26 Nov 2018, 8.15am/11.15am Morning Call/Webinar

Transcription

1 26 Nov 2018, 8.15am/11.15am Morning Call/Webinar Sector Update Singapore Industrial REITs Banking Company Results Q & M Dental Group SHS Holdings Golden Energy and Resources Geo Energy Resources US Weekly China Weekly SG Weekly

2 Disclaimer The information contained in this presentation has been obtained from public sources which Phillip Securities Research Pte Ltd ( PSR ) has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the Research ) contained in this presentation are based on such information and are expressions of belief only. PSR has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in this presentation is subject to change, and PSR shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSR be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. This presentation is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products. 2

3 Singapore Industrial REITs Industrialists' outlook clouded by trade protectionism Richard Leow Phillip Securities Research Pte Ltd 26 November 2018

4 4 Highlights Maintain Equal Weight view on Industrial REITs sector 9M 2018 sector occupancy has been stable and Rental Index trend lower in smaller increments Demand-side looks fragile, as manufacturing and export data are moderating Maintain our view that rental bottom is likely to be delayed to 2019, and generally negative reversions to persist for at least 1H 2019

5 5 What is the news? JTC released its Quarterly Market Report of Industrial Properties for 2018 Figure 1: Summary of Rental & Occupancy rate, as at 2018 Rental Occupancy 2018 QoQ (%) YoY (%) 2018 QoQ (ppt) YoY (ppt) All Indus trial 90.9 (0.1) (1.4) 89.1% Multiple-User Factory 89.1 (0.2) (0.7) 85.5% (0.5) (0.4) Single-User Factory 95.8 (0.1) (4.2) 91.0% Bus ines s Park (0.1) % 1.0 (0.7) Warehous e (3.8) 89.4% Source: JTC, PSR

6 6 How do we view this? The Positives Sector occupancy has remained stable and is at its highest YTD Tapering supply pipeline in 2019 The Negatives Rental Index remains weak Lower Singapore occupancy for bellwethers A-REIT and MINT Mixed bag for rental reversions with negative bias

7 7 Key takeaways from the quarter Slower growth from trade tariffs to be expected, but pockets of opportunities exist Opportunities in Singapore and Vietnam, as companies relocate out of China Relocating out of China is not a new trend. Original catalyst was wage pressure Market condition is still challenging industrialists are uncertain about their own outlook Expect rental reversions to be generally negative for at least another two more quarters Industrialists are hesitant to commit to new leases due to escalating trade protectionism Also cautious over placing new orders and this has a cascading effect on the supply chain

8 8 Investment Action Maintain Equal Weight view on the Industrial REIT sub-sector Theme of tapering supply in 2018 has largely run its course Occupancy has been range-bound over the three quarters Rental Index has trended lower, albeit in smaller increments Negative rental reversions to persist into 2019, rents to bottom within the next two to four quarters What would make us turn positive on the industrial sub-sector? Evidence of higher rents, led by broad-based recovery in occupancy What would make us turn negative on the industrial sub-sector? Further moderation of manufacturing and export data into contraction, and re-flooding of supply

9 9 Investment Action Figure 2: Industrial REITs under our coverage Rating Target Price Last Close Price (S$) (S$) As cendas REIT Accumulate Cache Logis tics Trus t Neutral Keppel DC REIT Accumulate Mapletree Indus trial Trus t Neutral Source: PSR

10 10 Strategic top-down view (unchanged from previous quarter) Maintain exposure to Business & Science Park properties and Hi-Tech/Hi-Specs buildings SG evolving towards higher value-added manufacturing; Smart Nation initiative Like REITs that can capture this opportunity with Business & Science Park properties and Hi-Tech/Hi-Specification buildings Business & Science Park rents expected to be stable, underpinned by limited new supply

