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BNP PARIBAS: Summary of Key Insights and Analysis

Core Content Overview

This document provides a comprehensive market analysis and investment insights from BNP Paribas, focusing on Asian and European markets. It includes company-specific research, macroeconomic outlooks, and insights on monetary policy decisions across key regions.

Main Points and Key Information

Lenovo (992 HK)

• Rating Change: Downgraded from Buy to HOLD
• Target Price: HKD10.70 (up from HKD9.52)
• Key Performance: June quarter results beat expectations, with improved OPM (Operating Profit Margin) due to better operating efficiency in Asia-Pacific and EMEA
• Market Share: Lenovo is the No.1 in Chinese smartphone market by unit share, with 20% of sales overseas
• Challenges: Uncertainties following the Motorola Mobility merger; management expects turnaround in 4-6 quarters post-deal closure
• Valuation: 19x EFY15 EPS, which is unattractive compared to global peers
• Earnings Outlook: FY15E EPS growth of 12.1%, FY16E of 11.8%

India IT Services

• Investor Interest: Increased interest in Indian IT services after domestic performance and improved US macroeconomic data
• Top Picks: Infosys, HCL Tech, and Tech Mahindra remain top picks
• Key Themes:
  • Infosys: Seen as a transformation story under new leadership, with potential for a share buyback
  • Cognizant: Guidance cut due to delays in large integrated deals and leadership changes, but strong employee growth and deal wins
  • Ecommerce Revolution: Rising interest in Indian Internet names and potential beneficiaries from broadband growth and a large ecommerce market

Thailand Market Outlook

• Post-Coup Changes: Military intervention led to government realignment, establishment of "Super board", and crackdown on unorganised transport
• Economic Recovery: Expected to shift to 2015, with GDP forecast at 5.5% for 2015
• Interim Constitution: Enables formation of National Legislative Assembly and Constitution Drafting Committee, with a possible national election in October 2015
• Market Valuation: SET index trading at 12.1x PER with 3.8% yield; projected 13.7x PER and 3.1% yield for 2015
• Investment Outlook: Continued focus on external sustainability over pro-growth policies

South Korea: BoK Policy Decision

• Rate Cut: BoK cut policy rate by 25bp, contrary to initial expectations
• Justification: Weak domestic demand and concerns over the eurozone and geopolitical risks
• Forward Outlook: Expectation of growth pick-up due to improved exports and external conditions; likely to keep rates on hold for some time
• Current Account Deficit: Q2 deficit reached USD9.1bn, highlighting challenges for monetary policy

Indonesia: BI Monetary Policy Meeting

• Rate Decision: BI left benchmark rate unchanged at 7.50%
• Current Account Deficit: Q2 deficit of USD9.1bn (4.3% of GDP), indicating ongoing policy challenges
• Growth Forecast: Revised 2014 growth forecast to 5.1-5.5% from 5.5-5.9%
• FX Reserves: Reserves rebuilt but vulnerable to global risk sentiment; potential for further tightening if external conditions worsen

Other Company Research Highlights

• Huaneng Renewables (958 HK): Results beat expectations, but management is not upbeat; P/E 15.2x, P/B 1.4x
• Netease (NTES US): Positive growth outlook; P/E 13.7x, P/B 2.8x
• China Mobile (941 HK): Upbeat outlook dampened by VAT; P/E 13.7x, P/B 1.7x
• TCL Communication (2618 HK): Smartphone momentum continues; P/E 11.8x, P/B 2.9x
• Vipshop Holdings (VIPS US): Margin decline not a concern; P/E 109.1x, P/B 32.2x
• Sun Art Retail Group (6808 HK): Steady growth in a tough market; P/E 23.8x, P/B 3.6x
• Swire Properties (1972 HK): Good results but slowing HK rental; P/E 24.4x, P/B 0.7x
• Quanta Computer (2382 TT): Positives almost priced in; P/E 15.0x, P/B 2.7x
• Thai Airways (THAI TB): Cutting costs to improve earnings; P/E negative, P/B 0.7x
• Thai Union Frozen (TUF TB): Earnings recovery already priced in; P/E 14.3x, P/B 1.8x

Company Research Summary

Events and Roadshows

BNP Paribas is conducting a series of corporate events and roadshows across Asia, Europe, and the US, including:

• China Mobile Ltd (941 HK) – 15 Aug 14
• Chongqing Rural Commercial Bank (3618 HK) – 18-19 Aug 14
• China Longyuan Power (916 HK) – 21 Aug 14
• Hero MotoCorp (HMCL IN) – 22 Aug 14
• O-Net Communications (877 HK) – 22 Aug 14
• Guodian Technology & Environmental Group (1296 HK) – 27 Aug 14
• AirAsia X (AAX MK) – 25-26 Aug 14
• SMIC (981 HK) – 25-28 Aug 14
• UEM Sunrise Bhd (UEMS MK) – 27 Aug 14
• Samsung Life (032830 KS) – 1-3 Sep 14
• Sona Petroleum Bhd (SONA MK) – 20 Aug 14
• Summit Ascent (102 HK) – 29 Aug - 4 Sep 14
• China Telecom (728 HK) – 29 Aug - 4 Sep 14

Summary of Key Financial Metrics

Conclusion

BNP Paribas provides a detailed analysis of the Asian and European markets, highlighting key trends in IT services, telecommunications, and retail. While some companies show strong performance and growth potential, others face headwinds such as regulatory changes, currency fluctuations, and macroeconomic uncertainties. The firm advises investors to take a cautious approach, particularly in the context of upcoming events and policy decisions. Overall, the report underscores the importance of tracking macroeconomic indicators and company-specific developments to make informed investment decisions.