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Equity research│September 27, 2016

Showcasing CIMB Research Ideas

MAL: UMW Oil & Gas 25/09


Dire conditions bring out the best in UMW-OG
Asia Pacific Daily - 27 September 2016
>PDF
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Equity Research Reports…
MAL: Aviation - Overall 22/09
Purported new PSC is a disappointment for MAHB ▌IDEA OF THE DAY | Hong Kong
>PDF Far East Consortium International Limited (ADD, tp:HK$3.92) - High earnings growth cycle… | P2
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TWN: Technology - Handsets 21/09 We expect FEC to post a 3.5x jump in core net profit in 1HFY17 to HK$457m. The group achieved a
iPhone 7: risk of mismatch >PDF record high of HK$9.8bn cumulative contracted presales, representing lock-in for over 60% of its
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property projects in the pipeline. We project stable revenue growth yoy in 1HFY17 hotel and car park
TWN: Aspeed Technology Inc 20/09 operations. Still an Add due to solid earnings outlook, compelling valuation and attractive yield.
Surfing the cloud >PDF
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CHN: Strategy Note 19/09 ▌REGIONAL / ASEAN / APAC


CNH – HIBOR volatility to continue >PDF Agribusiness (NEUTRAL) - Positive on palm oil duty cut in India | P3
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▌Indonesia
Wijaya Karya (ADD, tp:Rp4,250.00) - The rights ride | P4
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Regional Equity Research Contacts ▌Malaysia


Michael GREENALL, CFP Bison Consolidated Bhd (ADD, tp:RM2.07▲) - Charging ahead | P5
Regional Head of Research Construction (OVERWEIGHT) - New rail line for all ports in Sabah | P6
T: (60) 3 2261 9088 ———————————————————————————————————————————————————————————————————————————————————————
E: michael.greenall@cimb.com
▌Singapore
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Best World International Ltd (ADD, tp:S$2.05▲) - More upbeat post-NDR | P7
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▌Taiwan
Show Style "View Doc Map"

Macauto Industrial (ADD, tp:NT$246.00▲) - Steady as she goes | P8

CIMB Conference / Events | 


CIMB Malaysia Public Sector Corporate Day
10 October 2016
Theme: Malaysia
Location: Kuala Lumpur
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IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Powered by the
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Property Devt & Invt│Hong Kong│Equity research│September 26, 2016

Company Note
▎Hong Kong
Far East Consortium
ADD (no change) International Limited
Consensus ratings*: Buy 3 Hold 0 Sell 0
Current price: HK$3.11
High earnings growth cycle starts
Target price: HK$3.92
■ We expect FEC to post a 3.5x jump in core net profit in 1HFY17 to HK$457m.
Previous target: HK$3.92
Up/downside: 26.0%
■ The group achieved a record high of HK$9.8bn cumulative contracted presales,
representing lock-in for over 60% of its property projects in the pipeline.
CIMB / Consensus: 35.2%
■ We project stable revenue growth yoy in 1HFY17 hotel and car park operations.
Reuters: 0035.HK
Bloomberg: 35 HK
■ Still an Add due to solid earnings outlook, compelling valuation and attractive yield.
Market cap: US$854.7m
HK$6,630m
We project very strong 1HFY17 results
We expect Far East Consortium (FEC) to post very strong 1HFY17 results (Mar year-
Average daily turnover: US$0.50m
end), driven by property sales of above HK$1.9bn (+112% yoy) and stable recurrent
HK$3.88m income growth. Given strong property development sales, we estimate revenue
Current shares o/s: 2,132m increased by 55% yoy to HK$2.9bn. With better gross margin achieved for the Shanghai
Free float: 46.0% project (King’s Manor) and stabilised hotel operations, we estimate FEC’s first-half core
* Source: Bloomberg
net profit jumped 3.5x to HK$457m, forming 44% of our FY17 forecast.
Key changes in this note Major bookings for Melbourne and Shanghai projects
No changes. For property development booking, the best performers in 1HFY17 were Upper West
Side - Stage 4 (Melbourne) and the remaining units in King’s Manor (Shanghai). We
believe gross margin achieved was close to 40% as achieved ASP for Shanghai projects
Price Close Relative to HSI (RHS) was 20% higher yoy (Rmb38k/sq ft due to booming Shanghai property market).
3.10 105.0 Cumulative contracted presales reached HK$9.8bn
According to FEC’s announcement on 26 Aug 2016, the group achieved HK$3.9bn
2.60 92.5
contracted presales in Apr-Jul 2016, which drove cumulative presales to a record high of
2.10 80.0 HK$9.8bn (HK$7.5bn as at Mar 2016). Projects that registered major presales were
8
6 West Side Place (phase 1), Melbourne and The Royal Crest II, Shanghai.
4
Recurrent income still rising steadily
Vol m

Sep-15 Dec-15 Mar-16 Jun-16 We believe FEC’s hotel and car park operations posted stable revenue growth yoy in
Source: Bloomberg 1HFY17 despite difficulties in Hong Kong hotel operations due to reduced mainland
visitor arrivals and strong HK$. We estimate 1-3% yoy revenue growth for 1HFY17 hotel
Price performance 1M 3M 12M operations (+5% in FY17F), supported by rapid ramp-up in Dorsett Shepherd’s Bush
Absolute (%) 7.2 24.4 8.4 (London) and improved occupancy rates in China hotels. We believe its car park
Relative (%) 4.2 10.9 -2.8 business posted positive revenue growth yoy in 1HFY17, driven by increase in bays.
Major shareholders % held High earnings visibility for FY17-19F; over 7 years’ landbank
Mr. Chiu and his family 54.0 FEC has high earnings visibility for FY17-19F, supported by HK$9.8bn in achieved
contracted presales, representing lock-in of over 60% for its property projects in the
pipeline. The group also owns more than 6.4m sq ft of landbank, which should be
sufficient for development over the next seven years.
Reiterate Add with target price of HK$3.92
We reiterate our Add call on FEC as we believe it is a hidden gem due to its solid
earnings outlook (41% EPS CAGR in FY16-19F), compelling valuation (71% discount to
RNAV of HK$10.57) and attractive yield (5.7% in FY17). Our target price is based on
SOP. Potential re-rating catalysts are the upcoming SZ-HK Connect, strong earnings
delivery and higher DPS.

