Bandhan Bank (BANDHAN IN) (Downgrade to Underperform)8
Capital allocation dilemma; Downgrade to UPNishant Shah
We introduce a 20% capital allocation discount to our target multiple and cut TP by ~25% to
Rs400. Downgrade Bandhan to Underperform.
Acquisition of GRUH at expensive 13x fwd PBV raises capital allocation concerns. Risk of another
expensive or ill-conceived merger an overhang.
Expect the stock to underperform despite strong fundamentals, as multiples will be under pressure
till promoter stake sale issue is behind.
AAC (2018 HK) (Upgrade to Neutral)9
Sinopec Engineering Group (2386 HK) (Outperform)10
SMIC (981 HK) (Outperform)11
Taiwan textile & footwear sector12
Xiaomi (1810 HK) (Outperform)13
MegaChips (6875 JP) (Outperform)14
Bank of the Philippine Islands (BPI PM) (Neutral)15
BDO Unibank (BDO PM) (Neutral)16
IHH Healthcare Bhd (IHH MK) (Upgrade to Neutral)17
Metropolitan Bank (MBT PM) (Outperform)18
Security Bank (SECB PM) (Upgrade to Outperform)19Please refer to page 6 for important disclosures and analyst certification, or on our website
macquarie/research/disclosures.
11 January 2019 Hong Kong
EQUITIES
1211 HK Underperform
Price (at 08:50, 10 Jan 2019 GMT) HK$47.95
Valuation HK$25.80
- PER
12-month target HK$25.80
Upside/Downside %-46.2
12-month TSR %-45.8
Volatility Index High
GICS sector Automobiles &
Components
Market cap HK$m112,879
Market cap US$m14,403
30-day avg turnover US$m28.8
Number shares on issue m2,354
Investment fundamentals
Year end 31 Dec2017A 2018E 2019E 2020E
Revenue bn 102.7 135.0 156.1 182.5
EBIT bn 7.9 8.4 9.6 11.0
EBIT growth % -9.3 6.4 13.4 14.6
Reported profit bn 4.1 3.9 4.8 5.7
Adjusted profit bn 3.8 3.7 4.6 5.5
EPS rep Rmb 1.49 1.42 1.78 2.09
EPS rep growth % -24.1 -4.9 25.2 17.9
EPS adj Rmb 1.40 1.34 1.70 2.02
EPS adj growth % -25.3 -4.3 26.6 18.7
PER rep x 28.0 29.5 23.5 20.0
Total DPS Rmb 0.14 0.14 0.18 0.21
Total div yield % 0.3 0.3 0.4 0.5
ROA % 4.9 4.3 4.4 4.7
ROE % 7.2 6.4 7.6 8.4
EV/EBITDA x 10.8 9.3 8.1 7.0
Net debt/equity % 78.3 68.0 59.9 47.8
P/BV x 2.1 2.0 1.8 1.7
1211 HK rel HSI performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2019 (all figures in Rmb unless noted, TP in HKD)
Analysts
Macquarie Capital Limited
Allen Yuan +86 21 2412 9009
allen.yuan@macquarie
Macquarie Capital Securities (Japan) Limited
Janet Lewis, CFA+81 3 3512 7856
janet.lewis@macquarie
BYD (1211 HK)
Exposed to high risk from subsidy cuts; sell
Key points
Heavy reliance on subsidies creates continued challenges for BYD as
subsidies will be gradually cut and fully removed beyond 2020.
Report by EV Hui indicates that 2019 subsidies may decline up to over 50%.
Reiterate BYD as our top short idea.
Conclusion
We expect the central government to release its 2019 subsidy policy for new
energy vehicles (NEVs) in January or early February. Given BYD’s heavy
reliance on subsidies, the upcoming subsidy cut provides a near term catalyst
to trigger a share price correction. We reiterate our Marquee sell idea on BYD
ahead of such a risk, especially considering its demanding valuation.
Impact
BYD relies heavily on subsidies: BYD’s total NEV shipments doubled YoY
to 248k units in 2018. Total subsidies should be Rmb12.8-15.5bn, on our
estimate (Fig 1). This represents over 4x of its guided 2018 net profit of
Rmb2.7-3.1bn. We factor in a 20% subsidy cut in 2019 in our base scenario,
which implies a decline of Rmb2.6-3.1bn in subsidies. We do expect BYD to
be faced with continued challenges from subsidy cuts in 2019/20 – subsidies
will be removed beyond 2020 per existing policies and we don’t see effective
measures for the company to offset such a negative impact.
Latest reported subsidy plan points to a cut much higher than 20%: Per
the report by EV Hui on 10 January (LINK), 1) subsidies will be cut
substantially in 2019 mainly constrained by fiscal budget (Fig 4); 2) Base
subsidies for pure electric passenger vehicles (Fig 2) and E-buses (Fig 3) will
be cut by 42-55% or completely removed; 3) there will be a 3-month transition
period, during which the subsidies will be cut by ~40%; 4) local government
subsidies should be cancelled; 5) There will be no favourable subsidy
multiples that used to enable a vehicle to get up to 0.2x extra subsidies. A 40%
subsidy cut would lead to Rmb2.6-3.1bn earnings downside to our base
scenario for BYD, purely from subsidies’ perspective. Sales growth could be
negatively impacted as well. While official policy is yet to be announced, we
would like to highlight the risk.
