Asia-Pacific Afternoon Summary
February 1, 2012
The Goldman Sachs Group, Inc.
This document contains comments
related to the following stocks:
Aditya Birla Minerals (ABY.AX)
ANZ Banking Group Limited
(ANZ.AX)
APN News & Media (APN.AX)
Automotive Holdings Group
(AHE.AX)
AWE Limited (AWE.AX)
Bank Central Asia (BBCA.JK)
Bank Mandiri (BMRI.JK)
Bank of Queensland Limited
(BOQ.AX)
Bendigo and Adelaide Bank Limited
(BEN.AX)
BHP Billiton (BHP.AX)
Breville Group Ltd (BRG.AX)
Carsales.Com (CRZ.AX)
Commonwealth Bank of Australia
(CBA.AX)
Ctrip.com International (CTRP)
Energy Resources Of Australia Ltd.
(ERA.AX)
Fairfax Media (FXJ.AX)
Far Eastern Department Stores
(2903.TW)
Guangzhou Automobile Group Co
(2238.HK)
Guilin Tourism Co. Ltd. (000978.SZ)
Hankook Tire (000240.KS)
Havells India (HVEL.BO)
Hindustan Zinc (HZNC.BO)
Hutchison Telecommunications
Australia (HTA.AX)
Hyundai Department Store
(069960.KS)
ICICI Bank (ICBK.BO)
Independence Group (IGO.AX)
Kingsgate Consolidated (KCN.AX)
LG Chem (051910.KS)
Lock & Lock Co. (115390.KS)
Lynas (LYC.AX)
Mapletree Commercial Trust
(MACT.SI)
National Australia Bank (NAB.AX)
Focus Items
China: Portfolio Strategy Research: MXCN earnings: more cuts to come, but
worst appears behind us
1
Key Data Changes
Rating and price target changes
Rating/
Coverage
view
Price Target
Estimates
Ticker
New
Old
New
Old
% chg
Current
Year
Next
Year
Fiscal
y/e
Automotive Holdings Group
AHE.AX
N/N
unch
↑ A$2.05
A$1.70
20.6%
A$0.23
A$0.26
Jun
Bendigo and Adelaide Bank
Limited
BEN.AX
S/N
unch
↓ A$7.90
A$8.00
(1.2%)
A$0.80
A$0.84
Jun
Company
BHP Billiton
BHP.AX
B/A
unch
↑ A$51.22
A$50.81
0.8%
US$3.61
US$4.05
Jun
Breville Group Ltd
BRG.AX
N/N
unch
↑ A$3.30
A$3.00
10.0%
A$0.32
A$0.35
Jun
Commonwealth Bank of
Australia
CBA.AX
S/N
unch
↓ A$49.50
A$50.00
(1.0%)
A$4.22
A$4.35
Jun
Guilin Tourism Co. Ltd.
000978.SZ
S/A
unch
↓ Rmb7.60
Rmb7.90
(3.8%)
Rmb0.20
Rmb0.33
Dec
Hankook Tire
000240.KS
N/N
unch
↑ W49,000
W45,900
6.8%
W2,342
W4,639
Dec
Havells India
HVEL.BO
N/N
unch
↑ Rs487.00
Rs480.00
1.5%
Rs30.40
Rs36.22
Mar
HTA.AX
N/N
unch
↓ A$0.06
A$0.08
(27.6%)
(A$0.01)
(A$0.01)
Dec
069960.KS
N/N
unch
↑ W174,000
W173,000
0.6%
W15,282
W15,125
Dec
ICBK.BO
B/N
unch
↑ Rs1,040.00
Rs950.00
9.5%
Rs54.58
Rs60.99
Mar
Independence Group
IGO.AX
S/A
unch
↓ A$3.30
A$3.50
(5.7%)
A$0.03
A$0.05
Jun
Kingsgate Consolidated
KCN.AX
B/A
unch
↓ A$10.50
A$11.15
(5.8%)
A$0.88
A$1.68
Jun
Korean Re
003690.KS
N/N
unch
↓ W15,000
W16,200
(7.4%)
W1,184
W1,984
Mar
Lock & Lock Co.
115390.KS
B/N
unch
↓ W45,000
W48,000
(6.3%)
W946
W1,693
Dec
NVT.AX
S/N
unch
↓ A$3.15
A$3.41
(7.6%)
A$0.20
A$0.23
Jun
↓ A$0.31
A$0.33
Hutchison
Telecommunications Australia
Hyundai Department Store
ICICI Bank
Navitas Ltd
Nexus Energy
NXS.AX
N/N
unch
Punjab National Bank
PNBK.BO
B/N
unch
(6.1%)
(A$0.00)
A$0.00
Jun
(1.8%)
Rs151.55
Rs165.13
Mar
S1
012750.KS
N/N
unch
↑ W62,000
Samsung Fire & Marine
Insurance
W59,000
5.1%
W3,454
W3,998
Dec
000810.KS
B/N
unch
↓ W298,000
W305,000
(2.3%)
W16,205
W20,608
Mar
Tap Oil
TAP.AX
N/N
unch
↑ A$0.82
A$0.75
9.3%
Teranga Gold
TGZ.AX
B/A
unch
↓ A$3.20
A$3.25
(1.5%)
A$0.01
(A$0.04)
Dec
(US$0.04)
US$0.22
Dec
TPG Telecom
TPM.AX
N/N
unch
↓ A$1.64
A$1.79
(8.4%)
A$0.14
A$0.17
Jul
↓ Rs1,110.00 Rs1,130.00
For further product information,
contact:
Asia-Pacific Investment Research
+852-2978-1000
Analysts employed by non-US
affiliates are not registered/qualified
as research analysts with FINRA in
the U.S.
Global Investment Research
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a
result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision. For Reg AC certification and other important disclosures, see the Disclosure
Appendix, or go to www.gs.com/research/hedge.html.
Navitas Ltd (NVT.AX)
New Zealand Oil & Gas (NZO.NZ)
News Corporation (NWS.AX)
Nexus Energy (NXS.AX)
Origin Energy (ORG.AX)
Prime Media Group (PRT.AX)
Punjab National Bank (PNBK.BO)
REA Group (REA.AX)
Rio Tinto (RIO.AX)
S1 (012750.KS)
Samsung Fire & Marine Insurance
(000810.KS)
Samsung SDI Co. (006400.KS)
Sands China (1928.HK)
SEEK (SEK.AX)
Seven West Media (SWM.AX)
Tap Oil (TAP.AX)
Telstra Corp. (TLS.AX)
Ten Network Holdings (TEN.AX)
Teranga Gold (TGZ.AX)
Titan Industries (TITN.BO)
TPG Telecom (TPM.AX)
Westpac Banking Corp. (WBC.AX)
Woolworths (WOW.AX)
Woolworths
WOW.AX
N/N
unch
↓ A$28.35
A$29.64
(4.4%)
A$1.80
A$1.95
Jun
Estimate changes
Ticker
Rating/
Coverage
view
New
Old
% chg
New
Old
% chg
Fiscal
y/e
Aditya Birla Minerals
ABY.AX
S/A
↑ A$0.12
A$0.11
9.2%
A$0.20
unch
--
Mar
ANZ Banking Group
Limited
ANZ.AX
N/N
↓ A$2.20
A$2.24
(1.6%)
↓ A$2.45
A$2.49
(1.6%)
Sep
AWE Limited
AWE.AX
N/N
↓ A$0.04
A$0.06
(19.8%)
A$0.10
unch
--
Jun
BOQ.AX
B/N
↓ A$0.98
A$1.00
(2.6%)
↓ A$1.13
A$1.17
(3.3%)
Aug
BEN.AX
S/N
↓ A$0.80
A$0.82
(1.9%)
↓ A$0.84
A$0.88
(3.9%)
Jun
Company
Bank of Queensland
Limited
Bendigo and Adelaide
Bank Limited
Current Year
Next Year
BHP Billiton
BHP.AX
B/A
↑ US$3.61
US$3.58
0.8%
↓ US$4.05
US$4.06
(0.3%)
Jun
Breville Group Ltd
BRG.AX
N/N
↑ A$0.32
A$0.29
11.1%
↑ A$0.35
A$0.32
9.3%
Jun
Commonwealth Bank of
Australia
CBA.AX
S/N
↓ A$4.22
A$4.35
(2.8%)
↓ A$4.35
A$4.54
(4.1%)
Jun
005830.KS
N/N
↑ W6,180
W6,083
1.6%
↑ W6,652
W6,595
0.9%
Mar
2903.TW
N/N
NT$1.85
unch
--
↑ NT$1.92
NT$1.90
0.9%
Dec
Dongbu Insurance Co.
Far Eastern Department
Stores
Guilin Tourism Co. Ltd.
000978.SZ
S/A
↓ Rmb0.20
Rmb0.34 (42.0%) ↓ Rmb0.33 Rmb0.36
(7.6%)
Dec
Hankook Tire
000240.KS
N/N
↓ W2,342
W2,625
11.0%
Dec
Havells India
HVEL.BO
N/N
↑ Rs30.40
Hindustan Zinc
HZNC.BO
N/N
↓ Rs13.22
HTA.AX
N/N
(A$0.01)
069960.KS
N/N
001450.KS
Hutchison
Telecommunications
Australia
Hyundai Department
Store
Hyundai Marine & Fire
Insurance Co.
ICICI Bank
Independence Group
Kingsgate Consolidated
(10.8%)
↑ W4,639
W4,181
Rs29.61
2.7%
↑ Rs36.22
Rs35.54
1.9%
Mar
Rs13.42
(1.5%)
↓ Rs15.00
Rs15.45
(2.9%)
Mar
unch
--
↓ (A$0.01)
(A$0.00) (262.3%)
Dec
↓ W15,282
W15,851
(3.6%)
↓ W15,125
W15,528
(2.6%)
Dec
B/N
↓ W4,623
W4,623
--
↑ W5,002
W4,979
0.5%
Mar
ICBK.BO
B/N
↑ Rs54.58
Rs52.42
4.1%
↑ Rs60.99
Rs58.45
4.3%
Mar
IGO.AX
S/A
↑ A$0.03
(A$0.04)
NM
↓ A$0.05
A$0.08
(39.0%)
Jun
KCN.AX
B/A
↓ A$0.88
A$0.96
(7.9%)
↓ A$1.68
A$1.95
(13.8%)
Jun
Korean Re
003690.KS
N/N
↓ W1,184
W1,816
(34.8%)
↓ W1,984
W2,082
(4.7%)
Mar
LG Chem
051910.KS
N/C
↓ W34,713
W36,875
(5.9%)
↓ W38,377
W40,672
(5.6%)
Dec
LIG Insurance Co.
002550.KS
S/N
↑ W3,581
W3,571
0.3%
↑ W4,008
W3,987
0.5%
Mar
Lock & Lock Co.
115390.KS
B/N
↓ W946
W1,121
(15.6%)
↓ W1,693
W1,842
(8.1%)
Dec
NAB.AX
B/N
↓ A$2.78
A$2.81
(0.9%)
↓ A$2.93
A$2.97
(1.3%)
Sep
↓ A$0.23
A$0.25
National Australia Bank
Navitas Ltd
NVT.AX
S/N
↓ A$0.20
A$0.22
(7.4%)
PNBK.BO
B/N
↑ Rs151.55
Rs151.04
0.3%
↓ Rs165.13 Rs172.36
RIO.AX
B/A
↑ US$7.96
US$7.61
4.7%
↑ US$7.51
S1
012750.KS
N/N
↑ W3,454
W3,309
4.4%
Samsung Fire & Marine
Insurance
000810.KS
B/N
↓ W16,205
W18,746
Samsung SDI Co.
006400.KS
N/A
↑ W8,479
W8,094
4.8%
TLS.AX
NR
↑ A$0.28
A$0.27
1.7%
Punjab National Bank
Rio Tinto
Telstra Corp.
(6.7%)
Jun
(4.2%)
Mar
US$7.40
1.5%
Dec
↑ W3,998
W3,805
5.1%
Dec
(13.6%) ↓ W20,608
W21,271
(3.1%)
Mar
↑ W8,656
W8,346
3.7%
Dec
A$0.29
unch
--
Jun
Teranga Gold
TGZ.AX
B/A
14.3%
↓ US$0.22
US$0.24
(11.0%)
Dec
Titan Industries
TITN.BO
B/N
Rs6.78
unch
--
↓ Rs8.49
Rs8.50
(0.1%)
Mar
Westpac Banking Corp.
