to make recommendation with respect to any investment product without having a reasonable basis where you may be reasonably expected to rely on the recommendation) of the FAA; (c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03]; (d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16]; (e) Section 36 (obligation on disclosure of interest in securities), and (f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which are relates to the above, to the extent permitted by applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institutional investor acknowledges that a CIMBR is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA.

South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch (“CIMB Korea”) which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”).

Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities.

CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services.

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Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have

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not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report.

If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected.

CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.

AAV, ADVANC, AMATA, AOT, AP, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEC, BEM, BH, BIG, BLA, BLAND, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EGCO, EPG, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, ICHI, IFEC, INTUCH, IRPC, ITD, IVL, KAMART, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, MAJOR, MINT, MTLS, PLANB, PSH, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, RS, S, SAMART, SAWAD, SCB, SCC, SCN, SGP, SIRI, SPALI, SPCG, SPRC, STEC, STPI, SUPER, TASCO, TCAP, THAI, THANI, THCOM, TISCO, TKN, TMB, TOP, TPIPL, TRUE, TTA, TTCL, TTW, TU, TVO, UNIQ, VGI, VIBHA, VNG, WHA.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. Unless specified to the contrary, this report has been issued and approved for distribution in the U.K. and the EEA by CIMB UK. Investment research issued by CIMB UK has been prepared in accordance with CIMB Group’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jurisdiction, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned

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securities please contact a registered representative of CIMB Securities (USA) Inc.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2016, Anti-Corruption 2016.

AAV – Very Good, n/a, ADVANC – Very Good, Certified, AEONTS – Good, n/a, AMATA – Excellent, Declared, ANAN – Very Good, Declared, AOT – Excellent, Declared, AP – Very Good, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Very Good, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – not available, Declared, BCP - Excellent, Certified, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, Declared, BEC - Good, n/a, BH - Good, Declared, BIGC - Excellent, Declared, BJC – Good, n/a, BLA – Very Good, Certified, BPP – not available, n/a, BTS - Excellent, Certified, CBG – Good, n/a, CCET – not available, n/a, CENTEL – Very Good, Certified, CHG – Very Good, n/a, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, Declared, DEMCO – Excellent, Certified, DTAC – Excellent, Certified, EA – Very Good, Declared, ECL – Good, Certified, EGCO - Excellent, Certified, EPG – Good, n/a, GFPT - Excellent, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Very Good, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Declared, ICHI – Very Good, Declared, INTUCH - Excellent, Certified, ITD – Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Declared, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Declared, M – Very Good, Declared, MAJOR - Good, n/a, MAKRO – Good, Declared, MALEE – Very Good, Declared, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Declared, MEGA – Very Good, Declared, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Very Good, Declared, PSH – not available, n/a, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Declared, RATCH – Excellent, Certified, ROBINS – Very Good, Declared, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI - Good, n/a, SPALI - Excellent, Declared, SPRC – Very Good, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, Declared, TCAP – Excellent, Certified, THAI – Very Good, Declared, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Very Good, Certified, TICON – Very Good, Declared, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Good, n/a, TMB - Excellent, Certified, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Very Good, Declared, TTW – Very Good, Declared, TU – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into: - Companies that have declared their intention to join CAC, and - Companies certified by CAC

CIMB Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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