Regional Morning Notes Summary
Core Content
This document provides a summary of regional market insights and company updates for Thursday, 10 December 2015, focusing on Malaysia, China, and Indonesia. It outlines market outlooks, key company updates, and financial metrics for the listed firms.
Key Stories
Malaysia
- 1H16 Outlook: Despite persistent structural socio-economic issues and external concerns, the FBMKLCI is expected to strengthen towards the end of 2015 and achieve modest returns in 2016 due to good domestic liquidity and improved sentiment on the ringgit.
- Sunway Construction Group (SCGB MK/HOLD/RM1.42/Target: RM1.40): Initiated with a HOLD recommendation as its share price is believed to have already priced in the anticipated positive contract wins.
China
- Capital Market Reform: Expected to continue driving long-term growth in the securities sector, despite moderate margin balance growth.
- Nexteer Automotive Group (1316 HK/BUY/HK$8.40/Target: HK$10.50): The strike at the Saginaw plant was resolved, but staff cost will rise more than expected. The 2016F earnings and target price were cut by 5%.
Indonesia
- XL Axiata (EXCL IJ/BUY/Rp4,005/Target: Rp4,540): The upward trajectory is intact as the company has shifted to a differentiated dual brand strategy targeting high-value and mass market consumers.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17492.3 |
-0.4 |
-1.3 |
-1.3 |
-1.9 |
| S&P 500 |
2047.6 |
-0.8 |
-1.5 |
-1.5 |
-0.5 |
| FTSE 100 |
6126.7 |
-0.1 |
-4.6 |
-2.7 |
-6.7 |
| AS30 |
5129.9 |
-0.5 |
-3.3 |
-0.5 |
-4.8 |
| CSI 300 |
3635.9 |
+0.4 |
-2.3 |
-5.1 |
+2.9 |
| FSSTI |
2861.2 |
-0.5 |
-0.8 |
-4.6 |
-15.0 |
| HSCEI |
9558.8 |
-1.1 |
-4.9 |
-7.3 |
-20.2 |
| HSI |
21803.8 |
-0.5 |
-3.0 |
-2.7 |
-7.6 |
| JCI |
4464.2 |
-1.3 |
-2.1 |
-0.8 |
-14.6 |
| KLCI |
1659.4 |
-0.6 |
-1.0 |
-1.6 |
-5.8 |
| KOSPI |
1948.2 |
-0.0 |
-3.0 |
-2.4 |
-1.7 |
| Nikkei 225 |
19301.1 |
-1.0 |
-3.2 |
-1.9 |
-10.6 |
| SET |
1297.8 |
-0.7 |
-4.4 |
-7.2 |
-13.3 |
| TWSE |
8229.6 |
-1.4 |
-2.7 |
-3.6 |
-11.6 |
| BDI |
546 |
-0.9 |
-7.5 |
-13.1 |
-30.2 |
| CPO (RM/mt) |
2151 |
-0.4 |
+1.3 |
-0.1 |
-6.4 |
| Brent Crude |
40 |
-0.0 |
-5.2 |
-14.6 |
-29.7 |
Top Picks
| Company |
Ticker |
Current Price (HK$) |
Target Price (HK$) |
Potential Upside (%) |
| Beijing Capital |
694 HK |
8.13 |
11.40 |
40.2 |
| ICBC |
1398 HK |
4.55 |
7.60 |
67.0 |
| Bank BJB |
BJR IJ |
710.00 |
1,140.00 |
60.6 |
| DiGi.Com |
DIGI MK |
5.12 |
5.95 |
16.2 |
| Maybank |
MAY MK |
8.40 |
10.00 |
19.0 |
| CapitaLand |
CAPL SP |
3.22 |
4.08 |
26.7 |
| DBS |
DBS SP |
16.51 |
22.34 |
35.3 |
| Kasikornbank |
KBANK TB |
157.50 |
215.00 |
36.5 |
| PTT |
PTT TB |
232.00 |
340.00 |
46.6 |
Key Assumptions
| Country |
GDP (% yoy) 2014 |
GDP (% yoy) 2015F |
GDP (% yoy) 2016F |
| US |
2.4 |
2.5 |
2.5 |
| Euro Zone |
0.9 |
1.5 |
1.7 |
| Japan |
-0.1 |
0.5 |
1.5 |
| Singapore |
2.9 |
2.5 |
2.9 |
| Malaysia |
6.0 |
4.8 |
4.8 |
| Thailand |
0.9 |
2.7 |
4.0 |
| Indonesia |
5.0 |
4.8 |
5.4 |
| Hong Kong |
2.5 |
1.8 |
1.5 |
| China |
7.3 |
6.5 |
6.7 |
| Item |
2014 |
2015F |
2016F |
| Brent (Average) |
99.45 |
56 |
57 |
| CPO (US$/mt) |
722 |
550 |
660 |
Corporate Events
| Event |
Venue |
Begin |
Close |
| Singapore Strategy 2H15 Analyst Presentation |
Taipei |
10 Dec |
11 Dec |
Sector Update - China Securities
- Capital Market Reform: Will continue to drive long-term growth despite moderate margin balance growth.
