20180528-兴业金融证券-Against_The_Grain__Our_Contrarian_Calls_16页_955kb

Summary of "Against The Grain" Report (28 May 2018)

Core Content

This report presents contrarian stock calls from RHB Research for the ASEAN plus Hong Kong region, highlighting companies where there is a disconnect between fundamentals and market pricing. The analysis is based on fundamental bottom-up evaluation, scenario analysis, and on-the-ground insights. The report is a quarterly exercise and includes 11 companies across Hong Kong/China, Indonesia, Malaysia, Singapore, and Thailand.

Key Findings

Contrarian Calls

• Buy Recommendations: Cocoaland, Hartalega
• Neutral Recommendations: Gadang
• Sell Recommendations: China Overseas Grand Oceans Group, Indocement Tunggal Prakarsa, IRPC, Raffles Medical

Methodology

• Fundamental Analysis: Used to identify discrepancies between company fundamentals and market valuations.
• Scenario Analysis: Considered various potential outcomes and identified catalysts for stock movements.
• On-the-ground Insights: Combined with discussions with industry experts to validate analysis.

Detailed Company Analysis

Hong Kong/China

• China Overseas Grand Oceans Group (81 HK)
  • Rating: SELL
  • Target Price (TP): HKD2.30
  • Key Points:
    • Earnings may disappoint in FY18F due to lower GPM than consensus.
    • Weaker execution and lower sell-through rates.
    • Potential triggers for a change in consensus: weaker coal prices, new production capacity, and lower contracted sales growth.
    • Risk: faster-than-expected construction leading to better-than-expected revenue and earnings.

Indonesia

• Indocement Tunggal Prakarsa (INTP IJ)
  • Rating: SELL
  • TP: IDR14,700
  • Key Points:
    • Intense competition in the cement industry due to overcapacity.
    • EBIT margins likely to decline due to higher production costs.
    • Potential triggers: continued increase in coal prices, new production capacity.
    • Risk: stronger-than-expected sales volume growth or successful cost pass-through.

Malaysia

• Cocoaland (COLAMK Equity)

  • Rating: BUY
  • TP: MYR3.02
  • Key Points:
    • Strong growth in gummy products and exports.
    • Higher valuation justified by better profitability and brand equity.
    • Risk: weaker earnings from contract manufacturing or gummy segment performance.

• Hartalega (HART MK Equity)

  • Rating: BUY
  • TP: MYR7.20
  • Key Points:
    • Outperformed the market by 100% over the last 12 months.
    • Anticipated inclusion in FBM KLCI and stronger USD.
    • Risk: weaker demand, input cost volatility, or disappointing earnings.

• Gadang (GADG MK Equity)

  • Rating: NEUTRAL
  • TP: MYR0.82
  • Key Points:
    • Market overvalues the company.
    • More cautious on the construction sector due to government review of infrastructure projects.
    • Risk: stronger construction jobs flow or higher take-up rates in developments.

Singapore

• DBS Group Holdings (DBS SP)

  • Rating: NEUTRAL
  • TP: SGD29.60
  • Key Points:
    • Valuation stretched, susceptible to FFR news.
    • NIMs have improved, but ROE expectations are lower than consensus.
    • Risk: faster FFR hikes leading to higher earnings than expected.

• First Resources (FR SP)

  • Rating: NEUTRAL
  • TP: SGD1.60
  • Key Points:
    • Fairly valued at current levels.
    • Earnings growth may be limited due to low CPO prices and downstream competition.
    • Risk: stronger demand for products or a significant spike in CPO prices.

• Raffles Medical (RFMD SF)

  • Rating: SELL
  • TP: SGD1.02
  • Key Points:
    • Underestimated by the market, especially due to new China hospitals.
    • Start-up costs from new hospitals may weigh on earnings.
    • Risk: rental income from hospital extensions or stable operating margins.

Key Information

• The report is quarterly and focuses on contrarian views.
• The contrarian ideas are based on fundamental analysis and market insights.
• 11 companies are analyzed, with BUY, NEUTRAL, and SELL ratings.
• The target prices and percentage upside/downside are provided for each company.
• Valuation metrics such as P/E, P/BV, and EV/EBITDA are used to support recommendations.
• The report also includes figures and tables for visual analysis and detailed insights.

Main Viewpoints

• Contrarian Investing: Simple but not easy, as highlighted by Warren Buffett.
• Market Disconnects: Identified in several companies where fundamentals do not align with current valuations.
• Catalysts and Risks: Both are evaluated for each stock, with a focus on scenario analysis and potential market reactions.

Conclusion

The report provides valuable insights into the stock market dynamics of the ASEAN plus Hong Kong region, emphasizing contrarian strategies and fundamental analysis. It highlights 11 companies with distinct ratings and target prices, and outlines the reasoning behind each recommendation, including market consensus, analysis differences, and potential catalysts and risks. The insights are supported by data and charts, making the report a useful tool for investors seeking alternative viewpoints in a complex market.