摩根士丹利-全球-可持续产业-全球可持续产业顶级投资主题-2019.2.18-48页.pdf

Victoria.IJessica.AMark.SMORGAN STANLEY&CO.INTERNATIONAL PLC+Victoria IrvingEQUITY STRATEGIST+44 20 7425-6651Jessica Alsford,CFAEQUITY STRATEGIST+44 20 7425-8985MORGAN STANLEY&CO.LLCMark SavinoEQUITY STRATEGIST+1 212 761-8576SustainabilitySustainability|Global GlobalSustainability Top InvestibleThemesIntroducing our new framework for identifying the mostinvestible Sustainability themes at present and 4 top pickstocks:Deere&Co.,Roche,LG Chem&PagSeguro Digital.We are often asked which are the most investible Sustainability themes.Assuch,we set ourselves the task of identifying which Sustainability themes providean attractive entry point over the next 12 months.Starting with our SustainableSolutions database,we have identified 10 Sustainability themes where we havemore than 5 stocks under Morgan Stanley coverage,each with at least 50%revenue exposure to the theme.We have tiered these themes based on thefollowing three criteria:(i)median%upside to price target;(ii)%Overweightrated stocks;and(iii)average analyst outlook on the theme.4 Sustainability themes with an attractive entry point.We identify these fourthemes as having the most attractive entry point over a 12-month horizon.Foreach there is at least 9%median upside to MS price targets,over 30%of thestocks are rated Overweight,and the overriding opinion of our global analysts onthe theme is positive or neutral.We drill down into our attractive sustainability themes to identify 4 top picks Deere&Co.(US;Food Security),LG Chem(S.Korea;Alternative Fuel Vehicles),PagSeguro Digital(Brazil;Financial Inclusion)and Roche(Switzerland;TreatingIllness).These are companies that have greater than 15%upside to price target,are over$5bn market cap in size and are rated Overweight by MS analysts.Morgan Stanley does and seeks to do business withcompanies covered in Morgan Stanley Research.As aresult,investors should be aware that the firm may have aconflict of interest that could affect the objectivity ofMorgan Stanley Research.Investors should considerMorgan Stanley Research as only a single factor in makingtheir investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of thisreport.+=Analysts employed by non-U.S.affiliates are not registered withFINRA,may not be associated persons of the member and may notbe subject to NASD/NYSE restrictions on communications with asubject company,public appearances and trading securities held bya research analyst account.Alternative Fuel Vehicles:Investment in future automotive technologies isaccelerating and battery cost reduction is on track to move to the level oftriggering an EV inflection point.Financial Inclusion(India&LatAm):Digitalisation creates an opportunityto capture market share across small and medium-sized companies andindividuals that are often underserved,overlooked or overcharged by theincumbent payment providers and financial institutions.Food Security(Agricultural Equipment):Agriculture is under strain due topopulation growth and rising income.Investment in precision farming iscatalysing new demand.Treating Illness(Pharma Innovation&Access to Medicine):Companiesthat are able to innovate and generate differentiated drugs have an edgeover less innovative companies,whilst exposure to emerging markets,inparticular China,is becoming a sustainable source of growth.1February 18,2019 12:01 AM GMT SummaryOver the last six years,our Sustainable Solutions Stocks interactive model has providedinvestors with a list of companies whose products and services can help to solve globalsustainability challenges.However,we are often asked by investors for our thoughts onwhich of these themes are currently the most investible Sustainability themes.There arevarious approaches that could be taken depending on the end goal.This report buildson our Sustainable Solution Stocks interactive model(see:Sustainable SolutionsInteractive)to identify the most investible themes that offer an attractive fundamentalinvestment case over the next 12 months.Updated global stocks thematic exposure:Today,we publish the results of our annualrequest to our global equity research analysts to update their estimates for thepercentage of revenue and/or EBITA that is positively driven by our Sustainabilitythemes.Overall,we have compiled a list of over 800 stocks from across Europe,NorthAmerica,Latin America and Asia Pacific.Taking this list,we focus on 10 long-term Sustainability themes.For each theme wehave more than 5 stocks under Morgan Stanley coverage with over 50%revenueexposure to the theme(almost 250 companies).We provide more details on ourmethodology for selecting stocks in the section Methodology-Identifying the TopThemes and Stocks.1.Renewables(hydro,wind&solar)Numerous key markets have reached aninflection point where renewables have become the cheapest form of new powergeneration.2.Alternative Fuel Vehicles Investment in future automotive technologies isaccelerating.3.Energy Efficiency 80%of the