DBS Bank / KTB Investment & Securities Research (Korea) - 2018 Asiamoney Poll: Please Vote for - DBS Vickers
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
2018 Asiamoney Poll:
Please Vote for
DBS Bank /
KTB Investment & Securities
Research (Korea)
June 2018
DBS/KTB RESEARCH – KOREA TEAM
Strategy Consumer Staples Small Caps
EunYoung Lee Youngok Kim Youngok Kim
(Head of Research, Korea) Jaeyoon Kim
Healthcare
Hanjin Kim Hyerin Lee Utilities
(Strategist) Jiyoon Shin
Energy/Chemicals
Macro Economics Heecheol Lee Transportation
Hyunkee Chae Hanjoon Lee
Material/Industrials Bank/Holding company
IT Hardware
(Regional) Haney Kim
Yangjae Kim
Dongjoo Lee EunYoung Lee
Consumer Discretionary Construction
Namjun Lee Sunmi Kim
Mina Lee
Machinery
Hyosik Kim
2
Our signature reports ….
Category:
Overall Country
Research
VOTE!
WHY VOTE FOR DBS?
✓ Franchise with Korea local broker, KTB Investment & Securities
KTB is focused on Institutional Investors and backed by strong research capability.
It has been selected as the top-tier broker by Korea National Pension Services for the last 5 years.
✓ Experienced & Stable Team
ALL our senior analysts have > 10 years of experience
✓ Extensive and In-Depth Coverage
Full suite of reports, ranging from Economy, Strategy, Industry, Thematic and Company reports to
daily reports on Economics and the Market. Launched “DBS/KTB thematic report” in 2017, which
offers a deep dive into thematic issues impacting the longer-term investment thesis for a sector. We
view this as an ongoing conversation rather than a one-off treatise on the topic.
3
Industry: Country:
Materials & Industrials Korea Strategy
[2010] #1 Stock Picker in
StarMine
VOTE! VOTE!
Eun Young Lee
New growth potential for Korea peninsula has emerged following North Korea’s drastic
changes on its nuclear arsenal and opening economies. This should be a substantial
positive for Korea economy and infrastructure related industry first and foremost.
Accordingly, we see a re-rating of KOSPI and long-term benefit for material & industrial
players.
Top 2 Notable Calls (2H17-1H18):
#1 POSCO: Raised TP on 27 Oct 2017 and recommended as our top pick. The stock gained 21% for 3 month
since then.
#2 Hyundai Steel : Recommended to accumulate it at the dip of share prices on 2 Apr as a key beneficiary of
improving relations between two Koreas. The stock gained 36% for 1.5 month since our recommendation.
4
Industry: Utilities
[2017] Maeil Business News:
Rank 3rd;
Chosun Ilbo: Rank 1st
VOTE!
Jiyoon Shin
Nuclear power plant utilisation rate is forecast to rise to c.80% in 2H18 from 55% in 1Q18.
Improvement in power mix likely to be more pronounced from 4Q18 onwards, supported by
new nuclear power plants. A 4ppt rise in nuclear power utilisation means a KRW1tr increase
in annual OP for KEPCO. In light of this and potential electricity tariff hikes, we like KEPCO.
For KOGAS, 2018 earnings are likely to be upbeat, on the back of solid E&P business (OP
from the GLNG project) and newly set supply cost for its domestic regulated business.
Top 2 Notable Calls (2017-2018):
#1 KOGAS: Gained 21.8% by 10 May 2018 since our 2 Mar 2018 report that upgraded TP from KRW48,000 to
KRW56,000
#2 Korea District Heating: Gained 15.3% during 1Q18 after we had reiterated our BUY call on 13 Dec 2017
5
Analyst’s Industry:
Refining/Petrochemical
Picture
2.4” x 1.8” VOTE!
Heecheol Lee
Despite the rise in Saudi Arabia’s OSP (premium), refiners should post solid earnings, due
to addition of oil upgrading facilities and diversified crude oil sources. With IMO’s stricter
sulphur cap for marine fuel taking effect in 2020, Korean refiners’ margins should expand.
