KGI TOP PICKS – 24 AUGUST WEEKJiutian Chemical

• Overlooked by the markets

• Entering 2H 2020 in a perfect environment of rising average selling prices, better utilisation and lower raw material costs.

• Fair value of 6.8 Sing cents based on 8x FY2020F EPS

• Added to our 2H 2020 Top Picks

ISDN

• Riding on automation wave accelerated by Covid-19

• Better 2H2020 vs 1H2020, bringing ISDN to new highs

• Catalysts from stronger-than-expected sales, margin improvement, upside surprise from Indonesia hydropower operations, and successful expansion of new disinfectant business.

• OUTPERFORM S$0.47 target price

2H 2020 PICKS

• Technology

• A much bigger disruptor than Covid-19

• China-focused companies

• First In First Out

• Added Jiutian Chemical Group

• Consumer

• Thailand discretionary

• ASEAN healthcare

• Commodities

• Gold

• Oil

Company Catalyst

TECHNOLOGY

AEM

(AEM SP)

Strong capex spend by Intel

Silverlake Axis

(SILV SP)

Expansion of its insurance Software-as-a-Service (SaaS) in Japan, and potential new

business areas from digital banking license in Malaysia

ISDN

(ISDN SP)

Overdue rebound in Industrial Automation, led by China

Frencken Group

(FRKN SP)

Strong order momentum from semiconductor clients, mainly ASML

CHINA

Yanlord Land

(YLLG SP)

China’s strong property rebound

Jiutian Chemical

(JIUC SP)

Perfect operating environment of higher selling prices, lower raw material costs and better

utilisation. One of the largest manufacturer of DMF/methylamine in the world.

Sasseur REIT

(SASSR SP)

Upside potential linked to China’s growing outlet retail mall sales, while offering downside

protection with a fixed income component that increases 3% per annum until 2028

EC World REIT

(ECWREIT SP)

The only specialised and e-commerce logistics S-REIT that provides investment access

into China’s booming e-commerce industry

HEALTHCARE / CONSUMER

Singapore Medical Group

(SMG SP)

Well-diversified small-cap medical services provider riding on healthy growth in Southeast

Asia and Australia

ThaiBev

(THBEV SP)

V-Shape in Thailand’s economic growth in 2021

COMMODITIES / PRECIOUS METALS

Shandong Gold

(1787 HK)

Proxy to gold prices where we have a target of US$1,900/oz in 2020

CNOOC

(883 HK)

Largest upstream oil & gas company in North Asia with the highest beta to oil prices

2H 2020 RECOMMENDATIONS

Source: Bloomberg, KGI Research

Our 2H 2020 Top Picks outperformed the STI by 17.7% for the 14 July -20 August Period (equal weighted)

Top performers mainly concentrated among technology: ISDN, AEM, Silverlake

KGI 2H 2020 TOP RECOMMENDATIONS (July-August 2020)

Company Sum of Traded Value ($),

1-20 August 2020

Performance (incl div)

14 Jul-20 Aug 2020Remarks

AEM HOLDINGS LTD $4,925,625 30.3% 2H 2020 TOP PICK

CNOOC Ltd $95,063 1.4% 2H 2020 TOP PICK; HK-listed Oil Proxy

FRENCKEN GROUP LIMITED $4,057,925 3.2% 2H 2020 TOP PICK

ISDN HOLDINGS LIMITED $12,012,784 78.1% 2H 2020 TOP PICK

Shandong Gold Mining Co Ltd-H – 12.4% 2H 2020 TOP PICK; HK-listed Gold Proxy

SILVERLAKE AXIS LTD $2,048,398 16.0% 2H 2020 TOP PICK

SINGAPORE MEDICAL GROUP LTD $388,915 -5.8% 2H 2020 TOP PICK

Thai Beverage Public Company Limited $2,621,849 -10.3% 2H 2020 TOP PICK

VENTURE CORPORATION LIMITED $6,455,404 19.5% 27 July and 3 August Weekly Top Pick

YANLORD LAND GROUP LIMITED $5,235,747 3.1% 2H 2020 TOP PICK; Inlusive of interim dividends

Grand Total $37,841,709 14.8%

STI Returns (13 Jul-20 Aug 2020), Total Returns (2.9%)

Outperformance 17.7%

MARKET OVERVIEW – THE GREAT DIVIDE

Big are getting bigger / Rich are getting richer

• Small and mid sized companies are facing more challenges than conglomerates in obtaining financing

• Multi-billion (trillion) companies are able to raise long-term debt at <3% and short-term debt at <1%. Apple, Alphabet

• e.g., J&J raised US$7.5bn, 5-year bonds at 0.57% and 40-year at 2.49%

Accelerated adoption of technology

• Retrenchments across the board (even for profitable companies) as companies do more with less people

• Unemployment expected to remain high in developed countries

• Automation & cloud-based companies

MARKET OVERVIEW – THE GREAT DIVIDE• DBS Study based on anonymised data from 1.2mn retail

customers aged 25-70

• Workers aged 35-44 have been hit the hardest due to their higher wages (mainly in aviation sector)

• More than a quarter have seen their incomes decline in recent months

• Low income workers earning less than $3,000

• Made up half of customers who experienced fall in salaries. Within this group, 51% of them saw income fall by half.