WBC.AX
N/N
↓ A$2.04
A$2.11
(3.1%)
↓ A$2.14
A$2.21
(3.2%)
Sep
Other Headlines
Basic Materials
↑ (US$0.04) (US$0.05)
Lynas (LYC.AX): 2QFY12 production report
2
Independence Group (IGO.AX): 2QFY12 production report: Production better; lowering FY13E
EPS
3
Kingsgate Consolidated (KCN.AX): 2QFY12 production result underpins confidence in FY12 EPS
growth
4
Aditya Birla Minerals (ABY.AX): 3QFY12 production report: Production in line; sales higher
5
Teranga Gold (TGZ.AX): 4QFY11 production result: Higher grade = lower costs
6
LG Chem (051910.KS): Below expectations: expect better 2012E, but valuation full
7
BHP Billiton (BHP.AX): Earnings estimate update
8
Hindustan Zinc (HZNC.BO): Minor estimate revisions
9
Rio Tinto (RIO.AX): Updating earnings estimates
10
Consumer Cyclicals
Guilin Tourism Co. Ltd. (000978.SZ): 2011 net profit pre-announcement below expectations, still
Sell
11
S1 (012750.KS): Above expectations, but 2012 guidance looks aggressive
12
Hankook Tire (000240.KS): Below expectation, yet OP guidance looks conservative
13
Titan Industries (TITN.BO): Below expectations: Jewellery sales miss, margins above estimates
14
Hyundai Department Store (069960.KS): Below expectations; Still see downside risk to
consensus
15
Far Eastern Department Stores (2903.TW): CNY sales update; dragon year baby boom impact
limited; Neutral
16
Automotive Holdings Group (AHE.AX): Jeff Wignall Group acquisition
17
Australia: Media: Media Sector Outlook 2012
18
Guangzhou Automobile Group Co (2238.HK): Merger plan with GAC Changfeng approved by
CSRC; Neutral
19
Breville Group Ltd (BRG.AX): Strong trading update
20
Navitas Ltd (NVT.AX): Weak 1H12 result on an 'unsound' SAE performance
21
Consumer Staples
Woolworths (WOW.AX): 2Q12 sales in line; divesting Dick Smith business
22
Lock & Lock Co. (115390.KS): Current share price implies zero growth beyond 2012E; keep Buy
23
Energy
Nexus Energy (NXS.AX): 2Q disappoints, Longtom reserves review expected March
24
New Zealand Oil & Gas (NZO.NZ): 2Q report: Building up to debut international test
25
AWE Limited (AWE.AX): 2Q - Still on track - Indonesian and WA shale wells the next focus
26
Tap Oil (TAP.AX): 4Q in line - High-impact Tallaganda-1 well drilling soon
27
Origin Energy (ORG.AX): Disappointing 2Q report - Otway issues weaken production
28
Energy Resources Of Australia Ltd. (ERA.AX): First Take: ERA full year result - in line but more
warnings
29
Financial Services
South Korea: Insurance: Property & Casualty: 3QFY3/12 non-life results: Hits by one-offs, but
solid core operations
30
ICICI Bank (ICBK.BO): Above expectations on solid NII, cost controls; Reiterate Buy
31
Indonesia: Banks: Areas to watch in 2012: NIM sustainability & loan growth potential
32
Mapletree Commercial Trust (MACT.SI): In line with expectations on solid execution; strong
33
visibility
Punjab National Bank (PNBK.BO): In line with expectations, asset quality an overhang; retain
Buy
34
Australia: Banks: Revenue pressures evident, but loan repricing to partially offset
35
Industrials
Sands China (1928.HK): HK$0.58 interim DPS. Not ruling out possibility of a final DPS
36
Havells India (HVEL.BO): In line with expectations on revenue + strong overseas margins
37
Technology
Samsung SDI Co. (006400.KS): Below expectations; limited battery margin recovery to cap
upside
38
Ctrip.com International (CTRP): Hotel coupon price promotions suggest intensified competition
39
Telecom Services
Australia: Telecom Services: Telecom sector outlook 2012
40
Other
Equity Strategy: Assessing earnings risk heading into reporting season
41
Monthly Market Review: Australia market review: January 2012
42
New Zealand: Introducing the New Zealand Focus List
43
New Zealand: Monthly wrap: NZSX50 starts the year up 0.7%
44
Asia-Pacific Afternoon Summary
February 1, 2012
Focus Items
China: Portfolio Strategy Research: MXCN earnings: more cuts to come, but worst appears behind us
1
Helen Zhu (Hong Kong): helen.zhu@gs.com, +852-2978-0048
Goldman Sachs (Asia) L.L.C.
Timothy Moe, CFA (Hong Kong): timothy.moe@gs.com, +852-2978-1328
Goldman Sachs (Asia) L.L.C.
Hanfeng Wang, Ph.D, CFA (Beijing): hanfeng.wang@ghsl.cn, +86(10)6627-3318
Beijing Gao Hua Securities Company Limited
Ben Bei (Hong Kong): ben.bei@gs.com, +852-2978-1220
Goldman Sachs (Asia) L.L.C.
Chenjie Liu (Beijing): chenjie.liu@ghsl.cn, +86(10)6627-3324
Beijing Gao Hua Securities Company Limited
Ramasubramanian Dharmaraj (Bangalore): ramasubramanian.d@gs.com, (212) 934-9678
Goldman Sachs India SPL
Ketaki Garg (Bangalore): ketaki.garg@gs.com, (212) 934-6319
Goldman Sachs India SPL
Earnings in the spotlight for the next few months
MXCN index earnings have been continuously trimmed since 2Q11, and we foresee more cuts for another
quarter or two (I/B/E/S consensus 2012E EPS growth is 12% vs GS top-down of 8%). We think the worst is
already behind us, however: index earnings sentiment troughed in 4Q11, cuts are decelerating (I/B/E/S
2012E has been cut by 6pp already), and the earnings outlook for most large cap sectors is stable. Leading
indicators look reasonable for 4Q11, although 1Q12 may bring a bit more pressure.
More responsive cyclical policy may limit GDP/earnings downside
Some macro fine-tuning has commenced, and desire for cyclical stability ahead of 4Q12 leadership rotation
may protect on the downside in terms of GDP/earnings. These factors support China’s relative return
potential, while absolute returns hinge on valuation re-rating (driven by global factors and pace of China’s
structural reforms) off the current low base.
But beware some landmines: industrials, materials and property
We feel capital goods, shipping, property, materials and select consumer sectors (durables, staples) still pose
earnings downside surprise risks and thus should be avoided during results season. We maintain OW in
banks and oil (low earnings risks; upside potential from regulation) and under-owned consumer with more
balanced earnings outlook (such as autos).
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Other Headlines
Basic Materials
Lynas (LYC.AX): 2QFY12 production report
LYC.AX, A$1.33
Market cap
US$2,400 mn
Target price
A$1.90
Fiscal y/e Jun
Net inc. (A$)
2012E
2013E
(49.3 mn) 445.1 mn
EPS (A$)
EPS growth
(0.03)
0.24
5.0%
916.5%
P/E
--
5.6X
Dividend yield
--
8.3%
Investment Lists
Australia/NZ Buy List
Coverage view
Attractive
Ian Preston (Melbourne): ian.preston@gs.com, +61(3)9679-1453
Goldman Sachs Australia Pty Ltd
Paul Hissey (Melbourne): paul.hissey@gs.com, +61(3)9679-1779
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
What's changed
Pre-operating License: LYC advises that the Malaysian authorities have all the documentation required and
expects a recommendation to be made for consideration by the Malaysian cabinet in February.
Mt Weld: the concentrator plant continues to operate ahead of expectation for both final grade and recovery
and has been tested at the required run rate pending the completion of the Lynas Advanced Materials Plant
(LAMP) in Malaysia.
LAMP: LYC now expects construction completion early 4QFY12E and pending the formal issuing of the preoperating license for LAMP, 1st concentrate could be treated in April 2012.
Corporate: Net debt A$5.7 mn (A$0.6 mn). Post quarter end, LYC initiated a convertible bond issue of
US$225 mn of which US$50 mn has been received with US$175m subject to technical due diligence in
February 2012.
Implications
LYC has sufficient funding available to bring the LAMP into production and the key issue remaining is the
granting of the pre-operating license which will allow commissioning and the ramp-up of the plant to
commence.
Valuation
We have updated our estimates for the actual cash position as at the end of December 2011. We currently
estimate 1st production in April 2012 which is subject to LYC receiving the pre-operating license in February.
We have no change to our 12 month target price of $1.90 which is a combination of PER and DCF.
Key risks
The granting of the pre-operating license. Further delays beyond mid 2012 would impact the cash position
and potentially require additional funds.
Independence Group (IGO.AX): 2QFY12 production report: Production better; lowering FY13E EPS
IGO.AX, A$3.95
Market cap
US$970.9 mn
Target price
A$3.30
Fiscal y/e Jun
2012E
2013E
Net inc. (A$)
7.3 mn
12.0 mn
0.03
0.05
(80.5%)
56.1%
119.9X
76.8X
0.3%
--
EPS (A$)
EPS growth
P/E
Dividend yield
Investment Lists
Australia/NZ Sell List
Coverage view
Attractive
2
Ian Preston (Melbourne): ian.preston@gs.com, +61(3)9679-1453
Goldman Sachs Australia Pty Ltd
Paul Hissey (Melbourne): paul.hissey@gs.com, +61(3)9679-1779
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
What's changed
Long nickel mine: 2,498 tonnes Ni at A$4.69/lb Ni payable against our forecast of 2,300 tonnes Ni at
A$4.53/lb Ni metal payable.
Jaguar operations: 2,088 t Cu and 3,134 t Zn at an average cash cost of A$0.44 /lb payable zinc metal
against our forecast of 1,560 t Cu and 3,730 t Zn at an average cost of A$0.16/lb payable zinc metal.
Implications
Incorporating the actual production data for 2QFY12, as well as slightly lower production and higher
production at Jaguar going forward, results in changes to our forecasts.
As a result of higher Ni and Cu production, and timing of sales, the company realised better revenues for
2QFY12 than we forecast. This leads to an upgrade (albeit off a low base) to our EPS estimates for the
Goldman Sachs Global Investment Research
3
Asia-Pacific Afternoon Summary
February 1, 2012
remainder of FY12E.
The downgrades to our FY13/14 EPS estimates (material in FY13 and minor in FY14) arise from our
upwardly revised cost projections (from Jaguar) and lower grades throughout the period.
Valuation
We therefore retain our Sell rating and lower our 12-month P/E and DCF-based target price to A$3.30 (was
A$3.50) as a result of the materially lower earnings we now forecast for FY13E.
Key risks
The key risk to our negative view for IGO is better metal prices driving higher earnings and/or a significant
new exploration discovery.
Kingsgate Consolidated (KCN.AX): 2QFY12 production result underpins confidence in FY12 EPS growth
KCN.AX, A$7.65
Market cap
US$1,139 mn
Target price
Fiscal y/e Jun
Net inc. (A$)
EPS (A$)
A$10.50
2012E
2013E
123.6 mn 237.1 mn
0.88
1.68
182.3%
90.2%
P/E
8.6X
4.5X
Dividend yield
5.8%
11.0%
EPS growth
Investment Lists
Australia/NZ Buy List
Coverage view
Attractive
4
Paul Hissey (Melbourne): paul.hissey@gs.com, +61(3)9679-1779
Goldman Sachs Australia Pty Ltd
Ian Preston (Melbourne): ian.preston@gs.com, +61(3)9679-1453
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
What's changed
KCN has reported a strong 2QFY12E production report largely due to higher throughput at Chatree and a
recovery in grade at Challenger mines.
Group production: 53.3 koz Au @ US$608/oz vs. our estimate of 42.0 koz Au @ US$704/oz (incl. royalties).
Implications
The strong production result underpins the potential for KCN’s 1HFY12E EPS to almost equal FY11 and
achieve our forecast +182% FY12E EPS growth.
Valuation
Incorporating the result and lowering the planned mining grade from Chatree pending access to the Chatree
North Area, post the rain-affected delays, results in a 7.9% EPS downgrade to FY12E. We have taken a
more conservative view on the likely grade profile at Chatree over the next few years, which lowers FY13E
EPS by 13.8% and our valuation to A$7.82 (A$8.38).
Given lower earnings offset by increased confidence in the Chatree expansion, we lower our 12 month target
price, which is derived from a combination of PER and DCF, to A$10.50 (previously A$11.15).
Key risks
The near-term production risks associated with lower grades and or lower throughput at either Challenger or
Chatree pose the greatest risk to our positive view for KCN.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Aditya Birla Minerals (ABY.AX): 3QFY12 production report: Production in line; sales higher
ABY.AX, A$0.89
Market cap
US$294.8 mn
Target price
A$0.80
Fiscal y/e Mar
2012E
2013E
37.1 mn
61.5 mn
0.12
0.20
(35.4%)
65.9%
P/E
7.5X
4.5X
Dividend yield
6.7%
11.2%
Net inc. (A$)
EPS (A$)
EPS growth
Investment Lists
Australia/NZ Sell List
Coverage view
Attractive
Ian Preston (Melbourne): ian.preston@gs.com, +61(3)9679-1453
Goldman Sachs Australia Pty Ltd
Paul Hissey (Melbourne): paul.hissey@gs.com, +61(3)9679-1779
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
What's changed
The company has released its 3QFY12 production report, which outlines the following production outcomes:
Nifty: 11.6 kt Cu @ A$2.59/lb Cu vs. our forecast of 12.6 kt Cu @ A$2.34/lb Cu. Nifty Oxide remains under
care and maintenance.
Mt Gordon: 3.8 kt Cu vs. our forecast of 2.8 kt Cu (C1 cash costs not explicitly reported).
ABY sold more copper than it produced during the quarter, implying some draw down of inventory.
Drilling also continued at the Maroochydore Resource, which currently contains 41.4 mt @ 0.8% Cu.
Implications
Incorporating these actuals into our model results in a 9.2% increase in our FY12E EPS – driven solely by the
higher sales volume.
Valuation
There is a slight positive impact (+0.9%) on our base NPV, which rises to A$0.98 /share. Given the lack of
data around inventory movements (which drive the earnings change) we have not made any additional
changes to our NPV and P/E-based 12-month target price of A$0.80.
Key risks
The key risk to our view on the stock is obviously a rise in copper prices, particularly given the inherent
leverage of the stock.
Teranga Gold (TGZ.AX): 4QFY11 production result: Higher grade = lower costs
TGZ.AX, A$2.29
Market cap
US$594.6 mn
Target price
A$3.20
Fiscal y/e Dec
2011E
2012E
Net inc. (US$)
(10.3 mn)
53.1 mn
(0.04)
0.22
(1,803.5%)
616.4%
P/E
--
11.2X
Dividend yield
--
--
EPS (US$)
EPS growth
Investment Lists
Australia/NZ Buy List
Coverage view
Attractive
5
6
Ian Preston (Melbourne): ian.preston@gs.com, +61(3)9679-1453
Goldman Sachs Australia Pty Ltd
Paul Hissey (Melbourne): paul.hissey@gs.com, +61(3)9679-1779
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
What's changed
The company has released its 4QFY11 production result, which was ahead of our expectations due to a
higher grade achieved at Sabodala. Production details include:
Milled: 0.6 mt @ 2.10g/t Au for 36.7koz (against our estimates of 0.6 mt @ 1.95g/t Au for 35.0koz).
Cash costs: US$902/oz against our estimate of US$988/oz. The lower costs were due to the higher grade
achieved.
Implications
Incorporating the result into our model results in a small increase to earnings in FY11E (+US0.7¢ to US-4.2¢
per share, and an earnings downgrade in FY12E as a result of our downward revised production outlook (we
are now at the bottom of guidance).
