In this briefing:
- ASAP: Weak Profitability Priced In, While Growth Still Intact
- Maruti Suzuki- Q2FY19 Results Update
- FGEN (FGEN PM): New Contract with Meralco to Support Cash Flow
- TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up
- LIC Housing Finance Ltd. – Builder Loans and LAP to Drive Growth in Loan Book
1. ASAP: Weak Profitability Priced In, While Growth Still Intact
We maintain a BUY rating on ASAP with new 2019E target price of Bt3.80 (from Bt6.50), derived from 19.6xPE, which is 1.0x PEG of earnings growth in 2019-20E.
The story:
- Trimmed 2018-20F earnings forecast by 35%
- Not a falling knife, but fallen angel
- Potential disruptor in car rental industry
- Expect a 20% CAGR for earnings in 2019-20E
Risks:
- Contract termination of airport space leases
- Participating in a highly competitive industry
- Cash-flow management will be a challenge in a growth phase
2. Maruti Suzuki- Q2FY19 Results Update
Maruti Suzuki’s Q2FY19 results were below our expectations. Sales grew by only 2% YoY in Q2FY19 led by a 3.7% increase in realization per unit. But the volumes declined by 1.5% YoY in the same period. We analyze the results.
3. FGEN (FGEN PM): New Contract with Meralco to Support Cash Flow
- Low correlation to the Thai market, low correlation with Western stock markets, and cheap on a PE basis relative to its sector
- Stable cash flow from new contract for FGEN’s San Gabriel plant to sell its entire capacity of 414 MW to Meralco Manila Electric Company (MER PM) until 2024
- Geothermal-energy producer EDC has been delisted through a share buyback tender offer, FGEN to benefit from higher equity stake (47% vs 42%) and more control over the firm to implement longer-term strategies
- Trades at discount to ASEAN Utilities at 19CE* 6.5x PE and offers much better EPS growth
- Risks: Facility breakdowns, uncertainty regarding plans for LNG facility
* Consensus Estimates
4. TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up
Tracking Traffic/Containers & Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces.
Tracking Traffic/Containers & Air Cargo aims to highlight changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month’s note includes data from about twenty different sources.
In this issue readers will find:
- An analysis of November container shipping rates, which our index suggests increased by over 20% Y/Y. We concede that our index skews toward volatile spot rates rather than contract rates, but we suspect higher average container rates in Q418, combined with moderating fuel prices, will result in surprisingly strong earnings for the quarter.
- A look at November air cargo activity and air cargo pricing, which diverged. The volume of air cargo handled by the five airlines we track declined slightly (-0.1% Y/Y) but some of those carriers reported sharply higher yields (circa +10% Y/Y), due to limited capacity expansion in the region.
- Some good news: fuel prices have continued to moderate. Bunker climbed by just 5.1% Y/Y as of mid-December, and jet fuel prices have fallen about 11% Y/Y. Given firm container rates and air cargo pricing, the drop in fuel prices bodes well for Q418 margins, though it’s unclear whether such gains are sustainable.
Although slowing demand growth is unlikely to generate impressive top-line improvements, firmer pricing combined with lower fuel costs should support an ongoing improvement in profitability for container carriers and air cargo operations in the near-term. We believe many investors remain too pessimistic regarding near-term earnings for container carriers and airlines.
5. LIC Housing Finance Ltd. – Builder Loans and LAP to Drive Growth in Loan Book
Lic Housing Finance (LICHF IN), founded by Life Insurance Corporation of India, is the 2nd largest Housing Finance Company (HFC) in India with a total outstanding loan book portfolio of Rs 1,759 bn as of 2QFY19. 94% of the company’s loans were to retail customers as home loans & Loan Against Properties (LAP) and the balance 6% were to project developers as of 2QFY19.
We like the business of LICHF for following reasons:
- LICHF focuses on the salaried segment. 86% of the customers as of 2QFY19 were from the salaried class. This provides the company with stability in earnings and better asset quality. We expect the NIMs & Spreads to be stable at 2.4% & 1.2% respectively for the period of FY18-21E.
- We expect LICHF’s total loan book to grow at a CAGR of 16% over the period of FY18-21E. This growth will be supported by LAP and Developer loans. We expect the retail home loan portfolio to grow at a CAGR of 11% over the same period.
- As the company focuses on LAP & developer segment to grow the total loan book, we expect this to affect the asset quality adversely. We expect the Gross Non-Performing Assets (GNPA) & Net Non-Performing Assets (NNPA) to increase to 1.3% (from 1.2% as of Sept-18) & 0.5% (from 0.4% as of Sept-18) respectively.
We initiate coverage on LICHF with a fair value estimate of Rs 570/- over the next 12 months. This implies a potential upside of 19% from the closing market price of Rs 481 as on 20th December 2018. This is arrived by applying P/ABV (Price to Adjusted Book Value) multiple of 1.7X to our Adjusted Book Value Estimate of Rs 337 per share for the period ending Sept-20E.
Particulars | FY18 | FY19E | FY20E | FY21E |
P/ABV (X) | 2.1 | 1.7 | 1.5 | 1.3 |
ROE (%) | 17.3 | 15.5 | 14.5 | 15.1 |
ROA (%) | 1.3 | 1.2 | 1.2 | 1.2 |
