Tencent (700 HK) (Outperform)8
More than just a super appWendy Huang
Mini-game MAU reached 400m, similar to China mobile gamer size in 1H18
Weixin Pay MAU reached 800m, covering 300 cities and 100 industries
Mini program advertising is exploding with three ad formats
Shanghai redux & Benjamin Graham9
Tech Strategy v.4510
Tech Strategy v.4611
China Communications Services (552 HK) (Outperform)12
China Tower (788 HK) (Outperform)13
Sa Sa International Holdings (178 HK) (Downgrade to Neutral)14
Samsonite International S.A. (1910 HK) (Underperform)15
Semiconductors16
Standard Chartered (STAN LN) (Neutral)17
Ulvac (6728 JP) (Outperform)18
ASEAN Plantations19
CP All PCL (CPALL TB) (Outperform)20
Sunway Construction Group (SCGB MK) (Neutral)21
United Tractors (UNTR IJ) (Neutral)22
Bajaj Consumer Care (BJCOR IN) (Outperform)23
Indian Cement Sector24
IndusInd Bank (IIB IN) (Outperform)25Macro Commodity and Desk Commentary
These publications have been prepared by Sales and Trading personnel at Macquarie and
are not products of the Macquarie Research Department.
Crunch Time for the Global Economy 26
Please refer to page 19 for important disclosures and analyst certification, or on our website
macquarie/research/disclosures.
10 January 2019 Greater China
EQUITIES
Recommendations and Target Price
Source: Macquarie Research, January 2019 (share prices as of 7 January 2019)
Valuation Comp
Source: Macquarie Research, January 2019
Airlines PAT forecast
Source: Company data. Macquarie Research, January 2019
Analysts
Macquarie Capital Limited
Eric Zong +852 3922 4749
eric.zong@macquarie
HK/China aviation sector
2019 outlook: catch the changing tide
Key points
We are positive on the HK/China aviation sector in 2019. Despite a weak
domestic market, international travel may surprise on the upside.
We believe Beijing’s slot allocation plan has removed the key overhang for
BCIA and is positive for Air China.
Our top picks are Air China for airlines and SZAC and BCIA for airports. We
have also made several rating changes.
Air travel – slower at home but getting better overseas in 2019
We believe the market has already priced in slower domestic air travel in 2019,
but international will likely surprise to the upside on better demand/supply
dynamics. A modest capacity expansion will be seen in most regions except
Europe, according to SRS Analyser. We forecast Big 3 carrier domestic ticket
yield -2% and international +1.5% in 2019E, respectively.
As forex and fuel prices (19E Brent US$69/bbl per MacQ est.) stabilise, we
forecast Big 3 net profit to grow 59% in 2019. Similarly, improving demand/supply
dynamics should benefit Cathay Pacific, which we upgrade to OP from UP. We
also see upside from Air China’s positive 3Q results read-through.
Beijing slot allocation: dust settled for BCIA & +VE for Air China
Differing from consensus, we believe Beijing’s slot allocation plan of a shorter
relocation period of two years (vs. an expected four) is a positive surprise and
has removed the key overhang for Beijing Capital (BCIA), leading to our rating
upgrade to OP from Neutral. We believe Air China will benefit from this decision,
as we expect ticket prices at BCIA to stay at a premium level to BDIA’s. We
forecast ticket prices -0.2%/+2.0% in 19E/20E, outperforming peers.
Airports – switch positions ahead of capex cycle
We suggest investors switch their positions from Shanghai Airport (SHIA) to
Shenzhen Airport (SZAC) and BCIA ahead of SHIA’s new terminal competition in
2H19E. We believe new terminal openings usually hit airport earnings more than
expected, given air space issues remain. Guangzhou Airport’s (GBIA) case study
is a good reference. Therefore, we downgrade SHIA to Neutral from OP.
GDS – TravelSky Tech: near-term cost headwinds to persist
We expect low-margin system integration service projects to offset operating
leverage from TravelSky’s core booking business. We maintain our Neutral rating
on the stock and cut our TP 16% to HK$19.1/share on a lower target PER of 18x
from the previous 20x. Our 18E-20E earnings est. are 3-10% below consensus.
Top picks: Air China, SZAC and BCIA
Among airlines, our top pick is Air China. We believe Air China will benefit
from stronger pricing power at Beijing and SOE reform (cargo business spin-off).
