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15 July 2015 Research Summary

Core Content

This report provides a thematic and sectoral analysis of various markets and companies in Asia, focusing on the semiconductor industry, automotive sector, financial markets, and macroeconomic indicators.

Semiconductor Industry: What Money Can't Buy - Memory

Key Points:

• Tsinghua Unigroup's Bid for Micron: Tsinghua Unigroup has submitted a USD23 billion bid to acquire Micron at USD21/share, which is 40% lower than the beginning of 2015.
• Market Reaction: The news caused shares of Samsung and Hynix to fall, as it did when BOE entered the memory business.
• Challenges to Acquisition: There are significant hurdles, including pricing and US government approval under FINSA, which may block the deal due to national security concerns.
• Strategic Implications: The acquisition is unlikely to change the memory industry fundamentally, as building a sustainable memory business requires more than just capital investment.
• Technology and Integration: Merged DRAM makers face 5-8 years of integration challenges. Without matching Samsung's technology migration, firms may be marginalized.

Key Recommendations:

• SK Hynix: Buy rating, target price SGD64,000, with an upside of +69.1%
• Samsung Electronics: Buy rating, target price SGD1,770,000, with an upside of +44.5%

China Autos: 3Q15 May Disappoint Again

Key Points:

• Stock Market Impact: The stock market crash has negatively impacted sales, with dealers estimating a 20-30% drop in monthly sales for tier-1 and tier-2 cities.
• OEM Sales Targets: Dealers expect continued downward pressure on OEM sales targets for 2H15, with some customers delaying purchases.
• Positive Signs: Some stores reported 2-3 groups of visitors, better than expected.
• Future Outlook: 4Q15 sales may improve, but dealers prefer lower sales targets over more discounts to maintain margins.
• Model Performance: The new BMW X1 may not be a hit due to weaker features, while the BMW 3 Series facelift is expected to drive sales.

Key Recommendations:

• Preference: BAIC and Great Wall Motor
• Cautious on: Brilliance China

Taiwan Financials: Flow Tracker - Stress-testing with Market Volatility

Key Points:

• June 2015 Results: Banks saw backlogs in earnings due to lower trading volumes. CTBC's earnings growth outperformed peers.
• FX Reserves: FX reserves dropped to USD3.69tn, reflecting capital outflow.
• Monetary Policy: The PBOC has relaxed monetary policy, with more easing expected in interest rates and RRR.
• Investment Mix: Fubon has a higher proportion of foreign bonds (43%) compared to Cathay (45%) and China Life (49%).
• Risk Factors: Insurers face pressure from market volatility, but reduced exposure to foreign equities and European debt may mitigate the impact.

Key Recommendations:

• Preference: Insurers with lower COL burdens
• Fubon Life: Strong investment spread and potential for new sales and yield improvements

Macroeconomics & Equity Strategy

China:

• Money Supply: TSF dropped 5.5% y/y to RMB1.86tn, with informal financing shrinking and direct financing rising.
• FX Reserves: Continued decline suggests capital outflow and central bank selling USD to stabilize RMB.
• Monetary Policy: Expect more easing, but fiscal policy must be more expansionary.

Indonesia:

• BI Meeting: Rates unchanged at 7.50%, with officials wary of capital account shocks.
• GDP Outlook: Downside risks to GDP growth are increasing due to weak domestic growth and global economic moderation.
• FX Reserves: Net FX reserves are a better guide for BoP strains than gross FX reserves.

India:

• CPI Inflation: Rose to 5.4% y/y in June, driven by food and core inflation.
• Monsoon Risks: El Niño conditions and monsoon deficiency pose upside risks to food inflation.
• RBI Outlook: Inflation is expected to rise to 7% by end-FY2016, limiting further policy easing.

Australia:

• Business Survey: NAB confidence and conditions rose, with employment and trading activity at multi-year highs.
• Capex and Growth: Capex remains slightly above long-term average, but not yet reflected in official investment data.
• RBA Outlook: Likely to remain cautious on further easing until signs of stronger growth and weaker exchange rates are seen.

Company Research

TSI Holdings (3608 JP)

• Rating: Buy
• Target Price: JPY1,300 (+53.7% upside)
• Performance: 1QFY2/16 sales dropped 4.9% y/y, but gross margin improved.
• Strategic Moves: Restructuring of 11 brands, new CEO, and potential capital raise with DBJ.
• Financials:
  • 2016E: P/E 60.0x, P/B 0.8x, Yield 2.1%
  • 2017E: P/E 25.8x, P/B 0.7x, Yield 2.1%
  • EV/EBITDA: 5.2x (2016E)

Capitalland Mall Trust (CT SP)

• Rating: Buy
• Target Price: SGD2.37 (+9.5% upside)
• Acquisition: Proposes to acquire Bedok Mall for SGD780m, with a yield of 5.1%.
• Financials:
  • 2015E: P/E 22.6x, P/B 1.2x, Yield 5.3%
  • 2016E: P/E 64.8x, P/B 0.7x, Yield 2.1%

Key Events and Roadshows

• India Autos Tour: 21-24 Sep 15
• Hong Kong Roadshows:
  • Woori Bank (000030 KS): 16-17 Jul 15
  • Beijing Jingneng Clean Energy (579 HK): 22 Jul 15
  • ASM Pacific (522 HK): 30-31 Jul 15
• Singapore Roadshows:
  • Industry Expert Access: 16 Jul 15
  • ASM Pacific (522 HK): 3-4 Aug 15
• Europe Roadshows:
  • Samsung Electronics (005930 KS): 3-7 Aug 15
  • Makalot Industrial (1477 TT): 14-18 Sep 15
• US Roadshows:
  • Sawit Sumbermas Sarana: 27-31 Jul 15

Authors and Contact Information

• Peter Yu, CFA: Semiconductors Research

  • Email: peter.yu@asia.bnpparibas.com
  • Phone: +822 2125 0535

• Victoria Li: China Autos Research

  • Email: victoria.li@asia.bnpparibas.com
  • Phone: +852 2825 1135

• Frank Yuen, CFA: Taiwan Financials Research

  • Email: frank.yuen@asia.bnpparibas.com
  • Phone: +852 2825 1863

• Leif Chang: Taiwan Financials Research

  • Email: leif.chang@asia.bnpparibas.com
  • Phone: +852 2825 1138

• Mikihiko Yamato: Japan Research

  • Email: mikihiko.yamato@japan.bnpparibas.com
  • Phone: +81363772234