ASIAPACIFICCONGLOMERATESOUTLOOKRETURNSDRIVUATIONCKTOCLBUYNWSTOSELL0107

1、jul2004jul2005jul2006jul2007jul2008jul2009jul2010jul2011jul2012jul2013jan2004 jan2005 jan2006 jan2007 jan2008 jan2009 jan2010 jan2011 jan2012 jan2013 jan2014jul2014impliedjanuary 4, 2013asia pacific: conglomeratesequity research2013 outlook: returns drive valuation; ck to cl-buy, nws to sellgrowth r

2、ecovery partially priced in; stock picks by return & themewe forecast an earnings recovery of 15% on average in 2013 (vs. 2% inrating and target price changesprice ratings12-m tp2012) for the hk/china conglomerates in our coverage universe, followingon our ecs teams more constructive view on the

3、 macro backdrop. whilethis should underpin share price upside over the course of the year, thetrajectory is hard to foresee as investors will likely focus on the impact offiscal tightening in the us/europe in 1q, especially as sector valuation doesnot look as compelling as before, approaching mid-cy

4、cle valuation andhaving priced in certain expectations of growth recovery.we stick with our stock selection framework and prefer those with qualitymanagement benefiting from sector themes: (1) rise in inflation to supporthong kongcheung kong hldgshutchison whampoawharf holdingshph trustckiwheelock &

5、amp; co.swire pacific (a)mtrcjardine mathesonhopewell holdingsnwschinatianjin dev holdingsshanghai industrialcosco pacifictianjin port devcitic pacificccyhkdhkdhkdusdhkdhkdhkdhkdusdhkdhkdhkdhkdhkdhkdhkdjan-02121.882.061.90.847.439.497.431.162.333.813.34.427.511.31.112.9newbuy*buybuybuyneutralneutral

6、neutralneutralneutralneutralsellbuybuybuyneutralneutraloldbuybuybuy*buyneutralneutralneutralneutralneutralneutralneutralbuybuybuyneutralneutralnew151.996.072.40.9253.743.098.531.960.334.611.05.4033.013.81.1412.8old137.093.062.90.9252.535.998.030.557.026.612.34.5027.813.21.0010.7+/-%25%17%17%15%13%9%

7、1%3%-3%2%-17%22%20%22%0%-1%asset prices; (2) resumption of spending by mainland chinese to bode wellsipg cnychina merchants hldgs hkd2.625.5neutralneutralneutralneutral2.8027.32.9026.96%7%for hk retail market; and (3) with soft trade growth in 1h13, preferdalian portfosun internationalhkdhkd1.95.1ne

8、utralneutralneutralsell1.905.001.703.800%-1%exposure to hub or domestic ports with more room for asp hikes. as cashreturns drive capital appreciation over time, we conduct a detailed crocianalysis on individual conglomerates to identify those with more potentialupside yet to be priced in to their sh

9、ares. a better understanding of theirreturn profiles also helps form a more transparent basis to justify target*on our asia pacific conviction buy listsource: company data, datastream, goldman sachs research estimates.with this note, janet lu assumes primary coverage oftianjin port dev and dalian po

10、rt from frank he.sector average ev/gci vs. crocinav discounts, which investors often criticize as being highly subjective.1.50sectoravgev/gci(lhs)sectoravgcroci(rhs)10.0%1.409.5%replace wharf with ck as cl-buy; downgrade nws to sellgiven our positive view on commodities in 2013, we upgrade fosun fro

11、m1.301.201.101.00+1stdev9.0%8.5%8.0%7.5%sell to neutral and prefer it over citic pacific for better leverage to a steelmarket recovery. other rating changes include:0.900.800.700.60averagesectorev/gci=1.08x1stdev7.0%6.5%6.0%5.5%replace wharf with cheung kong on cl-buy list after wharfs strongprice p

12、erformance, we see more upside in ck, which has priced indownside in hk housing prices on policy concerns. we see room forck to improve its croci, driven by accelerating asset turn in china(property sale +60% ytd) and resilient market share in hk. we alsoexpect hutchs croci to improve, driven by ope

13、rating efficiency andcapital allocation to the higher-return retail & infrastructure divisions,even if 3g return remains subdued at 1-2%.downgrade nws to sell from neutral pricey acquisition of hangzhouring road and the loss of the duty-free concession will dilute crocifrom 9.4% in fy11 to 6.8%