Although rising oil (naphtha) prices and capacity addition in China/US may weigh on the
petrochemical industry, it should enjoy favourable supply-demand dynamics until next
year. Demand from China should recover from 2H18.
Top Notable Call (2018):
#1 Lotte Fine Chemical: Gained 11.6% for one month after our BUY call on 14 May 2018
6
Industry: Construction
[2017] Maekyung Best Analyst:
Rank 4th for Construction
VOTE!
Sunmi Kim
Domestic: Large-cap builders diversifying portfolio via urban development/rental housing
projects to post KRW4-5tr annual housing/construction revenue in 2019-2021 (+15-40% from
the 2016 level). Despite a possible housing margin deterioration, they should post annual OP
of KRW300-400bn. The sector PE is at only 7-8x, even when the value of overseas operations
are not reflected.
Overseas: Orders from SE Asian refiners, Middle East gas/power plants should recover.
Looking at the order backlog, payment terms, and progress rate, GS E&C and Hyundai E&C
are likely to benefit more from the recovery than Samsung Engineering.
Top 2 Notable Calls (2017-2018):
#1 GS E&C: Gained +65.9% YTD in 2017 after we recommended it as our annual top pick on 20 Nov 2017
#2 Taeyoung E&C: Rose 40.7% for two months after our initiation with a BUY rating on 9 Apr 2017
7
Industry:
Transportation/Automotive
[2017] Korea Economic Daily Best
Analyst: Rank 5th for transportation
VOTE!
Hanjoon Lee
Airlines: Solid passenger yield growth (y-o-y) likely from 3Q18, on robust passenger traffic.
Strong air cargo rates and air cargo volume should continue into 2H18.
Shipping: The bulk shipping industry to continue to improve over the mid to long term. The
annual average BDI likely to rise, backed by more favourable supply-demand conditions.
One-year timecharter rates (unaffected by seasonality or short-term volatility) are trending
up. We forecast the positive industry conditions to continue.
Automotive: It is still early to judge whether Chinese and US markets are recovering.
Improvements in sales and profit in 2H18 need to be confirmed first.
Top Notable Call (2017-2018):
#1 Korean Air Lines: Up 25.3% for two months after our BUY call on 15 Nov 2017
8
Industry:
Analyst’s Semiconductor/Display
Picture 2017 Maeil Business News Best
2.4” x 1.8” Analyst: Rank 8th for Display
VOTE!
Yangjae Kim
Semiconductor players’ OPM to decline after peaking in 1H18. The share prices should be
driven by cash-generating capability and shareholder return policies, rather than potential
profit growth. Display and OLED businesses likely to recover in 2H18 on wider demand
sources. Poor LCD earnings are expected, due to weak TV demand and LCD production
capacity addition in China. As for IT equipment, stronger growth is likely for back-end
testing/infrastructure/environmental equipment than front-end. For materials, growth of the
parts market to surpass that of the process chemicals market
Top 3 Notable Calls (2017-2018):
#1 Samsung Electronics: Gained 34% until 31 Oct 2017 since we raised TP to KRW60,000 on 24 Apr 2017
#2 Unisem: Gained 31% since our recommendation on 18 Dec 2017. Subsequently initiated coverage with BUY
and KRW12,500 TP on 13 Mar 2018
#3 Uni-test: Gained 34% since we reiterated BUY call on 2 Apr 2018 9
Handset/
Industry:
Analyst’s IT small cap
Picture
2.4” x 1.8” VOTE!
Dongjoo Lee
There are concerns over negative growth of the global smartphone market in 2018.
Competition should further intensify with Chinese players boasting competitive prices/
technologies, thus posing a risk to other IT device makers. Nonetheless, ongoing spec
upgrades (dual-/triple-camera, 3D sensing, in-display fingerprint, etc.) should boost demand
for passive components. We keep our focus on MLCC and passive component manufacturers.
Top 3 Notable Calls (2017-2018):
#1 Samsung Electro-Mechanics: We raised TP to KRW140,000 on 21 Sep 2017 and retained our positive view in
view of MLCC boom, despite share price weakness from slow Samsung phone sales. The stock recently
reached our TP.
#2 Samwha Capacitor: Stock price tripled since our initiation report with a BUY call on 4 Dec 2017.