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


Total Net Revenues (HK$m) 5,110 3,995 5,636 6,249 8,155
Operating EBITDA (HK$m) 1,492 1,318 1,909 2,292 2,499
Net Profit (HK$m) 957 734 1,029 1,365 1,853
Analyst Normalised EPS (HK$) 0.33 0.29 0.48 0.64 0.87
Normalised EPS Growth 70.8% (11.0%) 65.3% 32.6% 35.7%
FD Normalised P/E (x) 9.50 10.66 6.45 4.86 3.58
DPS (HK$) 0.16 0.16 0.18 0.22 0.30
Dividend Yield 5.14% 5.14% 5.74% 7.21% 9.78%
EV/EBITDA (x) 8.49 10.57 7.37 6.47 6.60
P/FCFE (x) 5.90 12.24 7.86 NA NA
Net Gearing 59.0% 76.8% 63.6% 80.1% 70.6%
P/BV (x) 0.65 0.65 0.56 0.64 0.47
Ray KWOK ROE 6.9% 6.1% 9.3% 12.3% 15.1%
T (852) 2532 1113 % Change In Normalised EPS Estimates
E ray.kwok@cimb.com Normalised EPS/consensus EPS (x) 0.98 1.10
SOURCE: COMPANY DATA, CIMB FORECASTS

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2
Commodities│ASEAN│Equity research

Sector Flash Note


▎ASEAN
September 26, 2016 - 4:35 AM
Agribusiness
Positive on palm oil duty cut in India
Neutral (no change)
■ India cut import duties by 5% pts to 7.5% for CPO and 15% for refined palm oil.
Highlighted companies ■ A positive surprise and the duty cut could make palm oil more competitive in India.
Astra Agro Lestari ■ Maintain Neutral rating with AALI, First Resources and GENP as our top picks.
ADD, TP Rp16,500, Rp15,450 close
Astra Agro is our top pick among the India cuts import duties on wheat, palm oil and potato
Indonesian planters due to its strong corporate ● On Friday, the Indian Central Board of Excise and Customs (CBEC) in a notification
governance and attractive valuation. stated that the import duty on wheat was to be reduced from 25% to 10% till February
First Resources Ltd 2017. It also said that the import duty on potatoes was to be reduced to 10% from 30%
ADD, TP S$1.95, S$1.86 close till October 2016. The duty on crude palm oil (CPO) was to be reduced to 7.5% from
Our preferred pick in Singapore for its superior 12.5% and on refined palm oil to 15% from 20%.
output growth prospects compared to peers
and low-cost production.
Lower import duties to help keep prices in check
● The government cut the import duties to boost domestic supplies via higher imports
Genting Plantations and keep prices of agricultural commodities in the country in check during the
ADD, TP RM11.80, RM10.96 close upcoming festive season in Oct.
Our preferred pick in Malaysia. It has young
● According to trade sources, if the Centre had not lowered the import duty, there could
estates, a solid balance sheet and strong
management. be an acute shortage of wheat flour during the coming festival season as flour mills
were left with little stock.
● The government reduced the import duty on potatoes to improve domestic availability.
Summary valuation metrics In the case of palm oil, officials said the retail price of palm oil showed a rising trend in
P/E (x) Dec-16F Dec-17F Dec-18F the past few months because of a surge in global markets. The landed price of
Astra Agro Lestari 20.75 15.28 13.50 crude palm oil in Mumbai between 2 Aug and 2 Sep had risen 45-52% while that of
First Resources Ltd 28.77 12.77 9.87 refined palm oil had gone up by 37-40%.
Genting Plantations 38.96 23.04 20.25
Surprised by decision to cut palm oil import duties
P/BV (x) Dec-16F Dec-17F Dec-18F ● We are positively surprised by the decision to cut both the import duty of crude and
Astra Agro Lestari 1.68 1.68 1.56 refined palm oil by 5% pts. This is because the Indian edible oil industry body Solvent
First Resources Ltd 2.07 1.86 1.64 Extractors Association (SEA) has been urging the government to cut the import duty of
Genting Plantations 1.94 1.82 1.71 CPO from 12.5% to 5% but to keep the import duty on refined palm oil at 20%, to
widen the duty differential to 15%.
Dividend Yield Dec-16F Dec-17F Dec-18F ● This is because, at the current duty differential of 7.5% between the two palm
Astra Agro Lestari 0.76% 1.50% 2.21% products, it is not competitive to refine palm oil in India and cheaper to import refined
First Resources Ltd 1.04% 2.35% 3.04% palm products. As a result, India has imported more refined palm oil and around half of
Genting Plantations 0.63% 1.06% 1.21% India’s refining capacity of around 25m tonnes have been idle for a few years.
Positive for palm oil prices
● We view this news as a slight positive for CPO prices as it will make palm oil more
competitive in India against other edible oils. This is because the government has only
reduced the import duties on palm oil but kept the import duties for other edible oils at
12.5% for crude and 20% for refined edible oils.
● This will improve palm oil competitiveness against other edible oils by 5% or
US$37.4/tonne (latest RBD palm oil price of US$748/tonne) in India. India is the
largest importer of Malaysian palm oil, with a 19% share of the total palm oil exported
from Malaysia in 8M16.
Maintain Neutral rating and top picks
● We are positive on this news as it could boost Indian demand for palm oil due to the
more attractive import duties and be supportive of CPO prices. We are sticking to our
average CPO price assumptions of RM2,450/RM2,600 per tonne for 2016/2017 and
maintain our Neutral rating as well as our top sector picks.