14、in fy13e and de-rate the stock, in our view.we see potential risk of a dps cut dragged by lower earnings.source: company data, goldman sachs research estimates. simon cheung, cfa+852-2978-6102 goldman sachs (asia) l.l.c.frank he+852-2978-7414 goldman sachs (asia) l.l.c.janet lu+852-2978-1642 goldman

15、 sachs (asia) l.l.c.alex ye+852-2978-6666 goldman sachs (asia) l.l.c.the goldman sachs group, inc.goldman sachs does and seeks to do business withcompanies covered in its research reports. as a result,investors should be aware that the firm may have a conflict ofinterest that could affect the object

16、ivity of this report. investorsshould consider this report as only a single factor in makingtheir investment decision. for reg ac certification and otherimportant disclosures, see the disclosure appendix, or go analysts employed by non-us affiliates are not registered/qualified as research analystsw

17、ith finra in the u.s.global investment research31323475054562january 4, 2013contentsearnings recovery in 2013, but price trajectory hard to predictdetailed analysis of cash return and stock implicationskey sector themes and outlookcheung kong (0001.hk, cl-buy): upside in croci undervaluedwharf (4.hk

18、; buy): off cl, maintain buy; better value in cknws (659.hk, sell): deteriorating return, potential dps cutfosun (656.hk, neutral): cyclical headwinds largely removedcompany sectiondisclosure appendixasia pacific: conglomerates5999all prices in the report are as of the market close of january 2, 201

19、2, unless mentionedotherwise.exhibit 1: summary of our rating, nav and 12-month target price changespriceratingforward nav / sharetarget disc. target priceimpliedvaluationtickerccyjan-02newoldnewold%chgnewoldnewold% chg+/-%methodologyhong kongcheung kong hldgshutchison whampoawharf holdingshph trust

20、0001.hk0013.hk0004.hkhpht.sihkdhkdhkdusd121.882.061.90.80buy*buybuybuybuybuybuy*buy189.9120.696.60.92171.3116.389.90.9210.9%3.7%7.5%0.2%-20%-20%-25%n.a.-20%-20%-30%n.a.151.996.072.40.92137.093.062.90.9211%3%15%0%25%17%17%15%nav-basednav-basednav-basednav-basedckiwheelock & co.swire pacific (a)mt

21、rcjardine mathesonhopewell holdingsnws1038.hk0020.hk0019.hk0066.hkjard.si0054.hk0659.hkhkdhkdhkdhkdusdhkdhkd47.439.497.431.162.333.813.3neutral neutralneutral neutralneutral neutralneutral neutralneutral neutralneutral neutralsell neutral54.061.4123.235.586.149.414.752.555.2122.533.981.440.915.42.8%

22、11.2%0.6%4.7%5.7%20.8%-4.2%n.a.-30%-20%-10%-30%-30%-25%n.a.-35%-20%-10%-30%-35%-20%53.743.098.531.960.334.611.052.535.998.030.557.026.612.32%20%1%5%6%30%-11%13%9%1%3%-3%2%-17%nav-basednav-basednav-basednav-basednav-basednav-basednav-basedchinatianjin dev holdingsshanghai industrialcosco pacific0882.

23、hk0363.hk1199.hkhkdhkdhkd4.427.511.3buybuybuybuybuybuy10.741.313.810.037.113.27.5%11.4%4.5%-50%-20%n.a.-55%-25%n.a.5.4033.013.84.5027.813.220%19%5%22%20%22%nav-basednav-basednav-basedtianjin port devcitic pacificsipgchina merchants hldgsdalian portfosun international3382.hk0267.hk600018.ss0144.hk288

24、0.hk0656.hkhkdhkdcnyhkdhkdhkd1.1 neutral12.9 neutral2.63 neutral25.45 neutral1.90 neutral5.06 neutralneutralneutralneutralneutralneutralsell1.116.02.827.31.97.21.015.32.926.91.75.414.0%4.7%-3.4%1.5%11.8%32.1%n.a.-20%n.a.n.a.n.a.-30%n.a.-30%n.a.n.a.n.a.-30%1.1412.82.8027.301.905.001.0010.72.9026.901.