11 11 Tactical bottom-up view (unchanged from previous quarter) Bottom-up stock pick: Keppel DC REIT for better-than-average capital management Focused on five indicators relating to capital management and compared how each REIT fares relative to the sector average Figure 3: Summary of Performance Measures, as at September 2018 Occupancy (%) Portfolio management WALE by GRI (years) WALE by NLA (years) Gearing (%) WADM (years) Capital management WACD Interest (%) coverage (x) Debt hedged on fixed rate (%) AIMS AMP Ca pi tal Indus tri a l REIT As cenda s REIT Ca che Logi s tics Trus t ESR-REIT Fra s ers Logi s tics & Indus tri a l Trus t Keppel DC REIT Ma pl etree Indus tri a l Trus t Ma pl etree Logi s tics Trus t Sabana Shari'ah Compliant REIT Soilbuild Business Space REIT Simple average Source: Various REITs, PSR WALE: Weighted Average Lease Expiry; WADM: Weighted Average Debt Maturity; WACD: Weighted Average Cost of Debt GRI: Gross rental income; NLA: Net leasable area

12 12 Summary of Industrial REITs under our coverage Kept ratings unchanged for all industrial REITs under our coverage Lowered target prices by -1.4% to -8.5%, except for KDCREIT (unchanged) Cache Logistics Trust High yield pricing in 2019 risks Minimal renewal risk in 4Q18, but lease expiry of 28% by GRI in 2019 is a concern Non-renewals, master lease conversions and negative reversions are key risks in 2019 Raised the discount rate to 7.8%; long-term growth rate kept at 1%

13 13 Key points for the REITs under our coverage Ascendas REIT Operationally stable Singapore portfolio: Lower occupancy, but positive rental reversion Total portfolio occupancy marginally higher QoQ to 90.6%, aided by maiden entry into UK through a portfolio of 12 logistics properties WALE of 4.3 years is healthy and higher than the sector average of 3.8 years

14 14 Key points for the REITs under our coverage Keppel DC REIT Data centre demand remains robust S$2bn AUM target for 2018 achieved; manager intends to maintain the pace of acquisitions in 2019 (no AUM target given) WALE of 8.5 years is the longest among industrial REITs Best-in-class among the industrial REITs in terms of capital management and interest rate risk management

15 15 Key points for the REITs under our coverage Mapletree Industrial Trust Unattractive valuation Singapore portfolio marred by rental and occupancy weakness, mitigated by inorganic contribution from portfolio of US data centres Resumption of Distribution reinvestment plan (DRP) to strengthen balance sheet and fund development projects Current yield spread is at its tightest ever, making the it expensive

16 JTC market data: Occupancy and Rental Index Figure 4: Industrial sector occupancy Range-bound at the trough 92% 91% Industrial sector occupancy Figure 5: Industrial sector Rental Index New low, but stabilising Industrial sector Rental Index 4Q 2012 = % 89% 89.1% % Source: JTC, PSR Source: JTC, PSR

17 2018 JTC market data: Occupancy and Rental Index Figure 6: Factory occupancy Multiple-User made a new low 94% Figure 7: Factory Rental Index Multiple-User stabilising % 91.0% % 88% 86% Q 2012 = % Multiple-User Single-User % Multiple-User Single-User Source: JTC, PSR Source: JTC, PSR 17

18 JTC market data: Occupancy and Rental Index Figure 8: Business Park occupancy Remains stable Figure 9: Business Park Rental Index Appears to have peaked 88% 86% 86.0% % 82% % 78% Q 2012 = Source: JTC, PSR Source: JTC, PSR

19 JTC market data: Occupancy and Rental Index Figure 10: Warehouse occupancy Improved QoQ and YoY 94% Figure 11: Warehouse Rental Index Stabilising % % 89.4% % 85 4Q 2012 = % Source: JTC, PSR Source: JTC, PSR