- Investment Banking Revenue: Expected to grow from 7.6% of total revenue in 2014 to 20% in the future, based on historical data of international peers.
- Margin Business Growth: Likely to moderate from the explosive growth seen in 1H15, driven by new investors and market turnover.
- Investigation Impact: Likely manageable with penalties including temporary restrictions, suspension of business licenses, and fines.
- Top Picks: Maintain OVERWEIGHT on the sector. Prefer CITICS and CGS.
What's New
- Nexteer Automotive Group: Strike at Saginaw plant resolved, but staff costs will rise more than expected. Cut 2016F and 2017F earnings by 5% and 2% respectively.
- XL Axiata: Shifted to a differentiated dual brand strategy, with the XL brand targeting high-value subscribers and the Axis brand addressing mass market consumers. The upward trajectory is intact.
Essential Insights
- Capital Market Reform: Expected to drive sector earnings growth through the resumption of IPOs, promotion of direct financing, and growth of the New Third Board (NTB).
- Broker Valuation: Brokers are currently trading at 1.07x 2016F P/B with an expected ROE of 9.5%.
- Earnings Impact: The impact of the strike is likely priced in, and the share price rebounded after the resolution.
Risk Factors
- Nexteer: Workers at other plants could follow suit, increasing staff costs. However, the company can shift production to the Mexico plant under the TPP agreement to manage labor risks.
Financial Metrics (Nexteer Automotive Group)
| Metric |
2014 |
2015F |
2016F |
2017F |
| Net Turnover (US$m) |
2,978 |
3,494 |
4,000 |
4,600 |
| EBITDA (US$m) |
356 |
398 |
456 |
510 |
| Net Profit (US$m) |
162 |
196 |
224 |
252 |
| EPS (fen) |
6.5 |
7.8 |
9.0 |
10.1 |
| PE (x) |
16.6 |
13.8 |
12.0 |
10.7 |
| P/B (x) |
3.9 |
3.2 |
2.6 |
2.2 |
| EV/EBITDA (x) |
8.4 |
7.5 |
6.6 |
5.9 |
| Dividend Yield (%) |
1.2 |
1.5 |
1.7 |
1.9 |
| Net Margin (%) |
5.4 |
5.6 |
5.6 |
5.5 |
| ROE (%) |
25.9 |
25.6 |
23.8 |
22.2 |
Investment Banking Revenue as % of Total Revenue (2014)
- International peers: Investment banking revenue accounted for 7.6% of total revenue in 2014.
Broker Market Share by Equity Underwritten (1H15)
- CITICS and CGS are highlighted as top performers.
Analysts
Summary of Recommendations
- Nexteer Automotive Group: Maintain BUY with a revised target price of HK$10.50.
- XL Axiata: Re-iterate BUY with a higher target price of Rp4,540.
- Sunway Construction Group: Initiate with a HOLD recommendation.
Conclusion
The report highlights the continued growth potential of the Chinese securities sector due to capital market reforms, despite moderate margin growth. In Malaysia, the FBMKLCI is expected to strengthen, and in Indonesia, XL Axiata is showing signs of recovery with its new dual brand strategy. Key risks include potential labor strikes and regulatory pressures, but the market is expected to remain resilient.
