聯(lián)邦大選：加快結(jié)構(gòu)性改革把長(zhǎng)期風(fēng)險(xiǎn)納入近期重點(diǎn)

1、13 February 2019 Asia Pacific/Australia Equity Research Investment StrategyFederal Election 2019Research AnalystsPhineas GloverENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) RESEARCH61 2 82054448 HYPERLINK mailto:phineas.glover phineas.gloverALP to accelerate structural reform, bringingAprilLowis61 2 82

2、054228 HYPERLINK mailto:april.lowis april.lowislong-term risks into near term focusOur assessment of the Australian Labor Partys (ALP) manifesto reveals aclear extension of the powers of state apparatus and regulation, and is likely toaccelerate structural reform in several ESG areas, in our view. T

3、here is a riskthat the pendulum swings back the other way too far, so investors will need tobe across the potential reform agenda. Key considerations include:Transformative industrial relations reform: We develop a proprietary FiveFactor HCM Model to identify ASX300 risk exposures to the industrial

4、relationsreform agenda. Companies exposed to each factor include: FLT, CWY, CWN,CGC, DOW, SGR, CIM, DMP, TGR, and BLD. The top 10 exposures on totalemployee expense include: WOR, FLT, LNK, RHC, ALQ, SHL, HLS, HSO,QUB, and CWY. Sectors most exposed include: Construction, SupportServices, Hospitality,

5、 Healthcare, Agriculture and Retail.CGC at risk from lower Murray Darling Basin (MDB) water allocations:With ALPs pledge to address the long-term problem of over-allocation of waterresources in the MDB, we stress test the impact of a severe reduction in waterallocation rights. In a scenario in which

6、 CGC faces much lower MDB waterallocations, our sensitivity analysis finds a potential group FY19E EBITDAimpact of c. A$20mn or 12.3%. While not an imminent risk to our short-termearnings guidance, we believe it is an important medium-term considerationgiven the stronger focus on preserving water in

7、 the MDB.NUF faces new regulator: Our review of the regulator (APVMA) reveals thatonly 15% of its high risk chemical assessments were finalised by deadline in201718, with some incomplete for decades. As ALP has proposed anoverhaul of the regulatory regime for the assessment of chemicals there isampl

8、ified risk of a more interventionist approach. Nufarms total sales value forall products on the under review and to be reviewed lists equate to c. 16% ofAustralian sales. Overall, if glyphosate is included and we assume that productrisks converge internationally, c. 30% of FY18 group sales is derive

9、d fromchemicals either under review in Australia or subject to review globally. This isnot an imminent earnings risk, in our view, and does not take account ofpotential business responses, but should be an important medium-termconsideration nonetheless.Flammable cladding: There is equal uncertainty

10、for construction companies,REITs and insurers, as liability is set to be contested in the courts. Whileliability risk is shifting away from REITs to construction companies, we expectdisruption as this is resolved in the courts. In the meantime, there is amoderate risk to the value of assets exposed

11、if potential buyers view a buildingto be dangerous and needing costly remediation in the future but withinherently uncertain liability for the costs. There is also a risk that the cost ofrectifying Aluminium Composite Panelling (ACP) is uninsured.DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAI

12、NS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Creditto do in its As a be have a of of this as a in Focus chartsFigure 1: Australian profits &labourincomeFigure 2: Wage inflation &underemployment30%25%20%15%10%65%60%55%50%4

13、5%5%4%3%2%1%0%1998200220062010201420185%6%7%8%9%10%1960197019801990200020102020 YoY% Change in Wage Price Index(LHS)Corporate Profits (LHS, % GDP)Labour Income (RHS, % GDP)Underemployment Rate (RHS, Inverted)Source: Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service, Thomson Reuters Datastr

14、eamSource: Credit Suisse estimates, the BLOOMBERG PROFESSIONAL service, Thomson Reuters DatastreamFigure 3: Union membershiphasdeclinedFigure 4:despite faster wage growth forEBAs% union density of total workers in main job45% 40% 35% 30% 25% 20% 15% 10%90 92 94 96 98 00 02 04 06 08 10 12 14 16 184.5

