China Solar Sector: The solar sector in China is undergoing a re-initiation with MARKET WEIGHT. The growth of solar PV installations is expected to moderate in 2017, with a forecasted decline of 9-23% yoy. The sector faces lower returns and high debt levels, but demand for PV goods remains robust. The report highlights the need for cost reduction to maintain profitability. Singyes Solar is recommended as a top pick due to its earnings visibility and lower net gearing.
Great Wall Motor (GWM): Sales declined by 4% yoy in May 17, with the flagship model H6 experiencing a 6% yoy drop. The company's sales growth for the first five months of 2017 was 6.5% yoy, but it fell short of its full-year target. The report maintains a SELL recommendation with a target price of HK$6.00, citing the negative impact of price wars and inventory issues.
Indonesia Banking Sector: Valuations are expected to be capped in the near term. BBRI is downgraded to SELL from HOLD.
Malaysia: Carlsberg Brewery Malaysia is maintained at HOLD. The company plans to focus on brand premiumisation to improve margins.
Thailand: Mega Lifesciences is recommended as a BUY due to strong earnings growth supported by continued GDP growth and potential M&A opportunities.
Key Indices
Index
Prev Close
1D %
1W %
1M %
YTD %
DJIA
21136.2
-0.2
0.5
0.6
7.0
S&P 500
2429.3
-0.3
0.7
1.3
8.5
FTSE 100
7525.0
-0.0
-0.0
3.1
5.3
AS30
5708.1
-1.5
-0.8
-2.7
-0.2
CSI 300
3492.9
+0.7
+0.4
+3.3
+5.5
FSSTI
3235.8
-0.1
+1.0
+0.2
+12.3
HSI
25997.1
+0.5
+1.1
+6.2
+18.2
JCI
5707.8
-0.7
-0.1
+0.4
+7.8
KLCI
1791.0
+0.2
+1.5
+1.6
+9.1
KOSPI
2368.6
-0.1
+0.7
+5.7
+16.9
Nikkei 225
19979.9
-0.9
+1.5
+2.7
+4.5
SET
1569.0
+0.1
+0.0
-0.0
+1.7
TWSE
10206.2
-0.2
+1.6
+3.1
+10.3
BDI
818
-0.4
-9.1
-17.7
-14.9
CPO (RM/mt)
2750
-1.2
-2.2
+1.0
-14.0
Brent Crude
50
+1.3
-3.3
+2.1
-11.8
Key Investment Themes
Solar Sector: Re-initiation with MARKET WEIGHT, with Singyes Solar recommended as a BUY.
Singapore: Nascent earnings recovery, with a year-end target of 3,250. Buy on pull-backs.
Malaysia: Focus on brand premiumisation for margin improvement.
Thailand: Mega Lifesciences is highlighted for good earnings growth and potential M&A upside.
Top Picks
Company
Ticker
Recommendation
Target Price (HK$)
Upside/Downside (%)
Alibaba
BABA US
BUY
139.00
+11.5
Beijing Ent. Water
371 HK
BUY
7.60
+24.8
Telekomunikasi
TLKM J
BUY
5,000.00
+16.0
V.S. Industry
VSI MK
BUY
2.20
+8.9
OCBC
OCBC SP
BUY
11.70
+10.4
Siam Cement
SCC TB
BUY
600.00
+14.9
Key Assumptions
Country/Region
2016 GDP (yoy)
2017F GDP (yoy)
2018F GDP (yoy)
US
1.6
2.7
2.5
Euro Zone
1.7
1.6
1.5
Japan
1.0
0.9
1.2
Singapore
2.0
2.4
2.8
Malaysia
4.2
4.5
4.7
Thailand
3.2
3.3
3.1
Indonesia
5.0
5.2
5.5
Hong Kong
1.9
2.0
2.0
China
6.7
6.3
6.3
Brent Crude (Avg)
45
55
60
CPO (RM/mt)
2,653
2,600
2,500
Corporate Events
Group meeting with Fortune REIT: Hong Kong, 7 Jun
Roadshow with Meidong Auto Holdings: Taipei, 8 Jun
Roadshow with Tonly Electronics Holdings: Taipei, 8-9 Jun
Roadshow with GFPT Public Company: Hong Kong, 8-9 Jun
Site visit to Auto Sector Companies: Shanghai, 13 Jun
Roadshow with PT Siloam Int'l Hospital: Canada, 5-16 Jun
Analyst Presentation on Spore Strategy: Kuala Lumpur, 15-16 Jun
Luncheon with Loob Holdings: Kuala Lumpur, 20 Jun
Luncheon with United Overseas Bank: Singapore, 3 Jul
Site Visit to Sarawak Oil Palms: Sarawak, 3-5 Jul
New Economy Conference 2017: Kuala Lumpur, 11 Jul
Roadshow with Top Glove Corporation: US/Canada, 5-12 Sep
Stock Recommendations
Company
Recommendation
Target Price (HK$)
Upside (%)
Singyes Solar
BUY
3.96
+14.1
GCL Poly Energy Holdings
HOLD
0.85
+3.7
Xinyi Solar Holdings
HOLD
2.48
+1.2
Key Risks
Interest Rate Rise: GCL Poly is highly sensitive to interest rate increases, which could reduce earnings by 12% for every 100bp increase.
