Foreign Equities

LIJUN International Pharmaceutical Holding Co Ltd
Target price: HK$5 BUY
UOB KayHian Research (Sept 17): Lijun International has obtained product approval for 20 small-volume injections products with 23 specifications for several therapeutic areas to further expand its portfolio. The company expects to launch these glass ampoule products once it receives new good manufacturing practice (GMP) certificates in 1Q15. It also hopes to obtain approval for plastic ampoule products at end-2015. We believe the ampoule products will provide great expansion opportunities for Lijun in the next few years. For nurses, plastic ampoules are safer and more user-friendly than glass ampoules. We believe there is a large growth potential for plastic ampoules in China. With the gradual opening of drug tenders, the company expects to expand its infusion solutions business significantly by winning more tenders and expanding its distribution network. According to management, the company has been doing well in recent provincial drug tenders. We believe Lijun will   continue to outpace its peers, given its cost advantages and enhanced production capacity. With the rapid growth of the infusion solutions business and an aggressive expansion strategy, we believe the company will deliver robust earnings growth in the next few years. Potential merger and acquisition deals and new product launches will further enrich its product mix and fuel longer-term growth.

Thai Union Frozen Product Pcl
Target price: THB76 BUY
Asia Plus Securities (Sept 16): Thai Union Frozen Product (TUF) has obtained approval to acquire 100% of King Oscar AS, the largest premium sardine supplier in Norway, the US and Australia, and one of the world’s top 10 seafood brands with over 140 years of experience. The acquisition will be completed by November. TUF has been focusing on merger and acquisition plans, aiming to increase sales to US$5 billion in 2015 and US$8 billion in 2020. King Oscar is considerably smaller than TUF, making up only 3% of TUF’s total sales. However, as King Oscar has a strong market position in Scandinavia, long-term business synergy would help expand TUF’s market in the US, Europe, and Asia, where people are more accustomed to eating sardine than tuna. As King Oscar’s production facilities are located in Norway and Poland, it has easy access to premium sardine from the North and Baltic Seas. TUF’s FY2015 to FY2016 net profit is projected to increase by THB150 million, under the projection that income grows by 6% per annum (pa) and an average net profit margin of 5% pa (higher than TUF’s average because King Oscar focuses mainly on the premium products under its own brand).

Jasa Marga (Persero) Tbk PT  
Target price: IDR7,600 BUY
Danareksa Research (Sept 17): Traffic volume at Jasa Marga (Persero)’s W2 North toll road (JORR W2) rebounded in August following July’s low seasonality owing to the Lebaran holiday. Overall, total traffic volume was up 8.8% m-o-m and 12.1% y-o-y to 114 million vehicles in August, a new monthly high. Bear in mind that last year’s Lebaran festival was in the first week of August, thus volume that month was the lowest for the year. On a cumulative basis, total traffic volume in the first eight months of 2014 was 3.9% higher y-o-y at 857 million vehicles with daily average traffic of 3.5 million vehicles. The opening of the last link of JORR-W2N has boosted all surrounding sections. Until the year-end, we are maintaining our volume growth target of 6%, driven by stronger traffic volume from the full operation of the new sections in the last quarter of the year. With the market still waiting for the next catalysts — the announcement of the new government’s cabinet as well as the fuel subsidy reform — we believe Jasa Marga will be one of the main beneficiaries of the infrastructure development acceleration. With the domestic economy continuing to perform well, traffic volume should remain solid.

Frasers Hospitality Trust
Target price: S$1 BUY
UOB KayHian Research (Sept 17): Frasers Hospitality Trust (FHT) is the only Singapore-listed stapled group that offers investors the unique opportunity to have a globally-diversified hospitality portfolio comprising hotels and serviced residences. We believe FHT’s asset mix of hotels (62%) and serviced residences (38%) located across key global cities offers a good balance of stability and growth. FHT’s sponsor, Fraser Centrepoint Ltd, is the sixth-largest listed property company in Singapore. FHT’s strategic partner is a global real estate player that owns, among others, 40 hotels with over 10,000 rooms. Both the sponsor (22%) and strategic partner TCC Group (40%) will hold a combined 62% stake in FHT, the second-highest among S-Real Estate Investment Trusts (REIT). The sponsor and strategic partner’s 18 initial rights of first refusal properties are located globally and could increase FHT’s existing hotel and serviced residence inventory by 146% and 135% respectively when fully injected. The global hospitality acquisition mandate allows FHT to tap a large pool of third-party assets. Key risks are its high initial gearing of about 41%, which presents equity fund-raising concerns for future acquisitions; negative foreign exchange movements; and negative impact on real estate investment trusts from a potential rise in interest rates, sharp slowdown in global travel and tighter corporate travel budgets. Initiate coverage with “buy” rating and a target price of S$1.00.