15、% CollectivewageagreementsTotal wageinflation4.0% 3.5%3.0%2.5%1998-20082009-2018Source: ABS, CreditSuisse researchSource: ABS, Credit SuisseresearchFigure 5: Rainfall deficiencies heavily skewed to the main growing regions andMDBFigure 6: And CGCs citrus farms are in drought- affected areas in theMD

16、BSource:BOMSource: Google Maps, Credit SuisseresearchALP to accelerate ESG structural changePotentially three months away from a Federal election, we undertake a detailed review of the ALPs manifesto to understand the investment implications of an alternative path forward for government policy in Au

17、stralia over the course of the next three-year period.An extension of the (ESG) state: The common motif that we find through the web of policy is a government that would likely seek to extend the powers of state apparatus across a wide range of ESG-related areas in a much more forceful and intervent

18、ionist way. This federalist agenda would have implications for the speed and depth of reform.Structural risks accelerated: Our in-depth assessment of key policies leads us to the conclusion that the speed of structural reform is what might be the big surprise and risk for corporates and investors al

19、ike. In short, there is a risk that the pendulum swings back the other way too far, and so investors will need to be across the impending policy change agenda. Long-term risks might manifest much more quickly than anticipated.Transformative industrial relations reform: Our assessment of ALPs policie

20、s indicates a potentially transformative shift in the bargaining power of labour, leading to a rise in the labour share of GDP over and above cyclical dynamics and cascading impacts across corporate Australia. We develop a proprietary Five Factor Human Capital Management (HCM) Model to identify sect

21、or- and company-level risks. Companies we identify with exposure to each of the five factors, include: FLT, CWY, CWN, CGC, DOW, SGR, CIM, DMP, TGR, and BLD. The top 10 exposures we find from the perspective of total employee expense only include: WOR, FLT, LNK, RHC, ALQ, SHL, HLS, HSO, QUB, and CWY.

22、 Sectors we highlight as being significantly exposed, include: Construction, Support Services, Hospitality, Healthcare, Agriculture andRetail.Known and unknown risks: While will there be no circuit break with prior approaches to industrial relation and climate change-related policies, much less appr

23、eciated thematic risk was also in evidence on chemical safety regulation, Murray-Darling Basin (MDB) reform and flammable cladding. Two key company risks emerge from this:Nufarm, new regulator: Our review of the regulator (APVMA) reveals that only 15% of its high risk chemical reconsiderations were

24、finalised by its deadlines during 201718, with some incomplete for decades. As ALP has proposed an overhaul of the regulatory regime for the oversight and assessment of chemicals we see amplified risk of a more interventionist approach. In terms of materiality, Nufarms total sales value for all of t

25、he products on the under review and to be reviewed lists equate to c. 16% of Australian sales. However, overall, if we include glyphosate and assume that product risks transfer to international markets, we estimate that c. 30% of FY18 group sales is derived from chemicals either under review in Aust

26、ralia or subject to increasing review globally. While we do not see this as an imminent risk to short-term earnings, those chemicals under review represent a material proportion of Group sales, and therefore an acceleration of structural reform should be a consideration in the medium term.Costa at r

27、isk from water scarcity: With ALPs pledge to address the long-term problem of over-allocation of water resources in the MDB, we review the risks from a severe reduction in water allocation rights and focus on CGC given its exposure to water-intensive produce in the MDB. Key considerations are: that

28、it is are unable to access the requisite water allocation rights for citrus plantations on an ongoing basis, thus affecting yields; that this is important for achieving its stated target of a 15% increase in citrus hectares, thereby potentially disrupting growth in citrus volumes; and that water spo

29、t pricing will increase on as demand increases relative to supply, thereby increasing water costs. Overall, in a scenario in which Costa faces a much more severe impact from water scarcity, the group FY19E EBITDA impact could be c. A$20mn or 12.3%. While do not see this as an imminent risk to our sh

30、ort-term earnings guidance, we believe it is an important consideration in the medium term given the risk of increased intervention in theMDB.Key sector and company exposuresFigure 7: Bringing it together: Companies under CS coverage that face material exposure under each of the Five Factor HCM Mode

