Top Story
Asia Banks: Inflation Nations (Dean Kim)
• We believe NIM’s will expand for banks across the region.
• We believe India and Korea stand to benefit the most.
• Our long basket favours India and Korea for levered plays.
• Hong Kong & Malaysia are defensives; our short basket contains China.
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MAJOR CHANGES
China Metal Int’l: Catalysts in the making (Mark Chang)
319 HK; Initiate with BUY; CP: HKD1.75; TP: HKD2.50
• Undervalued auto parts play. Catalysts: Minority stake buyback & TDR issuance.
• 2009E: P/E 12.1x, P/B 1.0x, Yield: 2.8%
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Indosat: The tide is turning (Foong Choong Chen)
ISAT IJ; Initiate with BUY; CP: IDR5,150.00; TP: IDR6,350.00
• Turnaround likely from 4Q09, with positive subscriber growth.
• 2009E: P/E 22.0x, P/B 1.6x, Yield 3.9%
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BNPP’S MOST WANTED Alan Wong
Changes this week
In this week's edition of Most Wanted, we make the following changes to our top buy/sell lists
• MALAYSIA:
- Top BUYs. IN: Tanjong Plc; OUT: IJM Corp
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LATERAL THINKING John Hetherington
NIMble banks
Two weeks ago, BNP strategist Ryan Tsai published a report analyzing the investment
opportunities arising from flattening yield curves, a market event that is rapidly becoming
the norm in Asia as the growing likelihood of rate hikes is priced into short dated bonds.
BNP analysts Dean Kim and Dorris Chen take the analysis a step further today by
examining the implication of rising interest rates on Asian bank margins and credit costs
at a time when the policy cycle is turning.
On the asset quality side, the conclusion is universally benign, at least for the next few
quarters, as monetary policy shifts from a very accommodative to a more neutral stance
which this early in the cycle shouldn't trigger systemic problems with non-performing
loans. However, the outlook for net interest margins varies significantly from country to
country, depending on the speed with which loans and deposits reprice and the degree of
likely rate increases. In Dean's and Dorris' view, Korean and Indian banks will enjoy the
most beneficial combination which should drive earnings and share price outperformance
versus their regional peers next year.
At the other extreme, Chinese banks have the least attractive prospects, as funding costs
tend to reprice much faster than most elsewhere in the region, meaning less opportunity
to expand net interest margins through the rest of this cycle. At a stock level, Dean and
Dorris consider Punjab National Bank (PNB IN, Buy) in India and Hana Financial (086790
KS, Buy) in Korea to be the best plays on this theme, while Bank of Communications
(3328 HK, Reduce) and Bank of China (3988 HK, Hold) are their favoured shorts in the
Chinese banking space.
Economics & Equity Strategy
Asian Financial & Monetary Conditions Indices (Richard Iley) 29
Asian Instant Insight:
S. Korea: Industrial Production - Sep 2009 (Mole Hau) 30
Singapore: Money Supply - Sep 2009 (Chan Kok Peng) 31
Thailand: BOT Monthly Data - Sep 2009 (Chan Kok Peng) 32
Company Research
ABB India: Disappointment continues (Laksminarayana Ganti) 33
ABB IN; REDUCE (unchanged); CP: INR769.00; TP: INR623.00 (from INR450)
• Sales down 4.3% y-y, Power down 15% y-y; Automation up 4% y-y.
• 2009E: P/E 37.0x, P/B 6.5x, Yield 0.3%
Advanced Semiconductor: Less hurt by high gold cost (Szeho Ng) 34
2311 TT; BUY (unchanged); CP: TWD26.15; TP: TWD33.00
• Firm 4Q sales/margin outlook, mild 1Q10 seasonality. 2010 EPS upside exists.
• 2009E: P/E 22.4x, P/B 1.9x, Yield 0
China COSCO: Loss continues in 3Q09 (Sarah Liu) 35
1919 HK; REDUCE (unchanged); CP: HKD9.84; TP: HKD8.29
• 3Q: Lowest loss since 4Q08 (RMB691). Dry bulk business could break-even at BDI 2,800 next year.
• 2009E: P/E (13.2)x, P/B 2.0x, Yield 0
MediaTek: Probably it’s not the end! (Eric Chen) 36
2454 TT; HOLD (unchanged); CP: TWD465.00; TP: TWD500.00
• Too early to judge if the price cut (war) is at the end. Investors should wait for better re-entry points.
• 2009E: P/E 14.5x, P/B 4.8x, Yield 3.0%
Quanta Computer: Aggressive 2010 goal (Patty Liu) 37
2382 TT; BUY (unchanged); CP: TWD62.50; TP: TWD73.00 (from TWD 75.00)
• 3Q results better 21.9% on FX gain; but op margin falls. 2010E NB shipment to grow 40% y-y.
• 2009E: P/E 10.7x, P/B 2.4x, Yield 5.4%
SMRT: The incidental beneficiary (Brenda Lee) 38
MRT SP; HOLD (unchanged); CP: SGD1.68; TP: SGD1.84 (from SGD1.78)
• Lower diesel cost & jump in engg. revenue help 2Q10 results.
• 2010E: P/E 14.1x, P/B 3.0x, Yield 5.1%
Taiwan Cement: Results beat expectation (Michelle Cheng) 39
1101 TT; BUY (unchanged); CP: TWD34.00; TP: TWD43.00
• 3Q09 earnings higher on Hoping Power Plant and disposal gains.
• 2009E: P/E 15.9x, P/B 1.5x, Yield 3.9%
Uni-President Enterprises: Write-downs hit 3Q earnings (Michelle Cheng) 40
1216 TT; BUY (unchanged); CP: TWD36.80; TP: TWD43.00
• Core F&B business in China and SE Asia is the earnings driver.
• 2009E: P/E 17.2x, P/B 2.2x, Yield 1.2%