Valuation
Our DCF valuation falls by A$0.03 following our changes, and we lower our 12-month P/E and DCF-based
target price to A$3.20 from A$3.25 as a result of the decrease in our FY12E earnings forecast.
The stock remains relatively inexpensive when observing the current FY13E P/E of 8.5X and P/FCF of 4.7X.
Key risks
The key risk to our Buy rating is the fact that TGZ is a single mine operation, and thus operational risk will
directly impact the financial performance of the company.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
LG Chem (051910.KS): Below expectations: expect better 2012E, but valuation full
051910.KS, W374,000
Market cap
US$21,987 mn
Target price
Fiscal y/e Dec
Net inc. (W)
EPS (W)
W380,000
2012E
2013E
2,300 bn
2,543 bn
34,713
38,377
EPS growth
P/E
Dividend yield
6.9%
10.6%
10.8X
9.7X
1.2%
1.3%
Investment Lists
Neutral
Coverage view
Cautious
Sean Choi (Seoul): sean.choi@gs.com, +82(2)3788-1791
Goldman Sachs (Asia) L.L.C., Seoul Branch
What surprised us
After market close on Jan 31, LG Chem (LGC) reported preliminary 4Q11 results that underperformed both
our and consensus estimates. Revenue, EBIT, and net profit came in at 6.4%, 18.2%, and 18.2% below our
estimates, respectively. The weakness relative to our estimates was largely driven by weakness in its
chemicals business. According to management, the weakness was driven by weak chemical product prices
and margins negatively affecting profit both through sales and inventory write-down. Management guided for
a better 2012, citing (1) potential for better chemical product margins as Chinese demand gradually recovers
amidst thin inventory situation; and (2) improving demand for IT products including smart phones, tablet PCs,
and 3D TVs. Although LGC did not give specific figures, they noted that LCD glass substrate production yield
was improving and that they plan to start mass production in mid-2012.
What to do with the stock
Based on the result we cut 2012E/2013E EPS by 5.9%/5.6% with BPS down by 1.6%/1.4% as we lower
chemical product price and margin assumptions. We maintain Neutral and our 2012E P/B-based (2.4X) 12m
TP of W380,000. Although we expect 2012E to be a better year for LGC, with EPS growing 6.9% yoy (up
from 1.1% in 2011), we do not find its current valuation compelling with potential share price upside of only
1.6%. Key risks to our view include cyclicality of the petrochemical industry, end-market demand in key EM
markets (downside); premature market focus on the long-term outlook of auto Li-ion batteries and LCD glass
substrate (upside) and depreciation of the KRW against the JPY (upside).
BHP Billiton (BHP.AX): Earnings estimate update
BHP.AX, A$37.48
Market cap
US$212,203 mn
Target price
Fiscal y/e Jun
A$51.22
2012E
2013E
Net inc. (US$) 19,350 mn 21,684 mn
EPS (US$)
EPS growth
P/E
Dividend yield
3.61
4.05
(7.7%)
12.1%
11.0X
9.8X
2.9%
3.1%
Investment Lists
Australia/NZ Buy List
Coverage view
Attractive
7
8
Neil Goodwill (Melbourne): neil.goodwill@gs.com, +61(3)9679-1778
Goldman Sachs Australia Pty Ltd
Owen Birrell (Melbourne): owen.birrell@gs.com, +61(3)9679-1020
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
Changes and Implications
We have updated our estimates to reflect updated commodity prices and premiums (particularly manganese),
lagging prices/costs and reviewed some unit cost estimates and tax. We do not view these changes as
material, and there is no change to our investment thesis, rating or price target.
Valuation
We have raised our 12-month NPV-based target price (with adjustments for commodity price and earnings
estimate directional changes) 0.8% to A$51.22. Risks to the target price include commodity price
assumptions, production and sales volumes and currency cost pressures.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Hindustan Zinc (HZNC.BO): Minor estimate revisions
HZNC.BO, Rs135.50
Market cap
US$11,498 mn
Target price
Rs132.00
Fiscal y/e Mar
Net inc. (Rs)
2012E
13.22
15.00
EPS growth
14.0%
13.5%
P/E
10.3X
9.0X
0.7%
0.7%
Dividend yield
Pritesh Vinay (Mumbai): pritesh.vinay@gs.com, +91(22)6616-9038
Goldman Sachs India SPL
Kunal Singh, CFA (Bangalore): kunal.singh@gs.com, +91(80)6637-8724
Goldman Sachs India SPL
2013E
55,842 mn 63,361 mn
EPS (Rs)
9
Changes and Implications
We have updated our estimates. We do not view these changes as material, and there is no change to our
investment thesis, rating or price target.
Investment Lists
Neutral
Coverage view
Neutral
Rio Tinto (RIO.AX): Updating earnings estimates
RIO.AX, A$69.16
Market cap
US$138,974 mn
Target price
Fiscal y/e Dec
A$86.16
2011E
2012E
Net inc. (US$) 15,256 mn 13,823 mn
EPS (US$)
7.96
7.51
13.5%
(5.7%)
P/E
9.2X
9.7X
Dividend yield
1.7%
1.8%
EPS growth
Investment Lists
Australia/NZ Buy List
Coverage view
Attractive
10
Neil Goodwill (Melbourne): neil.goodwill@gs.com, +61(3)9679-1778
Goldman Sachs Australia Pty Ltd
Owen Birrell (Melbourne): owen.birrell@gs.com, +61(3)9679-1020
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
Changes and Implications
We have updated our estimates. The changes mainly reflect the removal of exploration expenditure which we
had included at the group line following guidance at RIO’s seminar in November but we understand is
accounted for at the Divisional level and was already included in our estimates. We also updated our
estimate of the number of shares on issue following the continuation of the buyback.
In addition we have included an estimate for an asset write down in Aluminium Division of $5Billion but this is
not part of our underlying earnings estimate.
We do not view changes to the underlying earnings as material, and there is no change to our investment
thesis, rating or price target.
Valuation
Our 12-month price target of A$86.16 has not changed and is based on DCF with adjustments for near term
factors including earnings revisions and commodity revision direction. Key risks include commodity price
outcomes, production risks and operating currency movements.
Consumer Cyclicals
Guilin Tourism Co. Ltd. (000978.SZ): 2011 net profit pre-announcement below expectations, still Sell
Xufa Liao, CFA (Shanghai): xufa.liao@ghsl.cn, +86(21)2401-8902
Beijing Gao Hua Securities Company Limited
Zhijing Liu (Shanghai): zhijing.liu@ghsl.cn, +86(21)2401-8943
Beijing Gao Hua Securities Company Limited
What's changed
On Jan 31, Guilin pre-announced 2011 earnings, with 2011 net profit in a range of -10% yoy to +5%. This
Goldman Sachs Global Investment Research
11
Asia-Pacific Afternoon Summary
February 1, 2012
means that 2011 net profit was in a range of Rmb63.4mn to Rmb74.0mn, much lower than our expected level
of Rmb124mn.
Implications
The main reason for the shortfall is that the company only sold 40 ares of land for its real estate business,
much lower than its guided level of 210 ares. Thus land sales contributed only net profits of Rmb11mn, 78%
less than our expected Rmb49mn. Aside from this, net profit excluding land sales was Rmb52mn to
Rmb63mn, still 16%-30% lower than our expected Rmb75mn. This is partly because of the Rmb11mn profit
contribution from Jinggangshan Tourism, lower than our expected Rmb16mn. The company did not disclose
other details. We cut our profit estimates to reflect 2011E real estate business and Jinggangshan Tourism.
We maintain our land sales forecast in 2012, and expect the company to complete land sales of remaining
168 ares in 2013. We thus change our 2011-13E EPS to Rmb0.2/0.33/0.33, -42%/-8%/+46% versus previous
estimates. The change in 2012E EPS was mainly because of the ower profit base of Jinggangshan Tourism
in 2011E.
Valuation
We lower our 12-month target price by 4% to Rmb7.60, mainly reflecting lower earnings estimate in 2012E.
We believe the deferring of land sales is a non-recurring event, and do not think it will materially impact
company value. We reiterate our Sell rating.
Key risks
Greater-than-expected tourist growth.
S1 (012750.KS): Above expectations, but 2012 guidance looks aggressive
012750.KS, W57,000
Market cap
US$1,921 mn
Target price
W62,000
Fiscal y/e Dec
2011E
2012E
Net inc. (W)
131 bn
152 bn
3,454
3,998
EPS growth
17.6%
15.8%
P/E
16.5X
14.3X
1.9%
2.0%
EPS (W)
Dividend yield
Investment Lists
Neutral
Coverage view
Neutral
12
Paul Hwang (Seoul): paul.hwang@gs.com, +82(2)3788-1176
Goldman Sachs (Asia) L.L.C., Seoul Branch
HJ Moon (Seoul): hj.moon@gs.com, +82(2)3788-1728
Goldman Sachs (Asia) L.L.C., Seoul Branch
What surprised us
S1 released 4Q11 results where net profit was 15%/11% above Bloomberg consensus / our estimate while
operating profit was in line with market consensus / our estimate. We attribute higher-than-expected net profit
to stronger-than-expected equity method gain from subsidiaries, including Secui.com. While sales were 6%
above our estimate thanks to continuous strong sales at non-alarm business, OPM was below our estimate
due to poor sales mix, i.e., lower-than-expected sales portion from lucrative alarm security business. Apart
from 4Q11 results, S1 roughly guided at +20%/+20% yoy sales/OP growth in FY12E, along with about 50k
net subscriber increase (vs. 29k net subscriber increase in FY11). We think 20% yoy sales growth target
would be somewhat aggressive, given: 1) we are likely to see small decline in ARPU as S1 aims to generate
50% of net subscriber increase during 2012E through lower ARPU product, Secom Homz; and 2) we need to
see about +40% yoy increase in sales from non-alarm business (vs. +31% yoy in FY11) even if we assume
S1 achieves 50k net subscriber increase without ARPU decline from its alarm security business as alarm
security still accounts for 70% of revenue.
What to do with the stock
We think S1’s rather aggressive sales / new subscriber increase target could spark concern on pace of
margin expansion outlook and we maintain Neutral rating. After revising FY11E-13E EPS estimates by 4-5%
(reflecting higher equity method gain), we raise our 12-m P/E-based TP to W62,000 (W59,000 previously),
which implies FY12E P/E of 16X (same as before). Risks are faster/slower-than-expected net subscriber
growth and higher/lower-than- expected profitability from non-alarm business.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Hankook Tire (000240.KS): Below expectation, yet OP guidance looks conservative
000240.KS, W44,850
Market cap
US$6,055 mn
Target price
W49,000
Fiscal y/e Dec
2011E
2012E
Net inc. (W)
356 bn
706 bn
2,342
4,639
(18.6%)
98.1%
19.1X
9.7X
0.8%
0.8%
EPS (W)
EPS growth
P/E
Dividend yield
Investment Lists
Neutral
Coverage view
Neutral
Paul Hwang (Seoul): paul.hwang@gs.com, +82(2)3788-1176
Goldman Sachs (Asia) L.L.C., Seoul Branch
HJ Moon (Seoul): hj.moon@gs.com, +82(2)3788-1728
Goldman Sachs (Asia) L.L.C., Seoul Branch
What surprised us
Hankook Tire reported more detailed 4Q11 results where adjusted operating profit (excluding forex-related
gain/loss) / recurring profit were 10%/38% below Bloomberg consensus, or 1%/37% below our estimates.
While adjusted operating profit were in line with our estimate, lower-than-expected recurring profit mainly
came from W24bn forex-related loss due to weakened Hungarian currency (given Euro-denominated
borrowings carried by Hungarian arm).
Apart from 4Q11 results, Hankook Tire guided W7.2tr sales (+12% yoy) and W818bn OP (+44% yoy) for
FY12E. While we think the sales target could be challenging (given recent weaker-than-expected demand,
especially in Europe, which would make it difficult for Hankook Tire to implement additional price hike), we
think OPM guidance may be too conservative (given Hankook Tire assumed N/R and S/R price of $4,339/ton
and $4,117/ton for 2012E, notably above current spot prices).
What to do with the stock
Despite weaker-than-consensus 4Q11 results, we do not expect to see notable share price pullback, given a
key area of the miss stemmed from forex-related loss, where some of those could be recouped in FY12E
assuming no major incremental credit / economic shock in Europe from here. While we lower FY11E EPS to
reflect higher-than-expected forex-related loss, we raise FY12E-13E EPS by 4-11% to reflect larger-thanexpected production capacity ramp-up and lower raw material input costs and raise our 12-m TP to W49,000
(from W45,900), applying target P/B of 1.9X (on the back of 20% FY12E ROE) to FY12E BVPS (prior 1.8X,
18%). Retain Neutral. Risks are higher-/lower-than-expected ASP hikes and higher-/lower-than-expected raw
material prices.
Titan Industries (TITN.BO): Below expectations: Jewellery sales miss, margins above estimates
TITN.BO, Rs202.30
Market cap
US$3,607 mn
Target price
Fiscal y/e Mar
Net inc. (Rs)
EPS (Rs)
Rs221.00
2012E
8.49
EPS growth
39.8%
25.3%
P/E
29.8X
23.8X
0.9%
1.1%
Investment Lists
Asia Pacific Buy List
Coverage view
14
Puneet Jain (Mumbai): puneet.jain@gs.com, +91(22)6616-9046
Goldman Sachs India SPL
Aditya Soman (Mumbai): aditya.soman@gs.com, +91(22)6616-9345
Goldman Sachs India SPL
2013E
6,017 mn 7,539 mn
6.78
Dividend yield
13
Neutral
What surprised us
Titan reported 3QFY12 sales of Rs24.4 bn (3% below GSe) largely on account of lower-than-expected
revenue growth in the jewellery business. We summarize performance of the various businesses: Jewellery:
Lower-than-expected revenue growth at 25% was primarily on account of dispatches lagging customer sales
growth of 33%. EBIT margins were 30bp above our estimates, resulting in segmental EBIT inline with
estimates. Watches: Titan reported lower-than-expected margins as full benefit of price increase would be
reflected in 4QFY12. Others: Revenue growth of 70% was significantly ahead of our estimates with division
turning profitable with margin of 6.5% (vs. our expectation of flat margins). Key highlights of call: (1) Store
expansion remains on schedule with total area under operations exceeding 1 mn sq. ft, (2) Volatile gold
prices remain a challenge for pursuing higher growth, (3) Cash balances of Rs10+ bn and customer
advances at Rs8 bn, (4) dividend policy to remain inline with recent past.
