Regional Morning Notes Summary - 15 May 2014
Core Content
This document provides a detailed market update for the Asia-Pacific region, with a focus on China, Hong Kong, Malaysia, and Singapore, covering sector updates, company results, key indices, top picks, and risk factors. It includes insights on financial performance, corporate events, and market trends.
Main Points
China
-
Banking Sector:
- Preference Share Issuance: ABC and BOC announced plans to issue preference shares, which are expected to improve their Tier-1 capital ratios by 80-100 basis points, but may reduce earnings to common shareholders by 3-5%.
- Impact: The issuance is seen as positive for banks due to strengthening balance sheets and reducing equity fundraising risks, though the market has likely already anticipated this, leading to a short-term rebound.
- Recommendation: Maintain MARKET WEIGHT.
-
Property Sector:
- Market Outlook: Despite challenges like defaults, price cuts, and weak home sales, there are signs of improvement with the PBOC encouraging more lending to home buyers and local governments relaxing property measures.
- Performance: Residential real estate investment increased by 16.6% YoY in 4M14, while new starts and completed GFA showed narrower YoY declines.
- Recommendation: Maintain MARKET WEIGHT. Recommend accumulating large-cap property stocks with strong sales momentum, such as Shimao and COLI. Also suggest a long/short pair (Shimao/Poly Property) for stable gains.
Hong Kong
- Property Sector:
- Centaline Property Agency: A luncheon with Centaline provided insights into market dynamics and policy changes.
- Key Companies: No specific recommendations listed, but general market sentiment is discussed.
Malaysia
- Barakah Offshore Petroleum (BARAKAH MK):
- Update: Earnings are expected to rise in 2H14, supported by a RM2.3b orderbook. Upgraded to BUY with a target price of RM1.95.
Singapore
- Company Results:
- City Developments (CIT SP): Downgraded to HOLD due to weak performance.
- First Resources (FR SP): Net profit of US$45m, down 30% qoq and 29.2% yoy, but within expectations due to high 2013 ASP.
- Golden Agri-Resources (GGR SP): Disappointing results from downstream business, leading to a review of the BUY recommendation.
- Neptune Orient Lines (NOL SP): Net loss of US$98m in 1Q14, but expected to turn around in 2Q14 and 3Q14. BUY recommendation with target price of S$1.17.
Key Indices
| Index |
Previous Close |
1 Day % |
1 Week % |
1 Month % |
YTD % |
| DJIA |
16614.0 |
(0.6) |
0.6 |
2.7 |
0.2 |
| S&P 500 |
1888.5 |
(0.5) |
0.5 |
3.2 |
2.2 |
| FTSE 100 |
6878.5 |
0.1 |
1.2 |
4.5 |
1.9 |
| AS30 |
5475.9 |
0.0 |
1.0 |
1.8 |
2.3 |
| CSI 300 |
2172.4 |
(0.1) |
1.6 |
(2.6) |
(6.8) |
| FSSTI |
3259.1 |
1.1 |
0.4 |
0.4 |
2.9 |
| HSCEI |
9991.6 |
1.4 |
3.5 |
(0.4) |
(7.6) |
| HSI |
22582.8 |
1.0 |
3.8 |
(0.4) |
(3.1) |
| JCI |
4991.6 |
1.4 |
2.7 |
2.5 |
16.8 |
| KLCI |
1879.2 |
0.7 |
1.0 |
1.4 |
0.7 |
| KOSPI |
2010.8 |
1.4 |
3.7 |
0.9 |
(0.0) |
| Nikkei 225 |
14405.8 |
(0.1) |
2.7 |
2.9 |
(11.6) |
| SET |
1396.0 |
1.5 |
(0.6) |
0.5 |
7.5 |
| TWSE |
8875.2 |
0.6 |
(0.2) |
(0.5) |
3.1 |
| BDI |
1002 |
2.0 |
(2.0) |
1.3 |
(56.0) |
| CPO (RM/mt) |
2629 |
0.1 |
(0.6) |
(1.2) |
2.2 |
| Nymex Crude |
102 |
(0.4) |
1.7 |
(1.7) |
3.6 |
Top Sector Picks
China
| Company |
Ticker |
Recommendation |
Target Price (HK$) |
Share Price (HK$) |
| CCB |
939 HK |
BUY |
6.10 |
5.50 |
| ABC |
1288 HK |
BUY |
3.80 |
3.37 |
Singapore
| Company |
Ticker |
Recommendation |
Target Price (HK$) |
Share Price (HK$) |
| Shimao Property |
813 HK |
BUY |
23.24 |
15.84 |
| COLI |
688 HK |
BUY |
27.15 |
19.84 |
| KWG |
1813 HK |
BUY |
5.72 |
4.47 |
Key Assumptions
| Region |
GDP (% YoY) |
2013F |
2014F |
| US |
2.8 |
1.9* |
3.0 |
| Euro Zone |
-0.7 |
-0.4* |
1.0 |
| Japan |
2.0 |
1.5* |
2.5 |
| Singapore |
1.9 |
4.1* |
4.3 |
| Malaysia |
5.6 |
4.7* |
5.2 |
| Thailand |
6.4 |
2.9* |
3.0 |
| Indonesia |
6.2 |
5.8* |
5.5 |
| Hong Kong |
1.5 |
3.0 |
3.5 |
| China |
7.8 |
7.7* |
6.9 |
- Brent (US$/bbl): 110 (2013) / 110 (2014F)
- Aluminium (US$/mt): 1,886 (2013) / 1,713 (2014F)
- Copper (US$/mt): 7,354 (2013) / 6,850 (2014F)
- Gold (US$/ounce): 1,407 (2013) / 1,200 (2014F)
- Iron Ore (US$/mt): 135 (2013) / 120 (2014F)
- CPO (US$/mt): 736 (2013) / 858 (2014F)
- BDI: 1,219 (2014F) / 1,500 (2015F)
Company Results
Shandong Weigao Group Medical Polymer (1066 HK)
- 1Q14 Performance: Total revenue increased 15.3% YoY to Rmb1.17b. Net profit excluding extraordinary items rose 10.0% YoY to Rmb220.3m.