Figure 1: Revision of India import duties on palm oil


Date CPO RBD palm oil/olein Duty gap
23-Mar-07 46.4% 54.1% 7.7%
20-Mar-08 20.6% 28.3% 7.7%
Analyst(s) 1-Apr-08 0.0% 7.7% 7.7%
23-Jan-13 2.6% 7.7% 5.1%
Ivy NG Lee Fang, CFA 10-Jan-14 2.6% 10.3% 7.7%
T (60) 3 2261 9073 25-Dec-14 7.5% 15.0% 7.5%
E ivy.ng@cimb.com 18-Sep-15 12.5% 20.0% 7.5%
23-Sep-16 7.5% 15.0% 7.5%

SOURCES: "CIMB, The Solvent Extractors' Association of India, Central Board Of Customs and Excise"

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Powered by
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3
Construction│Indonesia│Equity research

Company Flash Note


▎Indonesia
September 26, 2016 - 11:14 AM
Wijaya Karya
ADD (no change) The rights ride
Consensus ratings*: Buy 18 Hold 5 Sell 0
■ Rp6.149tr rights priced at Rp1,525-Rp2,505/share with planned cum date on 17 Oct
Current price: Rp2,600 2016. We reckon the rights price could be Rp2,300-2,450/shr.
Target price: Rp4,250 ■ Its share price has plunged c.22% from peak, which is not unusual going by the
Previous target: Rp4,250 volatility experienced by peers ADHI and WSKT when they launched rights.
Up/downside: 63.5% ■ Downside should be limited; we expect rights to be accretive to earnings.
CIMB / Consensus: 40.3%

Reuters: WIKA.JK Rights issue factsheet


Bloomberg: WIKA IJ ● WIKA said that its rights price range was Rp1,525-Rp2,505, based on 30/60/90 days
Market cap: US$1,222m volume weighted average prices (VWAP), to be priced on 11 Oct 16. Every 80,000
Rp15,987,985m
old shares shall receive 31,936-52,456 rights, meaning 2.45-4.03bn new shares will
be issued. The total proceeds will be Rp6.149tr, of which Rp4tr shall be subscribed
Average daily turnover: US$3.78m
by the government to maintain its stake. The cum date is expected to be on 17 Oct
Rp49,688m 16. We expect it to be well subscribed.
Current shares o/s 6,140m
Free float: 28.2% Share price very volatile but limited downside from here
* Source: Bloomberg ● Its share price lost 20% over the past two weeks, about 22% down from the peak.
This adverse and earlier-than-expected reaction could be fuelled by then-market
Key financial forecasts sentiment on a weak tax amnesty programme. For WSKT and ADHI, share prices
also fell 10-20% but 1-2 weeks before the exercise. As: 1) tax amnesty sentiment
Dec-16F Dec-17F Dec-18F
seems to be improving, and 2) the rights is earnings-accretive, we reckon downside is
Net Profit (Rpb) 660 923 1,110
limited from here on assuming WIKA pockets more contracts post the exercise.
Core EPS (Rp) 107.5 150.3 180.7
Core EPS Growth 4.7% 39.8% 20.3% Project final pricing to be closer to the high end of range
FD Core P/E (x) 24.19 17.30 14.39 ● We estimate the VWAP calculation could fall by another 5% from the current
Recurring ROE 14.2% 17.4% 18.0% Rp2,900-Rp3,000 given our view that: 1) downside to the share price is not much,
P/BV (x) 3.25 2.80 2.41 and 2) there is only a week left until the last date for VWAP calculation. If so, the
DPS (Rp) 20.58 21.74 30.39 rights price should be Rp2,300-Rp2,450/share (assuming 10-15% discount from
Dividend Yield 0.79% 0.84% 1.17% VWAP). This suggests ownership dilution if the rights is not exercised of 29-30%.
An EPS-accretive exercise
Price Close Relative to JCI (RHS)
● Based on our estimate, WIKA could garner additional construction contracts, post
rights, of Rp28.7tr. The potential upside to our current FY17 earnings forecast is
3,100 98.7
c.37%. In all, we project earnings upside to amount to c.91% in FY16-19F against
2,600 80.9 share dilution of some 52-53%. We have not accounted for the rights in our forecast,
2,100 63.0
although we have conducted a sensitivity analysis in our previous report : Back on
100
track.
50
Unchanged forecast sand valuations
Vol m

