Regional Morning Notes Summary
Core Content Overview
This document provides a summary of financial updates and market insights for several Asian markets and companies, focusing on key performance indicators, corporate events, and investment recommendations.
China: China Zhengtong Auto Services Holdings (1728 HK)
Main Points
- Spin-off of Logistics Business: Zhengtong is proposing to spin off its logistics and lubricant manufacturing businesses for a separate listing on the A-share market, aiming to unlock value and boost growth.
- New-car Sales Margin: The new-car sales margin is expected to have bottomed out in 2H14 and slightly improved in 1H15, although still lower than 1H14 due to reduced inventory stuffing by OEMs.
- After-sales and Car Loan Growth: After-sales revenue and commission income are growing faster than expected, with a 20% and 30% yoy increase respectively. The new-car loan joint venture (JV) is expected to significantly contribute to the bottom line in 2015–2017.
- Financial Performance:
- Net profit for 2015F is expected to be Rmb950m, up 16% yoy.
- EBITDA is projected to grow from Rmb1,925m in 2014 to Rmb2,157m in 2015F.
- EPS is forecasted to rise from 37 fen in 2014 to 43 fen in 2015F.
- Valuation: The stock is currently trading at an attractive 8.7x 2015F PE, with a target price of HK$7.70 (12x 2016F PE).
- Recommendation: Maintain BUY.
Malaysia: CIMB Group (CIMB MK)
Main Points
- Earnings Outlook: The worst of the earnings de-rating cycle may be over, with provisions and funding costs expected to normalise.
- Cost Savings: Structural cost savings of RM500m were achieved through the Mutual Separation Scheme (MSS) and downsizing of regional investment banking platforms, with potential for an additional RM100m in savings.
- ROE Expectations: The group aims for a 400bp ROE uplift under its T18 initiative, but we expect a more modest 110bp uplift from 9.6% in 2015 to 10.7% in 2018.
- Loan Growth: Loan growth is expected to moderate to 9.6% in 2015 from 11.4% in 2014.
- Risk Factors: Continued moderation in loan growth, soft investment banking pipeline, and NIM pressure remain challenges.
- Valuation: Current share price implies an ROE expectation of 10.1%, which is below management's target. Target price is RM5.80 (1.16x 2016F P/B).
- Recommendation: Maintain HOLD.
Key Indices Performance (as of 22 July 2015)
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17919.3 |
-1.0 |
-0.7 |
-0.5 |
0.5 |
| S&P 500 |
2119.2 |
-0.4 |
0.5 |
0.4 |
2.9 |
| FTSE 100 |
6769.1 |
-0.3 |
0.2 |
0.9 |
3.1 |
| AS30 |
5688.5 |
0.3 |
2.3 |
1.5 |
5.6 |
| CSI 300 |
4166.0 |
0.1 |
1.3 |
-10.2 |
17.9 |
| FSSTI |
3371.4 |
-0.1 |
1.8 |
1.7 |
0.2 |
| HSCEI |
11871.5 |
0.8 |
0.3 |
-11.3 |
-0.9 |
| HSI |
25536.4 |
0.5 |
1.7 |
-5.7 |
8.2 |
| JCI |
4869.8 |
-0.7 |
-0.0 |
-0.1 |
-6.8 |
| KLCI |
1736.2 |
0.7 |
1.2 |
0.2 |
-1.4 |
| KOSPI |
2083.6 |
0.5 |
1.2 |
1.4 |
8.8 |
| Nikkei 225 |
20842.0 |
0.9 |
3.7 |
2.0 |
19.4 |
| SET |
1447.4 |
-1.3 |
-2.8 |
-3.8 |
-3.4 |
| TWSE |
9006.0 |
0.3 |
-0.4 |
-3.6 |
-3.2 |
| BDI |
1113 |
4.3 |
21.6 |
42.9 |
42.3 |
| CPO (RM/mt) |
2173 |
-0.5 |
-0.6 |
-3.5 |
-5.4 |
| Nymex Crude (US$/bbl) |
51 |
-0.5 |