31、l screensRisk factorsLabour cost exposure to revenuesLabour cost exposure to opexReversal of prior labour cost declinesEBA decline reversionEBA cyclical pressurePrecarious work exposureMeasuresLabour expense to operating costLabour expense to revenue5Y delta in employee expense to operating cost rat

32、ioChange in coverage and agreementsNew EBA agreements wage growth vs 5YaverageExposure to contractors, casuals and labour hire companiesFlight CentreTravel59%51%-3.7%YesYesYesCleanawayWasteManagement41%37%-1.5%YesYesYesCrown Resorts37%28%-9.0%YesYesYesCosta Group Holdings37%33%-0.1%YesYesYesDowner E

33、DI34%34%-7.7%YesYesYesStarEntertainment31%27%-8.4%YesYesYesCIMIC Group28%26%-1.8%YesYesYesDominosPizzaEnterprises25%21%-16.6%YesYesYesTassal Group24%20%-2.9%YesYesYesBoral22%24%-2%YesYesYesSource: Company data, Credit Suisse researchFigure 8: Sectors exposed to our Five Factor HCM Risk ModelRisk fac

34、torTotal labour cost exposureReversal labour declinesEBA decline reversionEBA cyclical pressurePrecarious work exposureMeasureEmployee expense to income ratio10Y delta in employee expense to income ratioChange in coverage and agreementsNew EBA agreements wage growth vs 5Y averageExposure to contract

35、ors, casuals and labour hirecompaniesTotalConstruction5Support services5Hospitality4Healthcare4Property4Agriculture4Manufacturing3Arts & leisure3Professional services3Mining2.5Retail2Media, Telco2Transport2Utilities2Education2Source: Company data, Credit Suisse researchKey theme takeawaysRecent poll

36、s place the ALP ahead of the LNP 55% to 45% on a two-party-preferred basis (The Guardian). History tells us that as we draw closer to the actual Election Day, the polls are likely to tighten up. But at the very least, todays numbers tell us that there is a material risk of a potential change in gove

37、rnment. Therefore, potentially three months away from a Federal election, in conjunction with research analysts in respective sectors, we have undertaken a review of the ALP policy manifesto to understand the investment implications of an alternative path forward for policy over the course of the ne

38、xt three-year period.An extension of the (ESG) stateThe ever-present motif that we find through the web of policy is that an ALP government would likely seek to extend the powers of state apparatus across a wide range of ESG- related areas in a much more forceful and interventionist way. Taking a st

39、ep back from individual policies, what would this mean for the private sector overall? In our view, it signifies better funded regulators, led by leaders with a more aggressive outlook on the rule-book, with a stronger mandate to pursue reform, and with the green light to take on corporate malfeasan

40、ce in all of its shapes and sizes. In short, there is a risk that the pendulum swings back the other way too far, and so investors will need to be across the impending policy change agenda.Structural risks accelerated: Directionally, there will have been a broad sense of where the reform agenda was

41、likely to lead on things like climate change, renewable energy, and industrial relations; only with an understandably flippant “shrug” on whether Canberra will, in all its complicated corridors of power, actually forge a clear way forward for the country. While we deliberately refrain from expressin

42、g any views on the merits of individual policies throughout this report, our in-depth assessment of several leads us to the conclusion that the speed of structural reform is what might be the big surprise and risk for corporates and investors alike. While a common refrain in the past may have been s

43、imply talk to me when the government has a policy, we would advise a dose of policy prudence in considering the implications of structural change for your portfolio.Known and unknown risks: As the fundamental identity of the Labor party was ultimately forged in the union movement, there is a strong

44、link to its policy aspirations in that domain. Neither will there likely be a circuit break with prior approaches to climate change policy. However, what were equally interesting were the pockets of less appreciated thematic risks inevidence.On Social Capital, this was product safety and environment

45、al impact risk. On cladding, the ALP has proposed a more stringent operating environment for flammable claddingand, on chemicals, a complete overhaul of the regulatory regime for the oversight and assessment of the impact of chemicals, including a toxic reduction plan.On Natural Capital, the ALP has