Sep-15 Dec-15 Mar-16 Jun-16


● Ceteris paribus, we do not believe our post-rights forecasts will change by much. We
Source: Bloomberg
may lower our target price as the EPS dilution in FY17F is c.3% or to 29.2x FY17F
P/E, slightly higher than our assigned target P/E of 28.5x (+1 s.d. from 3-year P/E
Price performance 1M 3M 12M average, in line with other SOE contractors). Bottom line, the share price volatility of
Absolute (%) -20.5 -9.1 -1 late does not seem to be fundamentally-driven.
Relative (%) -20 -19.7 -28 Figure 1: Pre- vs. post-rights issue share price performance comparisons
Major shareholders % held
Government of Indonesia 68.4 25%
20%
15%
10%
5%
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-30%
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ADHI WSKT
Analyst(s)
SOURCES: CIMB, COMPANY REPORTS
Aurelia BARUS
T (62) 21 3006 1721
E aurelia.barus@cimb.com

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4
Retail│Malaysia│Equity research│September 26, 2016

Company Note
▎Malaysia
Bison Consolidated Bhd
ADD (no change) Charging ahead
Consensus ratings*: Buy 4 Hold 0 Sell 0
■ Bison’s 9MFY10/16 core net profit came in above our and market expectations,
Current price: RM1.88 representing 84% of both full-year forecasts.
Target price: RM2.07 ■ Store expansion (+48 net stores since Oct 2015) well on track to meet its target of
Previous target: RM1.80 opening 70 new stores a year.
Up/downside: 10.0%
■ Our FY16-18F EPS estimates rise by 8-9% to incorporate lower-than-expected
CIMB / Consensus: na
operating expenses.
Reuters: BISON.KL ■ Maintain Add, with higher 12-month target price of RM2.07.
Bloomberg: BISON MK
■ Key downside risks to our call include a significant slowdown in consumption
Market cap: US$141.7m
spending and any significant spike in operating costs.
RM582.9m
Average daily turnover: US$0.04m 9MFY10/16 above our expectations
RM0.16m Bison’s 9MFY10/16 core net profit of RM15m came in above our and market
Current shares o/s: 310.1m expectations, making up 84% the full-year estimate of both. The deviation against our
Free float: 26.0% estimates was largely due to lower-than-expected operating costs. As expected, no
* Source: Bloomberg dividend was declared during the quarter.
Key changes in this note An expectedly softer quarter
FY16F EPS increased by 8.3%. Despite the seasonally weaker quarter due to the fasting month of Ramadan, which falls
FY17F EPS increased by 8.4%. in June this year, Bison’s revenue rose 1.3% qoq in 3QFY10/16 to RM65.1m. This was
FY18F EPS increased by 8.8%. mostly attributable to the higher number of stores added (+48 net new stores since Oct
2015) as well as higher contribution from its advertising and promotion (A&P) division
Price Close Relative to FBMKLCI (RHS) which offset the weaker sales during the quarter. Nonetheless, core earnings were
2.00 179 clipped by 21.3% qoq on the back of higher operating costs due to the store expansion.
1.80 161
1.60 143 Food processing facility and distribution centre on track
1.40 125
The group had at end-Jul 2016 acquired 1.4 acres of freehold land in Rawang, Selangor
1.20 107
1.00 89
to build a new food processing facility. We understand that construction of the 50k sq
80
60 foot facility is still awaiting the approval of relevant authorities, which will most likely be
40 granted by end-Sep 2016. Meanwhile, management has already identified several
Vol m

20
locations for Bison's new distribution centre and will be finalising the location in the next
Mar-16 May-16 Jul-16 Aug-16
2-3 months.
Source: Bloomberg
Lifting FY16-18F EPS forecasts by 8-9%
Price performance 1M 3M 12M We raise our FY16-18F EPS numbers by 8-9% to reflect lower-than-expected operating
Absolute (%) 16 36.2 costs. The group is on track to achieve its target of opening 70 stores a year. While
Relative (%) 16.7 33.9 Bison's new stores are largely concentrated in shopping malls, we understand that a
total of c.16 stores have also been opened in mixed development projects. Meanwhile,
Major shareholders % held management guided that although the status of its franchise business model remains
D&D Consolidated 68.8
unchanged, it has received numerous enquiries from interested parties since Jul 2016.
Dang Tai Kien 3.7
Dang Tai Gean 1.5 Maintain Add
Following our earnings revision and valuation roll-over to CY18, our target price rises to
RM2.07 (from RM1.80), still based on both P/E (20x target P/E – in line with regional
peer average) and mean PEG of 1.0x valuation methodologies. Overall, we continue to
like the company for its sturdy 3-year net profit CAGR of 30.2%, underpinned by its
healthy store expansion plans as well as potentially higher margins from increased
revenue contribution from its F&B products.

[X]

Financial Summary Oct-14A Oct-15A Oct-16F Oct-17F Oct-18F


Revenue (RMm) 182.4 217.5 271.9 342.5 415.7
Operating EBITDA (RMm) 18.72 20.66 28.21 35.53 44.04
Net Profit (RMm) 12.43 13.52 18.42 24.50 29.84
Analyst(s) Core EPS (RM) 0.040 0.044 0.062 0.079 0.096
Core EPS Growth (3.0%) 9.3% 42.7% 27.0% 21.8%
FD Core P/E (x) 47.13 43.12 30.22 23.79 19.53
DPS (RM) 0.035 0.002 0.013 0.013 0.013
Dividend Yield 1.87% 0.09% 0.66% 0.66% 0.66%
EV/EBITDA (x) 31.26 28.30 17.62 14.35 11.32
P/FCFE (x) 94.3 432.9 97.5 NA 27.6
Net Gearing 6.1% 6.2% (52.6%) (39.7%) (40.2%)
P/BV (x) 13.72 10.50 3.65 3.23 2.82
Kristine WONG ROE 33.2% 27.6% 17.9% 14.4% 15.4%
T (60) 3 2261 9085 % Change In Core EPS Estimates 8.28% 8.41% 8.84%
CIMB/consensus EPS (x) 1.04 1.08 1.05
E kristine.wong@cimb.com
SOURCE: COMPANY DATA, CIMB FORECASTS

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CIMB Securities Limited has had an investment banking relationship with Bison Consolidated Bhd within the preceding 12 months.