What to do with the stock
We retain our Buy on Titan with 12m TP of Rs221. We believe Titan shares are attractive given: (1) India’s
rising income and demographics, (2) consumption shift from unbranded to branded, and (3) demand for gold
purchases in India. We have made minor tweaks to our FY13E-14E EPS estimates. We expect earnings EPS
CAGR of 29% for FY11-14E, the highest of our coverage group. Our TP is based on 26X FY13E EPS, in line
with our Director’s Cut analysis and 5-year 12-month fwd P/E average. Titan has the highest CROCI vs. its
global peers. We see longer-term upside risk at an implied FY14E based valuation of Rs273 (35% variance
from current price), on EPS growth of 23% in FY14E. Risks: 1) Weaker customer demand, and 2) increased
competition.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Hyundai Department Store (069960.KS): Below expectations; Still see downside risk to consensus
069960.KS, W183,000
Market cap
US$3,686 mn
Target price
Fiscal y/e Dec
W174,000
2011E
2012E
Net inc. (W)
358 bn
354 bn
EPS (W)
15,282
15,125
EPS growth
19.0%
(1.0%)
P/E
12.0X
12.1X
0.3%
0.3%
Dividend yield
Investment Lists
Neutral
Coverage view
Neutral
Paul Hwang (Seoul): paul.hwang@gs.com, +82(2)3788-1176
Goldman Sachs (Asia) L.L.C., Seoul Branch
HJ Moon (Seoul): hj.moon@gs.com, +82(2)3788-1728
Goldman Sachs (Asia) L.L.C., Seoul Branch
What surprised us
Hyundai Department Store (HDS) reported 4Q11 results where OP/RP/NP were 5%/17%/22E below
Bloomberg consensus, or -3%/+4%/-16% against our estimates. While gross sales were 5% below our
estimate due to weakened consumer sentiment from 4Q11, OPM was slightly higher than our estimate which
we attribute to better-than-expected ramp up at newly opened stores. Net profit was below our estimate due
to higher effective tax ratio.
What to do with the stock
We maintain our Neutral rating as we continue to see notable downside risk to consensus FY12E NP
estimate (-17% yoy) as we think the street is too optimistic on SSSG assumption and pace of profitability
expansion at both existing stores and newly opened stores. While we revise FY11E-13E EPS estimates by 24% (as we assume a higher effective tax ratio), we adjust our 12-m SOTP-based TP to W174,000 (from
W173,000), derived by applying 11X multiple to HDS’s FY12E core earnings and adding HDS’s asset value
in Hyundai Home Shopping (057050.KS, NC) and Hyundai HCN (126560.KS, NC). We prefer Shinsegae
(004170.KS, CL-Buy, W276,000) / E-Mart (139480.KS, Buy, W271,500) / CJ O Shopping (035760.KQ, Buy,
W277,400) over HDS. Risks are Stronger-/weaker-than-expected consumption and better-/worse-thanexpected execution on new store openings.
Far Eastern Department Stores (2903.TW): CNY sales update; dragon year baby boom impact limited;
Neutral
2903.TW, NT$39.90
Market cap
US$1,767 mn
Target price
Fiscal y/e Dec
Net inc. (NT$)
EPS (NT$)
EPS growth
P/E
Dividend yield
NT$39.00
2011E
1.92
(5.0%)
3.6%
21.5X
20.8X
2.0%
2.5%
Investment Lists
Neutral
Coverage view
16
Roxan Hsu (Taipei): roxan.hsu@gs.com, +886(2)2730-4184
Goldman Sachs (Asia) L.L.C., Taipei Branch
Nicholas Huang (Taipei): nicholas.huang@gs.com, +886(2)2730-4192
Goldman Sachs (Asia) L.L.C., Taipei Branch
2012E
2,370 mn 2,528 mn
1.85
15
Neutral
What's changed
The Economic Daily (Jan 31) pointed out that FEDS’s 8 old stores reported strong growth of 6.5% yoy during
the Chinese New Year holidays, especially for the Hualian, Kaohsiung, and Tainan stores. While sales at the
new Panchiao and Taichung stores remained strong at NT$70-80mn per day, Sogo sales were 7-8% below
management’s expectation due to lackluster traffic. Separately, the Commercial Times (Jan 5) noted that the
number of newborns could reach 200k in 2012, the dragon year, even higher than in 2011 which experienced
18% yoy growth. This could lift sales of baby products.
Implications
We expect FEDS old stores’ strong sales during Chinese New Year to be offset by Sogo’s weak
performance. Sogo has a stronger footprint in northern Taiwan, especially in the Taipei area. It
underperformed peers as customers went out of town for the long holiday.
We believe the high birth rate in the dragon year should have limited earnings impact on FEDS since baby
items only account for 5% of FEDS’ sales. Even if we assume 16% yoy sales growth (the same as the sales
growth in previous dragon year), the additional profit generated from baby products (from both FEDS TW and
Sogo TW) would only equal 3.9% of our 2012E pre-tax income.
Valuation
We raise our 2012E/13E net income forecasts by 1% to reflect the company’s performance during Chinese
New Year. We maintain our target Director’s Cut val ratio at 0.95X (30% discount to HK-listed peers) and 12month TP of NT$39 (20.3X 2012E EPS). We remain Neutral.
Key risks
Upside: Better-than expected new store performance; downside: negative news flow regarding its
management rights in Sogo TW.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Automotive Holdings Group (AHE.AX): Jeff Wignall Group acquisition
AHE.AX, A$1.95
Market cap
US$537.1 mn
Target price
Fiscal y/e Jun
A$2.05
2012E
2013E
59.1 mn
67.2 mn
0.23
0.26
EPS growth
0.2%
13.8%
P/E
8.6X
7.5X
Dividend yield
8.7%
10.0%
Net inc. (A$)
EPS (A$)
Investment Lists
Neutral
Coverage view
Neutral
17
George Batsakis (Melbourne): george.batsakis@gs.com, +61(3)9679-1245
Goldman Sachs Australia Pty Ltd
Will Charlston (Melbourne): will.charlston@gs.com, +61(3)9679-1813
Goldman Sachs Australia Pty Ltd
What's changed
Automotive Holdings Group (AHE) has acquired Jeff Wignall Group in Victoria for A$14 mn. Jeff Wignall
generates A$100 mn in revenue through 9 dealerships in Victoria (4 Ford, 1 Mitsubishi, and 4 Kia). AHE
expects settlement in March 2012 and the acquisition to be immediately earnings accretive.
Implications
The acquisition is relatively small on a group basis (i.e. Jeff Wignall revenue of A$100 mn represents 2.7% of
our forecast AHE FY12 revenue of A$3.7 bn). However, we believe this is a positive acquisition for the group
and builds its scale in the Victorian market. AHE currently generates c.3% of group automotive revenue in the
state through 3 dealerships despite Victoria representing 27% of the new car market in Australia. Also, the
acquisition is consistent with the company’s strategy of increasing market share through acquisition.
The acquisition provides us with additional comfort that the company will be able to achieve our EPS growth
forecasts for FY12-FY14 despite the weak consumer/economic environment. We expect Automotive EBITDA
to increase from A$95 mn in FY11 to A$99 mn in FY12 and A$101 mn in FY13.
Valuation
We increased our PER-based target price for AHE to A$2.05 (was A$1.70). We reduced the PER discount
we use to calculate the company’s target price given greater confidence in our FY12-FY14 EPS estimates.
AHE may benefit from improved inventory following supply disruption caused by the Japanese
earthquake/tsunami and Thailand floods in 2011.
Key risks
Upside: Recent acquisitions and capex drive long term EPS growth. Downside: Softer consumer spending
and weaker new car market.
Australia: Media: Media Sector Outlook 2012
18
Christian Guerra (Melbourne): christian.guerra@gs.com, +61(3)9679-1302
Goldman Sachs Australia Pty Ltd
Adam Alexander (Melbourne): adam.alexander@gs.com, +61(3)9679-1451
Goldman Sachs Australia Pty Ltd
Raymond Tong (Melbourne): raymond.tong@gs.com, +61(3)9679-1359
Goldman Sachs Australia Pty Ltd
Jacqueline Thai (Melbourne): jacqueline.thai@gs.com, +61(3)9679-1217
Goldman Sachs Australia Pty Ltd
Media Sector Outlook 2012: Cautious coverage view
We present our 2012 outlook for the Communications, Media and Entertainment sectors in a three part
series.
(1) Subdued consumption outlook in Australia and New Zealand
Our ad market outlook for 2012 is cast against the backdrop of subdued consumption growth. Our
economists expect slowing household income growth and declining household wealth to encourage lower
consumption.
(2) Flattish ad market growth in 2012
We expect the ad market to grow 1.7% in 2012, better than 2011’s 0.6% decline but below trend growth. The
London Olympic Games is likely to provide a modest bump to ad market growth in 2H CY12.
(3) Structural change will accelerate; more pain for the losers
Structural winners will continue gaining ad market share. Structural losers will continue ceding share, given:
(1) advancements in technology; (2) fragmentation; and (3) structural change accelerates in difficult ad
climates.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
(4) Social media set to join a very crowded party
Social media will take share – driving more fragmentation – as advertisers seek to connect with customers
and as social improves its insight/analysis.
(5) Traditional media pursuing new revenue streams with vigour
Publishers are changing their focus from cost reductions to new digital revenue streams. They face a number
of issues executing this strategy.
(6) Balance sheet positions critical, particularly for structural losers
The tough ad environment combined with structural pressures will see intense focus on the balance sheets of
structurally challenged stocks.
NWS/REA/CRZ Buy, APN Sell
We prefer structural winners – stocks with strong franchises/business models, differentiated and sustainable
competitive advantage, etc. When ad market conditions improve we will also chase those stocks offering best
ad market leverage. We recommend investors avoid those stocks facing mounting structural headwinds,
despite the perceived ‘value’ on offer.
Guangzhou Automobile Group Co (2238.HK): Merger plan with GAC Changfeng approved by CSRC;
Neutral
19
Yipeng Yang (Beijing): yipeng.yang@ghsl.cn, +86(10)6627-3189
Beijing Gao Hua Securities Company Limited
News
In the evening of Jan 31, 2012, GAC Changfeng (600991.SS, Not Covered) announced that the merger plan
with Guangzhou Auto received written approval from the China Securities Regulatory Commission (CSRC)
with the following details: 1) GAC will issue new A-shares and exchange for the outstanding GAC Changfeng
shares at a ratio of 1.6:1; 2) The existing shareholders of GAC Changfeng have an option to choose cash at
Rmb12.65 per share, and currently the No. 2 and 3 biggest shareholders of GAC Changfeng (Changfeng
Motor and Mitsubishi Motor) will opt for cash; 3) Two promoters: China National Machinery Industry Corp.
(SinoMack) and Guangdong Finance Investment Holding Co. (GFIH) are introduced to help provide cash
financing; 4) Once the deal closes, GAC will pay a total of Rmb2.4bn in cash and issue 287mn new A-shares
(4.7% of the current outstanding shares) as part of the merger with GAC Changfeng.
Analysis
We maintain our Neutral rating on GAC and our target price, implying 3.5% downside based on Jan 31 close.
Implications
Our 12-month target price of HK$8.12 is based on PB-ROE methodology. Maintain Neutral rating. Risks:
Higher/lower vol of new brands/models.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Breville Group Ltd (BRG.AX): Strong trading update
BRG.AX, A$2.95
Market cap
US$405.7 mn
Target price
A$3.30
Fiscal y/e Jun
Net inc. (A$)
2012E
2013E
41.2 mn
45.9 mn
0.32
0.35
EPS (A$)
EPS growth
16.9%
11.4%
P/E
9.3X
8.3X
Dividend yield
6.4%
7.2%
Investment Lists
Neutral
Coverage view
Neutral
George Batsakis (Melbourne): george.batsakis@gs.com, +61(3)9679-1245
Goldman Sachs Australia Pty Ltd
Will Charlston (Melbourne): will.charlston@gs.com, +61(3)9679-1813
Goldman Sachs Australia Pty Ltd
What's changed
Breville Group (BRG) expects 1H12 EBITDA to increase 16% to A$45mn and FY12 EBITDA to increase
13%-17% to A$65mn-A$67mn. This is above our estimates (before today’s upgrades) of A$40mn and
A$59.6mn, respectively. The first half result will be released on 23 February 2012.
Implications
In our view, this is a very strong trading update in a difficult environment and is well above our estimates.
North America (including Keurig distribution) was the key driver of the strength (i.e., we estimate 1H12
EBITDA +60% to $20m). However, we estimate 1H12 profit fell for both the Australian and International
divisions given a tough economic environment.
BRG’s full year FY12 guidance assumes 2H12 EBITDA growth of 8% to 19% (compared to pcp). We expect
continued strong growth from North America given higher market share (i.e., expanded product range and
store penetration). We believe trading in Australia and International will remain challenging in the near term
given the weak economic environment.
We increased our EPS estimates for FY12E-FY14E by 9%-11% following today’s trading update. There is no
change to our Neutral rating. In our view, BRG’s valuation remain attractive (FY12 PER 9.5x vs GS Small
Industrials PER of 11.9x) and the North American growth outlook remains positive. However, our key concern
is the impact of difficult trading conditions in Australia and Europe.
Valuation
Following upgrade to our estimates we have increased our 12-month P/E-based target price to A$3.30 (was
A$3.00).
Key risks
Upside: Acceleration in North America trading. Downside: weaker Europe impacting International division,
continued difficult trading in Australia.
