20160128-高盛-Asia_Pacific__Conglomerates_47页_1mb

Asia Pacific Conglomerates Summary

Core Content

This report analyzes the performance and outlook of conglomerates in the Asia Pacific region, particularly focusing on Hong Kong and China. It highlights the impact of macroeconomic challenges, such as the weakening RMB and slowing growth, on their earnings and valuations. The report also discusses the companies' strategies, including M&A activities, and provides updated ratings and target prices based on revised assumptions.

Main Points

Earnings and Valuation Trends

• Subdued Organic Growth: HK/China conglomerates are expected to experience weaker organic earnings growth in 2016, with a forecast of around 3%, down from 4% in 2015.
• M&A as Growth Driver: Companies are actively pursuing M&A to drive growth, with CKH focusing on telco mergers in the UK and Italy, Swire on Coca Cola franchises in the US, and CMH acquiring 21% of Dalian Port.
• RMB Weakness: The RMB has weakened by 6% since August, raising concerns about further devaluation. This has led to a revision of FY15-17E EPS estimates by -11% to +18% and 12m NAV-based TP by -30% to -1%.
• Bear Case Analysis: HK/China conglomerates are trading at a 19% discount to bear-case NAV, indicating that they have not fully priced in macroeconomic downturn risks.
• Resilient Segments: HK office and some port operators are showing resilience, with the latter able to pass on tariff hikes despite lower shipping industry profitability.

Rating and Target Price Changes

Key Takeaways by Individual Conglomerates

• CKH Holdings: Limited exposure to HK/China, up to CL-Buy due to pending telco mergers.
• Wharf Holdings: Faces challenges in HK retail and office due to strong USD and HKD, but remains on Buy due to favorable risk-reward.
• NWS Holdings: Active in M&A, particularly in China, with a Buy rating.
• Wheelock & Co.: Has high exposure to China, with a Neutral rating.
• Swire Pacific: Struggles in marine and China beverage segments, but has resilient HK office and retail.
• MTRC: Experiences slower patronage growth and declining retail sales, leading to a Sell rating.
• China Conglomerates: Shanghai Industrial and Fosun International are on Buy due to strong fundamentals and potential for growth.
• HK/China Ports: COSCO Pacific and China Merchants are on Buy due to favorable valuations and potential re-rating.

Key Information

RMB Sensitivity Analysis

• RMB Depreciation Impact: A 10% RMB depreciation could reduce 2016E NAV by 6-11% for various companies.
• Rate Cuts and Hikes: The impact of a 100bps rate cut and 100bps Feb rate hike is also analyzed, with some companies experiencing positive or negative effects.
• Currency Exposure: HK conglomerates have an average of 24% earnings from China, while China conglomerates have 79% and ports have 67%.

Valuation Metrics

• NAV and P/E/P/B Ratios: Companies are evaluated based on their net asset value (NAV), price-to-earnings (P/E), and price-to-book (P/B) ratios.
• EV/GCI and CROCI: These metrics are used to assess the valuation and growth potential of companies.
• ROE: Return on equity (ROE) is analyzed for future performance expectations.

Corporate Performance

• Earnings Growth: Organic earnings growth is expected to be subdued due to macroeconomic challenges.
• M&A Activity: Companies are actively seeking to grow through acquisitions, especially in the telco, retail, and port sectors.
• Segment Performance: Some segments, like HK office and port operations, show resilience despite macroeconomic headwinds.

Conclusion

The report emphasizes the need for investors to consider macroeconomic risks, particularly the RMB's weakening and potential devaluation, while also highlighting the potential for growth through M&A and resilient segments. It provides a detailed analysis of each company's exposure, performance, and valuation, offering updated ratings and target prices accordingly.