-1.5 |
-15.2 |
-5.0 |
Top Picks (BUY)
| Company |
Ticker |
Current Price |
Target Price |
Upside (%) |
| Beijing Capital |
694 HK |
HK$8.88 |
HK$12.30 |
38.5 |
| ICBC |
1398 HK |
HK$5.65 |
HK$7.80 |
38.1 |
| Bank BJB |
BJR J |
JPY835.00 |
JPY1,300.00 |
55.7 |
| Maybank |
MAY MK |
RM9.21 |
RM10.30 |
11.8 |
| DBS |
DBS SP |
RM21.43 |
RM25.08 |
17.0 |
| SATS Ltd |
SATS SP |
RM3.62 |
RM4.00 |
10.5 |
| Kasikornbank |
KBANK TB |
Bt181.50 |
Bt232.00 |
27.8 |
| PTT |
PTT TB |
Bt322.00 |
Bt410.00 |
27.3 |
Key Assumptions
| Country |
2013 (%) |
2014 (%) |
2015F (%) |
| US |
2.2 |
2.4 |
2.9 |
| Euro Zone |
-0.5 |
0.9 |
1.3 |
| Japan |
1.6 |
-0.1 |
1.0 |
| Singapore |
4.4 |
2.9 |
2.9 |
| Malaysia |
4.7 |
6.0 |
5.0 |
| Thailand |
2.8 |
0.9 |
2.7 |
| Indonesia |
5.6 |
5.0 |
5.0 |
| Hong Kong |
2.9 |
3.5 |
3.7 |
| China |
7.7 |
7.2 |
7.0 |
| Indicator |
2014 (US$/bbl) |
2015F (US$/bbl) |
2016F (US$/bbl) |
| Brent (Average) |
99.45 |
61 |
72 |
| CPO |
722 |
765 |
788 |
Corporate Events
| Event |
Venue |
Dates |
| SIN 2H15 Strategy Analyst Presentation |
Kuala Lumpur |
30 Jul – 31 Jul |
Stock Impact and Risk
- Zhengtong: While new-car sales margin for 2015 may slightly disappoint, after-sales growth and the new-car loan JV are expected to offset this. The spin-off of logistics business is expected to unlock value and improve long-term growth.
- CIMB: The worst may be over with provisions and cost normalisation. However, growth headwinds persist, and the stock is currently undervalued based on ROE expectations.
Valuation and Recommendation
- Zhengtong: Maintained BUY, with a target price of HK$7.70, based on 12x 2016F PE.
- CIMB: Maintained HOLD, with a target price of RM5.80, based on 1.16x 2016F P/B and 10.3% ROE.
Summary of Key Financials (Zhengtong)
| Metric |
2014 |
2015F |
2016F |
2017F |
| Net turnover (Rmbm) |
30,910 |
32,737 |
34,857 |
36,931 |
| EBITDA (Rmbm) |
1,925 |
2,157 |
2,386 |
2,715 |
| Operating profit (Rmbm) |
1,580 |
1,757 |
1,924 |
2,196 |
| Net profit (Rmbm) |
804 |
950 |
1,130 |
1,330 |
| EPS (fen) |
37 |
43 |
51 |
60 |
| PE (x) |
10.1 |
8.7 |
7.3 |
6.2 |
| P/B (x) |
1.0 |
0.9 |
0.8 |
0.8 |
| EV/EBITDA (x) |
5.1 |
4.6 |
4.1 |
3.6 |
| Net margin (%) |
2.6 |
2.9 |
3.2 |
3.6 |
| ROE (%) |
10.2 |
11.1 |
12.0 |
12.7 |
Summary of Key Financials (CIMB)
| Metric |
2014 |
2015F |
2016F |
2017F |
| Net interest income (RMm) |
8,656 |
9,158 |
9,725 |
10,329 |
| Non-interest income (RMm) |
3,931 |
3,624 |
3,757 |
3,821 |
| Net profit (RMm) |
3,107 |
3,735 |
4,171 |
4,588 |
| EPS (sen) |
37.3 |
43.8 |
47.2 |
50.8 |
| PE (x) |
14.9 |
12.7 |
11.8 |
11.0 |
| P/B (x) |
1.2 |
1.2 |
1.1 |
1.1 |
| Cost/income (%) |
59.0 |
53.8 |
52.4 |
51.2 |
| ROE (%) |
10.2 |
11.0 |
10.7 |
10.3 |
Conclusion
- Zhengtong is focusing on unlocking value through a logistics spin-off and expanding its car loan business, with positive outlook for full-year net profit growth.
- CIMB Group is in a better position due to normalisation in provisions and improved cost control, but growth headwinds remain, leading to a HOLD recommendation.
- The region's key indices show mixed performance, with some markets experiencing downward trends and others showing slight gains.