• 64% of workers who experienced significant fall in income had less than 3 months of emergency funds

• Retail investors outperformed institutional investors and STI YTD as they shifted towards equities and away from bonds and unit trusts

RESEARCHKENNY

ISDN Holdings

ISDN: MAINTAIN OUTPERFORM: TP S$0.47

- ISDN reported 1H20 results – 1H20 sales at +13.8% YoY (54%

of our estimate) while 1H20 PATMI at +72.5% YoY (82% of our

est.)

- Core business grew 2% in 1H20, sales growth largely from

hydropower business. Disinfectant business sees more clientele

& good test results

- Why buy ISDN:

- 1) 2H20 likely to be stronger than 1H20; mgmt. revealed July

was ‘historically best month in ISDN’

- 2) Hydropower biz finally near operational date; should bring in

USD 6 – 8m sales/yr, “almost pure profit”

- 3) Disinfectant business doing quite well, ISDN looking to enter

China market

RESEARCHKENNY

Yanlord Group

YANLORD: MAINTAIN OUTPERFORM, TP S$1.52

- Yanlord reported 1H20 results – 1H20 sales at +18% YoY, but

PATMI -59% YoY. PATMI margin at 5.4%, a likely all-time low

- Gross margins fell to 36% and likely to stay in the 35-40% range

(historically 40 – 47%). Mgmt expects margins to improve

- Property ASP fell to 27,876 RMB psm (FY19: 30,375), but

should have troughed, as upcoming pre-sale contracts are at

29,330+ RMB psm

- Despite weak profitability, Yanlord has one of the best 2020

prospects amongst Chinese property peers. Increase TP to

S$1.52.

RESEARCHGUANGZHI, CFA

China Sunsine Chemical 1H20 ResultsUpdates

CHINA SUNSINE CHEMICALTP: S$0.47, OUTPERFORM, LAST DONE: S$0.36• Enduring through adversities in the down cycle

• Peak-to-peak period lasted exactly a decade

• From over-capacity to ensuing supply-side reform

• Down cycle in 4Q18 Better outlook in 2H20

• Moderately positive outlook in 2H20

• Productions and business is expected to continue to recover in 2H20

• Tyre manufacturers’ utilisation rate has not recovered to pre-COVID levels

• Crude oil prices bottomed out in April

• Raw material prices like aniline reached a decade low of RMB4,500/tonne (long-lasting ASP below breakeven costs will accelerate the balance of supply and demand dynamics)

• Clean balance sheet with zero debt and abundant cash (RMB1.3bn as of June 2020, equivalent to S$0.27/share).

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Accelerator M Accelerator DM Accelerator TMTD Accelerator CZ Accelerator NOBS

Accelerator D Accelerator ZDC Accelerator NS Antioxidant A

RMB '000/tonne

Figure 1: ASP spread between rubber chemicals and aniline

Source: CEIC, KGI Research

Figure 2: China rubber chemicals sector 1H20 performance

1H20 1H19 YoY change

Total production value (RMB bn) 8.4 11.5 -27%

Total sales (RMB bn) 8.8 11.0 -20%

Export value (RMB mn) 188 350 -46%

Total production volume ('000 tonnes) 575 667 -14%

Accelerators 150 202 -26%

Anti-oxidant 154 189 -19%

Export volume ('000 tonnes) 120 185 -35%

Source: China Rubber Industry Association, KGI Research

RESEARCHJOEL

Jiutian Chemical

JIUTIAN CHEMICAL GROUP (JIUC SP) • Largest dimethylformamide (DMF)/methylamine manufacturer in China

• Total capacity of 150,000 tons per year

• DMF

• PU (Polyurethane), which in turn is a feedstock used in in consumer goods, shoe soles, and PU leather (synthetic leather)

• Acrylic Fibre / Natural Leather – lower cost alternative to cashmere

• Antibiotics and other pharmaceutical products

• Printed circuit boards (PCB)

• Fertilisers, soil conditioners, pesticides and antibiotics for farms

• Methylamine (feedstock for DMF), Consumable carbon dioxide, Sodium hydrosulfite, Deuterium-depleted water

JIUTIAN CHEMICAL GROUP (JIUC SP)

• DMF ASP has gone through the roof in July and August 2020

• Meanwhile, raw material prices have fallen to the basement

• Perfect operating environment

Source: CEIC, KGI Research

JIUTIAN CHEMICAL GROUP (JIUC SP) • The most important chart for Jiutian

1500

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Spread (DMF-Methanol)

Source: CEIC, KGI Research

JIUTIAN CHEMICAL GROUP (JIUC SP)

Source: KGI Research

KGI Fair Value S$0.068

Current Price S$0.056

Upside potential 48%

Market capitalisation S$84 million

Price to book 1.3x

Upside catalyst Higher ASP in 2H2020

AUGUST 2020 CALENDARSunday Monday Tuesday Wednesday Thursday Friday Saturday

2 3AEM (PM)MUST REIT (AM)

4 5CSE (PM)

6DBS (AM), UOBGenting SG (PM)EC WORLD REIT

7OCBC (AM)VENTURE (PM)CapitaLandISDN

8

9 SG National Day

10SG Public Holiday

11UG Healthcare (PM), Lendlease REIT, Delfi

12 13Yanlord, CityDev, Frencken

14ComfortDelGro, ThaiBev, UMS, ST Engineering, CNMC

15

16 17 18 19 20 21 22

23 24SATS 1Q

25 26Silverlake AxisUOB 39cts Ex-div

27 28 29

30 31 September 1 2 3 4 5

Source: KGI Research

AU

GU

ST

*PM – After market close, AM – Before market opens

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