* StarHub – O-PF (Broadband grab)
StarHub’s CEO emphasised on the analyst call that the transaction to buy 50.1% of MyRepublic’s Singapore broadband business was in-line with its strategy of pursuing M&A avenues in enterprise, ICT, and domestic consolidation. The deal value is not firm given the various optionalities in the structure, but we estimate it is at c.14-16x trailing PE, not unduly dear. There is potential synergy between the two entities, too. Management indicated it will be EPS accretive at the onset. We view any consolidation in Singapore telecoms as positive for market repair. StarHub holds c.18% TSR potential; maintain Outperform.
* Bukalapak – BUY (Solid market position)
Bukalapak participated in our Investors’ Forum last week. Management’s key focus was on take rate outlook, and it highlighted a one-off accounting that made its take rate look optically lower in 2Q21. The company expects QoQ revenue growth to accelerate in the coming quarter. Bukalapak is indeed the market leader in the Mitra segment; its first biweekly newsletter highlighted a Nielsen survey on 3,000 warungs in June 2021, which suggested it commands a hefty market share of 55% in the physical segment and 52% at virtual products relative to share of total registered users of sub-40%. This reinforces our investment thesis on Bukalapak. We reiterate BUY with a target price of Rp1,250.
CREDIT SUISSE :
* China Market Strategy New report: Concerning but no need to panic
The recent liquidity issues faced by Evergrande, a major real estate developer in China, has stirred the market and sparked concerns of further contagion. CS Chief China economist believes that the stress is not expected to evolve into the “Lehman moment” of China. Our global equity strategist sees no systemic risk to China’s growth.
To gauge the magnitude of total debts of Chinese major developers, we assessed items both on and off balance sheet.
*We expect property activities to continue trending down. Chinese banks that grant about 27% of their RMB loans to property, will be under pressure. Supply restriction remains as the key driver for materials, while construction companies with limited property exposure will benefit from accelerating infrastructure spending. We expect demand for AC and kitchen appliances to slow from 4Q22.*
We prefer Angang (H), Anhui Conch (H), CR Cement, CCCC, CRL, Longfor, CMB, NBB, NJB, PSBC, Haier Smart Home and Midea. We lower TPs for a few of the companies that may be affected
* Bukalapak.com (BUKA.JK) New report: Retail redefined
We initiate coverage on BUKA with an OUTPERFORM rating and TP of Rp1,100. We like the company for its exposure to digitalisation of offline MSMEs, leadership in the online-to-offline (O2O) space, and its focus to pursue sustainable profitability. BUKA is leading the disruption in O2O space, with ~39% market share in an industry that is likely exposed to groceries and FMCG inventory replenishment of US$77 bn annually (Euromonitor). We estimate the segment revenue to grow at a 69% CAGR in 2021-25E and reach US$143 mn by 2023E, contributing to 41% of the company’s revenue. We expect BUKA to reach EBITDA breakeven by end FY24E (vs the company’s target of FY23). We expect total take rate to gradually improve from 1.6% in FY20 to 1.9% by FY23E and 2.3% by FY25E, driven by better marketplace and O2O monetisation. We value BUKA using 2023E 17x EV/sales, similar to SEA Ltd’s Shopee, given its lower cash burn and possibly earlier breakeven point. This implies 0.3x EV/GMV, a significant discount to regional and global peers ex-China, mainly due to lower take rates and a less dominant market share in the e-commerce space
* StarHub Ltd (STAR.SI) MyRepublic acquisition to enhance StarHub’s broadband market share; valuation of deal uncertain as deferred consideration remains unclear*
StarHub announced its acquisition of a majority stake of 50.1% in MyRepublic’s (MR) broadband business in Singapore. StarHub’s total investment will be up to S$162.8 mn—an initial consideration of S$70.8 mn and a deferred consideration of up to S$92 mn.
The rationale is to drive commercial and operational synergistic opportunities. Management expects the eventual deferred consideration to be less than S$92 mn, and will comprise organic growth of MR’s broadband business as well as from cost synergies.
MR’s Singapore broadband business as of FY2021 ended 30-Jun-2021 has a subscriber base of 89k , a CAGR of 9.2% from FY2017 to FY2021, translating to 6% of subscriber market share. This will take StarHub’s enlarged market share post-acquisition to 40%.
We maintain our NEUTRAL rating and keep target price unchanged at S$1.25. The implied transaction P/E multiple is a bit uncertain given lack of clarity on deferred consideration—excluding which, FY21E P/ E for the transaction is 13.4x, largely in line with StarHub’s current valuation. However, that can jump to ~31x, assuming 100% of expected deferred consideration and to ~22x factoring in 50% of the payout
* Charoen Pokphand Foods Public (CPF.BK) Catalysts lacking
We downgrade CPF to NEUTRAL, cut EPS 9%/4% in 2021-22, and cut TP to Bt30 (from Bt34), to incorporate near-term weak operations. We feel CPF turned more cautious on the operating environment, in China, Vietnam and Thailand, due to a weaker swine price outlook. The brighter spots are in the other countries including the Philippines, Cambodia, and Russia, where the swine price remains high. These destinations will provide earnings support for 2H21 but may not be enough to drive as robust earnings as 1H21.