Tiger Airways Singapore Pte Ltd
Target price: S$0.50 OVERWEIGHT
JP Morgan (Sept 12): Tigerair Singapore’s August passenger traffic growth was muted for another month, but load factor remained high. Passengers carried increased only 2% y-o-y in August, similar to its growth pace in July, and well below its 12% growth year-to-date and 17% y-o-y growth in 2013. Passengers carried have been flat m-o-m in the last four years. We believe the worst is nearly over for Tigerair. Management is taking big steps to rationalise its capacity and route network, ground planes, cancel and defer aircraft deliveries, and offload loss-making associates, which should help improve profitability. We maintain our view that it would make strategic sense for Tigerair to be privatised by Singapore Airlines and merged with Scoot in the longer term to realise greater synergies and provide a seamless customer interface and travel experience. In the past, investors were concerned that Tigerair and Singapore Air Ltd (SIA)’s senior management tended to express varying views on the two carriers’ strategic partnership. The appointment of the new CEO, Lee Lik Hsin, who had a 20-year career at Singapore Airlines, should help align the two carriers’ interests. We see limited downside and expect Tigerair to emerge as one of the strongest Asian low-cost carriers in the long term, supported by parent SIA, plus synergies with Scoot.

Sino-Thai Engineering and Construction
Target price: THB27.78 TRADING BUY
Phillip Capital (Sept 17): In 2014, we expect Sino-Thai Engineering and Construction’s (STEC) net profit for 2014 financial year (FY2014) to fall 11% due to lower revenue, wider gross margin, and the high base from the one-time gain made a year ago. Revenue will slip 3% to THB21 billion. STEC booked 1HFY14 revenue at about THB11 billion and we expect the company to recognise a THB10.8 billion backlog in 2HFY14 while a new project that it will seal in 4QFY14 will be carried forward to next year. Gross margin will improve slightly from 9% to 10%, thanks to stable cost of building materials. For 2015, earnings appear brighter on the back of stronger revenue backlog, stable cost of building materials and a multitude of infrastructure projects. Given the improving political stability, we expect the total value of new projects to return to its normal level of about THB30 billion a year. With the assumptions, we project net profit to grow 8% and revenue to increase 15% to THB24 billion, derived from a THB19 billion backlog while the remaining THB5 billion will come from projects that STEC will sign in 4QFY14 to 4QFY15. In the light of the multiple projects from 4QFY14 onwards, we foresee brighter earnings prospects in 2015 and 2016. We have upgraded STEC to a “trading buy” call while rolling forward our FY2016 valuation and arrived at a price target of THB27.78.

PetroVietnam Drilling and Well Services Corp
Target price: VND122,000 ACCUMULATE
RongViet Securities (Sept 17): Although PetroVietnam is a relatively young player in the region’s drilling industry, it has accomplished a lot. We particularly appreciate its strategic engaging in outbound joint-ventures, which has contributed significantly to its profits and improved its technical capacity and development potential. In 2H2014, we continue to see positives in the industry’s landscape driven by its general orientation towards upstream O&G operations. For 2014, we estimate of PetroVietnam’s revenue and net profit to be about VND19,000 billion and VND2,342 billion, up 28.5% and 24.4% from 2013, respectively. Next year, PVD may record a 15% revenue growth rate and a19.5% increase in net profit. The current average PER for the regional offshore drilling industry is about 15.77 times, whereas PVD is trading at about 12.52 times. However, its price earnings to growth ratio is 1.13, which is larger than 1 and significantly higher than the industry average of 0.78. This implies PVD’s past growth is not really commensurate with the expected PER. For that reason, we have decided to discount the expected PER and price to book ratio to 13.6 times and 2.2 times respectively. We recommend an “accumulate” rating on the stock with a target price of VND122,000 per share in the long term.

Mahindra & Mahindra Ltd
Target price: INR1,589 BUY
Maybank Kim Eng Research (Sept 16): We are upgrading automobile maker Mahindra & Mahindra Ltd (MM) to a “buy” rating from “hold” previously and raising the sum of the parts (SOTP)-based target price 32% to street-high of INR1,589 due to the increase in value of investments and rolling forward EPS to financial year 2016 (FY2016).  We believe demand across the auto sector is set to improve from 2HFY2015. For MM, the second half will form 57% of our FY2015 EPS. Our EPS growth forecasts for FY2015 to FY2016 are conservative.  MM is launching five new models over the next 18 to 24 months. We believe this is a very good time for new launches because the decline in fuel prices, good monsoon, upturn in the economy and possible cut in interest rates will generally improve auto purchases. Despite being the market leader in the sport utility vehicle (SUV) segment in India, MM has been losing out recently due to strong growth in the UV-1 segment or compact SUV. MM’s Quanto failed to make an impact in the UV-1 segment and it is now gearing up to launch two models at different price points in this segment. We expect one of these models to come out within FY2015 and another in FY2016.


This article first appeared in The Edge Malaysia Weekly, on September 22-28, 2014.

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