25、703.8014%20%-3%1%12%32%0%-1%6%7%0%-1%nav-basednav-basednav-basednav-basednav-basednav-basedhk/china average* on conviction list. for port operators and cki, our target prices are at par to nav, as they are pure play companies and we dont apply a conglomerate discount to them.source: company data, go

26、ldman sachs research estimates.goldman sachs global investment research8%3january 4, 2013asia pacific: conglomeratesearnings recovery in 2013, but price trajectory hard to predictgrowth recovery partially priced in; stock selection is keyin our sector outlook report last year, we had recommended inv

27、estors to startaccumulating as long-term value emerged. while hk/china conglomerates in our coverageuniverse have appreciated by an average of 23% in 2012, it has been a roller-coaster ridethroughout the year. we started off with an average share price appreciation of +12% in 1q,but concern over the

28、 european debt crisis resurfaced and wiped off much of the gain inmay-june. after the ecbs announcement it would purchase sovereign debts under theoutright monetary transactions (omt) program in september, risk appetite picked upagain. together with better macro data from the us in recent months, th

29、e sector stagedanother rally in 4q.among the stocks we cover, wharf/wheelock and hopewell outperformed the local marketthe most the former helped by solid execution of its property investments in china andthe latter driven by expected value accretion from the hopewell center phase ii project tobe co

30、mpleted in 2018 and the scheduled launch of the lee tung street project in 1h13.citic pacific underperformed its chinese peers for another year due to further delays andcost overruns at its sino iron ore project, and the weak fundamentals of its special steelbusiness.looking into 2013, our ecs team

31、is turning more constructive on the macro and corporateearnings outlook in the region, and forecasts an acceleration of gdp and eps growth to6.9% and 13% in 2013e (from 6.2% and 3% in 2012), driven by improvements in externaldemand. for our covered conglomerates, we also forecast a pickup of average

32、 eps growthto 15% (vs. 2% in 2012). while this should underpin upside in share prices over the courseof 2013, the trajectory is hard to predict, as investors will likely focus on the impact of fiscaltightening in the us/europe in 1q. our economists also believe chinas monetary policywill remain prud

33、ent early in the year, with no lending rate cuts and low likelihood ofchanges to bank requirement ratios. after the rally in recent months, sector valuation doesnot look as compelling as before, approaching the mid-cycle valuation and perhaps havingpriced in certain expectations of the growth recove

34、ry (exhibits 2-3).goldman sachs global investment researchjan2004nov2005oct2008mar2008may2009nov2012jan2007dec2009sep2004apr2005jun2006feb2011sep2011aug2007apr2012jul2010may2005may2010jul2004dec2004jan2004aug2011mar2006mar2011aug2006apr2008sep2008feb2009jun2007jun2012nov2007nov2012dec2009oct2005oct2

35、010jan2007jan2012jul20090%4january 4, 2013exhibit 2: after the rally in recent months, sectorvaluation does not look as compelling as before .conglomerate sector historical discount to nav chartasia pacific: conglomeratesexhibit 3: . approaching the mid-cycle valuationconglomerate sector historical

36、p/e chart5%10%15%conglosectordiscounttonavchart+1stdev30.025.0conglosectorp/echart20%25%averagenavdiscount=20%20.0averagenavdiscount=14x+1stdev15.030%35%40%1stdev10.01stdev45%source: datastream, company data, goldman sachs research estimates.5.0source: datastream, company data, goldman sachs researc

37、h estimates.stock picks by sector themes and cash returnwe stick with our stock selection framework and prefer conglomerates with qualitymanagement and market leadership that also benefit from the sector themes we identifybelow.rise in inflation to support asset prices our ecs team believes there is

38、 still muchspare capacity in developed markets (dm) that will keep inflation relatively benign inthe near future. with unemployment rates still quite high and pressure to tightenfiscally, us/europe regulators are likely to maintain easy monetary policies for asubstantial period of time. in the us, o

39、ur ecs team expects the open-ended qeprogram to last till early 2015, with the first rate hike not until 2016. expectation of aprolonged low interest rate and healthier growth outlook in china would drive a rise ininflation and asset prices in hk/china, in our view. among stocks we cover, cheungkong

40、, wharf, swire and mtrc would benefit the most from such trends.resumption of spending by mainland chinese bodes well for hk retail market asdiscussed in our report focus on earnings quality and prefer those with visiblecatalysts, published july 31, 2012, we expect a resumption of spending by mainla

41、ndchinese to underpin a recovery of hk retail sales growth in 4q12 or early 2013 after theslowdown since may 2012. aside from a pickup of transaction volume and prices in theproperty market, better macro data in china (e.g., retail sales, industrial output) inrecent months are pointing to reaccelera

42、tion of income growth and wealth creation inchina. indeed, there are early signs of bottoming, as the three key hk jewelry retailers(chow tai fook, chow sang sang, luk fook) saw a single-digit to low-teens same-store-sales recovery in november, vs. a decline in october. there are some concernsthat a