worlds primary energy supply is still derived fromfinite fossil fuels.4.Sustainable Packaging A growing focus on recyclability and lightweighting willimpact demand for different types of packaging.5.Water Availability Demand for water should exceed supply by 40%within 16years.6.Food Security(agriculture,crop services,equipment)Agriculture is under straindue to population growth and rising incomes.7.Cyber Security Cybersecurity is a growing problem despite increased spend oncybersecurity technology.8.Education Education enrollment rates have improved significantly over the lastdecade but opportunities for further improvement remain.9.Financial Inclusion(China,India,ASEAN,LatAm,developed markets)Digitalisation creates an opportunity to provide access to finance to those that are2Identifying attractive Sustainability theme entry points:The nature of these themes issuch that value creation may emerge over the medium to long term.However,werecognise that,ideally,investors may also want to generate a positive return over ashorter time horizon.We therefore highlight a shortlist of themes which we believe areinvestible over a 12-month time horizon.We categorise the 10 themes identified aboveinto attractive,in-line and cautious by taking into consideration the following criteria:(i)median%upside to MS price target;(ii)%Overweight rated stocks;and(iii)averageanalyst outlook on the Sustainability theme.The focus on themes such as Financial Inclusion and Access to Medicine gives us anatural bias to the emerging markets.However,we highlight that geographically 23%ofthe stocks included within our 10 themes are listed in North America and 14%in Europe.4 top picks Sustainability stocks with a positive short-term outlook:In collaborationwith our analysts,we drill down into the attractive Sustainability themes to identify thetop 4 stocks that have a positive short-term outlook 2 in developed markets and 2 inemerging markets.We have selected the stocks based on the following criteria:(i)ratedOverweight;(ii)at least 15%potential upside from the current share price;(iii)$5bnmarket cap;and(iv)discussions with our analysts covering stocks on the short list to gettheir additional insights into the companies.often underserved,overlooked or overcharged.10.Treating Illness(pharma innovation,access to medicine)2 bn people cannotaccess the medicine they need and the number of people with non-communicablediseases is rising as the population ages,becomes more urbanised and the middleclass expands.Exhibit 1:Attractive,in-line and cautious Sustainability themesSource:Morgan Stanley Research3Developed markets:Deere&Co.(Food Security agricultural equipment):This company is engaged inequipment operation and financial services in the agriculture and constructionequipment market.It has been investing in precision agriculture,which should result insignificantly higher revenue opportunities.Roche(Treating Illness pharma innovation&access to medicine):A global healthcarecompany operating in both pharmaceuticals and diagnostics.Roches next wave ofpipeline assets carries diversification across 27 assets as well as high innovation.Emerging markets represent 24%of revenues,and the group has recently refreshed itsaccess-to-medicine strategy.Emerging markets:LG Chem Ltd(Alternative Fuel Vehicles):We believe LG Chems battery business is wellpositioned to reap the benefits of rapidly rising EV adoption.PagSeguro Digital(Financial Inclusion LatAm):A financial technology companyproviding payment and business solutions focused primarily on micro-merchants andSMEs,many of them unbanked and underserved by incumbent payment providers andlarge financial institutions.4 Methodology Identifying the Top Themes and StocksSelecting companies for the themesWe have used our Sustainability Solution Stocks database as a starting point to identifythemes where we have 5 companies under coverage with 50%revenue exposure anda coherent set of drivers(see Sustainable Solutions Interactive).The methodology does not work for all themes though.Financial Inclusion,for example,has 60 stocks with more than 50%revenue exposure to the theme and all havedifferent drivers based on the regions to which they are exposed.As such,we havetailored our approach to a number of sub themes as we describe below.Financial Inclusion:The starting point for the companies to be included as part of theSustainable Solution Stocks database(see Sustainable Solutions Interactive)is to useMorgan Stanleys Global Revenue Exposure Guide(see:Global Strategy:GlobalExposure Guide 2018(19 Jun 2018)to identify:(i)Banks or financial services that provide banking services in countries with low bankaccount penetration using the world bank data;(ii)Insurance companies in areas of low insurance penetration using Swiss Res Sigmadata;and(iii)Banks/lending/financial services that are helping to increase affordable credit forSMEs and underbanked businesses in countries that have the greatest need,ie(a)belowaverage bank