Several headwinds to 2H21 include: (1) swine supply normalisation, particularly in China; (2) higher raw material cost pressure; (3) weaker aqua operations, especially in India; and (4) meat price impact from the COVID-19 affected demand. We are fairly aware, but see a higher uncertainty and more pressures than our earlier anticipation.
CPF doesn’t look expensive at CPALL adjusted 12M P/E of 4-5x, but is losing momentum and lacks catalysts in the near term. The market will want to see a better demand-supply outlook or have a higher conviction of profit base post the pandemic. Within the sector, we prefer TU on its improving gross margin base and earnings visibility
GOLDMAN SACHS :
* A-Share Tech – Focus on structural winners – Adding Hua Hong and SG Micro to Conviction List.
In this third edition of our A-Share Tech series, we review our A-Share tech coverage and assess the outlook for the broad A-Share tech supply chain (semis, 5G telecom, smartphones, software) in terms of share price catalysts, technological gaps, potential bottlenecks, products/customer expansion, valuations, and key risks. We identify the key winners with sustainable growth drivers into 2022 and beyond. In conjunction with this report, we also add Buy-rated Hua Hong and SG Micro to our Conviction List. Buy: StarPower (on CL), Hua Hong (on CL), CR Micro, Sanan, SG Micro (on CL), Silan, Wingtech, Maxscend, GigaDevice, AccoTest, Venustech (on CL), Thundersoft, Desay SV, ZWSoft, YJK, and Arcsoft
* Siam Commercial Bank – Moving to a new group structure – Buy.
SCB announced its ‘SCB Reimagined’ plan – establishing SCBx as the parent company for the group and transferring unsecured lending businesses and selected companies under SCB Bank to SCBx. The bank aspires to be a financial technology company as the leading platform across ASEAN with over Bt1tn (USD 30bn) market cap in 5 years time, tripling from its current market cap. This announced restructuring will come in a few steps and is subject to approvals from BOT and other regulators as well as shareholders’ approval at EGM on November 15. This reorganization give better visibility on the group’s growth assets and thus potentially better help the market appreciate the value. 12m TP of Bt113.20.
* Xinyi Solar (0968.HK) – Positive for Volume Growth and Margin Recovery
We reiterate Buy on Xinyi Solar (“XYS”) for: (i) solid solar glass demand (+38% yoy in 2021E); (ii) mild margin rise from recent sales price increase, more than enough to offset augmented raw material and NG unit costs; and (iii) industry capacity addition looks lower than original estimate. We adjust our XYS’s net profits by -9% for 2021E mainly for lower sales volume, +28% for 2022E on higher ASPs and -4% for 2023E on more conservative margins. Our DCF TP is +5% to HK$21/share. We open a 90-day positive Catalyst Watch as sentiment on PRC solar sector should benefit from the United Nations Climate Change Conference to be held in Scotland on 1-12 Nov. In PRC solar sector, we like solar glass makers the most for their potential ASP upside; and XYS is our top pick. Its 4.6x 2022E PB is the most appealing among PRC leading solar equipment makers.
* StarHub (STAR.SI) – A Marginally Accretive Deal But in a Mature Legacy Business
StarHub announced that it will acquire a 50.1% stake in MyRepublic’s Singapore broadband business to expand its broadband consumer and enterprise footprint. Transaction multiple starts from 7.6x FY21E EV/EBITDA with room for further expansion based on EBITDA growth milestones by YE23. The deal will be slightly NPAT accretive even ahead of any potential cost synergies which could be realized. We raise our FY22E-23E NPAT by ~4% to reflect the acquisition and raise TP to S$1.98 (+3%). The deal does make sense in light of the NPAT accretion although the allocation of capital to a mature, slow growing business does raise question
* Thailand Banks & Telcos – SCB & AIS JV on Digital Lending: Positive Incremental Strategy
SCB and AIS announced the formation of a 50:50 JV called AISCB to provide digital lending services. The planned registered capital is Bt600m. Based on the size of capital and normal leverage of NBFC at 1-4x, the potential lending portfolio initially should be around Bt1-3bn, which is small compared to the balance sheets of either SCB (over Bt3trn assets and bt2.3trn loan book) or AIS. Overall, this should broaden SCB’s digital footprint (to AIS telco users, but not SCB current clientele). However, given this seems to be a smaller-scale experiment, we see impact in terms of immediate profit contribution as likewise small. We maintain Buys on both AIS and SCB.
* PETRONAS Chemicals Group (PCGB.KL) – Positive Catalyst Watch; Leveraged to Global Gas / Coal Strength
We open a 90-day positive Catalyst Watch on PCHEM, as we think it is a major beneficiary of a recent spike in global natural gas price (tighter urea supply on run cuts of high-cost European producers) and PRC coal price strength (cost push for methanol). Contrary to market concern of earnings having peaked in 2Q21, we believe stronger F&M earnings should more than offset slight pullback in O&D into 2H21E. As one of Asia’s largest urea / methanol producers, PCHEM enjoys significant feedstock cost advantage. We also see PE price bottoming out ahead due to limited inflows from the US and China’s lower CTO utilisation this winter (despite concern of new cracker startups). Maintain Buy on PCHEM, one of our regional top chem picks