20 JTC market data: Supply pipeline 518,000 sqm of space is expected to come onstream in 4Q2018, potentially increasing stock by 2.0% YTD 1.28mn sqm of space is expected to come onstream in 2019, which is 2.6% of current stock Average annual supply and demand of industrial space in the past 3 years were 1.6 million sqm and 1.2 million sqm respectively. Figure 12: Supply pipeline profile, as at 2018 (million sqm) Q >2022 Factory Warehouse Business Park Source: JTC, PSR

21 21 Manufacturing & Export Indicators September dip in manufacturing (-0.2% YoY) not a major surprise PMI has trended down during 10M 2018 Electronics production growth is lower compared to 2017 Figure 13: Purchasing Managers' Index (PMI), up to October 54 PMI Electronics PMI Source: Bloomberg, SIPMM, PSR Figure 14: Industrial Production Index, up to September 60% Total, YoY Electronics, YoY 50% 40% 30% 20% 10% % -10% -20% Source: Bloomberg, EDB, PSR

22 22 Manufacturing & Export Indicators Showing signs of moderation for manufacturing and exports NODX Electronic has remained in contraction for 9M 2018 Figure 15: Non-oil domestic exports (NODX), up to October NODX, YoY NODX, seasonally-adjusted MoM 20% 10% % -10% Figure 16: NODX Electronic and Non-Electronic Products, up to October 30% NODX Electronic, YoY NODX Non-Electronic, YoY 20% 10% % -10% -20% Source: Bloomberg, IE Singapore, PSR -20% Source: Bloomberg, IE Singapore, PSR

23 23 Quarterly results across the sub-sector Figure 17: Summary of quarterly results Gross revenue (S$ mn) Net property income (S$ mn) Distributable income (S$ mn) DPU (cents) Y/E Mar 2Q19 2Q18 YoY (%) 2Q19 2Q18 YoY (%) 2Q19 2Q18 YoY (%) 2Q19 2Q18 YoY (%) AIMS AMP Ca pi tal Indus tri a l REIT (0.3) (3.4) As cenda s REIT (1.0) (1.2) Ma pl etree Indus tri a l Trus t (0.4) Ma pl etree Logi s tics Trus t Y/E Sep 4Q18 4Q17 YoY (%) 4Q18 4Q17 YoY (%) 4Q18 4Q17 YoY (%) 4Q18 4Q17 YoY (%) Fra s ers Logi s tics & Indus tri a l Trus t Y/E Dec YoY (%) YoY (%) YoY (%) YoY (%) Ca che Logi s tics Trus t (3.6) (4.3) ESR-REIT Keppel DC REIT Sa ba na Sha ri'a h Compl i a nt REIT (4.8) (5.7) (3.2) (2.5) Soi l bui l d Bus i nes s Spa ce REIT (3.6) (8.8) (8.6) (9.4) Source: Various REITs, PSR