Navitas Ltd (NVT.AX): Weak 1H12 result on an 'unsound' SAE performance
NVT.AX, A$2.88
Market cap
US$1,143 mn
Target price
Fiscal y/e Jun
Net inc. (A$)
EPS (A$)
EPS growth
P/E
Dividend yield
A$3.15
2012E
2013E
75.4 mn
87.9 mn
0.20
0.23
(6.9%)
16.6%
14.3X
12.3X
6.8%
8.0%
Investment Lists
Australia/NZ Sell List
Coverage view
Neutral
20
21
Mike Younger (Melbourne): mike.younger@gs.com, +61(3)9679-1812
Goldman Sachs Australia Pty Ltd
Anthony Longo (Melbourne): anthony.longo@gs.com, +61(3)9679-1834
Goldman Sachs Australia Pty Ltd
What's changed
NVT’s 1H12 result was 11% below our EBITDA forecasts while a low tax rate helped core NPAT and EPS to
a 7% miss versus our estimates.
While EBITDA rose 16%, this was entirely driven by the acquisition of SAE which materially missed earnings
expectations with EBITDA of A$11.9 mn against our forecast of A$17.3 mn and 2H11 EBITDA of A$17.2 mn.
Despite some one-off factors such as adverse FX moves (A$0.8 mn), lost earnings from the sale of SAE
Dubai (A$0.5 mn) and further acquisition-related costs (A$1.1 mn), this was still a disappointing outcome.
Organic EBITDA fell 8%, due largely to weak enrolments in the University Programs division (-8%) and
further poor English division results from the transition of Government AMEP contracts and a still soft
ELICOS market.
Implications
The poor SAE result adds to the high level of investor skepticism at the time of its acquisition given its limited
financial history, less defensive course offering and its EVA-dilution. As such, we expect the stock to de-rate
until a sustainable earnings base emerges and retain our Sell rating.
Our EBITDA forecasts have been cut by 7%-11%pa over FY12-FY14, with around half of this applied to SAE
and the other half applied to the University Programs and English segments. A lower forecast ongoing tax
rate reduces the magnitude of these cuts at the EPS level to 6%-7%pa.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Valuation
Our 12-month price target (relative EV/EBIT) falls 8% to A$3.15 (from A$3.41) and reflects a 33% premium to
the Small Industrials FY13E EV/EBITDA multiple. Our DCF valuation falls 5% to A$4.36 (from c.A$4.60).
Key risks
Upside: Australian student visa reforms boost enrolments earlier than expected; further new campus roll-out.
Consumer Staples
Woolworths (WOW.AX): 2Q12 sales in line; divesting Dick Smith business
WOW.AX, A$24.79
Market cap
US$32,150 mn
Target price
Fiscal y/e Jun
Net inc. (A$)
EPS (A$)
EPS growth
P/E
Dividend yield
A$28.35
2012E
2013E
2,200 mn 2,396 mn
1.80
1.95
3.5%
8.7%
13.8X
12.7X
5.3%
5.9%
Investment Lists
Neutral
Coverage view
Neutral
22
Phillip Kimber (Melbourne): phillip.kimber@gs.com, +61(3)9679-1128
Goldman Sachs Australia Pty Ltd
What's changed
2Q12 Group total sales rose 5.1% (Goldman Sachs +5.3%). WOW released the outcome of the strategic
review of its Consumer electronics business.
Australian Food & Liquor – 2Q12 comparable store sales growth moderated to +1.1% (Goldman Sachs
+1.8%). Notwithstanding strong store growth WOW has grown slightly below market (ABS ‘Food’ Category)
for the past 2 quarters.
Read-through for discretionary retail – Sales growth at Big W and Consumer Electronics Australia were
stronger than we anticipated and showed an improving trend. 2Q12 comparable store sales at Big W
declined 1.7% (Goldman Sachs -4.0%) and WOW stated that trading improved during December and into
January.
Consumer Electronics review – WOW will close up to 100 stores within the next 2 years and seek to divest
the remaining c.280 stores. A A$300 mn (pre-tax) restructuring provision will be incurred in 1H12. The
announcement is a positive for sentiment towards the consumer electronics sector but it is not yet clear that it
will significantly change industry dynamics.
Implications
Sales momentum at the key Australian Food & Liquor business continues to slow. This, combined with startup business losses, is driving modest EPS growth in FY12. There is no change to our Neutral rating.
Valuation
There is no change to our earnings estimates. Our 12-month price target, based on a 1-year-forward P/E, has
fallen by 4% to A$28.35.
Key risks
Upside: Improvement in the Australian Food & Liquor business, capital management. Downside: Higher
industry competition.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Lock & Lock Co. (115390.KS): Current share price implies zero growth beyond 2012E; keep Buy
115390.KS, W32,900
Market cap
US$1,507 mn
Target price
W45,000
Fiscal y/e Dec
2011E
2012E
49 bn
93 bn
946
1,693
(29.2%)
78.9%
34.8X
19.4X
0.5%
0.5%
Net inc. (W)
EPS (W)
EPS growth
P/E
Dividend yield
Investment Lists
Asia Pacific Buy List
Coverage view
Neutral
23
Jeehye Song (Seoul): jeehye.song@gs.com, +82(2)3788-1773
Goldman Sachs (Asia) L.L.C., Seoul Branch
Paul Hwang (Seoul): paul.hwang@gs.com, +82(2)3788-1176
Goldman Sachs (Asia) L.L.C., Seoul Branch
What's changed
We trim 2011E-2013E EPS by 8-16% to reflect weaker-than-expected ytd sales trend and W6.1bn one-off
expenses related to inventory write-down (W2bn), liquidation of an overseas subsidiary (W2.5bn), and tax
forfeit (W1.6bn) in 4Q11.
Implications
Still forecast 28% 2012E sales growth. Despite the downward earnings revision, we forecast Lock & Lock
should deliver 2012E sales growth of 28%, driven by (1) product diversification domestically (e.g., cooking
ware, small-sized electronics), (2) growing home shopping infrastructure in China (i.e. CJ O Shopping
initiated 24 hour broadcasting in Guangzhou from Oct 2011), and (3) product diversification in China’s
discount store (e.g., introduction of thermos products).
Bear case scenario suggests 26% EPS downside: Even if sales growth slows to 18% (vs. 2008-11E sales
CAGR of 33%) and valuation multiple contracts to 20X (one standard deviation below its average since IPO,
against estimated 55% EPS growth) under our bear case scenario, estimated fair value comes at W29,000,
implying 11% downside.
Current share price implies zero growth beyond 2012E: DCF valuation, assuming zero growth from 2013E,
suggests fair value of around W32,000/share, which implies mere 4% downside from the current price. We
believe such long-term assumption as implied by the current share price is too pessimistic, given likely
increasing refrigerator penetration in China and the company’s product diversification and regional expansion
efforts.
Valuation
Reflecting downward earnings revision, we slightly cut our SOTP-based 12-month target price to W45,000
(from W48,000).
Key risks
Weaker-than-expected macro & stronger-than-expected raw material price.
Energy
Nexus Energy (NXS.AX): 2Q disappoints, Longtom reserves review expected March
NXS.AX, A$0.21
Market cap
US$294.5 mn
Target price
Fiscal y/e Jun
Net inc. (A$)
EPS (A$)
EPS growth
A$0.31
2012E
2013E
(5.5 mn)
0.0 mn
(0.00)
0.00
(156.8%)
100.5%
P/E
--
--
Dividend yield
--
--
Investment Lists
Neutral
Coverage view
Neutral
24
Mark Wiseman (Sydney): mark.wiseman@gs.com, +61(2)9321-8938
Goldman Sachs Australia Pty Ltd
Anthony Ta (Sydney): anthony.ta@gs.com, +61(2)9321-8812
Goldman Sachs Australia Pty Ltd
What's changed
Nexus Energy reported its December quarter results:
2Q Production:
Gas: 5.5 PJ (GS est 6.3 PJ)
Condensate: 46.9 kbbl (GS est 53 kbbl)
2Q Revenue: A$24.7 mn (GS est A$28.8 mn)
Cash balance: A$48.7 mn (A$13.9 lower than 1Q due to repayments of the Longtom senior debt facility,
Longtom offshore work expenditure, and Crux long lead item commitments).
Implications
Nexus’s 2Q production was below our expectations due to a lower level of Santos gas nominations under the
Longtom gas sales agreement.
We believe the near-term focus for now will remain finalizing Nexus’ deal with Shell to pursue a Shelloperated integrated gas and liquids development (set for April 2012). We expect Nexus to exercise its 2%
selldown (for A$75mn cash – this is already factored into our estimates).
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Valuation
Our valuation and 12-month price target (sum-of-the-parts) have declined by A$0.02 to A$0.31, on a Longtom
valuation review (we have assumed a slightly lower raw gas price based on ongoing revenue realization
data).
Key risks
Upside risks: (1) Progression of Shell Prelude-Crux HOA to binding, (2) Exploration upside within the greater
Crux area. Downside risks: (1) Failure to reach completion on the Shell HOA, followed by dilutive equity
raising, (2) Longtom reserve review (and further drilling requirements).
New Zealand Oil & Gas (NZO.NZ): 2Q report: Building up to debut international test
NZO.NZ, NZ$0.73
Market cap
US$232.5 mn
Target price
NZ$0.75
Fiscal y/e Jun
2012E
2013E
Net inc. (NZ$)
27.1 mn
33.4 mn
EPS (NZ$)
EPS growth
P/E
Dividend yield
0.07
0.09
(17.8%)
23.4%
10.5X
8.5X
4.1%
4.1%
Investment Lists
Neutral
Coverage view
Neutral
25
Matthew Henry (Auckland): matthew.henry@gs.com, +64(9)357-3203
Goldman Sachs New Zealand Limited
What's changed
New Zealand Oil (NZO) delivered 2Q revenue of NZ$24mn, +50% yoy, on 0.24 mmboe, -6% yoy. Revenue
growth was principally driven by a stronger oil price, Dated Brent +27% yoy. NZO’s production guidance for
FY12 is unchanged.
NZO continues to focus on growing its presence in Tunisia and Indonesia:
Tunisia: A final investment decision on the US$100mn Cosmos Concession (NZO’s 40% share) is due in
CY12.
Indonesia: In December NZO acquired a 22.5% stake in the Kisaran Permit in central Sumatra, which
comprises six prospects with mean prospective resources of >140 mmbbls (un-risked). An exploration well is
to be drilled during 2HFY12 on a >40 mmbbl prospect. NZO has also secured a second Joint Study
Agreement for a six month study in southern Sumatra.
New Zealand: NZO’s NZ focus remains on seeking additional partners on the Kakapo (NZO 90%) and
Barque (40%) prospects.
Implications
NZO’s 2Q and retained production guidance is consistent with our FY12E forecasts.
Valuation
NZO is trading at a 26% discount to our NZ$0.99 SOTP valuation, toward the lower end of the Australasian
oil and gas sector median of 31% across our coverage universe. Given the structural challenge of a highly
competitive environment for new resources and NZO’s unproven growth strategy, we do not anticipate
material valuation gap closure. Our discounted SOTP-based 12-month target price is unchanged at NZ$0.75.
Maintain Neutral.
Key risks
Upside/downside risks include a material change in the price of oil, NZD/USD exchange rate, and NZO’s
reserve estimates.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
AWE Limited (AWE.AX): 2Q - Still on track - Indonesian and WA shale wells the next focus
AWE.AX, A$1.50
Market cap
US$827.5 mn
Target price
A$1.75
Fiscal y/e Jun
Net inc. (A$)
2012E
2013E
23.0 mn
54.4 mn
0.04
0.10
243.1%
136.1%
34.0X
14.4X
3.3%
--
EPS (A$)
EPS growth
P/E
Dividend yield
Investment Lists
Neutral
Coverage view
Neutral
Mark Wiseman (Sydney): mark.wiseman@gs.com, +61(2)9321-8938
Goldman Sachs Australia Pty Ltd
Anthony Ta (Sydney): anthony.ta@gs.com, +61(2)9321-8812
Goldman Sachs Australia Pty Ltd
What's changed
AWE reported its December quarter results:
2Q Production: 1.35 mmboe (29% above GS est. 1.05 mmboe)
2Q Revenue: A$72 mn (4% below GS est. A$75 mn)
FY2012 production and revenue guidance reiterated at 5.0-5.5 mmboe (GS 5.0 mmboe) and A$270-300 mn
(GS A$312 mn) respectively.
Implications
The higher production outcome was driven by BassGas construction activity commencing later than we
expected. Revenue was broadly in line with our expectations (despite the higher BassGas production), due
primarily to the timing of oil liftings from Tui. We expect Tui revenues to be boosted in 3Q (AWE noted a large
oil lifting occurred in January, of 187,000 bbls net to AWE).
We maintain our Netural rating given recent share price strength.
Valuation
Our valuation has decreased slightly by 1% to A$2.00/share. We retain our 12-month price target of A$1.75
(based on a risked SOTP).
Key risks
Key upside risks: oil price, introduction of a quality partner to Perth Basin shale, progress toward Indonesia oil
development FID. Key downside risks: oil price, exploration outcomes, further WA fraccing approval delays.
Tap Oil (TAP.AX): 4Q in line - High-impact Tallaganda-1 well drilling soon
TAP.AX, A$0.78
Market cap
US$198.7 mn
Target price
A$0.82
Fiscal y/e Dec
2011E
Net inc. (A$)
1.6 mn (10.5 mn)
EPS (A$)
EPS growth
P/E
Dividend yield
27
Mark Wiseman (Sydney): mark.wiseman@gs.com, +61(2)9321-8938
Goldman Sachs Australia Pty Ltd
Anthony Ta (Sydney): anthony.ta@gs.com, +61(2)9321-8812
Goldman Sachs Australia Pty Ltd
2012E
0.01
(0.04)
(62.1%)
(772.1%)
120.3X
--
--
--
Investment Lists
Neutral
Coverage view
26
Neutral
What's changed
Tap Oil reported its December quarter results:
4Q Production: 117 kboe (in line with GS estimates)
4Q Revenue: A$11.2 mn (3% below GS est. A$11.5 mn)
Imminent exploration in WA-351-P: Tap expects the BHP-operated Tallaganda-1 well to spud Feb 2012,
targeting up to 1.3 Tcf (P10).
