20160531-大华继显-Regional_Morning_Notes_17页_773kb

Regional Morning Notes Summary - 31 May 2016

Core Content

This document provides a comprehensive analysis of the regional financial markets, focusing on banking in ASEAN and infrastructure & basic materials in China, along with market indices, corporate events, sector updates, and investment recommendations.

Main Points

ASEAN Banking Sector

• Key Challenge: ASEAN banks are caught between two contrasting "normalisations" - US interest rate hikes and China's "new normal" growth.
• Impact of US Interest Rate Normalisation:
  • Likely to trigger capital outflows from ASEAN, especially from Indonesia.
  • May lead to a "taper-tantrum" effect, similar to 2013.
• Impact of China's "New Normal":
  • Slower GDP growth in China will drag down ASEAN's GDP growth by up to 1ppt.
  • Shift from debt-funded growth to consumption and service-based growth.
  • Reduction of excess capacity in heavy industries.
• GDP Growth Projections:
  • Singapore: 2.7% in 2016F, 3.0% in 2017F.
  • Malaysia: 4.2% in 2016F, 5.0% in 2017F.
  • Thailand: 3.2% in 2016F, 3.6% in 2017F.
  • Indonesia: 5.0% in 2016F, 5.5% in 2017F.
• NIM Compression:
  • Malaysian banks: Expected to compress NIMs by 10bp in 2016 due to deposit competition.
  • Thai banks: Cut lending rates by 25bp since March 2016, leading to 10bp NIM compression.
  • Indonesian banks: Expected to see NIM erosion of 100-150bp over three years.
• Loan Growth Projections:
  • Singapore: Low single-digit.
  • Thailand and Malaysia: Mid-single digits.
  • Indonesia: Low-teens.
• Sector Ratings:
  • OVERWEIGHT: Singapore banks.
  • BUY: DBS, OCBC, RHB Capital, Kasikornbank, Bank Negara Indonesia.
  • SELL: Hong Leong Bank, Sempracorp.
  • HOLD: BIMB Holdings, SKP Resources, QL Resources, Bangkok Dusit.

China Infrastructure & Basic Materials

• Infrastructure Investment:
  • Expected to maintain high growth to cushion economic slowdown.
  • Property construction may see a mid-term pick-up in 2016.
• Railway Investment:
  • Slower growth due to reduced commodity shipment demand.
  • Railway construction companies may see reduced orders.
• One Belt One Road (OBOR):
  • A key growth driver for infrastructure firms.
  • Chinese companies have secured major overseas projects, but execution risks remain.
• Top Picks:
  • BUY: CRCC, Conch, CR Cement.
  • HOLD: CRRC, CRG, CCCC.
  • SELL: Daqin Railway.

Key Information

Market Indices

Sector Catalysts

• US Interest Rate Normalisation: Expected to trigger capital outflows and affect ASEAN economies.
• China's New Normal: Slower growth in China will have a drag effect on ASEAN's GDP.
• OBOR Projects: Provide structural growth opportunities for Chinese infrastructure firms.

Risks

• Slower regional growth.
• Geopolitical uncertainties, including the Brexit referendum (23 June) and US presidential election (8 November).

Investment Recommendations

Banking Sector

• OVERWEIGHT: Singapore banks.
• BUY: DBS, OCBC, RHB Capital, Kasikornbank, Bank Negara Indonesia.
• SELL: Hong Leong Bank, Sempracorp.
• HOLD: BIMB Holdings, SKP Resources, QL Resources, Bangkok Dusit.

Infrastructure & Basic Materials

• BUY: CRCC, Conch, CR Cement.
• HOLD: CRRC, CRG, CCCC.
• SELL: Daqin Railway.

Analyst Contact

• Jonathan Koh, CFA: +65 6590 6620, jonathankoh@uobkayhian.com
• Keith Wee Teck Keong: +603 2147 1981, keithwee@uobkayhian.com
• Thananchai Jittanoon: +662 659 8303, thananchai@uobkayhian.co.th
• Alexander Margaronis: +6221 2993 3876, alexandermargaronis@uobkayhian.com
• Johnson Hu, CFA: +86 21 5404 7225 ext 809, johnsonhu@uobkayhian.com

Corporate Events

• Meidong Auto Roadshow: United Kingdom, 6-7 June.
• Spore Strategy for 2H16 & Small-Mid Caps Analyst Presentation: Taipei, 6-7 June.
• China Aviation Oil Singapore Corporate Roadshow: Taipei, 7-8 June.
• BIMB Holdings Luncheon: Malaysia, 9 June.

Summary of Key Takeaways

• ASEAN banks face a challenging environment due to contrasting normalisations in the US and China.
• Singapore banks are recommended as OVERWEIGHT due to their role as a safe haven and strong fiscal support.
• Malaysia and Thailand banks are expected to face NIM compression and lower earnings growth.
• Indonesia banks are expected to see significant NIM erosion due to government pressure.
• China's infrastructure and basic materials sector remains a key growth area, with OBOR projects driving opportunities.
• The document highlights the structural shifts in investment patterns and the risks associated with these changes.