20160708-大华继显-Regional_Morning_Notes_20页_901kb

Regional Morning Notes Summary - 08 July 2016

Core Content Overview

This document provides a comprehensive update on stock performance and market analysis for several companies across China, Malaysia, Singapore, and Thailand, along with key indices and investment recommendations. It focuses on both fundamental analysis and market dynamics influencing stock valuations.

Key Companies and Updates

Man Wah Holdings (1999 HK)

• Sector: Consumer Discretionary
• Market Position: A leading brand in the recliner sofa market in China and one of the top three in the US.
• Revenue Breakdown: In 2016, the US market contributed 51% of total revenue, while China accounted for 34%.
• Performance: Net profit grew 23.4% yoy to HK$1.32b in 2016, driven by lower raw material prices and higher gross margins.
• Valuation: Target price is HK$13.50, based on 17.4x FY17F PE. Trading at 15.9x FY17F PE, which is lower than international peers.
• Dividend and Buybacks: Maintains a dividend payout ratio of ~40% and has a history of share repurchases, which could support share price.
• Growth Drivers: Continued improvement in China and US property markets, strong brand positioning, and potential for market share expansion.
• Financials:
  • Net turnover: HK$7,328m (2016), projected to grow 7.9% yoy in FY17.
  • EBITDA: HK$1,477m (2016), expected to increase to HK$1,729m in FY17.
  • Net profit: HK$1,327m (2016), projected to grow to HK$1,746m in FY19.
  • ROE: 29.1% (2016), expected to remain stable at 30.4% in FY17.
• Risks:
  • Deterioration in US and China property markets.
  • Rising raw material prices.
  • Currency fluctuations.

Xstep International Holdings (1368 HK)

• Sector: Consumer Discretionary
• Market Position: Key beneficiary of the growing popularity of running in China.
• Performance: Running products account for 35–40% of total revenue, higher than Anta and Li Ning.
• Valuation: Current share price is HK$3.97, with a target price of HK$4.80 (+20.9% upside).
• Growth Drivers:
  • Product innovation and new launches, including smart shoes and outdoor products.
  • Expansion of online sales, which grew 30–50% in 2015 and is expected to increase by 30% in 2016.
  • Product mix upgrade, with functional products contributing 50% of sales revenue.
• Financials:
  • Net turnover: Rmb5,295m (2016), projected to grow to Rmb6,337m in FY19.
  • EBITDA: Rmb978m (2016), expected to reach Rmb1,327m in FY19.
  • Net profit: Rmb623m (2015), projected to reach Rmb859m in FY19.
  • ROE: 13.0% (2016), expected to rise to 15.0% in FY19.
• Recommendation: Maintain BUY. Trading at 10x 2016F PE, which is undemanding compared to its growth outlook.

Key Indices

Top Picks

BUY Recommendations

• Air China (753 HK): 5.38 CP, 10.20 TP, 89.6% upside.
• Ping An Insurance (2318 HK): 33.45 CP, 45.00 TP, 34.5% upside.
• Bank BJB (BJBR J): 1,080.00 CP, 1,170.00 TP, 8.3% upside.
• Genting Bhd (GENT MK): 8.03 CP, 10.40 TP, 29.5% upside.
• City Developments (CIT SP): 8.04 CP, 10.86 TP, 35.1% upside.
• DBS (DBS SP): 15.68 CP, 19.30 TP, 23.1% upside.
• Bangkok Dusit (BDMS TB): 23.80 CP, 27.70 TP, 16.4% upside.
• Siam Cement (SCC TB): 476.00 CP, 630.00 TP, 32.4% upside.

SELL Recommendations

• Hartalega (HART MK): 4.47 CP, 3.10 TP, -30.6% upside.
• Sembcorp Marine (SMM SP): 1.55 CP, 0.90 TP, -41.9% upside.

Key Assumptions

Commodity Prices:

• Brent Crude: Average of 53.60 in 2015, expected to be 42 in 2016 and 54 in 2017.
• CPO: Expected to rise from 2,168 in 2015 to 2,500 in 2016 and 2,600 in 2017.

Corporate Events

• VS Industry Berhad Luncheon: Kuala Lumpur, 14 Jul.
• 2016 Outlook Strategy Analyst Presentation: Singapore, 20–21 Jul.
• China Strategy & Coal & Wind Supply Analyst Presentation: Singapore, 26 Jul; Malaysia, 27–28 Jul; Hong Kong, 29 Jul.

Stock Impact Factors

• Xstep:
  • Product innovation and new launches drive sales.
  • Online sales are a major growth driver, expected to reach 15% of total revenue in FY16.
  • Functional product mix upgrade increases margin potential.
  • Reduced advertising & promotion costs to 13–14% of sales.
  • Expected mid to high single-digit sales growth in 2016–2017.

Summary of Key Metrics

Man Wah Holdings

• EPS: 68.3 (2016), projected to 77.7 in 2017.
• PE: 18.1 (2016), expected to drop to 15.9 in 2017.
• P/B: 5.1 (2016), projected to 4.7 in 2017.
• EV/EBITDA: 15.3 (2016), projected to 13.0 in 2017.
• Dividend Yield: 2.8 (2016), expected to rise to 3.1 in 2017.
• Net Margin: 18.1 (2016), projected to 18.9 in 2017.
• Interest Cover: 123.5 (2016), projected to 192.1 in 2017.
• ROE: 29.1 (2016), expected to remain at 30.2 in 2017.

Xstep International Holdings

• EPS: 28.6 (2015), projected to 33.9 in 2016.
• PE: 12.0 (2015), projected to 10.1 in 2016.
• P/B: 1.5 (2016), projected to 1.4 in 2017.
• EV/EBITDA: 6.1 (2016), projected to 4.8 in 2017.
• Dividend Yield: 6.0 (2016), expected to rise to 6.4 in 2017.
• Net Margin: 11.8 (2016), projected to 13.0 in 2017.
• Interest Cover: 35.1 (2016), projected to 43.2 in 2017.
• ROE: 13.0 (2016), expected to reach 15.0 in 2017.

Conclusion

The document highlights the potential for growth in the recliner sofa and sportswear sectors, with a focus on Man Wah Holdings and Xstep International Holdings. Both companies are expected to benefit from market trends in China and their respective operations. Investment recommendations include BUY for several stocks, while others are held or sold based on their financial performance and market exposure. The report also discusses key corporate events and economic assumptions for the region.