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Regional Morning Notes Summary - 15 July 2016

Core Content Overview

This document provides a summary of market updates and analysis for several regions including China, Malaysia, Singapore, and Thailand, along with key indices, company updates, and investment recommendations.

Main Points by Region

China

• Brilliance Auto (1114 HK):
  • Downgraded from HOLD to SELL due to stretched valuation and the delayed launch of the new 5-series.
  • The stock price had rallied by 30% over the past two months, driven by sales recovery in May–June 2016.
  • The new 2-series and X1 models had mixed retail performance, with the X1 not well-received due to higher prices and lower configurations.
  • The new 5-series is expected to be launched in 2H17 or 1H18, and its sales will face competition from the new Beijing Benz E-class.
  • Sales growth for 2017 and 2018 have been revised downward due to the delayed 5-series launch.
  • Net profit forecasts for 2017 and 2018 have been slashed by 11% and 14% respectively.
  • The company's valuation is considered overextended based on current P/E ratios.

Malaysia

• REITs Sector:
  • Upgraded to OVERWEIGHT following the 25bp cut in OPR by Bank Negara Malaysia (BNM).
  • The rate cut is expected to widen the yield spread between REITs and MGS, leading to higher target prices.
  • IGB REIT and Sunway REIT are highlighted as top picks with upgraded ratings.
  • IGB REIT has a target price of RM1.88, and Sunway REIT has a target price of RM1.85.
  • Potential assets for acquisition include MidValley SouthKey for IGB REIT, Sunway University and Sunway Campus for Sunway REIT, and others for Pavilion REIT and MRCB-Quill REIT.

Singapore

• Venture Corporation (VMS SP):
  • Maintained as a BUY with a target price of S$9.82.
  • The company is expected to benefit from the no bricks from Brexit effect.

Thailand

• Delta Electronics (DELTA TB):
  • Downgraded to SELL with a target price of Bt61.00.
  • The company is expected to face more downside due to ongoing challenges.

Key Indices

Key Assumptions

• GDP Growth (yoy):

  • US: 2.4 (2015), 2.5 (2016F), 2.7 (2017F)
  • Euro Zone: 1.6 (2015), 1.5 (2016F), 1.6 (2017F)
  • Japan: 0.5 (2015), 0.6 (2016F), 0.8 (2017F)
  • Singapore: 2.0 (2015), 2.7 (2016F), 3.0 (2017F)
  • Malaysia: 5.0 (2015), 4.2 (2016F), 5.0 (2017F)
  • Thailand: 2.8 (2015), 3.2 (2016F), 3.6 (2017F)
  • Indonesia: 4.8 (2015), 5.0 (2016F), 5.5 (2017F)
  • Hong Kong: 2.4 (2015), 2.1 (2016F), 1.8 (2017F)
  • China: 6.9 (2015), 6.5 (2016F), 6.2 (2017F)

• Brent Crude (US$/bbl):

  • 2015: 53.60
  • 2016F: 42
  • 2017F: 54

• CPO (RM/mt):

  • 2015: 2,168
  • 2016F: 2,500
  • 2017F: 2,600

Top Picks

Sell:

• Hartalega (HART MK): Target price RM3.10, current price RM4.49, potential downside -31.0%

Analysts

• Ken Lee: +852 2236 6760 | ken.lee@uobkayhian.com.hk
• Sophie Yu: +852 2826 1392 | sophie.yu@uobkayhian.com.hk
• Abdul Hadi Manaf: +603 2147 1971 | abdulhadi@uobkayhian.com

Financial Highlights

Brilliance Auto (1114 HK)

• Stock Price: HK$8.73
• Target Price: HK$7.70
• Upside: -11.8%
• Sales Volume (2016F): 300,000 units
• Net Profit (2016F): Rmb3,230m
• Net Profit (2017F): Rmb3,709m
• Net Profit (2018F): Rmb4,346m
• PE (2016F): 11.8x
• P/B (2016F): 1.7x
• Net Debt/Equity (2016F): -4.1%

Corporate Events

Sales Performance (BMW Brilliance 1H16)

Potential Assets for Acquisition

• Pavilion REIT: Pavilion Extension, Fahrenheit88
• Axis REIT: Industrial Facilities in Seberang Prai, Meru, Senawang, Shah Alam, Klang
• Sunway REIT: Sunway Giza, Sunway University, Monash University, Sunway Campus, Sunway Pinnacle
• KLCCSS: Lot 91, Lot 185
• MRCB-Quill REIT: Menara Shell, Quill Building 6, 9, 18
• IGB REIT: Mid-Valley South Key Megamall

Risk and Earnings Impact

• Brilliance Auto:

  • Downgrade due to margin squeeze and delayed 5-series launch.
  • Potential downside: 15%.
  • Earnings risks from lower sales and pricing of new models.
  • Expected losses from proprietary brand business to increase.

• REITs (Malaysia):

  • Increased target prices due to lower MGS yields.
  • Upgraded sector outlook to OVERWEIGHT.
  • Preference for REITs with strong rental reversion and retail sales.

Valuation Summary

• Brilliance Auto's current valuation is considered stretched with a 12x 2016F P/E and 11x 2017F P/E.
• The target price of HK$7.70 is based on a 10x 2016F P/E, a 10% discount to the historical mean.
• REITs in Malaysia are seen as more attractive in a low interest rate environment.