24 24 Cheaper valuation & expanding yield: Risk aversion? Figure 18: Industrial S-REITs peer relative data (arranged by Mkt. Cap.) Mkt. Cap. (S$ mn) Price (S$) Trailing P/NAV (x) 12M trailing yield (%) * Total Debt to Total Assets (%) As cenda s REIT 7, Ma pletree Logis tics Trus t 4,340 Figure : Industrial 1.07 S-REITs peer 6.3 relative data 37.6 (arranged by Mkt. Cap.) Ma pletree Indus tria l Trus t 3, Mkt. Cap. 29.3Price Trailing 12M trailing * Total Debt to (S$ mn) (S$) P/NAV (x) yield (%) Total Assets (%) Fra s ers Logis tics & Indus tria l Trus t 2, Industrial 7.1 S-REITs peer 34.4relative data (arranged by Mkt. Cap.) Ascendas REIT 7, Keppel DC REIT 1, Mkt. Cap. Price Trailing 12M trailing Mapletree Logistics Trust 4, ESR-REIT 1, (S$ mn) (S$) P/NAV (x) yield (%) Mapletree Industrial Trust 3, AIMS AMP Ca pital Indus tria l REIT As 7.9 Frasers Logistics & Industrial Trust cenda s REIT 2, Industrial 1.16 S-REITs peer 7, relative data 2.65 (arranged by Mkt. Cap.) 6.0 Ca che Logis tics Trus t 714 Keppel 0.67DC REIT 0.95 Ma 9.0 pl etree 1,865 Logi s tics 36.2 Trus 1.38 t , Mkt Cap. Price 6.2 Trailing 12M trailing * Total Debt to Soilbuild Bus ines s Spa ce REIT 619 AIMS 0.59 AMP Capital 0.92 Industrial Mapletree REIT Industrial Trust 3, (S$ mn) 1.32 (S$) 6.0P/NAV (x) yield (%) Total Assets (%) Sa ba na Sha ri'a h Complia nt REIT 411 Viva 0.39 Industrial Trust Industrial 8.0 S-REITs 39.5 peer relative data (arranged by Mkt. Cap.) Keppel DC REIT As cendas REIT 1, , Simple Average ESR-REIT 1.03 Mkt. Cap. Price Trailing 12M trailing * Total D Frasers Logistics & Industrial Mapletree Trust Logis tics 1,582 Trus t , Cache Logistics Trust Source: Bloomberg (Upda ted: 19 November 2018), PSR (S$ mn) (S$) P/NAV (x) yield (%) Total Ass Soilbuild Business Space REIT AIMS AMP Ca 681 pi tal Indus Mapletree tri a l REIT 1.02 Indus trial 929 Trus t , As 8.3 cendas REIT 40.1 * Total Debt to Total Assets as at 30 September , Sabana Shari'ah Compliant Viva REIT Industrial 463 Trust0.440 Fras ers Logis 0.82 tics & Indus trial Trus t37.9 1, Mapletree Logis tics Trus t 3, Simple Average Ca che Logi s tics Trus t Keppel DC 1.10 REIT , Mapletree Indus trial Trus t 3, Median ESR-REIT AIMS AMP 1.12 Capital Indus trial REIT Fras ers Logis tics & Indus trial Trus t 1, Source: Bloomberg (Updated: Soilbuild 16 August Business 2018), PSR Space Cache REIT Logis tics Trus691 t Keppel DC REIT 1, * Total Debt to Total Assets as at 30 June 2018 Viva Indus trial Trus t Sabana Shari'ah Compliant REIT Viva 463 Indus trial Trus t ESR-REIT Average Cache Logis tics Trus t Soilbuild Bus ines s Space REIT Source: Bl oomberg (Upda ted: 18 Ma y 2018) AIMS AMP Capital Indus trial REIT Sabana Shari'ah Compliant REIT ESR-REIT Average Soilbuild Bus ines s Space REIT Source: Bloomberg (Updated: 9 February 2018) Sabana Shari'ah Compliant REIT * Total Debt to Total Assets as at 30 December 2017 Average Source: Bloomberg (Updated: 23 November 2017) * Total Debt to Total Assets as at 30 September 2017

25 25 Peer relative valuation vs. 3-mths ago The larger market capitalized REITs tend to trade at a tighter yield and investors are willing to pay a premium over book value Viva Industrial Trust acquired by ESR-REIT Figure 19: 12M trailing yield (%) vs. P/NAV (x) M trailing Soilbuild yield (%) 9.0 Sabana Cache 8.0 FLT ESR-REIT AIMS-AMP Ascendas 7.0 MINT 6.0 MLT 5.0 KDCREIT P/NAV (x) Source: Bloomberg (Updated: 19 November 2018), PSR Figure 19: 12M trailing yield (%) vs. P/NAV (x) M trailing yield (%) Soilbuild Cache 8.0 Viva Sabana ESR-REIT AIMS-AMP MLT FLT Source: Bloomberg (Updated: 16 August 2018), PSR Ascendas MINT KDCREIT P/NAV (x)

26 SHS Holdings Ltd A setback in Solar plant Alvin Chia Phillip Securities Research Pte Ltd 26 Nov 2018 Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