account penetration,and(2)a high dependence on SMEs(based on%oftotal employment).We then focused on companies that had 50%revenue exposure to India,China,ASEANand other financial services companies.Food Security:We split the companies with 50%revenue exposure to the theme intothree categories:agriculture,crop services and equipment.Renewables:We split the companies with 50%revenue exposure to the SustainableSolution Stocks theme Utility Fuel Switching into three categories hydropower,windand solar and used information from our analysts to identify revenue exposure to thethree themes.Treating Illness:There are over 200 companies with 100%revenue exposure to thistheme.As such,to identify a more targeted list we split our analysis into two areas:(i)innovation we identify companies that have on average 20%R&D as a%of operatingexpenses(2015-17);and(ii)access to medicine we identify companies that have 20%revenue exposure in EM using Morgan Stanleys Global Revenue Exposure Guide(see:Global Strategy:Global Exposure Guide 2018(19 Jun 2018).5Selecting the most investible Sustainability themesWe ranked each theme into tiers based on the following criteria:(i)%of stocks ratedOverweight by MS analysts;(ii)median upside to price target;and(iii)average MSanalyst 12-month outlook on the theme(attractive,in-line,cautious).Selecting the top pick stocksFocusing on our attractive sustainability themes,we have identified our top picks as aresult of the following criteria:(1)they offer at least 15%potential upside from thecurrent share price;(2)they are rated Overweight;and(3)they have at least$5bnmarket cap.Finally,we discussed the short list of ideas with our stock analysts to gettheir additional insights on the different companies.Exhibit 2:Methodology for classifying Sustainability themes*We outline our methodology for selecting stocks for the themes in the sub section above Selecting companies for the themes.Source:MorganStanley Research6 Sustainable Solutions InteractiveGlobal Sustainability ThemesCompany Data,AlphaWise,Morgan Stanley Research7 Sustainability Top Investible Themes Top Picks8 Deere&Co.(Food Security)Deere&Co.:Letter from New York(8 Jan 2019)Machinery:The 2019 Playbook(17 Dec 2018)Deere&Co.:4Q18 Post Call:More Gravy on the FY19Order Book(21 Nov 2018)Deere&Co.is engaged in equipment operations and financial services within the agriculture and constructionequipment market.It is one of the highest quality,most defensive names within the broader machinery universe,givenan historically low cyclicality of agricultural equipment and history of strong management execution.In addition,itallocates over 5%of its revenues to technology and innovation.Its Precision Agriculture technology improvesapplication rates,fuel economy and irrigation costs.MS Analyst:Courtney Yakavonis,Equity AnalystSustainable Growth:An expected resumption in China trade flows could lead to an appreciation in Chicago soybean prices,suggesting commodity fundamentals should be supportive of incremental demand growth in FY19 ie well above bearsinitially calling for flat to down NA ag sales in FY19.We believe Precision Agriculture uptake trends are also likely to drive incremental investor interest in FY19.The PrecisionAgriculture narrative accelerated into 2018 year-end given the breadth of offerings unveiled at Farm Progress and recentmanagement commentary suggesting pricing accretion and market share gains as a result of uptake.As such,the impact ofPrecision Agriculture trends and nuances among the major players could come into focus given some evidence of share shiftsand more robust uptake trends at Deere&Co.vs competitors.Sustainable Returns:Deere&Co.saw margin misses in each of its past three quarters,but saw buyers on weakness asinvestors retained conviction in the trajectory of the North America large agriculture cycle vs.other machinery verticals(which was supported by positive early order commentary in the prior two quarters).Although material inflation headwindscould linger in 1HFY19,moderating steel prices and weakness in spot freight rates suggest that cost inflation should reversein 2HFY19,which should bolster 2H incrementals in the context of Deeres 4-5%price increases across its North America largeagriculture portfolio.Outlook on theme:2018 was a significant year in the development of Deere&Co.s Precision Agriculture software suite,withmore tangible benefits from software offerings generating positive uptake trends through the year.The company gained in2018 high large agricultural market share levels in both the US&Canada,likely as a result of its continued focus on PrecisionAgricultural offerings.Crop care and combine product offerings are areas adding the most value to the farmer cost equation(e.g.the company recently highlighted an example where a farmer utilising Blue Rivers prototype See&Spray technologyreduced its chemicals spend from 250k to 25k in the current crop year).Over the long term,management believes thatPrecis