Investor Notes - Phillip Securities (HK) Ltd

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27 Nov, 2018 (Tuesday)

NAGACORP(3918)
Analysis：
The opening of Naga2 under NagaCorp`s(3918) in November 2017 significantly increased the appeal, capacity, quality, range and reach of VIP, Mass Gaming and Non-Gaming offerings. This enables the Group to continue its trajectory of growth which is supply driven. For the 9 months ended 30 September 2018, the Group`s gross gaming revenue increased 94% to US$1.071 billion as compared to the same period in 2017. Its VIP rollings increased by 128% to US$25 billion. To further enhance NagaWorld`s quality, the Group has embarked on an upgrade of Naga1, which is expected to be completed in 2019. Additionally, the Group is in advance stages of of planning for the development of Naga3. Additional capacity will further fuel its business growth (both gaming and non-gaming). (I do not hold the above stock)
Strategy：
Buy-in Price: $8.00, Target Price: $8.80, Cut Loss Price: $7.50

SLD GROUP(2262)
Analysis：
Founded by Steve Leung in 1997, it is known for undertaking residential, private residence and hospitality projects which target the high-end market in the PRC and HK. It ranked second among interior design services providers which did not provide any fitting-out services, representing 0.18% of the market share in terms of revenue for FY2017 in the PRC and HK. For the first half year of 2018, the real estate investment in the PRC slowed down due to the cooling measures implemented by the government. In addition, the Sino-US trade war introduced uncertainties into the macro environment, leading to weakened investment sentiment. Revenue of the company during the period still recorded an increase of 25.8%y.o.y. to HK$223.5 million. Net profit increased 22.23% to HK$24.93million. Interior design and decorating services market in China grew at a CAGR of 7.9% from 2013 to 2017, and is expected to grow at a CAGR of 6.9% until 2022. The expected CAGR for the residential segment in China is 7.3%. For the HK market, it grew at a CAGR of 7.6% from 2013 to 2017, and is expected to grow at a CAGR of 6.8% until 2022.
Strategy：
Buy-in Price: $1.19, Target Price: $1.50, Cut Loss Price: $0.90

BOC Aviation (2588.HK) - Satisfactory operation performance in third quarter

Investment Summary

BOC aviation (BOCA) is a leading global aircraft operating leasing company in Asia, currently with a portfolio of 294 owned and 26 managed aircrafts. We remain an “Accumulate” rating based on a Price-to-book ratio vs. Return on Equity method, deriving a target price of HK$70.5, 18.5% potential upside. (Closing price at 23 November 2018)

Aircraft fleet

The total fleet of owned aircraft in 3Q18 was 294, dropped by 1 compared to 1H18. That of managed aircrafts was also down by 3 to 26, while the aircraft on order increased by 16 to 179, resulting in an increase in the total fleet of aircrafts of 12 to 499. BOCA sold 12 aircrafts in 3Q18, where 9 are owned and 3 are managed.

Aircraft delivery

In 3Q18, BOCA has delivered 9 aircrafts, where they delivered their first A321 NEO aircraft in August 2018. Meanwhile, it added three new airline customers to its customer portfolio. The Group expects there will be 16 aircrafts to be delivered in 4Q18, making a total delivery of 52 aircrafts in 2018. The delivery was six less than expected in 1H18, because of the manufacturer production delays. And, BOCA expects the problem takes 2-5 months to be resolved, meaning those have been deferred to 2019. However, the management believes there will be no significant influence in the 2018 bottom line, because a delay in the delivery will not bring any penalties. Meanwhile, BOCA has signed 35 lease commitments in 3Q18, further securing the portfolio utilization in the future.

PLB deals

There was no additional Purchase and lease back (PLB) deals in 3Q18, as the management claimed that airlines usually seek for PLB 12-18 months earlier before the aircraft delivery, implying that the PLB agreed now will be reflected in 2019.

Capex and Aircraft NBV

BOCA sees an increase of USD 2.5 billion in aircraft NBV, expecting a capex of USD 4 billion in 2018 and an offset of USD 0.5 billion in depreciation and 1 billion in aircraft disposal. Meanwhile, the capex will peak in 2019, and drop in 2020.

Average aircraft age and lease term

Based on the weighted net book value of owned fleet, the average fleet age rose by 0.1 to 3.1 years, and the average lease term dropped by 0.1 to 8.2 years.

Leverage target & proportion and dividend payout

BOCA still remains its target on leverage ratio to be 3.5x-4.0x, and continue to increase in the proportion of fixed rate loan, as it expects more fixed rate term coming up. Moreover, the Group has signed a single tranche unsecured term loan facility of USD 750 million in October 2018. Besides, it will cling to 35% annual payout ratio.

Valuation

We see the 3Q18 performance generally in line with our forecast, so we remain our target price to be HK$70.5 based on the NAV in 2019F, implying P/B 1.50x/1.36x/1.25x in 2018/19/20F respectively and maintain an “accumulate” rating. (HKD/USD: 7.8)

Risk

1. Higher-than-expected increase in interest rate

2. The demand for traveling and aircrafts slow down

3. Delayed aircrafts deliveries

4. Depreciating value for aircrafts in secondary markets

Financials

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Recommendation on 27-11-2018
Recommendation	Accumulate
Price on Recommendation Date	$ 59.500
Suggested purchase price	N/A
Target Price	$ 70.500

Writer Info

Terry Li
(Research Analyst)

Tel: +852 2277 6527

Email:
terryli@phillip.com.hk

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