20160511-三星证券-Perspectives_Weekly__Korea_to_feel_few_impacts_from_2Q_corrections_19页_1mb

Samsung Market Strategy Summary

Core Content

This document outlines the market strategy and analysis for the Korean stock market and global equity markets as of May 11, 2016. It discusses the current market conditions, sector performance, EPS forecasts, valuations, and fund flows. The main focus is on the impact of market corrections, sector-specific dynamics, and the role of foreign capital in the Korean market.

Main Views

• Market Corrections: Global markets began correcting in early May due to uncertainty about improved fundamentals and the weakening of previous rally drivers such as policy measures and rebounding oil prices. These corrections are expected to continue through the end of the second quarter (2Q).

• Earnings Forecast Cuts: Earnings forecasts across all regions (except the eurozone) have been cut. MSCI Developed Markets (DMs) are down 3.9% from their 2Q15 peak, while MSCI Emerging Markets (EMs) are down 15.9%. MSCI Korea's forecasts are down 9.2%.

• Economic Momentum: Economic indicators have improved since March due to policy expectations, but momentum has slowed since mid-April. EMs have outperformed DMs this year, but the earnings revision rate gap has turned negative, suggesting a lack of confidence in qualitative growth expectations.

• Foreign Capital Impact: The Korean stock market has benefited from investors' preference for EMs, but foreign investors are neutral on Korean industries. Therefore, capital outflows during corrections are expected to be limited. Korean market valuations are relatively undemanding compared to MSCI Asia ex Japan.

• Sector Performance: Certain sectors like shipbuilding and consumer staples are more vulnerable to weighting reductions during corrections, while banking, telecom, energy, and utilities are less affected.

Key Information

Global Market Overview

• Correction Trends: Global markets have started to correct in early May, and this trend is expected to continue.
• Earnings Trends: Earnings forecasts have been cut across all regions, with the most significant declines in EMs.
• Economic Momentum: Improved economic indicators since March have slowed in mid-April. EMs have outperformed DMs, but this may reverse in the second half of the year.

Korean Market Analysis

• Sector Valuations: Korean sectors such as shipbuilding/machinery, energy, chemical, steel, insurance, and banking are attractively valued despite rising EPS forecasts.
• Recent Performance: Over the past three months, these sectors (excluding insurance) have outperformed the market.
• Fund Flows: Domestic equity funds recorded a net exit of KRW214.3b, marking the ninth consecutive week of losses.

Top Picks

• Top 10 Picks:

  • Materials: KCC
  • Industrials: Hyundai Glovis, Korea Aerospace Industries
  • Consumer: CJ CGV, CJ Cheil Jedang
  • Discretionary: GS Home Shopping
  • Consumer Staples: AmoreG
  • Financials: KB Financial Group
  • IT: Naver
  • Utilities: Kepco

• Key Metrics:

  • KCC: Current price 408,000 KRW, Target price 530,000 KRW, P/E 4.3, P/B 15.7, EPS growth 11.5%
  • Hyundai Glovis: Current price 184,500 KRW, Target price 280,000 KRW, P/E 6.9, P/B 13.0, EPS growth 8.0%
  • Korea Aerospace Industries: Current price 65,500 KRW, Target price 105,000 KRW, P/E 6.4, P/B 21.6, EPS growth 13.0%
  • CJ CGV: Current price 114,500 KRW, Target price 170,000 KRW, P/E 2.4, P/B 41.8, EPS growth 14.0%
  • KB Financial Group: Current price 33,450 KRW, Target price 42,000 KRW, P/E 12.9, P/B 7.4, EPS growth n/a
  • Naver: Current price 700,000 KRW, Target price 800,000 KRW, P/E 23.1, P/B 31.0, EPS growth 15.8%
  • Kepco: Current price 62,800 KRW, Target price 65,000 KRW, P/E 40.3, P/B 5.0, EPS growth 4.0%

Sector Fundamentals

• MSCI Korea: Overall total return is 0.5% for the year to date (YTD), with a forward P/E of 10.6 and forward P/B of 0.9.
• Energy: Total return of 8.8%, forward P/E of 8.6, forward P/B of 0.9, forward ROE of 10.7%.
• Materials: Total return of 6.0%, forward P/E of 11.3, forward P/B of 1.2, forward ROE of 11.0%.
• Industrials: Total return of 6.7%, forward P/E of 14.6, forward P/B of 0.6, forward ROE of 3.8%.
• Consumer Staples: Total return of 5.9%, forward P/E of 21.7, forward P/B of 2.6, forward ROE of 12.0%.

Sector Valuations

• Forward P/E and P/B: The document includes visual comparisons of forward P/E and P/B for MSCI Korea and Kospi, highlighting the valuation trends across different sectors.
• EPS Forecast Changes: There are significant changes in EPS forecasts for both large and small caps, with some companies showing positive changes and others negative.

Fund Flows

• Global Fund Flows: Net outflows are observed in most regions, with EMs and DMs showing negative flows. Korean stocks are included in multiple global indices.
• Domestic Fund Flows: Domestic equity funds recorded net outflows of KRW214.3b, with a significant portion of the market being held by domestic institutions.
• Kospi Investors: Foreign investors showed net outflows in the last week, while domestic institutions had mixed flows. Domestic individuals were net buyers.

Conclusion

The Korean stock market is expected to experience limited impacts from foreign capital outflows during the 2Q corrections due to the neutral stance of foreign investors. While EMs have outperformed DMs this year, the trend may reverse as corrections continue. The document highlights the importance of sector-specific valuations and EPS forecasts in identifying potential investment opportunities, with a focus on the shipbuilding and consumer staples sectors being more vulnerable to weighting reductions. Overall, the market remains in a correction phase, with continued earnings forecast cuts and slowing economic momentum.