Implications
Quarterly production and revenue result was in line with our expectations.
We have revisited our DD&A estimates, resulting in some large upward earnings changes (non-cash).
Tallaganda drilling success could be a material share price catalyst for Tap. The Carnarvon Basin remains a
hot-spot for gas prospectivity (Hess and Chevron/Shell have had success) and LNG plants in the region
provide a potential avenue for commercialisation.
Maintain Neutral rating. While Tap’s shares are attractive from a value perspective, the outstanding Burrup
Fertilisers litigation over the future inability of the HJV to meet gas contract delivery terms due to lack of gas
remains a key issue preventing us from becoming more positive.
Valuation
Valuation raised 5% to $1.29/share. 12-month price target (risked SOTP) raised 9% to $0.82 to reflect the
imminent drilling catalysts with Tallaganda and to take into account recent market movements.
Key risks
Upside Risks: Oil price, Tallagana drilling, Ghana farmout, Manora FID, Zola asset sale. Downside Risks:
Burrup Fertilisers litigation outcome (for failure to supply gas as per GSA), Oil price, Disappointing exploration
outcomes.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Origin Energy (ORG.AX): Disappointing 2Q report - Otway issues weaken production
ORG.AX, A$13.76
Market cap
US$15,798 mn
Target price
A$15.85
Fiscal y/e Jun
Net inc. (A$)
2012E
0.81
0.96
EPS growth
13.8%
18.3%
P/E
17.0X
14.4X
3.6%
4.1%
Dividend yield
Investment Lists
Neutral
Coverage view
Mark Wiseman (Sydney): mark.wiseman@gs.com, +61(2)9321-8938
Goldman Sachs Australia Pty Ltd
Anthony Ta (Sydney): anthony.ta@gs.com, +61(2)9321-8812
Goldman Sachs Australia Pty Ltd
2013E
873.5 mn 1,064 mn
EPS (A$)
Neutral
What's changed
Origin Energy reported its December quarter results:
2Q Production: 28.5 PJ (11% below GS est. 32.1 PJ)
2Q Revenue: A$197.8 mn (2% below GS est. A$201.8 mn)
No major news on APLNG: Development activities continued with APLNG participating in 105 wells during
the quarter. An additional 9 fracs were completed, targeting the Walloons.
Implications
A disappointing production quarter primarily due to greater Otway basin maintenance downtime than we had
expected and curtailed production from the facility after restart due to plant stability issues. Revenue was
slightly below our expectations due to the lower production, but was partially offset by higher realised oil
prices.
Maintain our Neutral rating. Origin is our preferred integrated Utility – its dominant scale, flexible generation
portfolio and significant gas exposure see it well placed to manage risk and profit from changing market
conditions. However, despite the attractiveness of the Utilities business, ORG's substantial CSG-LNG
development exposure will likely continue to see it trade as an Energy stock (i.e. more volatility). In this
space, we still prefer Woodside (WPL.AX, A$34.21, Buy) and Oil Search (OSH.AX, A$6.60, Buy).
Valuation
Our valuation has decreased by 0.8% to A$18.59/share. We retain our 12-month price target of A$15.85
(based on a risked sum-of-the-parts).
Key risks
Upside risks: Oil price, Exploration outcomes, Domestic gas contracts. Downside risks: CSG-LNG sector
regulation/progress/cost pressure, retail customer retention in recently purchased NSW operations.
Energy Resources Of Australia Ltd. (ERA.AX): First Take: ERA full year result - in line but more warnings
ERA.AX, A$1.54
Market cap
US$715.5 mn
Target price
Fiscal y/e Dec
Net inc. (A$)
EPS (A$)
EPS growth
A$1.29
2011E
2012E
(60.7 mn) (137.0 mn)
(0.23)
(0.26)
(184.7%)
(13.0%)
P/E
--
--
Dividend yield
--
--
Investment Lists
Australia/NZ Sell List
Coverage view
28
Attractive
29
Neil Goodwill (Melbourne): neil.goodwill@gs.com, +61(3)9679-1778
Goldman Sachs Australia Pty Ltd
Owen Birrell (Melbourne): owen.birrell@gs.com, +61(3)9679-1020
Goldman Sachs Australia Pty Ltd
Brett Cottrell (Melbourne): brett.cottrell@gs.com, +61(3)9679-1565
Goldman Sachs Australia Pty Ltd
News
Energy Resources of Australia (ERA) has announced its preliminary full year results for the year ending 31
December 2011, including:
NPAT (Reported): A$153.6m loss (vs. our forecast A$160.1m loss);
NPAT (Adj): A$54.2m loss (GS A$60.7m loss) after adjusting for a $99.4m inventory writedown in 1H11.
Revenue: A$649.2m ( GS A$554.6m)
EPS (Adj): A17.1cps loss ( GS A23.4cps loss)
Dividend: No final dividend (no dividend forecast)
Analysis
The result was broadly in line with our forecasts but ERA has given guidance of 3000-3700t for production in
2012 which compares to our forecast of 4100t. ERA comments that record rain fell in December and that
production remains highly dependent on the rainfall in the current wet season. The impact of the record
December rain is still being evaluated.
Implications
Earnings estimates and 12 month price target are under review to incorporate the estimated impact of rainfall.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Financial Services
South Korea: Insurance: Property & Casualty: 3QFY3/12 non-life results: Hits by one-offs, but solid core
operations
30
Stan Lee (Seoul): stan.lee@gs.com, +82(2)3788-1778
Goldman Sachs (Asia) L.L.C., Seoul Branch
Philippa Rogers, CFA (Hong Kong): philippa.rogers@gs.com, +852-2978-0457
Goldman Sachs (Asia) L.L.C.
Joon Park (Seoul): joon.park@gs.com, +82(2)3788-1723
Goldman Sachs (Asia) L.L.C., Seoul Branch
Bottom line hit by one-offs, but core operation remained solid
Samsung F&M (SFM), Hyundai M&F (HMF), Dongbu Ins. (DBI), LIG Ins. (LIG), and Korea Re (KR) all
reported 3QFY3/12 results on 31st Jan. Combined 3Q results (W307bn) fell 8.0% yoy, mainly due to one-off
losses related to Thailand floods (W123bn, SFM and KR) and extra tax costs (W71bn) due to cancellation of
a corporate tax cut. Without these one-offs, combined 3Q earnings would have recorded 50% yoy growth on
auto loss and expense ratio improvement: KR and SFM results would have been in line with expectations,
and DBI, LIG, and HMF results above.
We prefer banks to insurers in Korea financials space
While we expect non-life insurers yoy earnings momentum to remain strong into 4QFY3/12, we prefer banks
over insurers within the Korea financials space as: 1) banks trade closer to trough valuations than insurers;
and 2) the potential rise in auto loss ratio (up avg. 1.4ppt yoy in FY3/13) for insurers has not been fully priced
in yet, in our view. Within the insurance sector, we continue to prefer SFM and HMF, which we believe are
more likely to show better control of auto loss ratios.
Above expectations: HMF(001450.KS), DBI(005830.KS), LIG(002550.KS)
3Q NP at HMF (W88bn, up 132.7%), DBI (W101bn, up 37.6%), and LIG (W46bn, turned to profit yoy) were
above our expectations and consensus excluding extra tax costs (W9-10bn per company). Strong yoy
earnings momentum was driven mostly by auto loss ratio improvement, and better-than-expected OP was
driven by lower expense ratio. We maintain our ratings and 12M TPs on HMF (Buy, W41,400), DBI (Neutral,
W51,600), and LIG (Sell, W23,200), after minor EPS revisions.
In line with expectations: SFM (000810.KS), KR (003690.KS)
2Q NP at SFM (W86bn, down 54.8% yoy) and KR (-W15bn, turned to loss yoy) would have been largely in
line with our expectations and consensus excluding extra tax costs (W31bn for SFM, W12bn for KR) and
losses related to Thai flooding (W92bn for SFM, W70bn for KR). We maintain our rating on SFM (Buy,
Conviction List) and KR (Neutral) but revise down FY3/12E-FY14E EPS for SFM (down 3-14%) and KR
(down 5-35%), and 12M TPs (SFM from W305,000 to W298,000, KR from W16,200 to W15,000) to reflect
the above factors.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
ICICI Bank (ICBK.BO): Above expectations on solid NII, cost controls; Reiterate Buy
ICBK.BO, Rs902.00
Market cap
US$20,195 mn
Target price
Rs1,040.00
Fiscal y/e Mar
Net inc. (Rs)
2012E
2013E
62,910 mn 70,302 mn
EPS (Rs)
54.58
60.99
EPS growth
21.1%
11.8%
P/E
16.5X
14.8X
1.9%
2.1%
Dividend yield
Investment Lists
Asia Pacific Buy List
Coverage view
Neutral
31
Tabassum Inamdar, CFA (Mumbai): tabassum.inamdar@gs.com, +91(22)6616-9052
Goldman Sachs India SPL
Rahul Jain (Mumbai): rahul.m.jain@gs.com, +91(22)6616-9161
Goldman Sachs India SPL
Shyam Srinivasan, CFA (Mumbai): shyam.srinivasan@gs.com, +91(22)6616-9346
Goldman Sachs India SPL
Venkat Surapaneni (Bangalore): venkat.surapaneni@gs.com, +91(80)6637-8668
Goldman Sachs India SPL
NIMs surprise aided by higher CASA; Costs under control
ICBK reported 3QFY12 PAT of Rs17.3bn (up 20% yoy), 13% ahead of Gse and 9% ahead of Bloomberg
consensus. Key highlights: (1) NII grew 17% yoy (7% ahead of GSe) as advances growth of 19% yoy was
supplemented by NIMs expansion of 10bps qoq to 2.7% on CASA improvement (+150bps qoq), and
international NIMs that increased to 1.4% from 1.1% in 2Q. We expect margins to improve 20bps by FY14,
as domestic book expands, and CASA remains high. (2) Advances growth was led by Corporates (+23% yoy,
+13% qoq) and International book that grew 38% yoy (+16% yoy adjusted for currency). Management
indicated that it would increase focus on retail to balance portfolio as asset quality remained good. (3) Other
income came inline with GSe as ICICI Life paid out Rs1.5bn in dividend to ICBK that offset lower fee income
(+5% yoy, -4% vs. Gse). (4) Costs came 4% below on lower employee costs (-9% vs. Gse) as headcount
declined. (5) Provisions were 14% below GSe at 0.6% of loans as asset quality remained stable: Gross/Net
NPLs declined 3%/6% respectively, but restructured loans jumped 23% qoq to Rs31bn (added Rs8.8bn in the
quarter). ICBK also guided that the CDR pipeline, including GTL and 3i Infotech, remained high at Rs13bn,
while Kingfisher was a performing loan.
Attractive valuations, improving return profile; Reiterate Buy
We raise FY12E-FY14E EPS by 3%-4% to factor in higher NII and lower costs, and raise our 12m SOTPbased target price to Rs1,040 (from Rs950) as we also roll forward BVPS to Dec-2012. We retain our Buy
rating on ICICI Bank given the high RoA of 1.5% and earnings growth of 22% in FY2012E and 12% in
FY2013E, while the stock trades at FY13E valuations of 1.2X P/B and 11X P/E (standalone). Risks: Bulk
borrowing, higher slippages.
Indonesia: Banks: Areas to watch in 2012: NIM sustainability & loan growth potential
32
Vincent Chang (Hong Kong): vincent.chang@gs.com, +852-2978-6681
Goldman Sachs (Asia) L.L.C.
Justin Chen (Taipei): justin.chen@gs.com, +886(2)2730-4190
Goldman Sachs (Asia) L.L.C., Taipei Branch
Key takeaways from banks’ 11M2011 preliminary result
Bank Indonesia (BI) released November 2011 non-consolidated and un-audited financial figures for all banks
under our coverage with average net earnings rising 34% yoy. Key takeaways: (1) BBRI/BBTN/BTPN’s
11M11 net profits already reached 95%/101%/96% of GS FY11e, implying potential upside to our 4Q11
earnings forecasts, which we attribute to improving asset quality and fast deposit-repricing on BI’s 75bp rate
cut in 4Q11; (2) BI’s policy to link RRR with LDR appears to be effective, as those with lower LDR (e.g.,
BBCA/BMRI/BBNI) saw an average 6.3 p.pt LDR increase yoy (other banks: unchanged); (3) BDMN reported
weakest net earnings growth, despite strong vehicle finance, reflecting negative impact from increasing
competition in its microfinance business.
Muted share price performance despite positive newsflow
However, despite the encouraging sectorwide earnings, Moody’s sovereign credit upgrade, and the longawaited passage of the land acquisition bill, Indonesia banks’ share price remained flat ytd (vs. China +11%,
India +19%). In our view, this means investors have probably already over-weighted the sector with high
banks’ earnings expectation (IBES-based consensus: +18%/20% EPS growth in 2012/13); it is also the only
banking sector in the region with P/PPOP multiple above mid-cycle valuation.
Areas to watch in 2012: NIM sustainability & loan growth potential
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
In our view, key areas to watch in 2012 are: (1) NIM sustainability. We believe corporate banks with strong
deposit franchise (e.g., BCA, Mandiri) can sustain /strengthen NIM to raise ROA, by leveraging funding
advantages and risk management expertise to expand into higher-margin areas. In contrast, consumerfocused banks are likely to see more vulnerable NIM trend in the face of intensifying competitions on both
their high-yield loan book and weaker funding base; (2) loan growth potential. The newly-passed land
acquisition bill, if well executed, might accelerate infrastructure project build-up, which primarily benefits
state-owned banks that handle government budget disbursement. Those with greater capital strength, higher
ROE, and lower LDR would still have more capacity to outgrow peers. Our top picks remain Mandiri and
BCA.
