In this briefing:
- BCP: More Stable Income with an Attractive Yield
- Biosimilar Battlefield: The Remsima/Inflectra Warning
- Aisin Takes a 50% Cut in OP This Quarter; A Downward Revision in FY03/19E Target
- Denso Revises Earnings Guidance Downwards After a 22% YoY Decline in OP as of 3QFY03/19
- Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US
1. BCP: More Stable Income with an Attractive Yield
We initiate coverage of BCP with a BUY rating, based on a target price of Bt41, which is derived from a sum-of-the-parts (SOTP) methodology and imply to 10.2xPE’19E to bring it in line with the Thai energy sector.
The story:
- Attractive dividend yield of 6-7% a year
- Refining business set to recover in 2019
- Hidden value from non-core business
Risks:
- Raw material price fluctuation
- Possibility of impairment losses from investment projects
Background: Established in 1940, Bangchak Corporation Public Company Limited and its subsidiaries ‘ operations include refinery, oil trading, petroleum product marketing and renewable energy businesses. With a capacity of 120,000 barrels per day, Bangchak produces and distributes its products through more than 1,000 service stations nationwide. It also plans to expand the scope of its business to cover food and convenience stores and novel product businesses and to seek investment opportunities in bio-based products and natural resource businesses.
2. Biosimilar Battlefield: The Remsima/Inflectra Warning
2019 marks an inflection point for Korean biosimilar companies Celltrion Healthcare (091990 KS), Celltrion Inc (068270 KS), and Samsung Biologics Co., (207940 KS). Several new product launches are on tap, but competition will be more intense from here. More to the point, our updated estimates of end market revenue in the EU for Celltrion’s Inflectra/Remsima show that revenue is declining: consistent with commentary regarding pricing pressure as new competitors enter the market. This development suggests that biosimilar launch curves won’t be as steep as in the past and that product maturity will come sooner.
Expectations for these companies remain high, so we remain wary of these stocks.
3. Aisin Takes a 50% Cut in OP This Quarter; A Downward Revision in FY03/19E Target
On Friday, Aisin Seiki (7259 JP) reported 3QFY03/19 results posting a slight decline in revenue by -0.5% YoY, below our estimates by -5.6%, although above consensus estimates by +1.4%. On profitability, Aisin failed to meet market expectations, posting OP significantly down by almost -51% YoY falling below market expectations by a significant -33%. However, the results for the nine-months ended FY03/19 reported revenue up by +4.7% YoY supported by the increase in AT and Brake and Body parts sales. OP, however, was still disappointing, declining by nearly -13% YoY for the period, on the back of increasing depreciation costs for advanced investments alongside the rising R&D costs.
Following the quite significant decline in OP this quarter, Aisin has revised its guidance for FY03/19E revenue and OP downwards. Aisin now expects FY03/19E revenue to increase by only +1.3% YoY (cf. previous guidance of +2.3% YoY) and OP to decline by -17.3% YoY (cf. previous guidance of -7.8% YoY), expecting an OPM pf 5.3%. This downward revision is despite the fact that the company has achieved almost 76% of its revised revenue target and 77% of the revised OP target as of 3Q FY03/19. Aisin could be expecting its depreciation on investments and R&D costs to increase further over the last quarter and may also the quarters in the next financial year, for the company to be on track to compete with leading players like Denso in the competitive automotive field. However, we feel that Aisin is being quite conservative by revising its revenue guidance downwards this quarter and we still believe that the company’s steady revenue growth could continue over the last quarter, alongside its business restructuring efforts driving margins to about at least 6% for FY03/19E cf. 6.1% for FY03/18. Following the release, Aisin closed 3.0% down on Friday from Thursday’s close, however, rallied up almost 6% on Monday’s open.
4. Denso Revises Earnings Guidance Downwards After a 22% YoY Decline in OP as of 3QFY03/19
Denso Corp (6902 JP) failed to deliver as strong growth in revenue during its 3QFY03/19, compared to the first two-quarters of FY03/19. Denso reported a growth of only +1% YoY during 3QFY19, -1% below both consensus and our own estimate. Profitability of the company seemed more disappointing witnessing a decline of -17% YoY, falling below market expectations by -24%. The nine months ended cumulative figures for the company also looked depressing on the OP front, with Denso experiencing a -22% YoY decline, delivering an OPM of 6.1% (down from 8.1% during the same period last year).
However, Denso’s nine-month revenue looked relatively steady at 7.6% YoY growth. Denso has managed to make steady growth in revenue during the period despite the market slowdown in its key business regions, especially Europe and China. Revenue across all regions increased over the nine-months, supported by the overall increase in global car production and sales expansion from its recently consolidated subsidiaries (DENSO TEN and TD mobile). However, Denso’s OP over the current financial year has been on a downtrend citing its investments for future growth as the key reason. As we have previously mentioned, we consider this to be consistent with the company’s recent moves, having witnessed the company’s investment in companies such as Renesas, Metawave, Tohoku Pioneer, JOLED, ThinCI (Denso Prepares for the Future; Investments in Tohoku Pioneer EG Following JOLED and ThinCI). The stock moved down 5% from pre-release to post-release low.
5. Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US
Qatar Petroleum and Exxon Mobil (XOM US) have taken a positive final investment decision (FID) on the Golden Pass LNG export facility on the US Gulf Coast, one of 25 projects up for FID this year globally. Golden Pass awarded the engineering, procurement and construction (EPC) contracts for the project to a joint venture of Chiyoda Corp (6366 JP), Mcdermott Intl (MDR US) and Zachry Group, with the project expected to cost US$10bn and come on line in 2024. We discuss the company impacts, the project detail and market impacts
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