27 SHS Holdings Ltd ( Downgrade to ACCUMULATE, TP:S$0.24, Last: S$0.215) Results at a glance US$ YoY(%) Comments Revenue 14,214 9, % Improved revenue driven by all business segments in particular CP & Solar Admin Expense -2,550-2, % Higher staff cost for the ramp up in modular business Other operating -2,049-1, % Increase attributable to higher depn expense from the redevelopment of the expense Hetat office building for the E&C segment Finance costs % Higher bank borrowings for redevelopment of Hetat factory & office building Loss after tax -2,840-2, % Source: Company, PSR Outlook We expect modular to continue its contribution towards the E&C segment, while structural steel remains in a challenging environment. Key risks include further delays in the construction of the solar project. + Positives Revenue improvement is driven by better contributions from all business segments. - Negatives Substantial delay in the Bangladesh solar project. Operational expense is higher than expected. We revised FY19e earnings downwards by 36% due to delay in the solar plant. Downgrade to ACCUMULATE with a lower target price of S$0.24. Our valuation is derived from a 10X PE of FY19 earnings. Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

28 Golden Energy and Resources Ltd Production on track but some price headwinds Chen Guangzhi Phillip Securities Research Pte Ltd 26 Nov 2018 Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

29 Golden Energy and Resources Ltd (BUY (Maintained), TP: S$0.36, Last: S$0.23) Results at a glance (USD mn) YoY (%) Comments Revenue Increase in revenue from Coal Mining and Coal Trading Divisions Gross profit Increase in mining services, coal freight, mining overhead and royalty as a result of an higher coal production and sales activities from Coal Mining Division; Increase coal purchases from Coal Trading Division in line with the higher sales volume PBT (4.8) Increase in operating expenses in line with higher sales activities, and higher interest expenses as a result of the issuance of the Company's bond in February PATMI Decrease in withholding tax expense (18:US$124k vs 17:US$8.9mn) partially offset by an increase in income tax due to higher taxable profits Source: Company, PSR Outlook FY19 output target: 27mn tonnes(24mn tonnes from BIB mine, 2mn tonnes from KIM mine, and 1mn tonne from BSL mine) Domestic spot coal price in Indonesia is about US$35/tonne (4,200 GAR) as compared to US$40.8/tonne in 18 Lower average coal price forecast (4,200GAR) in FY18 to US$38.5/tonne (previously US$40/tonne) while maintaining the forecast in FY19 at US$40/tonne GEAR acquired 19.9% of Stanmore Coal, a listed coal miner in ASX, for A$47.4mn in Nov-18: diversify GEAR s current portfolio Positives Growth in production amid a slight drop in coal prices YoY (%) 9M18 9M17 YoY (%) Production volume (tonnes) ASP (US$/tonne) Cash cost (US$/tonne) Revenue from coal mining (US$mn) Source: Company, PSR HBA (Indonesia Coal Price Reference): up 24.4% YoY to US$105.7/tonne in 18 ASP dipped YoY slightly due to the price cap on the coal supply to PLN 1.2mn tonnes was supplied to PLN Negatives Several factors led to a higher cash cost In 9M18, cash cost: jump 22.2% YoY to US$26.4/tonne Full-year cash cost: c.us$26/tonne Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only. 29

30 Geo Energy Resources Ltd A production miss Chen Guangzhi Phillip Securities Research Pte Ltd 26 Nov 2018 Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