Policy Changes: Adverse changes in China's 13th FYP could reduce solar installation targets, affecting demand and earnings.
Price Cuts: Further price cuts could negatively impact earnings, especially in the auto sector.
Financial Highlights (Great Wall Motor)
Metric
2016 (Rmbm)
2017F (Rmbm)
2018F (Rmbm)
2019F (Rmbm)
Net Profit
10,551
6,736
6,211
6,232
Net Profit Growth
-32%
-8%
+0%
+0%
EPS (fen)
115.6
73.8
68.1
68.3
Net Margin (%)
10.7
7.2
6.5
6.3
Earnings and Revenue Analysis (Great Wall Motor)
Segment
May 17 (units)
YoY % Change
MoM % Change
5M17 (units)
YoY % Change
SUV
58,390
-5.5
-6.0
342,167
+6.5
H1
2,094
-59.9
-21.6
10,948
-67.5
H2
15,539
+24.6
-7.4
105,173
+69.0
H5
1,378
-40.3
-7.8
6,148
-41.6
H6
35,262
-5.8
-3.0
191,396
-5.6
H7
2,242
-29.4
-36.8
21,303
+377.1
H8
731
+65.4
+30.1
3,066
-6.2
H9
1,144
+57.1
+63.7
4,133
-2.9
Sedan
889
-48.3
-27.5
4,912
-72.6
Pickup
9,663
+19.0
-1.6
49,193
+7.9
Total
68,942
-3.8
-5.8
396,272
+3.0
Financial Metrics
Metric
2016 (%)
2017F (%)
2018F (%)
2019F (%)
EBITDA Margin
14.9
11.3
11.0
11.0
Pre-Tax Margin
12.7
8.7
7.9
7.6
Net Margin
10.7
7.2
6.5
6.3
ROA
12.9
7.6
6.4
6.0
ROE
24.6
13.7
11.7
10.9
Valuation Metrics (Great Wall Motor)
Metric
2016
2017F
2018F
2019F
PE (x)
6.5
10.7
11.6
11.6
P/B (x)
1.8
1.7
1.5
1.4
EV/EBITDA (x)
44.6
8.3
7.4
7.5
Dividend Yield (%)
4.0
2.6
2.4
2.4
Summary of Stock Recommendations
Company
Recommendation
Target Price (HK$)
Upside (%)
Business Exposure (%)
GCL Poly Energy Holdings
HOLD
0.85
+3.7
Solar Materials (76%)
Singyes Solar
BUY
3.96
+14.1
EPC / Solar (21% / 47%)
Xinyi Solar Holdings
HOLD
2.48
+1.2
Solar Glass (66%)
Key Takeaways
The solar sector in China is facing a slowdown in growth due to policy changes and market saturation.
Singyes Solar is highlighted as a preferred investment due to its strong earnings visibility and lower debt levels.
Great Wall Motor is underperforming, with a SELL recommendation due to declining sales and margin pressure.
The report suggests a cautious approach to the solar sector and highlights the importance of cost management and policy support for future growth.