43、nti-corruption initiatives by the chinese government would lead to less giftingand hence impact the hk retail market. a breakdown by categories shows that jewelryand watches account for 21% of hks retail sales. high-end items represent less thanhalf, of which 20-30% is for gifting, as estimated by o

44、ur consumer team. as such, webelieve the actual impact should be quite limited. capturing 9% of hk retail sales,wharfs two shopping malls should be able to leverage to cyclical recovery ofspending by mainland chinese.soft trade growth in 1h13. prefer exposure to hub or domestic ports with more roomf

45、or asp hike trade growth in hk/china will likely remain soft in 1h13, against weakerexternal demand dragged by fiscal tightening in us/europe. port operators find itgoldman sachs global investment research5january 4, 2013asia pacific: conglomeratesdifficult to pass over cost increases by across-the-

46、board tariff hikes like the one theydid in early 2011, as shipping companies profitability is still far from those high levelsback then. we believe port operators would only raise port charges selectively byroutes and hence prefer those with more exposure to the hub ports (where operatorshave strong

47、er pricing power) and/or domestic ports (where demand is stronger). hphtand cosco pacific are better positioned to raise hikes, in our view.we also conduct a detailed analysis of our covered conglomerates cash returns andcompare them against the market value of the assets (as defined by ev/invested

48、capital)relative to their own trading history to identify those with (1) more sustainable valuecreation track record; (2) upside in future cash returns; (3) yet priced in at current valuation.after incorporating our ecs teams latest gdp growth forecasts and key sectorassumptions (exhibits 8 and 9),

49、we revise our 12-month target prices for our coveredconglomerates by -11% to 32%, based on target nav discounts broadly in line withhistorical averages, with any difference justified by individual companies return profiles.for details, please refer to exhibits 22 and 25.our stock views and recommend

50、ations:we summarize our rating changes and key recommendations below. with this note, janetlu assumes primary coverage of tianjin port dev and dalian port from frank he.replace wharf with cheung kong on our cl-buy list after wharfs strongoutperformance, we see more upside for ck shares, which appear

51、 to have priced indownside in hk housing prices on policy concerns, with its property stub trading atbelow mid-cycle valuation. we see room for the group to improve its cash return from8.3% in 2012e to 10.7% in 2014e, driven by accelerating asset turn in china (propertysales +60% yoy till end-oct) a

52、nd resilient market share in hk, as its projects aretargeted more at local buyers and are less affected by the buyer stamp duty (bsd).based on the existing project pipeline, we estimate cks new projects, if approved,would offer 5,000+ units for sale in 2013, comparable with the levels of the past fe

53、wyears. we also expect associate hutchs croci to improve, driven by capital allocationto the better-return retail and infrastructure divisions, even if 3g return remainssubdued at 1-2%. ck also has a strong balance sheet with only 6% net debt to capital atend-2012e (vs. 26% for hutch), which equips

54、the group well for landbanking andoverseas acquisitions with cki, in our view. ck has a target to keep its net debt tocapital at below 20%.maintain buy on wharf and prefer it over wheelock and swire pacific while someinvestors may consider wheelock a cheaper alternative for exposure to wharf, exhibi

55、t10 shows that its property stub is not far from its historical average since 2009 and wecontinue to believe group restructuring (e.g., privatization of wheelock) is unlikely inthe near future. upside risk on its property stub valuation would hinge on wheelocksexecution on expanding its property dev

56、elopment business in hk as the group has setan aggressive target to secure 12-15% market share in hk (vs. 1-2% in recent years).we see a better, proven track record of wharfs execution in its hk retail malls andchina property investment. we continue to prefer wharf over swire pacific for (1) ourpref

57、erence for hk retail over office markets, as the former should be less affected byexternal macro conditions; (2) less investor interest in swire pacific over time, now thatswire properties free float has risen to 18% and it is also included in the msci index.prefer cosco pacific over china merchants

58、 china merchants has been trading at a30% premium to cosco pacific since 2006 for better cash return and perceived growthprofile. but as we will discuss later in this report, their cash returns have converged tobecome quite comparable at 8%, after cosco pacific turned around its loss-makingports (e.

59、g., nansha, piraeus) and reported stronger port throughput growth in recentgoldman sachs global investment research6january 4, 2013asia pacific: conglomeratesyears for greater exposure to the faster-growing bohai rim region. the weaker volumetrend in nansha port in past few months is distorted by gu

60、angzhou port authoritysdecision to allocate domestic cargos to phase i (owned by china shipping andguangzhou port group) and international cargos to phase 2 (owned by cosco pacific).while it affects the headline volume trend, it may not necessarily translate tosignificant earnings impact for better profitabil