Mapletree Commercial Trust (MACT.SI): In line with expectations on solid execution; strong visibility
MACT.SI, S$0.87
Market cap
US$1,278 mn
Target price
Fiscal y/e Mar
Net inc. (S$)
EPS (S$)
S$1.02
2011E
0.05
EPS growth
13.6%
11.5%
P/E
17.7X
15.8X
6.2%
6.9%
Investment Lists
Asia Pacific Buy List
Coverage view
Paul Lian (Singapore): paul.lian@gs.com, +65-6889-2464
Goldman Sachs (Singapore) Pte
June Zhu (Singapore): june.zhu@gs.com, +65-6889-2466
Goldman Sachs (Singapore) Pte
2012E
91.3 mn 102.3 mn
0.05
Dividend yield
33
Neutral
What surprised us
MCT reported DPU of 1.43 cents in 3QFY11 (+7.1% qoq) and 3.72 cents YTDFY11; annualized DPU is
broadly in line with GSe (3% above). Strong rental reversions, variable GTO rents and a better handle on
cost (vs. peers) drove NPI growth of 6.4% qoq, inline with GSe, with its bottom line edging ahead on lower
interest cost. Highlights: (1) portfolio occupancy firmed, on same store basis, Retail maintained at 99.9% and
Office rose to 96.8% vs. 95.2% in 2Q, while its newly completed PSAB enhancement saw commitments rise
to 55%; (2) solid delivery at VivoCity (69% of assets) saw +25% rental uplift as anchor tenants renewed,
raising passing rents to S$10.40psf (vs. S$10.10psf in 2Q); (3) underlying retail scene healthy with shopper
traffic at +14.8% yoy and tenant turnover (GTO) +9.3% yoy YTDFY11, with Dec a clear standout; (4) Office
renewals also stood out at +8.6% over preceding rents; (5) gearing improved to 37.7% with NAV revalued
+3.9%.
What to do with the stock
Maintain Buy; MCT is in an early growth phase with assets still evolving. We believe MCT represents
amongst the best organic growth in the SREITs space, +7.6% 2-yr fwd DPU CAGR, with anchor asset
VivoCity still at a 15-20% rental discount to comparable malls, while now settling into a more stabilized
trading pattern with consistent footfall/spend gains. MCT has made substantial progress in leasing, with all
leases expiring FY11 (Mar-12) renewed, with focus firmly on the 32.8% (by Rev) of leases due FY12, mainly
specialty stores signed at low rates in 2009. Despite market concerns in Office, we see MCT’s fringe Office
portfolio (31% of assets) well positioned to ride the downturn with its longer leases and inbuilt escalations
designed for stable cash flows. We raise FY11/12/13E DPU by 1.4%/1.0%/1.0% on lower interest cost; 12m
DCF TP of S$1.02 unchanged. MCT offers 6.2%/6.9% FY11E/12E div yields. Risk: weaker retail spend.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Punjab National Bank (PNBK.BO): In line with expectations, asset quality an overhang; retain Buy
PNBK.BO, Rs940.30
Market cap
US$5,982 mn
Target price
Rs1,110.00
Fiscal y/e Mar
Net inc. (Rs)
2012E
2013E
48,013 mn 52,316 mn
EPS (Rs)
151.55
165.13
EPS growth
7.8%
9.0%
P/E
6.2X
5.7X
Dividend yield
2.4%
2.6%
Investment Lists
Asia Pacific Buy List
Coverage view
Neutral
34
Tabassum Inamdar, CFA (Mumbai): tabassum.inamdar@gs.com, +91(22)6616-9052
Goldman Sachs India SPL
Rahul Jain (Mumbai): rahul.m.jain@gs.com, +91(22)6616-9161
Goldman Sachs India SPL
Shyam Srinivasan, CFA (Mumbai): shyam.srinivasan@gs.com, +91(22)6616-9346
Goldman Sachs India SPL
Venkat Surapaneni (Bangalore): venkat.surapaneni@gs.com, +91(80)6637-8668
Goldman Sachs India SPL
NII growth inline, but asset quality concerns remain
PNB reported 3QFY12 PAT of Rs11.5bn (up 6% yoy), inline with GSe and 8% below Bloomberg consensus.
Key highlights: (1) NII was Rs35.4bn (+10% yoy, inline with GSe) reflecting 19% yoy growth in advances (int’l
book grew 83% yoy, domestic 15.6% yoy) and NIM decline of 7bps qoq, 25bps yoy to 3.88% on higher
deposits costs (+22bps qoq). (2) Non-interest income was 26% ahead of GSe, as fees grew 23% yoy (21%
above GSe) while trading profits remained flat yoy.(3) Operating expenses increased 6% yoy, as growth in
employee costs was muted at 3% with C/I ratio at 40.4% ( 41.8% in 2Q12). (4) Asset quality deteriorated with
slippages at 3% (2Q12: 1.88%) including Kingfisher (excluding which slippages were 1.7%). Consequently,
Gross NPLs jumped 25% qoq to Rs64.4bn (2.4% of loans) and net NPL increased to 1.1% from 0.9% in 2Q.
NPL provisions at Rs7.5bn came in 28% ahead of GSe but PCR declined 5pp qoq to 70%. Restructured
assets increased 13% qoq to Rs169bn (6.4% of loans and include c.Rs10bn loans to GTL). Given the macro
environment and PNB’s exposure to SEBs, restructured loans and NPLs will likely increase over the next 2/3
qtrs. Capital infusion of Rs12.8bn via pref. share allotment will boost Tier 1 ratio currently at 7.85%. Tier I at
9.15% including profits is comfortable.
Retain Buy on reasonable valuation
We lower our FY13E-14E EPS by c.4% to reflect higher provisions/ slippages and lower our 12-m CAMELOT
based TP to Rs1110 (from Rs1130) as we also roll forward BVPS to Dec-2012. While we are disappointed
with the deterioration in asset quality, we retain our Buy rating on PNB, given the valuation of 1.0X PBR and
5.7X PER FY13 vs. RoA of 1.2% and RoE of 20% for FY12E-FY14E, which factor in the higher loan loss
provisions. Key risks: Higher slippages and margin compression.
Australia: Banks: Revenue pressures evident, but loan repricing to partially offset
35
Ben Koo (Sydney): ben.koo@gs.com, +61(2)9321-8543
Goldman Sachs Australia Pty Ltd
Elizabeth Rogers (Sydney): elizabeth.rogers@gs.com, +61(2)9321-8560
Goldman Sachs Australia Pty Ltd
Jennifer Lowry (Sydney): jennifer.lowry@gs.com, +61(2)9321-8999
Goldman Sachs Australia Pty Ltd
Factoring in the Risk: -1% to -3% impact to FY12E earnings
As highlighted in our recent note (“Australian Financials: Revenue pressures to drive further loan repricing
and cost- out?” January 12, 2012) we see downside earnings risk for the sector from further margin pressure
(liability-led) and lacklustre markets and treasury earnings.
Given January has shown no signs of improvement with conditions remaining challenging across the deposit,
debt and treasury/markets income we have downgraded our cash EPS expectations by 1% to 3% in FY12E,
by 1% to 4% in FY13E and by 1% to 4% in FY14E.
Risk 1: Funding pressures partially offset by loan repricing
Margins continue to face downward pressure from rising deposit competition plus expensive and volatile
wholesale funding markets and reduced benefits on free funds (given lower cash rate).
Whilst we would expect this impact to be partially offset through loan repricing, we expect banks to wear
some of the higher funding cost.
As such, we have slightly reduced our margins (by 2 bp) in FY12E and FY13E.
Risk 2: Soft markets / treasury income
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Previously we expected a more solid rebound in markets and treasury income in FY12E, however trading
conditions have so far remained more challenging and, as such, we have tempered our recovery
expectations.
Sector rating remains unchanged
Despite earnings downgrades, our Neutral coverage rating remains unchanged. Our major bank sector
preferences remain: NAB, ANZ, WBC, then CBA.
Within the regional banks we prefer BOQ over BEN for its BDD normalization plus QLD turnaround story.
In addition we have adjusted our CBA and BEN 12 month Price Targets to $49.50 for CBA (previously
$50.00) and $7.90 for BEN (previously $8.00). These Price Target changes reflect valuation implications from
the highlighted earnings changes.
Industrials
Sands China (1928.HK): HK$0.58 interim DPS. Not ruling out possibility of a final DPS
1928.HK, HK$26.85
Market cap
US$27,858 mn
Target price
Fiscal y/e Dec
Net inc. (US$)
EPS (US$)
HK$28.30
2011E
0.15
EPS growth
69.7%
8.1%
P/E
24.6X
22.8X
--
--
Dividend yield
Investment Lists
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage view
Simon Cheung, CFA (Hong Kong): simon.cheung@gs.com, +852-2978-6102
Goldman Sachs (Asia) L.L.C.
Janet Lu (Hong Kong): janet.lu@gs.com, +852-2978-1642
Goldman Sachs (Asia) L.L.C.
2012E
1,131 mn 1,223 mn
0.14
36
Neutral
News
Sands China announced that the Board of Directors has resolved to declare an interim dividend of HK$0.58
per share, or HK$4.7bn in total, payable on Feb 28. The ex-date is Feb 13. This is the first dividend the
company has declared since its listing in late-2009. At the current share price of HK$26.25, the interim
dividend would imply 2.2% dividend yield.
Analysis
This does not come as a surprise to the market, as the company has announced on Jan 13 that it will
consider declaring an interim DPS at the Board Meeting on Jan 31. The announcement states that the Board
has reviewed its earnings, general financial condition, capital requirement going forward, and determined that
it has sufficient reserves to finance its operations and expansion of its business, including the development of
additional integrated resorts in Macau.
As discussed in our Jan 30 sector report “Dividend distribution potential as the emerging sector theme”,
although Sands China has not committed any dividend payout, we believe it has the financial capability to
distribute more dividend over the coming years and do not rule out the possibility of a final DPS at its AGM in
Jun-2012. In specific, we estimate Sands China had US$2.3bn net debt at end-2011E. Subtracting this from
its cumulative FCF of US$8.4bn in 2012-15E would leave US$6.1bn net cash at end-2015E, well sufficient to
fund the construction of Parcel 3 (which we estimate may cost US$2bn) and to support dividend payout at
48% of recurring earnings (Exhibit 1).
Implications
The company’s decision to distribute an interim dividend reflects its confidence in its cash flow generation
capability. Coupled with the opening of Sands Cotai Central scheduled in 1H12 which we expect to underpin
31% EBITDA CAGR in 2011-13E, Sands China’s share offers a combination of yield and growth, in our view.
We maintain our Buy rating (on CL) and our target price/estimates are unchanged.
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Havells India (HVEL.BO): In line with expectations on revenue + strong overseas margins
HVEL.BO, Rs480.00
Market cap
US$1,203 mn
Target price
Fiscal y/e Mar
Net inc. (Rs)
EPS (Rs)
Rs487.00
2012E
2013E
3,793 mn 4,520 mn
30.40
36.22
EPS growth
24.9%
19.2%
P/E
15.8X
13.3X
0.7%
0.8%
Dividend yield
Investment Lists
Neutral
Coverage view
Neutral
37
Pulkit Patni (Mumbai): pulkit.patni@gs.com, +91(22)6616-9044
Goldman Sachs India SPL
Ishan Sethi (Mumbai): ishan.sethi@gs.com, +91(22)6616-9048
Goldman Sachs India SPL
Mukul Garg (Bangalore): mukul.garg@gs.com, +91(80)6637-8622
Goldman Sachs India SPL
What surprised us
Havells reported 3QFY12 revenue of Rs16.6bn, up 16% yoy and in-line with GS/Bloomberg consensus
estimates. EBITDA in the quarter at Rs1.8bn (up 38% yoy) was 7-8% above our and Street expectations due
to strong margin in its Sylvania subsidiary. Growth in the domestic business and margin improvement in the
overseas operations were the key to this quarter’s performance.
What to do with the stock
Havells continued to deliver strong performance in the quarter, with the company’s domestic operations
seeing growth in all segments, more than compensating for the revenue weakness in the overseas
operations. At the same time, margin improvement in the foreign business strengthens our belief in
stabilization of operations at Sylvania.
In spite of strong operational performance from the company, we remain Neutral on the stock, driven by
continued concern on growth in the European business coupled with volatility in margins for the LatAm
business and our view that the stock is fairly valued. We fine-tune numbers on the back of these results and
consequently change our EPS by +1% to 3% for FY12E-14E. As a result, we change our SOTP based TP to
Rs 487 (from Rs 480 earlier). The stock currently trades at 12-m fwd P/E of 14X vs. 5-year median multiple of
12.6X– justified given the improving returns and growth profile for the company. Key risks: Downside:
Significant slowdown in overseas business; Upside: better cost management in Sylvania, market share gains
in electrical consumer durable products.
Technology
Samsung SDI Co. (006400.KS): Below expectations; limited battery margin recovery to cap upside
006400.KS, W139,500
Market cap
US$5,838 mn
Target price
W130,000
Fiscal y/e Dec
2012E
2013E
Net inc. (W)
400 bn
408 bn
8,479
8,656
EPS (W)
EPS growth
25.0%
2.1%
P/E
16.5X
16.1X
0.7%
0.9%
Dividend yield
Investment Lists
Neutral
Coverage view
Attractive
38
Marcus Shin (Seoul): marcus.shin@gs.com, +82(2)3788-1154
Goldman Sachs (Asia) L.L.C., Seoul Branch
Hyunwoo Nam (Seoul): hyunwoo.nam@gs.com, +82(2)3788-1704
Goldman Sachs (Asia) L.L.C., Seoul Branch
What surprised us
Samsung SDI (SDI) recorded operating profit of W11bn in 4Q11 (-25% yoy and -74% qoq), which is 46% and
69% lower than our estimates and Bloomberg consensus, respectively. The shortfall in operating profit mainly
stemmed from one-off expenses of around W10bn largely related to increase in provision for PS (profit
sharing) incentives.
What to do with the stock
Battery shipment to rebound from 1Q12: As a result of aggressive inventory control at major customers, SDI
witnessed sudden and substantial decline in battery shipments (-15% qoq) in 4Q11, leading to sharp erosion
in profitability. In light of restocking orders from customers, we expect SDI will be able to enhance battery
shipments from 1Q12, resulting in sequential earnings recovery, but from a very low base in 4Q11.