Why we are negative on BYD: We expect to see a long-term structural
derating for BYD in light of the change of the competitive landscape of both
NEV and power battery industries. In the near term, subsidy cuts, elevated
financing costs and deteriorated profitability of E-buses also create headwinds.
Earnings and target price revision
No change. We will review our numbers post the announcement of the 2019
subsidy policy.
Price catalyst
12-month price target: HK$25.80 based on a Sum of Parts methodology.
Catalyst: Announcement of 2019 subsidy policy; annual results in March
Action and recommendation
Reiterate our Underperform rating.Please refer to page 6 for important disclosures and analyst certification, or on our website
macquarie/research/disclosures.
11 January 2019 Hong Kong
EQUITIES
914 HK Outperform
Price (at 08:50, 10 Jan 2019 GMT) HK$37.95
Valuation HK$58.00
- EV/EBITDA
12-month target HK$58.00
Upside/Downside %+52.8
12-month TSR %+59.7
Volatility Index Medium
GICS sector Materials
Market cap HK$m183,231
Market cap US$m23,379
Free float %55
30-day avg turnover US$m34.9
Number shares on issue m4,828
Investment fundamentals
Year end 31 Dec2017A 2018E 2019E 2020E
Revenue bn 75.3 124.5 130.8 131.4
EBIT bn 21.4 39.7 40.4 42.5
EBIT growth % 74.7 85.7 1.8 5.2
Reported profit bn 15.9 29.5 30.6 32.7
Adjusted profit bn 15.9 29.5 30.6 32.7
EPS rep Rmb 3.00 5.56 5.77 6.17
EPS rep growth % 85.4 85.3 3.7 7.0
EPS adj Rmb 3.00 5.56 5.77 6.17
EPS adj growth % 85.4 85.3 3.7 7.0
PER rep x 11.0 6.0 5.7 5.4
PER adj x 11.0 6.0 5.7 5.4
Total DPS Rmb 1.20 2.22 2.31 2.47
Total div yield % 3.6 6.7 7.0 7.5
ROA % 18.4 29.4 25.1 23.1
ROE % 19.2 30.1 26.3 24.2
EV/EBITDA x 6.2 3.6 3.5 3.3
Net debt/equity % 3.9 -8.5 -17.7 -27.3
P/BV x 2.0 1.6 1.4 1.2
914 HK rel HSI performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2019 (all figures in Rmb unless noted, TP in HKD)
Analysts
Macquarie Capital Limited
David Ching, CFA+852 3922 1823
david.ching@macquarie
Bryan Wang +852 3922 3589
bryan.wang@macquarie
Anhui Conch Cement (914 HK)
Prelim FY18 beat; optimistic on 2019 prices
Key points
Conch prelim FY18 +80-100% YoY, beating consensus by 7% on average
Recent large cement price cuts expected and less than seasonality
Reiterate OP – attractive valuation at 5.7x 19E PE, 7% div yield, 26% ROE
Event
Conch announced a FY18 positive profit alert post market-close on 10 Jan –
expecting NPAT at +80-100% YoY to Rmb28.6-31.8bn, beating our est./
consensus by 5%/ 7% on average. This implies 4Q18 NPAT +30-82% YoY to
Rmb7.9-11bn (we est. Rmb8.7bn). We see 4Q18E self-produced volume flat
YoY at 85mnt, with historic high ASP of Rmb364/t and GP/t of Rmb185/t
(4Q17 Rmb17/t). We believe the recent share price correction is a good entry
point – cement is our preferred sub-sector in 2019 and Conch is our top pick.
Impact
East China price cut last than seasonality: Clinker prices were cut last
week by Rmb160/t to Rmb360/t (-31% and still up Rmb40/t YoY) – this has
sparked investor concern the price drop is more than seasonality. But this was
mainly to cut off imported clinker from Vietnam (breakeven at Rmb388/t). In
2018, the price drop from 4Q peak to 1Q trough was -Rmb180/t or -36% (from
Rmb500/t to Rmb320/t. So the current price drop is more in one-step and less
than the previous year’s magnitude. The one-step big cut is a signal by major
players to set the price bottom so other players don’t try to undercut it.
Trading platform helps stabilise price: In 3Q18 Conch/CNBM established a
trading platform in East China to centralize the inflow of cheap products from
different regions – Conch earn a very low margin (NP/t <Rmb1/t) for this, but it
can control the cement selling price of these inflow products so as to stabilise
prices and achieving higher pricing power (and being less affected by low
prices in other regions) – we see 70mnt trading volume in FY18E
Remained positive on 2019 outlook:Cement is our most preferred sector
in 2019, and we are less bearish on property demand compared to the street,
as we believe construction progress should speed up in 1H19 as property
developers’ land banking activity slows. We also see limited risks from new
capacity (including capacity swap) – seeing only 0.3% net capacity addition
vs. 1% demand growth. Voluntary production cut/price coordination of key
players should remain strong in key regions like East/South China. We see
limited risks for regulator intervention on cement prices, given the <1% impact
to downstream construction costs we see for each Rmb100/t increase. We
expect prices to edge up by 2% YoY on average in 2019E
Earnings and target price revision
No changes
Price catalyst
12-month price target: HK$58.00 based on an EV/EBITDA methodology.
Catalyst: 1) price hikes in 4Q18; 2) production cuts in East China
Action and recommendation
Reiterate OP rating on Conch, our top pick for the cement sector.
4。