#3 BH: Despite weak sentiment due to slow iPhone sales, we retained our TP of KRW31,000 on 8 May 2018, as
BH should be a key beneficiary of increasing sophistication of smartphones. The stock price rose to KRW29,000
before it corrected due to weakness in the Korean stock market 10Industry:
Analyst’s Internet/Game/Telco
[2017] Maeil Business News:
Picture Rank 3rd
2.4” x 1.8”
VOTE!
Mina Lee
Sluggish earnings likely for the Internet industry, due to labour costs for AI developers, new
service-related marketing costs, and regulations. In the game industry, revenue estimates
for much-anticipated games are being revised down, with users possibly migrating to other
genres. Korea’s mobile game market is likely to slow down in 2H18. Weak share prices are
expected for large-cap Internet/game stocks for some time. We advise investors to deploy
their money selectively in some small-/mid-cap stocks.
Top 3 Notable Calls (2017-2018):
#1 PearlAbyss: Gained 13.3% to KRW215,000 (19 Jun) since our initiation with BUY on 27 Nov 2017
#2 Kakao: Fell 15.8% since our 9 Feb 2018 report that lowered TP from KRW150,000 to KRW140,000
#3 Com2us: Gained 19.7% by 31 May since our 27 Feb 2018 report that raised TP to KRW190,000 from
KRW140,000
11Industry: Healthcare
Analyst’s 1H17 Korea Economic Daily Best
Picture Analyst: Rank 7th for
2.4” x 1.8” Pharma/biotech
VOTE!
Hyerin Lee
Share prices to be driven by R&D momentum rather than earnings growth in 2018.
Considering the progress in clinical trials and overseas approvals for new drug
pipelines by major pharmas, improving R&D investment environment in the US, and
active license-in/joint development activities by global big pharmas, we expect a
positive R&D momentum. We recommend an Overweight rating for the healthcare sector.
Top 3 Notable Calls (2017-2018):
#1 Hanmi Pharm: Upgraded from HOLD to BUY and TP to KRW500,000 on 20 Sep 2017; subsequently raised
TP four more times to KRW680,000 until Jan 2018. Since our BUY call, it gained 44% until end-Jan 2018
#2 Green Cross: Upgraded from HOLD to BUY and raised TP to KRW230,000 on 20 Sep 2017. We further raised
our TP to KRW260,000. Since our BUY rating, the stock rose 32% until end-Jan 2018
#3 Daewoong Pharmaceutical: TP raised to KRW210,000 on 25 Jan 2018, and further raised to KRW250,000
on 30 Mar 2018. The stock rose 28% since our TP change until 10 Apr 2018
12Industry: Consumer
2016 Asiamoney: Rank 6th for
consumer staples
1H17 Korea Economic Daily: Rank
10th for consumer staples
VOTE!
Nick Youngok Kim
Although the inflow of Chinese group tourists is still low, hopes are growing for the
sector’s potential recovery in 2H18, with more cities in China allowing group tours to Korea.
We prefer large-cap brand cosmetics companies, in light of higher expectations for their
local business in China. Thanks to rapidly improving exports to China, sentiment is unlikely
to weaken. We are also positive on the sector in view of continued diversification of export
destinations
ODM players’ domestic earnings are likely to improve, which should give them a stronger
share price traction than brand players whose share prices have already baked in
expectations
Top 2 Notable Calls (2017-2018):
#1 Cosmecca Korea: Gained 35.2% since our BUY call on 10 Oct 2017
#2 Nutri Biotech: Down 16.3% since our HOLD call on 14 Feb 2018
13Industry: Media/Entertainment
Analyst’s 1H17 Korea Economic Daily Best
Analyst: Rank 5th for Media
Picture 2017 Maeil Business News Best
2.4” x 1.8” Analyst: Rank 6th for Media
VOTE!
Namjun Lee
Despite eased tension with China, the recovery of Korean content sales is being delayed. We
expect Korean drama sales to/K-pop concerts in China to resume in 2H18. Drama producers
likely to benefit more than entertainment agencies.
