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Regional Morning Notes Summary - 26 September 2016

Core Content Overview

This document provides a summary of key economic and corporate developments across several Asian markets, including China, Indonesia, Malaysia, Singapore, and Thailand. It includes policy updates, market performance, investment opportunities, and analyst insights for specific companies and sectors.

Main Points by Country

China

• Economic Policy:
  • The PBOC may increase liquidity via targeted tools rather than broad easing, as the Fed's interest rate decision in September eased pressure on the renminbi.
  • Fiscal spending in infrastructure is expected to rise, with the government possibly increasing the deficit to 3.5% of GDP to support 6.5% real GDP growth.
  • Local government and LGFV bond issuance is expected to reach Rmb1.8t for the rest of the year, increasing the leverage ratio to 60% of GDP by year-end.
• TCM Granules:
  • The cancellation of a 15% price mark-up on TCM granules and processed herbs is expected to increase prescription rates in hospitals.
  • TCM granule sector is projected to grow at ~20% CAGR from 2016-2018.
  • Only five authorized TCM granule manufacturers exist, with four being listed companies.
• Market Performance:
  • The CSI 300 closed at 3,275.7 with a slight decline of 0.5% for the month.
  • The renminbi is expected to remain stable at around 6.80/US$ for the year.
• Company Update:
  • China TCM (570 HK): Maintained BUY recommendation with a target price of HK$5.14, implying a 30.1% upside.
  • The company's PE is currently at 14.8x, trading at a 23.7% discount to peers.
  • The company is expected to maintain strong profitability with EBITDA margins of 25.0-25.7% and net margins of 15.3-16.1% for 2016-2018.

Indonesia

Infrastructure

• MoPW and ITRA Meetings:
  • MoPW's 2017 budget is expected to be Rp105.6t (+9% yoy).
  • The 1,000km new toll road target for 2019 remains on track.
  • Land acquisition is no longer a major hurdle, but project funding is now the main concern.
  • The government supports innovative financing schemes, including private-sector involvement in the Viability Gap Fund.
• Project Execution:
  • 49.1% of the 2016 budget has been disbursed as of late September.
  • The tender process for 2017 will start once the budget is approved by the end of October.
  • ITRA expects 255km of new toll roads to be completed in 2017, followed by 458km and 149km in 2018 and 2019, respectively.

Malaysia

Aviation

• Airport Rates:
  • There is ongoing competition and discussion over airport rate adjustments, indicating a potential shift in the sector.
• Plantation:
  • Full FFB yield recovery is expected by early-4Q17, as the impact of El Nino continues.
  • 2017 production is forecasted to be slightly better than 2016.

Small/Mid Cap Highlights

• Ann Joo Resources (AJR MK):
  • The stock is set for a new catalyst with the preliminary safeguard duty.
  • Target price is RM2.50, with a potential upside of 20.5%.

Singapore

Small/Mid Cap Highlights

• Duty Free International (DFIL SP):
  • BUY initiation with a target price of S$0.56, implying a 33% upside.
  • The company is entering a new phase with potential growth opportunities.

Thailand

Company Update

• Italian-Thai Development (ITD TB):
  • 2Q16 is expected to be the lowest point of the year, with performance turning around from 3Q16 onwards.
  • The company is supported by the flow of mega projects, which are expected to drive growth.

Market Performance:

• The FTSE 100 closed at 6,909.4 with a 3.0% weekly gain and a 10.7% YTD increase.
• The HSI closed at 23,686.5 with a 1.5% weekly gain and an 8.1% YTD increase.
• The KLCI closed at 1,671.0 with a 1.1% weekly gain and a 15.9% YTD increase.

Key Indices

Top Picks

Sell:

• Hartalega (HART MK): Current price HK$4.60, target price HK$3.10, downside of 32.6%.

Key Assumptions

Corporate Events

Analysts

• Chaoping Zhu: +862154047225 ext.822, chaoping@uobkayhian.com
• Ye Xu: +8621 5404 7225 ext 820, xuye@uobkayhian.com
• Alex Jiang: +852 2236 6749, alex.jiang@uobkayhian.com.hk
• Fu Jun Wei: +8621 5404 7225 ext 517, jwfu@uobkayhian.com