20180529-中国银河国际证券-第一太平-00142.HK-TRADING_AT_6.8X_PER__VALUE_OF_LISTED_ASSETS_216__OF_MARKET_CAP_4页_1mb

First Pacific (0142.HK) Trading Idea Summary

Core Content

First Pacific (0142.HK) presents a potential trading opportunity following a significant share price correction of over 20% year-to-date (YTD). The analyst, Wong Chi Man, CFA, highlights that the stock is currently trading at a low forward PER (6.8x) and PBR (0.66x), which are near the low end of the 3-year range, suggesting a margin of safety. The company's major listed assets are expected to deliver strong earnings growth in 2018, which could drive the stock price higher.

Key Information

• Stock Details:

  • Ticker: 0142.HK
  • Current Price: HK$4.13
  • Market Cap: US$2,286m
  • Free Float: 53.05%

• Major Listed Assets:

  • Indofood (50.10% stake): Largest vertically integrated food company in Indonesia, with an attributable market cap of HK$17,460m.
  • PLDT (25.60% stake): Leading telecommunications provider in the Philippines, with an attributable market cap of HK$10,708m.
  • MPIC (42.00% stake): Largest infrastructure investment management and holding company in the Philippines, with an attributable market cap of HK$9,379m.
  • Philex (31.20% stake): One of the largest metal mining companies in the Philippines, with an attributable market cap of HK$1,180m.

• Total Value of Listed Assets:

  • The total value of First Pacific's listed assets is HK$38.7bn, equivalent to 216% of its market cap, still near the high end of the 3-year range.

• Earnings Outlook (2018E):

  • Indofood: Expected net profit growth of 9% YoY to 4548bn rupiah.
  • PLDT: Expected recurring net profit growth of >5% YoY to 23-24bn PHP.
  • MPIC: Expected net profit growth of 11% YoY.
  • Philex: Expected net profit growth of 24% YoY.

• Performance Metrics:

  • 2017 Net Profit: US$121m
  • 2018E Net Profit: US$334m
  • 2019E Net Profit: US$361m
  • Net Margin: Expected to rise from 1.7% in 2017 to 4.5% in 2019E.
  • ROE: Expected to increase from 3.81% in 2017 to 9.98% in 2019E.
  • Dividend Yield: Expected to rise from 3.27% in 2017 to 3.78% in 2019E.

• Valuation Metrics:

  • Forward PER (2018E): 6.8x (near the low end of the 3-year range).
  • Forward PBR (2018E): 0.66x (near the low end of the 3-year range).

• Market Performance:

  • First Pacific's YTD decline of over 20% is more severe than the Hang Seng Index, which has remained largely flat.
  • This underperformance is attributed to weakness in Southeast Asian stock markets, particularly the FTSE Philippines and MSCI Indonesia indices, which have dropped 15.5% and 10.9% YTD, respectively.

• Trading Volume:

  • The stock has decent daily trading volume, averaging about HK$30m in the past three months.

Main Views

• Trading Opportunity:
  The analyst sees a good trading opportunity due to the share price correction and the current undervaluation relative to its underlying assets.

• Margin of Safety:
  The stock's low PER and PBR suggest a significant margin of safety, especially if the major listed assets meet or exceed earnings expectations.

• Investor Sentiment:
  The limited analyst coverage (only two analysts) may have contributed to the stock's mispricing, but the decent trading volume indicates some investor interest.

Risk Factors

• Currency Risk: Sharp depreciation of the rupiah and Philippine peso could negatively impact earnings.
• Earnings Miss: If the major listed assets fail to meet market consensus forecasts, the stock may continue to underperform.

Analyst Certification

• The analyst certifies that the views expressed in the report accurately reflect his personal opinions.
• No part of his compensation is directly or indirectly related to the views in this report.
• He has not traded in the securities covered in the report within 30 days prior to the report's release and will not do so within three business days after release.

Equity Rating Explanation

• BUY: Share price is expected to increase by more than 20% within 12 months.
• SELL: Share price is expected to decrease by more than 20% within 12 months.
• HOLD: No clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to SELL.

Disclaimer

• This report is not intended for distribution to any person or entity in a jurisdiction where it would be illegal.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• The report is for institutional clients and should not be construed as an offer or solicitation to buy or sell any securities.

Copyright

• No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.