Battery margin erosion remains key concern: Despite: (1) substantial top-line growth of 20% yoy, and (2)
enhancing product-mix with increasing polymer portion, SDI’s battery margin declined to 9% in 2011 from
11% in 2010. We continue to expect that the increasing polymer portion will not translate into margin
expansion, mainly due to: (1) cannibalization of cylindrical batteries, and (2) lower productivity in polymer
manufacturing.
We see limited upside to share price with muted ROE expansion: As a result of higher battery shipments and
lower solar revenue estimates, we change our FY11E/12E/13E/14E EPS by -8%/+5%/+4%/+1%,
respectively, while Director’s Cut 12-m TP of W130,000 remains unchanged. We remain Neutral rated. Key
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
risks: Weaker-/stronger-than-expected battery demand and faster-/slower-than-expected ramp-up in
ESS/SBL.
Ctrip.com International (CTRP): Hotel coupon price promotions suggest intensified competition
CTRP, US$25.92
Market cap
US$3,655 mn
Target price
Fiscal y/e Dec
Net inc. (US$)
EPS (US$)
US$21.00
2011E
1.43
EPS growth
12.5%
(2.6%)
P/E
17.7X
18.2X
--
--
Investment Lists
Asia Pacific Sell List
Coverage view
Catherine Leung (Hong Kong): catherine.leung@gs.com, +852-2978-1291
Goldman Sachs (Asia) L.L.C.
Fei Fang (Hong Kong): fei.fang@gs.com, +852-2978-1466
Goldman Sachs (Asia) L.L.C.
2012E
218.0 mn 221.2 mn
1.46
Dividend yield
39
Neutral
What's changed
Since Ctrip launched its hotel coupon program last October, offering cash rebates to travelers for hotel
bookings, the company has added two main promotions – upping coupon/rebate amounts (Dec 16-Mar 31)
and Rmb30 rebates for major budget hotels nationwide (Feb 1-Mar 1).
Implications
1) We view these promotions as indicative of intensified price competition, with key competitor eLong also
offering similar promotions. We believe eLong’s enduring appetite for losses and strategy of prioritizing
revenue growth in the growing online travel market could inhibit rationalization.
2) We estimate hotel rebates, which are treated as contra-revenue, to have a more pronounced impact on
revenue growth than on gross margins. However slower revenue growth also negatively impacts operating
margins, especially given rapidly rising marketing costs. We forecast 16% revenue growth in 2012E (versus
20% in 3Q11 and 16% in 4Q11E), below Bloomberg consensus’ 25%, as we expect a moderate acceleration
in travel demand growth to be partly offset by lower yields. We forecast operating margins to decline from
40.3% in 2011E to 34.8% in 2012E and 34.0% in 2013E. Our sampling suggests rebates could represent
30%-90% of any room’s commission revenue, although the ultimate revenue impact will also be determined
by redemption ratios and hotel mix.
3) Our cautious thesis is not solely predicated on the coupon promotions, though we view these as a telling
symptom of a more competitive travel intermediary market resulting from rising online and leisure penetration.
Valuation
We maintain our Sell rating and 12-m target price of $21, based on 1.0X PEG (implying 15X 2012E P/E with
2012E-2015E earnings CAGR of 15%).
Key risks
Stronger recovery in travel demand; better cost control.
Impact on related securities
Telecom Services
Australia: Telecom Services: Telecom sector outlook 2012
Christian Guerra (Melbourne): christian.guerra@gs.com, +61(3)9679-1302
Goldman Sachs Australia Pty Ltd
Raymond Tong (Melbourne): raymond.tong@gs.com, +61(3)9679-1359
Goldman Sachs Australia Pty Ltd
Adrian Allbon (Auckland): adrian.allbon@gs.com, +64(9)357-3296
Goldman Sachs New Zealand Limited
Adam Alexander (Melbourne): adam.alexander@gs.com, +61(3)9679-1451
Goldman Sachs Australia Pty Ltd
Jacqueline Thai (Melbourne): jacqueline.thai@gs.com, +61(3)9679-1217
Goldman Sachs Australia Pty Ltd
Telecom sector outlook 2012: Neutral coverage view
We present our 2012 outlook for the Communications, Media and Entertainment sectors in a three-part
series.
(1) NBN to become reality at last?
Goldman Sachs Global Investment Research
40
Asia-Pacific Afternoon Summary
February 1, 2012
We expect the focus to shift from regulation to network deployment in 2012. As such, 2012 will be important
for the NBN’s credibility. We estimate the NBN deal will be 1%-5% EPS accretive to TLS in FY13E-FY14E.
(2) Wireless spectrum; the next industry capex cycle
Upcoming wireless spectrum investment could cost the industry c.A$3.1 bn (TLS $1.4 bn). This is likely to
occur in FY13 (Digital Dividend spectrum auctions in late 2012, 800MHz/1800MHz spectrum renewals in
June 2013).
(3) Wireless to slow further; competition to remain rational
We expect wireless industry revenue growth to moderate further in 2012 given: (1) slowing sub growth; (2)
MTR cuts (c.A$550 mn headwind). Competition is likely to remain rational, with profitability a key focus. We
expect TLS will extend market share gains driven by rising competitor ‘subs at risk’ and continued technology
leadership. We raise our TLS FY12 sub net adds forecast to 1.405 mn up from 1.247 mn.
(4) VHA faces another challenging year
Key challenges: (1) stabilizing a contracting sub base; (2) limited financial flexibility, with weak financials
(FY11E EBITDA down c.35% on pcp), significant capital requirements, and high gearing (i.e. c.4.5X
debt/EBITDA).
(5) Fixed line to face headwinds following solid 2011
Key issues: (1) heightened risk of wireless substitution, with LTE the first true wireless alternative to fixed; (2)
weak economy could accelerate PSTN decline; and (3) wholesale DSL declaration to raise fixed competition.
(6) Capital allocation; use of FCF and balance sheet capacity
We expect TEL/TLS will announce capital management initiatives in 2012.
TEL/CNU/IIN Buy; TLS Not Rated
Our preferences are TEL, CNU, and IIN. We remain Not Rated on TLS.
Other
Equity Strategy: Assessing earnings risk heading into reporting season
41
Hamish Tadgell (Melbourne): hamish.tadgell@gs.com, +61(3)9679-1124
Goldman Sachs Australia Pty Ltd
Chris Pidcock (Melbourne): chris.pidcock@gs.com, +61(3)9679-1862
Goldman Sachs Australia Pty Ltd
Jien Goh (Melbourne): jien.goh@gs.com, +61(3)9679-1855
Goldman Sachs Australia Pty Ltd
Taking the analysts’ pulse
With the February reporting season about to commence we have surveyed our analysts to review earnings
risk (to consensus) for companies under coverage.
Earnings skewed to the downside ..
Against the backdrop of slowing growth momentum, modest inflation and risks of further unemployment, the
number of companies providing guidance has declined and analysts have become more cautious. Our
analysts believe 28% of stocks under coverage have downside earnings risk, while only 9% have upside risk.
This is the most downside risk we have seen across our analysts since 2009.
Stocks that have both downside earnings risk and a Sell rating on them are: AWC, BEN, CBA, COH, CSR,
DJS, HVN and TSE.
Stocks that have both upside earnings risk and a Buy rating on them are: CWN, GMG, ILU, ORI, SGP and
WRT.
.. but significant earnings risk is priced in
We believe our bottom-up headline Industrials EPS growth forecasts (+8%) will trend lower from current
levels to be more in line with our top-down forecast for FY12 (0%). However, the market appears to be
discounting a significant level of earnings risk with the prospective Industrials PE of 11.5x (1 std dev. below
historical averages). The assumption that the market should trade on a low multiple on depressed earnings
has historically provided value for long term investors.
Portfolio construction
We remain constructive on equities and believe valuations are currently discounting further earnings risk. Our
portfolio retains a modestly cyclical bias; key investment themes (and recommended stocks) with our
strongest views are:
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Solid EPS profile: AMC, BXB, WES, NWS, CPU, SGP
Mining investment / China stimulus: BHP, RIO, SGM, ORI, AIO, UGL, WPL, OSH
Deep value plays: QAN, LLC, SUN, OST
Monthly Market Review: Australia market review: January 2012
42
Chris Pidcock (Melbourne): chris.pidcock@gs.com, +61(3)9679-1862
Goldman Sachs Australia Pty Ltd
Hamish Tadgell (Melbourne): hamish.tadgell@gs.com, +61(3)9679-1124
Goldman Sachs Australia Pty Ltd
Jien Goh (Melbourne): jien.goh@gs.com, +61(3)9679-1855
Goldman Sachs Australia Pty Ltd
Cyclical rally to start the year
The New Year ushered in a cyclical rally on the back of better than expected economic survey data across
most regions, a partial unwinding of the systematic European sovereign and banking risk that gripped the
market in the last couple of months of 2011 and an easing in concerns around China tightening.
Economic fundamentals remain mixed
Euro policymakers and politicians still face a number of hurdles over the next few months. The domestic
macroeconomic news flow was mixed: market expectations are for further rate cuts in early 2012, reflecting
the slowing momentum in the domestic economy. The AUDUSD mirrored the shift in risk aversion, rallying
significantly from a low of US$1.015 to a high of US$1.069 before finishing the month at US$1.0630 (+4.1¢).
Equities finished up, favouring resource names
The Australian equity market (ASX200) finished January up 5.1%. After lagging offshore markets earlier, the
ASX200 picked up through the second half of the month as investors returned from their summer break and
improved sentiment around China and resources saw some increased appetite for risk. Investors favoured
cyclical names with the Materials, Energy and Industrial sectors outperforming while the Healthcare,
Telecoms, Staples and Utilities sectors lagged.
We retain a modest cyclical bias
Despite some appetite for additional risk, we believe investor sentiment remains overall cautious. We retain a
modest cyclical bias in our model portfolio, reflecting the significant recovery potential of stocks leveraged to
the global economy. Our portfolio construct also remains leveraged to: key domestic growth themes (mining
investment/volumes); more accommodative policy settings in EM/China; and stocks with resilient operating
models and earnings drivers. Our model portfolio is overweight Materials, Commercial Services, Transport,
Media and Energy. The five largest overweight positions in our model portfolio are NAB, WES, NWS, ANZ
and ORI. The five largest underweight positions are: WBC, TLS, WOW, NCM and WDC.
New Zealand: Introducing the New Zealand Focus List
43
Marcus Curley (Auckland): marcus.curley@gs.com, +64(9)363-1916
Goldman Sachs New Zealand Limited
Adrian Allbon (Auckland): adrian.allbon@gs.com, +64(9)357-3296
Goldman Sachs New Zealand Limited
Buffy Gill (Auckland): buffy.gill@gs.com, +64(9)357-3253
Goldman Sachs New Zealand Limited
Matthew Henry (Auckland): matthew.henry@gs.com, +64(9)357-3203
Goldman Sachs New Zealand Limited
Best ideas in NZ coverage universe
We are establishing a New Zealand Focus List which includes what we consider to be our strongest
investment ideas, either Buy or Sell, within our New Zealand (NZ) coverage universe. The target number of
stocks is 4 to 5, representing around 10% of our coverage universe.
Investment process
Potential candidates are identified by senior research analysts and reviewed by our regional investment
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
review committee (IRC). We have the flexibility to add and remove stocks from the list on any day, subject to
IRC approval.
Benchmark and performance
We will measure the performance of our NZ Focus List against NZSX50 Index. Performance will be
calculated on an equally weighted basis with daily rebalancing at closing prices, and will exclude transaction
costs. At times, a Not Rated designation is imposed on a stock. The stock is then excluded from our Buy/Sell
list, and is automatically excluded from our NZ Focus List.
Performance of similar list
This product replaces our previous NZ conviction list. The previous product was constructed in a similar way
to that described above.
Initial constituents and themes
We launch the NZ Focus List with five stocks, being Chorus (Buy), Freightways (Buy), Sky City Entertainment
(Buy), Telecom NZ (Buy) and The Warehouse (Sell). In general, these ideas incorporate our preference for
NZ stocks which offer reliable earnings growth, especially in an environment where multiple expansion will be
difficult.
New Zealand: Monthly wrap: NZSX50 starts the year up 0.7%
44
Marcus Curley (Auckland): marcus.curley@gs.com, +64(9)363-1916
Goldman Sachs New Zealand Limited
Rohan Koreman-Smit (Auckland): rohan.koreman-smit@gs.co.nz, +64(9)363-1910
Goldman Sachs New Zealand Limited
Corporate news flow
2012 has started somewhat negatively; with New Zealand Refining (NZR) issuing its second profit downgrade
in five weeks, Sanford (SAN) highlighting flat 1Q revenue at its AGM, and New Zealand Oil (NZO) impairing
its outstanding Pike River Coal loans.
Macro news
January news flow was consistent with a slowdown in economic momentum towards the end of 2011. Both
headline and underlying measures of 4Q11 inflation were soft, November building consents edged lower,
December electronic card transactions continued a post-Rugby World Cup (RWC) slide, and business
confidence shifted from net optimism to net pessimism. However, higher house prices and a December trade
surplus provided some positive data.
Market update
New Zealand equities started the year positively, rising 0.7% in January buoyed by positive international
sentiment over the second half of the month. However, returns underperformed global equities (MSCI World
Index up 4.3% for the month, with one day to run).
Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
Disclosure Appendix
Reg AC
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Name of Analyst, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and
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Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market.
The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several
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The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
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GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes
leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital
relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate performance: cash return on cash
invested, industry positioning and management quality (the effectiveness of companies' management of the environmental, social and governance issues
facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium
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Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
Global
Buy
30%
Rating Distribution
Hold
55%
Sell
15%
Investment Banking Relationships
Buy
Hold
Sell
47%
42%
34%
As of January 16, 2012, Goldman Sachs Global Investment Research had investment ratings on 3,593 equity securities. Goldman Sachs assigns stocks as
Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the
purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.
Price target and rating history chart(s)
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can be found in the latest relevant published research.
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Goldman Sachs Global Investment Research
Asia-Pacific Afternoon Summary
February 1, 2012
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