Popularity of BTS to drive a re-rating of entertainment agencies. Share price trends likely to
be similar to 2012 when ‘Gangnam Style’ became a hit. Looking at past examples, a share
price correction is likely to come during earnings season. Theatre chains likely to post steep
earnings growth from 2Q18 on higher ATP and popular foreign films
Top 3 Notable Calls (2017-2018):
#1 Nasmedia: Gained 37.6% since our BUY call (TP KRW75,000) on 28 Jul 2017 until 2 Jan 2018. Further rose
21.6% for two months after our TP was raised on 2 Jan 2018
#2 SM Entertainment: Up 25% since our BUY call on 15 Nov 2017 until Mar 2018
#3 Studio Dragon: Gained 47% to KRW 106,000 (19 Jun 2018) since our initiation with BUY call on 8 Nov 2017
14Holding
Industry:
Analyst’s Companies
2016 Korea Economic Daily Best
Picture Analyst: 4th for holding
2.4” x 1.8” companies
VOTE!
Haney Kim
The NAV discount against market caps of large-cap holding companies exceeded its five-
year high in 1H18. While the near-term share price momentum for June-July is not clear,
their attractive share prices should be pronounced and start to rise once positive newsflow
comes in. We think the recent share price retreats offer a buying opportunity.
Top Notable Call (2017-2018):
#1 Doosan: Gained 22.6% for two months after our BUY call on 5 Mar 2018
15Industry: Small Cap
VOTE!
Jae Yoon Kim
KOSDAQ rallied in 2017, supported by biotech stocks. However, it has been range-bound
YTD due to the lack of biotech/IT momentum, despite the strong rise of inter-Korea
economic cooperation theme stocks. With no imminent catalyst for the larger market-cap
biotech/IT stocks and fading inter-Korea momentum, we expect KOSDAQ to remain range-
bound in 2H18.
Meanwhile, the outperformance of Industry 4.0 and secondary cell-theme stocks is likely,
thanks to supportive government policies. As such, individual stocks’ performance will
stand out amid largely range-bound KOSDAQ market in 2018.
Top 2 Notable Calls (2017-2018):
#1 AfreecaTV: Share price up 133.5% since our recommendation (18 Feb 2018)
#2 Daejoo Electronic Materials: Share price up 48.3% since our recommendation (18 Feb 2018)
16Industry: Machinery
VOTE!
Hyosik Kim
We recommended LS Industrial Systems in 1H18, in light of renewable energy momentum.
Going forward, government policies are likely to boost revenues from the convergence
business (which includes solar power, ESS, electric vehicle component) of LSIS. Based on
this, we expect a drastic reduction in losses for the convergence business in 2018 and
2019.
Top 2 Notable Calls (2017-2018):
#1 LSIS: Gained 13% during 2Q18 after we reiterated BUY call on 30 Apr 2018
#2 Doosan Infracore: Gained 20% during 2Q18 after we reiterated BUY call on 5 Apr 2018
17Disclaimer
Disclaimers and Important Notices
The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable
(but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation
or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and
distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any
past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks.
You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as
you consider necessary or appropriate.
The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite,
nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not
authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law
or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the
foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.
The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification,
dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.
DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform
broking, investment banking and other banking or financial services to any persons or entities mentioned.
To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from
or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of
the possibility thereof.
The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is
distributed (a) in Australia by DBS Bank Ltd. or DBS Vickers Securities (Singapore) Pte Ltd.; (b) in Singapore, by DBS Bank Ltd.; (c) in Hong Kong, DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS
Vickers (Hong Kong) Limited.; (d) in Malaysia, by AllianceDBS Research Sdn Bhd ("ADBSR").; (e) in Thailand by DBS Vickers Securities (Thailand) Co Ltd.; (f) in Indonesia, by PT DBS Vickers Sekuritas
Indonesia.; (g) in the United Kingdom by DBS Vickers Securities (UK) Ltd.; (h) in Dubai International Financial Centre by DBS Bank Ltd.; (h) United Arab Emirates by DBS Bank Ltd.; (i) United States by DBS
Bank Ltd.
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and
regulations of such jurisdictions.
* Where reference is made to any published research report mentioned in this document, please refer to important disclosures at the end of each report
18You can also read