46、 stated that it will address the long-term problem of over-allocation of the water resources of the Murray-Darling Basin (MDB). Given the40-year secular trends towards increased rainfall deficiencies across the main growing regions of the MDB and the CSIRO view that this will be exacerbated by worse

47、ning climate change, water scarcity is a risk here and now.Transformative industrial relations reformHowever, let there be no doubt that the industrial relation reform agenda is the most material, in our view. Our assessment of ALPs policies indicates a potentially transformative shift in the bargai

48、ning power of labour, leading to a rise in the labour share of GDP over and above cyclical dynamics and cascading impacts across corporate Australia. Prevailing assumptions over operating costs and leverage would be challenged. Given the wide-ranging implications across the economy, we develop a pro

49、prietary model to consider sector- and company-level risk, which includes:Employee expense ratios: What is the current ratio of total employee expense to revenue and operating expense at the industry and companylevel;Structural unwind: Which sectors may see a reversal of the largest declines in tota

50、l employee expense ratios over the past 10-year period of declining labourpower;The return of EBAs: We consider Enterprise Bargaining Agreement (EBA) data to identify sectors that have had the biggest declines in EBA coverage relative toemployees and face a large pipeline of expired agreements which

51、 are likely to need renegotiation;Phillips curve in the EBAs: We review the EBA data to identify sectors which are already starting to see a pick-up in wage growth in new agreements, and so combine alarge pipeline of EBA negotiations with cyclical wage pressure; andPrecarious worker reform risk: We

52、identify sectors which have historically utilised a significant component (relative to total workforce) of casual, contractor and labour hireworkers that, under Labor policies, would become equivalent to permanent staff in employment rights, wages and benefits.From this analysis, companies we identi

53、fy with exposure to each of the five factors, include: FLT, CWY, CWN, CGC, DOW, SGR, CIM, DMP, TGR, and BLD. The top 10exposures we find from the perspective of total employee expense include: WOR, FLT, LNK, RHC, ALQ, SHL, HLS, HSO, QUB, and CWY. Sectors we highlight as being significantly exposed,

54、include: Construction, Support Services, Hospitality, Healthcare, Agriculture and Retail.Every drop counts: stress testing CGCGiven the ramifications of the SA Royal Commission into the Murray-Darling Basin (MDB) and taking account of ALPs MDB policy, we review the risks from a more severe reduction

55、 in available water allocation rights. We focus on CGC given its exposure to water-intensive produce in the MDB but the implications of the analysis apply more broadly. Key considerations for CGC are: that it is unable to access the requisite water allocation rights for citrus plantations on an ongo

56、ing basis, thus affecting yields; that this is important for GCG to achieve its stated target of a 15% increase in citrus hectares, thereby potentially disrupting the growth in citrus volumes; and that water spot pricing will increase on the allocation rights as demand increases relative to supply,

57、thereby increasing water costs. We have modelled potential CGC impacts as follows:Hectare growth: We model citrus hectare growth of 2,900 to 3,400 by 2025. For each 100-hectare forecast reduction would incorporate an A$8mn decline in revenue.Under our scenario we assume only 60% of the additional 50

58、0 hectares growth can be achieved, a A$16mn revenue decline (relative to our estimates);Yields: We model average yields of 45 tonnes/ha over a two-year cropping cycle. A 10% reduction in yields equates to A$26mn reduction in revenue over two years;andWater costs: Assuming citrus requires about 7 ML

59、of irrigated water per hectare and half is allocated at A$100/ML and half is purchased at A$300/ml, then a doubling of thespot water price would increase cost by A$4mn per year for citrus.Overall, in a scenario in which Costa faces much more severe adverse impacts from water scarcity, estimate the g

60、roup FY19E EBITDA impact could be c. A$20mn or 12.3%. If the overall impact of hectare growth decline is incorporated for indicative purposes, the impact is A$33mn or 20.6%. We note that our intention here is to demonstrate the magnitude of potential risk and the analysis does not take account of po