- Growth Outlook: Management expects 20% YoY revenue growth in 2014, but growth visibility is limited due to intense competition and uncertain market expansion strategies.
- Recommendation: Maintain SELL. Target price: HK$7.50.
- Earnings Sensitivity: Earnings to common shareholders may decline by 3-5% due to preference share dividends.
Risks
- Banking Sector: Risks include worse-than-expected NPL formation and faster-than-expected interest rate liberalisation.
- Property Sector: Weaker earnings outlook may lead to lower valuations, and more price cuts could increase supply pressure.
Corporate Events
| Event |
Venue |
Dates (Begin) |
Dates (Close) |
| Macau Gaming and China Telecommunications Analyst Presentation |
Kuala Lumpur, Singapore |
14 May, 16 May |
15 May, 16 May |
| Singapore Banks Analyst Presentation |
Singapore, Kuala Lumpur |
19 May, 21 May |
20 May, 22 May |
| Lunchon Presentation with Mr Tristan Gerra |
Hong Kong |
23 May |
23 May |
| QT Vascular Corporate Roadshow |
Singapore |
29 May |
29 May |
| Hong Kong & China Consumer Outlook Analyst Presentation |
Canada, US |
26 May, 29 May |
26 May, 6 Jun |
Summary of Key Financials (Weigao)
| Metric |
2012 (Rmbm) |
2013 (Rmbm) |
2014F (Rmbm) |
2015F (Rmbm) |
2016F (Rmbm) |
| Net Turnover |
3,689.1 |
4,613.3 |
5,564.5 |
6,679.8 |
7,943.6 |
| EBITDA |
983.0 |
1,352.7 |
1,639.6 |
1,987.8 |
2,376.4 |
| Operating Profit |
854.6 |
1,042.7 |
1,257.6 |
1,569.8 |
1,922.3 |
| Net Profit (rep./act.) |
852.2 |
936.9 |
1,116.8 |
1,388.5 |
1,675.1 |
| Net Profit (adj.) |
852.2 |
936.9 |
1,116.8 |
1,388.5 |
1,675.1 |
| EPS (fen) |
19.0 |
20.9 |
24.9 |
31.0 |
37.4 |
| PE (x) |
35.3 |
32.1 |
27.0 |
21.7 |
18.0 |
| P/B (x) |
3.4 |
3.3 |
3.0 |
2.7 |
2.4 |
| EV/EBITDA (x) |
27.6 |
20.1 |
16.5 |
13.6 |
11.4 |
| Net Margin (%) |
23.1 |
20.3 |
20.1 |
20.8 |
21.1 |
| Net Debt/(Cash) to Equity (%) |
(14.6) |
(28.5) |
(30.2) |
(32.9) |
(36.2) |
| Interest Cover (x) |
210.1 |
151.0 |
350.5 |
424.9 |
508.0 |
| ROE (%) |
10.0 |
10.4 |
11.8 |
13.2 |
15.0 |
Analyst Contact
Summary of Key Findings
- Preference Share Issuance in China's banking sector is seen as a positive move to strengthen balance sheets and reduce equity fundraising risk.
- Property sector in China is expected to recover with improved lending and policy support, though current performance remains weak.
- Malaysia's Barakah Offshore Petroleum is upgraded to BUY with a target price of RM1.95.
- Singapore's First Resources and Golden Agri-Resources show mixed results, with First Resources' performance in line with expectations.
- Neptune Orient Lines reports a net loss in 1Q14 but expects a turnaround in 2Q14 and 3Q14.
- Shandong Weigao Group faces challenges due to competition, with limited growth visibility.
- Key Indices show mixed performance, with some positive trends in the short term and negative YTD performance in certain markets.
- Top Picks include CCB, ABC, Shimao, COLI, and KWG for potential investment.
- Risks include NPL formation, interest rate liberalisation, and earnings downgrades due to weak performance.
