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Regional Morning Notes Summary - 09 May 2016

Core Content

This document provides an overview of regional economic and market updates for May 9, 2016, with a focus on China, Indonesia, Malaysia, Singapore, and Thailand. It includes trade data, sector updates, company results, key indices, top picks, and corporate events.

Main Points

China

• Trade: April's trade growth was below market expectations. Exports declined 1.8% yoy, while imports fell 10.9% yoy. Despite the weak yoy growth, there was a 7.4% mom increase in exports. Trade surplus rose to USD 45.6b, higher than the market expectation of USD 40b.
• Seasonality: The weaker yoy growth in April is attributed to the early end of Chinese New Year, which caused a higher trade volume in March 2016 compared to March 2015.
• Key Markets: Exports to the US and Japan declined yoy, while exports to the EU increased. Imports of crude oil and iron ore saw significant price increases, but volume declines suggest weak domestic demand.
• Securities Sector: Potential loosening of brokerage fee regulation may accelerate commission cuts. Brokers are expected to diversify their businesses, with CITICS and CGS being preferred due to their diversified revenue streams and lower valuations.
• Company Update: Nexteer Automotive Group was downgraded from BUY to SELL due to a prospective earnings slowdown. The company's order backlog declined, and its major customer, General Motors, showed signs of weakness. Revenue and profit forecasts for 2016–2018 were revised down by 4%, 11%, and 15%, respectively. Target price was cut from HK$10.50 to HK$7.00.

Indonesia

• Malindo Feedmill (MAIN IJ): Core earnings surged 431% yoy and 188% qoq, driven by stronger animal feed margins.

Malaysia

• Sarawak Election 2016: Barisan's landslide win is market-neutral, but valuations of selected infrastructure stocks have eased to attractive levels.
• MISC (MISC MK): Core profit missed expectations. Earnings downgrades are expected due to headwinds on tanker rates, LNG contracts, and higher depreciation.

Singapore

• Neptune Orient Lines (NOL SP): Recorded losses as it awaits CMA-CGM's acquisition.
• Riverstone Holdings (RSTON SP): Muted growth; downgraded to HOLD.

Thailand

• Property Sector: Developers are expected to see strong 1Q16 earnings due to government stimulus.
• IRPC (IRPC TB): Net profit beat expectations, core profit was in line.
• Banpu (BANPU TB): Share price may face pressure due to recent outperformance and expected poor 1Q16 results, but supported by long-term catalysts.
• Somboon Advance Technology (SAT TB): Expected to continue poor performance in 1Q16.

Key Indices

Top Picks

BUY

• Air China (753 HK): Target price HK$10.20, potential upside 77.7%
• Ping An (2318 HK): Target price HK$45.00, potential upside 30.2%
• Bank BJB (BJBR J): Target price HK$1,170.00, potential upside 24.5%
• Gamuda (GAM MK): Target price HK$5.55, potential upside 17.3%
• WCT Holdings (WCTHG MK): Target price HK$2.05, potential upside 22.0%
• City (CIT SP): Target price S$10.86, potential upside 35.8%
• DBS (DBS SP): Target price S$19.22, potential upside 29.3%
• Charoen (CPF TB): Target price Bt30.00, potential upside 29.3%
• Siam Cement (SCC TB): Target price Bt630.00, potential upside 30.7%

SELL

• Sapurakencana (SAKP MK): Target price MK$1.43, potential downside 11.2%
• Sembcorp (SMM SP): Target price SP$0.88, potential downside 43.9%

Key Assumptions

Corporate Events

Valuation & Recommendation

• Nexteer: Downgraded to SELL due to earnings slowdown and valuation de-rating. Target price cut to HK$7.00 from HK$10.50.
• CITICS: Maintained BUY recommendation. Target price HK$21.90, revised down from HK$23.12.
• CGS: Maintained BUY recommendation. Target price HK$9.30, revised down from HK$10.52.
• HTS: Maintained HOLD recommendation. Target price HK$14.30, revised down from HK$14.98.

Analysts

• China Trade: Jasmine Duan, Edmond Law
• Securities Sector: Jasmine Duan, Edmond Law
• Nexteer: Ken Lee, Sophie Yu

Summary of Key Financial Metrics

Conclusion

The report highlights a mixed economic outlook across the region, with China's trade showing improvement on a monthly basis despite weak year-on-year growth. The securities sector faces pressure due to potential changes in brokerage fee regulation, but CITICS and CGS are still preferred due to their diversified operations and undervalued positions. Nexteer's downgrade is based on declining order backlog and weak earnings growth. Other markets, such as Indonesia and Malaysia, show mixed results with some companies performing well while others face challenges. The key indices show varied performance, with China and Singapore showing relatively stronger growth.