31 Geo Energy Resources Ltd (BUY (Maintained), TP: S$0.245, Last: S$0.205) Results at a glance (US$ mn) YoY (%) Comments Revenue (7.5) Lower sales volume offsetting the increase in ASP Gross profit Higher ASP offsetting high overburden removal costs at the initial stage of operation at the TBR mine that commenced in 2Q2018 EBIT Interest income earned on short term invstments and deposits from undeployed cash PATMI (34.9) Higher interest expenses on the Senior Notes Source: Company, PSR The Negatives Sales dropped and ASP trended down YoY (%) 9M18 9M17 YoY (%) Production volume (tonnes) ASP (US$/tonne) Cash cost (US$/tonne) Revenue from coal mining (US$mn) (6.3) Cash profit (US$mn) (0.5) Source: Company, PSR In 18, the sales volume: down by 15.8% YoY to 1.6mn tonnes, mainly attributable to the disruption on the loading which was impacted by maintenance work performed by the jetty operators ICI 4,200 GAR price averaged at US$41.5/tonne (down 7.3% QoQ) in 18 The Positives Lower stripping ratio for SDJ mine In 18, the average stripping ratio (SR) for SDJ mine: 2.4 (2Q18: 3.0, 17: 3.5) The average SR for both mines: 3.9 Average cash cost is estimated to be US$32/tonne in FY18 Favorable deals with Macquarie Bank Secured a life-of-mine offtake agreement for TBR mine with Macquarie Bank The multi-year prepayment facility is structured into three tranches of US$25mn, US$25mn, and US$10mn The bank acquired 5% of ordinary shares at a price of S$0.29 (total capital injection: US15mn). It also subscribed 74mn non-listed, transferable, free warrants with a 2-year expiry at an exercise price of S$0.33 Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only. 31

32 Geo Energy Resources Ltd (BUY (Maintained), TP: S$0.245, Last: S$0.205) Outlook The near-term outlook for thermal coal prices is weak owing to the extension of coal import restriction in China ICI 4,200 GAR is trading at US$35/tonne which is considered a breakeven price level for most of the Indonesian coal mines Production cut from previous 10mn tonnes to 7 to 8mn tonnes The operating strategy amid the price headwinds: slow down production and maintain facilities Management reiterated the production target for FY19 to be 13mn tonnes which are evenly split by SDJ and TBR mine Seeking M&A targets which could still be coal mines to deploy cash Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only. 32

33 Q & M Dental Group Dialling back our growth expectations Tin Min Ying Phillip Securities Research Pte Ltd 26 November 2018

34 Q & M Dental Group (Downgrade to NEUTRAL, lower TP:S$0.51 (prev TP: S$0.65)) Results at a glance S$' mn YoY (%) Comments Clinics % Distribution % Lower revenue from both Singapore and Malaysia operations. Revenue % Gross % Margin expansion due to lower cost of sales. Pro-rate gross margins rose 1.9pps to 89.0%. Core EBITDA (ex. assoc. and nonrecurring items) % EBIT % PATMI % PATMI, adj % Ex. one-off loss in profit guarantee from the dental clinics in Malaysia and PRC of $198k. No. of clinics Source: Company, PSR [Revenue for 9M18 is purely from Q&M, as Aidite and Aoxin were deconsolidated in Dec 16 and Apr 17 respectively; their profits are now recognized in share of profit from Associates, which fell 26.5% YoY due to lower share of profits.] The Positives: Gross profit margins for respective businesses reverted to their pre-acquisition levels. oclinic margins at c.93% and Distribution margin at c.30%. The Negatives: Muted clinics business growth. o Revenue growth from both clinics and distribution at +0.40% YoY and -2.76% YoY respectively. o o Despite having more dental clinics in (18: 89 clinics as compared to 17: 86 clinics), Revenue was flat due to dampened patient demand under the CHAS and Pioneer Generation scheme as the government tightened claim limits this year. Q&M is in a net debt position of S$63.1mn, S$52.6mn a year ago. o o Due to share buyback of S$4.7mn and dividends totalling S$10.5mn. Majority of debt is from a S$59.9mn three-year term loan to repay the MTN expiring in March Total dental clinics expanded by 3 YoY and 3 QoQ. o o As of November 2018, Q&M has signed agreements to open three new clinics in Singapore and four new clinics in Malaysia. As we approach the tail end of the year, it seems that Q&M s aggressive expansion plan to add ten new dental clinics in Singapore and Malaysia each for 2018 will likely fall short. 34