Our TP of HK$8.70 is based on a mid-cycle P/BV of 1.1x.
For downstream, we suggest investors switch their positions from SHIA to
SZAC and BCIA, SZAC’s de-rating (currently trading at 8.6x 19E EV/EBITDA)
should come to an end, in our view. We believe BCIA’s current 5x EV/EBITDA
valuation is cheap and negatives have been priced in.
CurrentTSR
Stock(lc)%
Air China-HOP6.618.7034%
CEA-HOP4.274.8015%
CSA-HOP4.926.0023%
Cathay PacificOP11.1813.3019%
Air China-AOP7.789.8028%
CEA-AOP4.915.6016%
CSA-AOP7.038.3019%
BCIAOP6.367.9028%
SHIAN49.7854.0010%
SZACOP7.7310.3035%
GBIAN9.9410.507%
TravelskyN20.4519.10-5%
PT
Reco(lc)
18E19E18E19E18E19E
StockTicker
Air China-H753 HK0.90.81.21.16.78.7
CEA-H670 HK0.90.71.00.86.29.3
CSA-H1055 HK1.00.91.11.17.812.3
Cathay Pacific293 HK0.70.70.80.82.16.3
Air China-A601111 CH1.21.11.51.46.78.7
CEA-A600115 CH1.21.11.41.36.29.3
CSA-A600029 CH1.51.41.81.77.812.3
StockTicker
BCIA694 HK4.45.25.36.414.510.6
SHIA600009 CH13.312.114.512.816.416.8
SZAC000089 CH9.48.512.211.07.17.9
GBIA600004 CH8.08.58.69.28.76.0
StockTicker
Travelsky696 HK20.218.719.318.010.76.9
P/B (x)
PER (x)
Earnings
growth (%)
EV/EBITDAR (x)ROE (%)
TradingImplied
ROE (%)2,000
4,000
6,000
8,000
10,000
12,000
14,000
202020202020E
20E20
E
Air ChinaCEACSA
Rmb mnPlease refer to page 11 for important disclosures and analyst certification, or on our website
macquarie/research/disclosures.
10 January 2019 Hong Kong
EQUITIES
293 HK Outperform
Price (at 13:59, 07 Jan 2019 GMT) HK$11.18
Valuation HK$13.30
- Price to Book
12-month target HK$13.30
Upside/Downside %+19.0
12-month TSR %+19.0
Volatility Index Low
GICS sector Transportation
Market cap HK$m43,980
Market cap US$m5,615
Free float %15
30-day avg turnover US$m1.6
Number shares on issue m3,934
Investment fundamentals
Year end 31 Dec2017A 2018E 2019E 2020E
Revenue bn 97.3 109.2 111.4 113.3
EBIT bn -2.3 2.0 5.7 7.0
EBIT growth % -334.1 nmf 181.3 21.5
Reported profit bn -1.3 1.3 4.1 5.6
Adjusted profit bn -2.1 1.3 4.1 5.6
EPS rep HK$ -0.32 0.33 1.04 1.41
EPS rep growth % -118.2 nmf 213.3 36.2
EPS adj HK$ -0.53 0.33 1.04 1.41
EPS adj growth % -262.0 nmf 213.3 36.2
PER rep x nmf 33.8 10.8 7.9
PER adj x nmf 33.8 10.8 7.9
Total DPS HK$ 0.00 0.00 0.00 0.00
Total div yield % 0.0 0.0 0.0 0.0
ROA % -1.2 1.0 2.9 3.4
ROE % -3.6 2.1 6.3 8.1
EV/EBITDA x 11.3 7.8 6.0 5.3
Net debt/equity % 116.7 115.5 115.8 113.3
P/BV x 0.7 0.7 0.7 0.6
293 HK rel HSI performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2019 (all figures in HKD unless noted)
Analysts
Macquarie Capital Limited
Eric Zong +852 3922 4749
eric.zong@macquarie
Cathay Pacific Airways (293 HK)
Turning positive
Key points
The Big 3 Chinese carriers will remain disciplined in overseas capacity
expansion into 2019, versus 19-22% in 2015-2016.
Better demand-supply dynamics, resulting from moderating competitions
from Chinese carriers, should support passenger yields for CX.
We upgrade CX to OP from UP. We lift TP to HK$13.3/share, based on a
higher target P/BV of