2012.11.05 - UBS
UBS 11/5
▶ 국내
1. 대림산업 (TP 115,000 → 105,000)
- Q3 in line with consensus but above our expectation
- Guidance: Cuts 2012 order and sales target.
But to turn net cash by y/e DIC cut consolidated 2012 order target to Won10-11tn from Won13.7tn as YTD order is only at US$5.3tn (39% of target) due to heavy price competition from European E&Cs.
- Likely orders in 4Q12 are US$3bn Saudi DR steel complex, US$1.5bn Vietnam power plant. Due to weak orders, DIC cut 2012 stand alone sales from Won9.4tn to Won9.2tn but still expects to be net cash by end year.
- Key takeaways: Will pricing discipline return to overseas market? DIC admits volume took precedent to margin during 2010-2011, but stated it will no longer be the case anymore.
It is interesting to see many major Korean E&Cs stating they will pull back from price competition, but whether it will happen remains to be seen.
DIC does not see the housing market improving in the near future.
- Valuation: Attractive. Affirm Buy but cut TP to Won105k DIC trades at 6.6x 2013E PE which is lows not seen since 2009.
We expect Q4 profits to improve given less one-off losses and potential change order.
We cut TP from Won115k (12x 2012E PE) to Won105k (9x 2013E PE) as we cut our 2012-4E order forecast by 13-14% and 2013-6E EPS by 4-14%.
2. BS금융 (TP 13,500 → 15,000)
- Higher earnings lead us to raise our forecasts and price target Net earnings jumped 31% QoQ and 19% YoY to W113bn to exceed our/consensus estimates by 21%/10%.
The higher earnings were moderately inflated by a Won8bn write-back, but recurring earnings of Won107bn still beat our estimate by 15%.
- In addition, the write-back suggests a faster-than-expected turnaround of BS’s savings bank, in our opinion.
- Accordingly, we have raised our 2012E/13E earnings by 10%/5% and price target by 11% to Won15,000, implying 23% potential upside.
- Operating fundamentals remain strong overall, led by asset quality Higher earnings were driven by strong asset quality with new delinquency inflows falling 16% QoQ to 51bps leading to lower provisioning of 65bps (versus our estimate of 72bps).
- The net interest margin fell 10bps to 2.75% following the rate cuts, but this was in part due to a 10% QoQ rose in low-yielding ‘bills discounted’ (up Won1.6tr) and was more than offset by lower provisioning and operating expenses.
- Hence, we have reduced 2012E-13E provisioning by 9.7%/11.4% and expenses by 3.4%/4.8% to more than
offset the adverse effects of lower margins, resulting in higher earnings.
- We believe BS is a fast-growing small, but profitable regional bank
3. 만도 (TP 180,000 → 155,000)
- Q312 disappoints due to labour strikes as well as some other factors
Net profit of Won26bn was down 48% QoQ, down 56% YoY and 35% below consensus.
- The labour strike at Hyundai Motor Group was only part of the reason. Other reasons were: 1) cancellation of revenue from the Middle East (we estimate about Won6bn impact); 2) R&D centre relocation expense (Won6bn); and 3) tax increase due to the set-up of Mando China Holdings (Won7bn).
- Total new orders for Q1-Q312 recorded Won4.7trn, which appears a bit low, even when we consider that Q4 is seasonally stronger, considering Mando’s annual target of Won7.3trn.
- Q412 may also be below consensus, in our view
We expect Q4 net profit to rebound to Won61bn as Hyundai Motor Group makes up for Q3 production loss in Q4.
However, our estimate is 10% below consensus, which we attribute to a higher tax rate and cancellation of Middle East revenue.
- Events to watch for: Mando China Holdings IPO; ambitions for HCC Mando stated that it is considering listing its 100%-owned subsidiary Mando China Holdings in Hong Kong.
It also stated that it is considering the acquisition of Visteon’s 70% controlling stake in Halla Climate Control (HCC).
- We view potential HCC stake acquisition as a risk for Mando as such a deal could put a financial burden on Mando.
- Valuation: Neutral; lower price target from Won180,000 to Won155,000 Reflecting the Q3 results, we lower our 2012/13/14 EPS estimates to Won10,836/14,756/16,577 from Won14,103/16,723/19,077.
Our Won155,000 price target implies 11x 2013E PE
▶ Global
1. Asia Pacific Flow Watch
1) Still no interest in non-ETF funds
- ETF funds saw inflows of $970 million compared to the outflows of $50 million for non-ETF funds.
- On a 4-WMA basis, ETF funds have seen inflows of $1,310 million versus inflows of $120 million for non-ETF funds.
- Year-to-date, ETFs represent 71% of the total fund pool, up from an average of 44% since 2005.
- Country positioning scorecard
Among major countries, investor positioning increased for Philippines, Thailand, Korea, Malaysia, Taiwan and China, but fell everywhere else.
2) Buyer vs. Seller
- Long-only net buyers, Hedge funds net sellers Aggregate data suggests investors were net buyers in last five weeks.
- Long-only investors were net buyers in two out of the last five weeks.
Hedge funds turned net sellers in the last week and were net buyer in the previous weeks.
- Hedge fund exposure & Foreign flows
Our latest data point as of the end of September suggests that Asia ex Japan hedge fund exposure level was 47% based on our estimates.
This is higher than the previous month but lower than the average since 2009.
- Aggregate foreign flows were positive in October at the regional level.
3) Sectors
- In sectors, Energy and Consumer Disc saw the most buying while Telecom and Materials saw the most selling (based on UBS flows).
- Rotation within sectors The strongest sectors in September were the weakest this month.
- There has been rotation out of Energy, Materials and Technology into Financials, Consumer Staples and Health Care.
- Indeed, Health Care (+2.5%); Consumer Staples (+1.9%) and Financials (+1.2%) were the only sectors which posted positive return, while Technology (-2.7%); Energy (-1.9%) and Telecoms (-1.9%) all trailed.
2. European Strategy
1. Italian elections: Not so risky
- Six months separate us from the general elections in Italy. As we enter the campaign period, many unknowns still linger.
- Nonetheless, we think there are two likely outcomes: either a left-wing or a centre-left coalition wins the elections. While the latter would see Monti with a strong position in the government and thus a more forceful reform drive than the former, fiscal consolidation should continue irrespective of who wins.
- As such, we think electoral risks are not big.
2. Next week in Europe
- The ECB announces its rates on Thursday and is likely to leave them unchanged at the current 0.75%.