Banking Report - Morning Notes

Wednesday, 18 April 2012

What’s inside

Sector Outlook - Hong Kong Property. New Chief. New era. From 1 July 2012 the new Chief Executive of Hong Kong will assume office for a fiveyear term. This should mark the end of an unusual period for the Hong Kong property market where a bear market land supply mechanism was practiced in a bull market which fuelled exceptional price growth. And if all-in returns on major developers’ shares between 2000 to 2010 had been just some 3% to 8% p.a. despite the phenomenal property price growth, we see little reason to own the stocks in the next five years and are UNDERWEIGHT HK developers. Stronger growth and hence return prospects can be found in Hang Lung, Wharf and HKLand. Sun Hung Kai Properties (16 HK - U-PF). Focus on yield. We set our new target price for SHKP at HK$100, based on a 3.4% FY12 dividend yield which implies a 44% discount to NAV. The new target price is down 23% from our previous target price and take into consideration both the specific circumstance of the company and the weaker broader property price outlook. Dividend yield may be an unusual metric to value SHKP but with the company facing a difficult to time and difficult to price risk, we believe dividend yield provides the most tangible gauge of value. Our UNDERPERFORM call maintained. Tingyi Holding Corp (322 HK - U-PF). Strategy fine-tuning. On its reverse roadshow, Tingyi’s management acknowledged business challenges (esp in beverage) and rising competition. In addition to its expansion into snack food & processed meat businesses, it will be more aggressive in fighting against competing products and expanding product categories to defend market share and outgrow industry. Despite long-term strong fundamentals and targeted breakeven of Pepsi bottling business in 2013, we see execution risk in its new business initiatives and believe its current valuation is full. Maintain U-PF. Sector Outlook - China cement. Earnings preview. 1Q12 results for cement...