35 Q & M Dental Group (Downgrade to NEUTRAL, lower TP:S$0.51 (prev TP: S$0.65)) Other updates: Potential new business Education With the MOH intending to release a new regulation in 1-2 years to require dentists practising aesthetic procedures to obtain a Certificate of Competency, Q&M is positioning themselves to be accredited by CPE as a teaching college for the dentistry profession in the next few quarters. Exploring the use of Artificial Intelligence With existing AI in the medical field mainly used in ECG and EEG diagnosis for the brain and heart, Q&M is experimenting with the use of AI to improve efficiency in the overall dental process. The dental AI process would require X-rays and scans of the patient s mouth cavity, which is then run through an algorithm to come up with a treatment plan for both the patient and the doctor. Outlook: We are cautiously optimistic about the expansion plans in Singapore and Malaysia. Post-deconsolidation of its major revenue drivers in China, the Group is stepping up its regional expansion in Singapore and Malaysia to plug the gap. Investment Action Downgrade to NEUTRAL with a lower TP of S$0.51 (previously S$0.65). With a more moderated pace of clinics expansion as well as lesser CHAS claims made by patients due to the government s tightening measures, we lower our FY18-FY19 revenue and PATMI estimates by 18-32% and 10-14% respectively. We reduce PER to 25x from 27x, which is line with peers average FY18e and FY19e PER (excluding hospitals). 35

36 Banking Sector The exciting fintech in Myanmar Tin Min Ying Phillip Securities Research Pte Ltd 26 November 2018

37 The exciting fintech in Myanmar - Wave Money Myanmar s Banking Ecosystem Myanmar has 4 State-Owned Banks, 24 Local Private Banks, 13 Foreign Banks and 12 Mobile Money Providers. Wave Money currently has 36,000 Wave shops in Myanmar, spread across 289 townships. There are only 3,000 ATMs and 2,000 bank branches in Myanmar (most of the branches are in more urban areas, beyond the reach of most locals). Most locals do not have sufficient savings to meet the minimum deposit amount to open a bank account. There are four cumbersome options to send money to relatives in rural areas: Source: Wave Money 37

38 The exciting fintech in Myanmar - Wave Money What is Wave Money? Mobile financial service that provides accessible, safe and convenient mobile financial services via an agent network (Wave Shops) or Wave Account on the user s phone. Offers its users with the service to receive and send money to anyone (with or without a Wave account). Wave Money First licensed provider under the Central Bank of Myanmar s mobile financial services regulation in October ,000 agents in 289 townships 5 million active users as at end October 2018 Achieved cash flow breakeven in September 2018 Source: Wave Money, PSR 38

39 The exciting fintech in Myanmar - Wave Money How does Wave Money work? Money transfer: 1. An individual hands cash and the mobile number of the recipient to the Wave Money agent. 2. The recipient will receive an SMS notification and head to any Wave Money agent. 3. At the agent shop, the recipient keys in his transaction ID number and pin. 4. Once confirmation is received, the agent will hand-over cash to the recipient. Payment between phones: Payer and receiver will both need the Wave Money app to transfer money amongst themselves simply with an exchange of mobile numbers. Merchant payment: Users are able to purchase food or any other items using the QR code displayed by the merchant. The adoption of this service has been slower than the rest. 39

40 The exciting fintech in Myanmar - Wave Money 40

41 The exciting fintech in Myanmar - Wave Money Outlook We believe Wave Money will not limit their platform to merely financial services. Wave Money is expanding into areas such as cinema tickets, food delivery, merchant payments, donations and QR codes for its Wave Shops. Wave Money has also introduced pension payments through their platform. It will also move into micro-lending but with the role of an introducer. Despite the competition, the competitive edge of Wave Money is: Distribution network that is more than 10x the number of ATMs in the whole banking system. The trust that has been cultivated with consumers to part their cash to Wave Money. The spiral network effort whereas more users adopt this platform, it will attract even more agents and vice versa. This creates a virtuous loop of linkages and transaction. 41

