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BNP PARIBAS Research Summary - 9 May 2014

Core Content Overview

BNP Paribas released a series of research updates covering various regions and sectors, including Japan, Singapore, China, and others. The report outlines upgrades and downgrades for specific stocks, analysis of sector trends, and macroeconomic insights, particularly focusing on China's external trade and real estate markets.

Key Company Updates

Rohm Co (6963 JP)

• Rating Change: Upgraded to BUY from Hold
• Target Price: Raised to JPY6,400 (+17.6% upside from close)
• Reasons for Upgrade:
  • Structural growth in automotive semiconductors (auto-semis)
  • Bottoming-out in demand for consumer applications
  • New growth sources like platform business and wireless sensors
• Financials (2015E):
  • P/E: 24.5x
  • P/B: 0.9x
  • Yield: 1.2%
• Outlook:
  • OP forecast: JPY32.7b in FY3/15, JPY37.5b in FY3/16
  • Expected to outperform Bloomberg consensus by 4.4% and 3.1% respectively
  • Sales growth is projected at ~10% y-y for two to three years post FY3/15E
• Valuation:
  • EV/EBITDA: 6.0x (based on 2015E), above the five-year average + 1SD

Far East Hospitality Trust (FEHT SP)

• Rating Change: Downgraded to HOLD from Buy
• Target Price: Reduced to SGD0.91 (-11.4% change from prior TP)
• Reasons for Downgrade:
  • Room rate pressure from mid-tier hotel oversupply
  • Recent stock price rally
  • Lack of near-term growth drivers
• Financials (2014E):
  • P/E: 15.0x
  • P/B: 1.0x
  • Yield: 6.7%
• Outlook:
  • Hotel room supply to increase by 11.1% by 2016
  • Mid-tier/upscale hotels at higher risk of supply disruption
  • DPU forecasts reduced by 6.2% for 2014-15E

Sector Research Highlights

Asia Chemicals

• Trend: "Double dip" in polyester and synthetic rubber
• Key Points:
  • Margins weakened in the past fortnight
  • PTA prices fell to a five-year low, BD prices retreated
  • Expectations of lower PX and PTA prices due to new plant startups
  • Potential earnings cuts for Korean chemical companies
• Recommendations:
  • BUY: Lotte Chemical, LG Chem
  • HOLD: Petronas Chemicals, Nanya Plastics, Formosa Plastics
  • REDUCE: Formosa Chem & Fibre

China Real Estate

• Trend: No sign of improvement; risk of more price cuts
• Key Points:
  • Residential sales volume in top 55 cities dropped 22% y-y in April 2014
  • Tier-1 cities saw the largest drop at 37% y-y
  • Price cuts and relaxation measures are spreading
  • Prefer quality names: Shimao, COLI, Longfor, Greentown, KWG

Singapore Real Estate (S-REITs)

• Trend: Back into second gear
• Key Points:
  • 1Q results mostly in line with forecasts
  • Office segment remains the strongest with rent increases
  • Retail segment shows resilience but faces short-term supply risk
  • Hotel segment under pressure due to mid-tier hotel oversupply
• Recommendations:
  • BUY: Keppel REIT (KREIT SP), CapitaCommercial Trust (CCT SP)
  • HOLD: CapitaMall Trust (CT SP), Ascendas REIT (AREIT SP), Mapletree Logistics (MLT SP)
  • HOLD: Far East Hospitality Trust (FEHT SP)

Macroeconomics & Equity Strategy

China: External Trade - April 2014

• Key Facts:
  • Export growth improved to 0.9% y/y, up from -3.6% and -18.1% in previous months
  • Excluding HK, Taiwan, and ASEAN, exports rose 11.2% y/y
  • Imports increased to 0.8% y/y, following a 11.3% y/y decline in March
  • Trade surplus climbed to USD18.5bn, up 1.9% from a year ago
• Analysis:
  • Sub-1% growth still weak, but underlying strength is improving
  • Exports to EU and US were particularly strong, with 15.1% and 12% y/y growth
  • Trade surplus expected to improve in Q2 after narrowing 60% in Q1
  • RMB depreciation is not expected unless there's material risk deterioration

Company Research Highlights

HK Exchanges (388 HK)

• Rating: BUY (unchanged)
• Target Price: HKD168.11
• Performance:
  • Top line rose 5% y-y in 1Q14
  • Net profit increased 2% y-y to HKD1,178m
• Valuation:
  • P/E: 27.9x (2015E)
  • Dividend yield: 1.1%

HSBC Holdings (5 HK)

• Rating: BUY (unchanged)
• Target Price: HKD97.84
• Performance:
  • 1Q14 PBT dropped by double digits, in line with expectations
• Valuation:
  • P/E: 11.2x (2013E)
  • P/B: 1.0x
  • Yield: 4.6%

Melco Crown (MPEL US)

• Rating: BUY (unchanged)
• Target Price: USD47.00
• Performance:
  • 1Q profit beat estimates by 2-3%
  • Strong pipeline supports future growth

Standard Chartered (2888 HK)

• Rating: BUY (unchanged)
• Target Price: HKD236.61
• Performance:
  • Top line rose on constant currency basis
  • Tight cost control boosted results
• Valuation:
  • P/E: 9.4x (2013E)
  • P/B: 1.1x
  • Yield: 4.4%

Events and Roadshows

• Asia Pacific TMT Conference: 19-21 May 2014
• Company Roadshows:
  • Hong Kong/China: Manulife Financial (945 HK), China Mobile (941 HK), China Hongqiao (1378 HK)
  • Singapore: Manulife Financial (945 HK)
  • Europe: Kasikornbank (KBANK TB), BOJ
  • US: Shinsei Bank (8303 JP), Titan Jewellery, ModeTour (080160 KR), Far EasTone (4904 TT)
  • Indonesia: Lippo Malls Indonesia Trust (LMRT SP)

Summary of Key Themes

• Portfolio Growth: REITs with strong rent reversions and DPU-accretive acquisitions are favored
• Margin Pressure: Especially in high-touch sectors like hotels, F&B, and manufacturing
• Rate Cycle: Expected to rise, but may be offset by stronger rent momentum
• Structural Shifts: Demand for power semiconductors is expected to grow due to fuel efficiency trends
• Oversupply Concerns: Mid-tier hotels and other sectors face continued pressure

Conclusion

The report highlights the mixed performance across Asian markets, with upgrades for companies showing structural growth and downgrades for those facing oversupply and margin pressures. It emphasizes the importance of focusing on quality names and sustainable growth in the real estate and chemicals sectors, while cautioning against further price cuts and potential depreciation of the RMB unless there is a material risk deterioration.