5
Construction and Materials│Malaysia│Equity research

Sector Flash Note


▎Malaysia
September 26, 2016 - 3:01 PM
Construction
New rail line for all ports in Sabah
Overweight (no change)
■ A press article reported that there were new plans for a freight railway system linking
Highlighted companies all ports in Sabah (East Malaysia).
Gamuda ■ This is a positive surprise and could be featured in Budget 2017, in our view.
ADD, TP RM5.92, RM4.90 close ■ There could be new opportunities for big rail contractors like Gamuda and IJM Corp.
New rail jobs in Sabah could provide new
tender opportunities for Gamuda. The group Sabah rail project at advanced stage of proposal
was the main contractor (via MMC-Gamuda ● Malaysian Reserve reported that the federal government is in talks with the Sabah
JV) for the RM12.5bn northern double-tracking state government to construct a railway track that will link all the ports in the state.
project from Ipoh to Padang Besar.
This is to improve the land transportation system and enhance the movement of
IJM Corp Bhd goods (freight). According to a source, talks on the proposed rail line are already at
ADD, TP RM3.95, RM3.41 close the “advanced stage”. However, timing and project cost have not been concluded.
IJM Corp could also prequalify for the Sabah
rail line if tenders are opened for players in Eight major ports in Sabah with no integrated rail link
Klang Valley. The group has to date won two ● There are eight major ports in Sabah, namely 1) Sapangar Bay Container Port, 2)
main viaduct packages from MRT 1 and MRT Sapangar Bay Oil Terminal, 3) Kota Kinabalu Port, 4) Kudat Port, 5) Sandakan Port,
2. 6) Tawau Port, 7) Lahad Datu Port and 8) Kunak Port. There is currently no
Sunway Bhd integrated freight rail link that serves all the ports. The ports are one of the major
ADD, TP RM3.53, RM3.19 close sources of economic activity for many cities in the state. A dedicated new rail line will
Sunway (via Sunway Construction) could be enhance freight logistics and boost trans-shipment activities.
among the other mid-sized contractors that Initial allocation of RM200m could have upside
could pursue new rail tenders in Sabah, in our
view. Rail track record-wise, the group had
● The federal government had initially allocated RM200m to support the Sabah state
also secured two packages from MRT 1 and government’s railway line development. Our checks fail to ascertain how much of this
MRT 2 amount has been disbursed but what is clear at this juncture is that the initial budget
does not include the new railway tracks for the ports. The overall rail plan to connect
all the ports also includes the extension of the existing railway line from Kota Kinabalu
Summary valuation metrics to Sandakan and Tawau.
P/E (x) Dec-16F Dec-17F Dec-18F
Gamuda 17.89 15.43 13.96
A possible item in Budget 2017?
● Under the previous Budget 2016, federal spending for rail was mainly focused on
IJM Corp Bhd 18.31 18.09 17.17
urban rail expansion, namely the MRT 2 and LRT 3. This new development could hint
Sunway Bhd 11.21 9.63 9.08
at a shift in federal spending towards more freight rail-related infrastructure in Sabah
under Budget 2017. Using the Mentakab-Kuantan rail project as a gauge, it would
P/BV (x) Dec-16F Dec-17F Dec-18F cost RM40m-60m/km to construct a similar rail line for all Sabah ports. A hypothetical
Gamuda 1.84 1.81 1.77 100km new line could cost RM4bn-6bn (double-tracked).
IJM Corp Bhd 1.58 1.64 1.60
Sunway Bhd 0.88 0.84 0.79 Opportunities for Klang Valley contractors
● While initial tenders may focus on local Sabah players, a number of major rail
Dividend Yield Dec-16F Dec-17F Dec-18F contractors in Klang Valley, such as Gamuda and IJM Corp, could view this as a
Gamuda 2.36% 2.36% 2.36% tender opportunity given the companies’ past track records. Gamuda (via a JV with
IJM Corp Bhd 3.05% 3.19% 3.34%
MMC Corp) was the main contractor for the RM12.5bn Ipoh-Padang Besar rail
double-tracking. IJM Corp has won two main viaduct packages for MRT 1 and 2.
Sunway Bhd 3.76% 4.08% 4.08%
Other contractors under our coverage that could be keen are Sunway and WCT.
Maintain Overweight
● Retain Overweight on the sector. The rail line proposal in Sabah could emerge as
one of the few new projects that could be a highlight of the upcoming Budget 2017 in
October. This is on top of the Pan-Borneo Sabah highway, which could begin the
tender process in early-2017. Gamuda remains our top big-cap pick while Muhibbah
Engineering continues to be our preferred mid-cap.
Figure 1: Compiled value of jobs under Budgets 2010-2016

90,000 84,690

80,000 76,193

70,000

60,000

50,000

40,000

30,000
23,279
Analyst(s) 20,000 16,720
13,852
10,682 8,800
10,000
Sharizan ROSELY
0
T (60) 3 2261 9077 Budget 2010 Budget 2011 Budget 2012 Budget 2013 Budget 2014 Budget 2015 Budget 2016