42 US Weekly Market Summary Edmund Xue Phillip Securities Research Pte Ltd 26 November 2018

43 US Weekly Key events last Week US Durable Goods New Orders MoM dropped 4.4% to $248.5B from a month earlier in October The latest new orders numbers failed to meet the consensus of -2.2%. Existing homes sales rose for the first time in seven months. Contract closings increased from the prior month to an annual rate of 5.22 million (Est: 5.2m). Sales were down 5.1 per cent from a year earlier, the biggest drop since Week(s) Ahead Key events or indicators GDP Growth Rate 28 Nov Personal Income 29 Nov FOMC Minutes - 30 Nov Start of G20 30 Nov 43

44 Recession Indicators Recession chance still low Interest rate Equity market Labor Sentiment Hard Indicator Threshold Previous Last Bearish Signal Market-based data Ted Spread Above 1% 0.24% 0.28% Unconfirmed 2s10s Spread Below 0% 0.24% 0.27% Unconfirmed 10 Year Treasury Yield Below 2.00% 3.06% 3.14% Unconfirmed VIX Index Above Confirmed (in Feb) S&P 500 Index Below 10 month MA/ Confirmed October) Value Line Geometric Below uptrend line/ Unconfirmed S&P 500 Index quarterly timeframe 2 consecutive bearish quarters 2.93% 7.20% Unconfirmed Economic-based data Unemployment Rate Above 12 MA/4.1% 3.98% 3.95% Unconfirmed Unemployment Claims YoY Above 4.5% % -8.10% Unconfirmed ISM Manufacturing PMI 2 consecutive months below Unconfirmed CB Consumer Confidence Below uptrend line/ Unconfirmed UMich Consumer Sentiment Below uptrend line/ Unconfirmed Bloomberg Consumer Comfort Below uptrend line/ Unconfirmed Retail Sales YoY Below 1.6% 4.20% 4.60% Unconfirmed Core Capital Goods New Orders Nondefense YoY Below 0% 0.60% 4.80% Unconfirmed Industrial Production YoY Below 0% 5.60% 4.11% Unconfirmed (in S&P500 has dropped below its 200D MA in Oct. This is the second indicator to be confirmed this year, apart from the VIX Index. However, S&P500 has declined below its 200D MA twice earlier this year and there were fast upward corrections. Interest rate Fed Funds Rate Halting of the rate hike cycle/tightening phase 2.25% 2.25% Unconfirmed 44

45 PE Valuations for FAANG Stocks Appears to be fluctuating within the lower band for the past 5 years. Historically, PE value is relatively low 45

46 PE Valuations for FAANG Stocks New low for Facebook s forward PE Trending downwards 46

47 PE Valuations for FAANG Stocks Stable valuation for the past 7 years 47

48 PE Valuations for FAANG Stocks Trending downwards Formed a new low since

49 PE Valuations for FAANG Stocks Stable valuation around the average line for the past 1 year. 49

50 Week 48 China Weekly Musings Jieyuan Zheng Phillip Securities Research Pte Ltd 29 Oct 2018 Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

51 China Week 48 Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

52 Week 48 - Phillip SG Weekly Paul Chew Phillip Securities Research Pte Ltd 26 Nov 2018 Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

53 Week 48 Short-term Views Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No N PhillipCapital All Rights Reserved. For internal circulation only.

54 Ask Questions! Archived Webinar videos can be accessed at: Phillip Securities Research Pte Ltd Paul Chew, Head of Research Richard Leow, Transport REITs (Industrial) Tara Wong, REITs (Commercial, Retail, Healthcare) Property Chen Guangzhi, Oil and Gas Energy Tin Min Ying, Banking & Finance Alvin Chia, Telco Technology Mike Zheng Jieyuan, China/HK Markets Edmund Xu, US Equity Have an opinion or questions on our reports? Post them in the comments section of the report! 54