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Regional Morning Notes Summary

Core Content

This document is a Regional Morning Notes report from Friday, 02 September 2016, focusing on Malaysia, China, Indonesia, Singapore, and Thailand. It includes updates on key stories, company updates, economic indicators, and investment recommendations. The report highlights PMI data, stock performance, and corporate events in the region.

Main Points

China

• PMI Rebounds: China's official manufacturing PMI rose to 50.4% in August 2016, surpassing the consensus of 49.8%, indicating recovery in manufacturing activities.
  • Non-manufacturing PMI declined slightly to 53.5% from 53.9% in July, suggesting slower expansion in services and construction.
• Economic Uncertainties: Despite the rebound, uncertainties remain, with fiscal stimulus being a key stabiliser for the economy.
• Geely Auto Update:
  • Upgraded from HOLD to BUY due to strong SUV sales and synergy with Volvo.
  • Raised target price from HK$5.30 to HK$8.00.
  • Earnings growth expected to be 14–47% for 2016–2018.
  • New SUV models (Boyu, Emgrand GS, Vision SUV) drove sales growth, with stronger-than-expected market response.
  • CMA platform is expected to significantly impact future performance, with three CMA models launching in 2017.
  • Sales volume is projected to grow from 678,000 units in 2016 to 930,000 units in 2018.
  • Profitability is expected to improve, with net margin increasing to 9.0% for 2016–2018.
  • Strong financial position with net cash doubling to Rmb10.9b as of June 2016.
  • Free cash flow turned positive, indicating improved liquidity.

Malaysia

• MRCB-Quill Reit (MQREIT):
  • Initiated coverage with a BUY recommendation.
  • Target price at RM1.35.
  • Expected to benefit from strategic partnerships, leading to more assets for future acquisitions.
• Affin Holdings (AHB):
  • Maintained SELL recommendation.
  • Target price at RM1.56.
  • Profit expectations met via lumpy write-backs, but net credit cost is expected to normalise upwards.

Indonesia

• Astra International (ASII):
  • Upgraded to BUY due to 18.1% EPS growth in 2017.
  • Target price at Rp9,000.

Singapore

• Zika Virus Impact:
  • Defensive and selective approach to the FSSTI due to weak earnings visibility and lack of catalysts.
• Telecommunications Sector:
  • Described as being in the "nightmare has just begun", indicating negative outlook.

Thailand

• Hana Microelectronics (HANA):
  • Maintained SELL recommendation.
  • Target price at Bt26.00.
  • Described as "hanging by a thread", suggesting weak financial health.

Key Indices (as of 02 September 2016)

Key Assumptions

Corporate Events (September 2016)

Investment Recommendations

BUY Recommendations

• Geely Auto (175 HK):
  • Target Price: HK$8.00
  • Upside: +25.2% from current price of HK$6.38
  • Reason: Strong sales of new SUV models, higher-than-expected margins from synergy with Volvo, and a strong financial position.

SELL Recommendations

• Affin Holdings (AHB):

  • Target Price: RM1.56
  • Reason: Profit expectations met via write-backs, but net credit cost is expected to rise.

• Hana Microelectronics (HANA):

  • Target Price: Bt26.00
  • Reason: Financial health is described as "hanging by a thread."

Summary of Key Insights

• China's PMI showed an unexpected rebound in manufacturing, suggesting a recovery in activity, though uncertainties persist.
• Geely Auto is highlighted as a strong BUY due to its SUV growth and Volvo synergy, with CMA platform models expected to drive further growth.
• Malaysia and Indonesia are expected to maintain moderate GDP growth.
• Thailand and Singapore face economic headwinds, with Thailand's Hana Microelectronics and Singapore's telecommunications sector under pressure.
• Geely's financials are improving, with net cash doubling and free cash flow turning positive.
• Earnings and sales forecasts are increased for 2016–2018, with strong upside from new SUV models.
• Investment risks include potential drop in sales of new models due to increased competition.