E sharizan.rosely@cimb.com
Total allocation for infrastructure/construction (RM m)

SOURCES: BUDGET SPEECH

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6
Lifestyles│Singapore│Equity research│September 25, 2016

Company Note
▎Singapore
Best World International Ltd
ADD (no change) More upbeat post-NDR
Consensus ratings*: Buy 2 Hold 0 Sell 0
■ We hosted an NDR for Best World (BWL) and visited its lifestyle centres in Taiwan.
Current price: S$1.49
■ Management elaborated on the drivers for its stellar growth in Taiwan and
Target price: S$2.05 addressed concerns about channel stocking.
Previous target: S$1.58
Up/downside: 37.7%
■ Management also assured investors that plans to convert its export business model
in China to direct selling are on track.
CIMB / Consensus: 111.5%
■ We lift our TP to S$2.05, now pegged at 16.1x CY17 P/E. Maintain Add.
Reuters: BEST.SI
Bloomberg: BEST SP More positive post-NDR
Market cap: US$303.2m We hosted an NDR for BWL in Taiwan and also took the opportunity to visit its lifestyle
S$411.9m centres in Taipei and Taichung. Key discussion topics included 1) drivers behind the
Average daily turnover: US$2.12m group’s recent growth, 2) the group’s new manufacturing facility, and 3) China. Overall,
S$2.86m we came away feeling more positive on the company’s prospects.
Current shares o/s: 275.2m Sustainable sales in Taiwan
Free float: 45.1% The group’s stellar growth has mostly been driven by Taiwan, where sales grew 276%
* Source: Bloomberg
yoy in 1H16. Management highlighted that the key drivers were 1) increased product
Key changes in this note acceptance, 2) a new lifestyle centre in Kaohsiung and 3) its new online store. During
No change.
our site visit, we also saw strong evidence of product acceptance and a constant stream
of distributors buying products. Based on 1H16’s results, BWL is poised to be among the
Price Close Relative to FSSTI (RHS)
top ten direct selling companies in Taiwan.

1.51 1,000
Addressing concerns about channel stocking
One concern raised by investors was whether distributors were channel stocking.
1.01 667
However, there is no incentive for distributors to do so as they pay cash for the products.
0.51 333
Further, there is no price discrimination across members, regardless of rank, which
0.01 0
15 avoids the possibility of select distributors stocking up in the interest of arbitrage.
10
Manufacturing facility in Singapore to be up by 2H17
Vol m

5
Management also said that sales have now reached a scale large enough to justify
Sep-15 Dec-15 Mar-16 Jun-16
maintaining its own facility. Further, it would allow it to better manage the back-end
Source: Bloomberg supply and quality. It is also important that the facility is located in Singapore and not a
cheaper low-cost country as its internal studies show that consumers rank Singapore
Price performance 1M 3M 12M
Absolute (%) 6.4 58.5 808.5 highly on quality perception. On funding, we are not concerned as total capex will be
Relative (%) 6.2 56.2 808.1 c.S$15m and the company has net cash of S$46m.
China direct selling plans on schedule
Major shareholders % held
D2 Investment Pte Ltd 34.9
Management also said that the company is on track to complete setting up the requisite
Hoan Beng Mui (Dora) 5.6
nine service centres in Hangzhou city by end-16. Following which, the company will
Tan Nee Moi (Doreen) 5.6 convert its export model to a direct selling model. Taiwan currently makes up 68% of the
group’s revenue but we expect China to eventually overtake Taiwan.
Reiterate Add with a higher TP of S$2.05
We came away feeling more positive on the sustainability of sales in Taiwan and believe
earnings delivery in China will further re-rate the stock. We therefore raise our TP to
S$2.05, now based on 16.1x CY17 P/E, 2 s.d. above mean (12.4x previously, 1 s.d.
above mean). We note that the stock traded at 15-18x in its last earnings upcycle.
Reiterate Add. Key risks include regulatory changes and a drop in sales in key markets.

[X]

Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18F


Revenue (S$m) 75.3 101.7 167.4 206.7 257.2
Operating EBITDA (S$m) 8.15 19.52 40.02 51.37 67.42
Analyst(s) Net Profit (S$m) 4.05 10.10 27.60 35.07 46.32
Core EPS (S$) 0.02 0.05 0.10 0.13 0.17
Core EPS Growth 1201% 117% 111% 27% 32%
FD Core P/E (x) 67.98 31.32 14.86 11.69 8.85
DPS (S$) 0.006 0.016 0.032 0.040 0.048
Dividend Yield 0.43% 1.07% 2.15% 2.68% 3.22%
EV/EBITDA (x) 36.70 18.92 8.77 6.24 4.15
P/FCFE (x) 64.12 48.39 22.97 10.48 7.88
Net Gearing (63.4%) (76.2%) (70.1%) (81.1%) (89.7%)
Jonathan SEOW P/BV (x) 7.28 6.44 4.91 3.73 2.82
T (65) 6210 8671 ROE 11.3% 21.8% 37.5% 36.3% 36.3%
E jonathanwp.seow@cimb.com % Change In Core EPS Estimates 0% 0% 0%
CIMB/consensus EPS (x) 1.00 0.98 0.99
SOURCE: COMPANY DATA, CIMB FORECASTS

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7
Auto Parts│Taiwan│Equity research│September 26, 2016

Company Note
▎Taiwan
Macauto Industrial
ADD (no change) Steady as she goes
Consensus ratings*: Buy 6 Hold 6 Sell 0
■ We expect Macauto’s revenue growth to outpace the industry’s in 2H16-1H17F,
Current price: NT$208.5 despite upcoming policy change in China.
Target price: NT$246.0 ■ We cut FY16F EPS by 2% due to less favourable FX and raise FY17-18F EPS by 2-
Previous target: NT$224.0 4% to reflect a firmer business outlook.
Up/downside: 18.0%
■ R&D capability and product upgrades to support the gross margin.
CIMB / Consensus: na
■ Favourable industry landscape is sustainable and hence, we think Macauto’s gross
Reuters: 9951.TWO margin is as well.
Bloomberg: 9951 TT
■ Maintain Add and raise target price to NT$246, based on 19.5x FY17F P/E (vs.
Market cap: US$497.9m
18.5x previously) given a more solid business outlook for next 12 months.
NT$15,617m
Average daily turnover: US$2.02m
NT$63.52m Re-rating with a solid 2H16-1H17 outlook
Current shares o/s: 74.90m Macauto’s ongoing re-rating is within our expectations, given its superior financial status
and solid long-term earnings outlook. We expect Macauto’s sales growth in 2H16-1H17
Free float: 54.5%
* Source: Bloomberg to outpace the industry’s, despite the termination of (or cut in) purchase tax subsidy in
China, given: 1) the subsidy favours China domestic brands over foreign brands
Key changes in this note (Macauto’s major clients), and the trend is now set to reverse, and 2) revenue
FY17-18F revenue increased by 3%. contribution from new projects with Volkswagen, General Motors and Honda.
FY16F EPS decreased by 2%. R&D strength and product upgrades to enhance gross margin
FY17-18F EPS increased by 2-4%.
We discussed Macauto’s R&D efforts (5-6% of its annual sales since 2003) and product
mix upgrade in our initiation (Gleaming behind the shades, August 2016) and follow-up
Price Close Relative to TAIEX (RHS)
230 141.0
report (As good as it gets, August 2016). We believe these are the keys to sustaining its
210 131.0 high gross margin of c.40% despite being in original equipment (OE) rather than after-
190 121.0 market (AM) supply chain. We also think that Macauto’s R&D efforts make it well
170 111.0
positioned amid increasing frequency of facelifts and new car model launches.
150 101.0
130
3
91.0 Positive implications of competitive landscape on gross margin
2 We think that the automotive sunshades oligopoly is sustainable, given 1) the fairly small
Vol m

1 size of the addressable market, and 2) the segmented nature of the supply chain for
Sep-15 Dec-15 Mar-16 Jun-16
auto parts. Based on BOS’s estimated FY14 revenue of US$600m and 70% market
Source: Bloomberg
share, the implied market size is less than US$1bn, which we believe is not appealing
enough for many companies to put resources into and engage in price competition.
Price performance 1M 3M 12M Segmentation also helps to protect Macauto’s gross margin, given low replacement risk.
Absolute (%) 10 31.5 40.9
Relative (%) 9.3 23 27.8
Above-seasonal sales in 3Q16 but unfavourable FX
We advise investors to focus on Macauto’s core business operations, although
Major shareholders % held unfavourable FX rate may dent Macauto’s gross margin and non-operating income in
Kenmos Technology Co., Ltd. 19.3 3Q16F, in our view. We forecast 3Q16F revenue to be above-seasonal average at
Paul Lin 8.3 NT$1.1bn (2% qoq, 17% yoy) and 3Q16F EPS of NT$2.4 (2% qoq, -9% yoy). In 4Q16F,
Lin Chou, Yu-Shan 4.6 we expect a qoq uptick in revenue, thanks to seasonality and boost from pull-in demand
due to potential cessation of the purchase tax subsidy in China.
Stick to long-term beneficiary of changes in consumers’ tastes
We keep our Add call and raise our target price to NT$246, now based on 19.5x FY17F
EPS. We believe consumers’ increasing preference for premiumisation and product
upgrades in China bodes well for the adoption of panoramic sunroofs and consequently,
Macauto. Thanks to its business model and client relationships, we believe its order
visibility and earnings growth are intact, although its products are optional extras. FX
and oil price volatility are downside risks to our call.

Analyst(s) Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18F


Revenue (NT$m) 3,110 3,727 4,430 5,079 5,755
Operating EBITDA (NT$m) 724 889 1,084 1,258 1,400
Net Profit (NT$m) 585 657 758 945 1,050
Normalised EPS (NT$) 7.81 8.77 10.13 12.61 14.02
Normalised EPS Growth 11.0% 12.4% 15.4% 24.6% 11.2%
FD Normalised P/E (x) 26.71 23.76 20.59 16.53 14.87
DPS (NT$) 5.40 5.50 6.58 8.20 9.11
Dividend Yield 2.59% 2.64% 3.16% 3.93% 4.37%
Mike YANG EV/EBITDA (x) 21.69 17.63 14.36 12.31 10.97
P/FCFE (x) 43.03 34.22 29.62 22.28 25.08
T (886) 2 8729 8383 Net Gearing 5.32% 3.30% (2.15%) (4.37%) (7.77%)
E mike.yang@cimb.com P/BV (x) 8.58 7.59 6.50 5.47 4.75
Eric LIN ROE 34.3% 33.9% 34.0% 35.9% 34.2%
% Change In Normalised EPS Estimates (2.16%) 4.33% 1.75%
T (886) 2 8729 8380 Normalised EPS/consensus EPS (x) 0.98 1.04 1.03
E eric.lin@cimb.com
SOURCE: COMPANY DATA, CIMB FORECASTS

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REGIONAL HEAD

Michael William GREENALL


Regional Head of Research
+60 (3) 2261 9088
michael.greenall@cimb.com

COUNTRY HEADS OF RESEARCH


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Asia Pacific Daily│Equity research│September 27, 2016

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AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCP, BDMS, BEAUTY, BEC, BEM, BH, BJCHI, BLA, BLAND, BTS, CBG, CENTEL,
CHG, CK, CKP, CPALL, CPF, CPN, DELTA, DTAC, EARTH, EGCO, EPG, GL, GLOW, GPSC, GUNKUL, HANA, HMPRO, ICHI, INTUCH, IRPC,
ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, M, MAJOR, MINT, PLANB, PLAT, PS, PTG, PTT, PTTEP, PTTGC, QH,
ROBINS, RS, S, SAMART, SAMTEL, SAWAD, SCB, SCC, SCCC, SCN, SGP, SIRI, SPALI, SPCG, STEC, STPI, SVI, TASCO, TCAP, THAI,
THCOM, TICON, TISCO, TMB, TOP, TPIPL, TRUE, TTA, TTCL, TTW, TU, UNIQ, UV, VGI, VNG, WHA, WORK.
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
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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

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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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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in
2015, Anti-Corruption Progress Indicator 2015.
AAV – Very Good, 3B, ADVANC – Excellent, 3A, AEONTS – Good, 1, AMATA – Very Good, 2, ANAN – Very Good, 3A, AOT – Very Good, 2, AP -
Good, 3A, ASK – Very Good, 3B, ASP – Very Good, 4, BANPU – Very Good, 4, BAY – Very Good, 4, BBL – Very Good, 4, BCH – not available,
no progress, BCP - Excellent, 5, BEM – not available, no progress, BDMS – Very Good, 3B, BEAUTY – Good, 2, BEC - Good, 3B, BH - Good, 2,
BIGC - Excellent, 3A, BJC – Good, 1, BLA – Very Good, 4, 1, BTS - Excellent, 3A, CBG – Good, 1, CCET – not available, 1, CENTEL – Very
Good, 3A, CHG – Good, 3B, CK – Excellent, 3B, COL – Very Good, 3A, CPALL – Good, 3A, CPF – Very Good, 3A, CPN - Excellent, 5, DELTA -
Very Good, 3A, DEMCO – Very Good, 3A, DTAC – Excellent, 3A, EA – not available, 3A, ECL – Good, 4, EGCO - Excellent, 4, EPG – not
available, 3B, GFPT - Very Good, 3A, GLOBAL – Very Good, 2, GLOW - Good, 3A, GPSC – not available, 3B, GRAMMY - Excellent, 3B,
GUNKUL – Very Good, 1, HANA - Excellent, 4, HMPRO - Excellent, 3A, ICHI – Very Good, 3A, INTUCH - Excellent, 4, ITD – Good, 1, IVL -
Excellent, 4, JAS – not available, 3A, JASIF – not available, no progress, JUBILE – Good, 3A, KAMART – not available, no progress, KBANK -
Excellent, 4, KCE - Excellent, 4, KGI – Good, 4, KKP – Excellent, 4, KSL – Very Good, 2, KTB - Excellent, 4, KTC – Very Good, 3A, LH - Very
Good, 3B, LPN – Excellent, 3A, M - Good, 2, MAJOR - Good, 1, MAKRO – Good, 3A, MALEE – not available, 2, MBKET – Good, 2, MC – Very
Good, 3A, MCOT – Excellent, 3A, MEGA – Very Good, 2, MINT - Excellent, 3A, MTLS – Good, 2, NYT – Good, no progress, OISHI – Very Good,
3B, PLANB – Good, 3B, PS – Excellent, 3A, PSL - Excellent, 4, PTT - Excellent, 5, PTTEP - Excellent, 4, PTTGC - Excellent, 5, QH – Very Good,
2, RATCH – Excellent, 3A, ROBINS – Excellent, 3A, RS – Very Good, 1, SAMART - Excellent, 3B, SAPPE - Good, 3B, SAT – Excellent, 5,
SAWAD – Good, 1, SC – Excellent, 3B, SCB - Excellent, 4, SCBLIF – not available, no progress, SCC – Excellent, 5, SCN – Good, 1, SCCC -
Good, 3A, SIM - Excellent, 3B, SIRI - Good, 1, SPALI - Excellent, 3A, SPRC – not available, no progress, STA – Very Good, 1, STEC – Very
Good, 3B, SVI – Very Good, 3A, TASCO – Very Good, 3A, TCAP – Very Good, 4, THAI – Very Good, 3A, THANI – Very Good, 5, THCOM –
Excellent, 4, THRE – Very Good, 3A, THREL – Very Good, 3A, TICON – Very Good, 3A, TISCO - Excellent, 4, TK – Very Good, 3B, TKN – not
available, no progress, TMB - Excellent, 4, TPCH – Good, 3B, TOP - Excellent, 5, TRUE – Very Good, 2, TTW – Very Good, 2, TU – Very Good,
3A, UNIQ – not available, 2, VGI – Excellent, 3A, WHA – Good, 3A, WORK – not available, no progress.
Comprises level 1 to 5 as follows:
Level 1: Committed
Level 2: Declared
Level 3: Established (3A: Established by Declaration of Intent, 3B: Established by Internal Commitment and Policy)
Level 4: Certified
Level 5: Extended.
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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