Regional Morning Notes Summary
Core Content Overview
This document provides a comprehensive analysis of economic and sectoral developments in key Asian markets, including China, Indonesia, Malaysia, Singapore, and Thailand, as of Thursday, 15 June 2017. It includes economic data, sector updates, market indices, investment recommendations, and corporate events.
Main Points by Region
China
- Economic Activity: Weakening momentum in economic activities continued in May, with FAI growth slowing to 7.8% yoy and IP growth remaining flat at 6.5% yoy. However, retail sales grew at 10.7% yoy, supported by higher inflation and property-related consumption.
- PBOC Policy: The PBOC is expected to implement moderate monetary easing to support investment and maintain neutral monetary conditions.
- Education Sector:
- The after-school tutoring (AST) market in Shanghai is undergoing a cleanup, which may benefit EDU and TAL by increasing their market share.
- Market consolidation is accelerating, pushing out smaller and less capitalized players.
- EDU and TAL are reiterating BUY ratings, with lower target prices due to increased operating costs.
- EDU and TAL are expected to benefit from the K12 market growth and online education penetration.
Indonesia
- Cement Sector:
- Domestic cement demand grew by 4.1% yoy in May, with Java being the main growth driver.
- ASP (Average Selling Price) has stabilized at a low level, but earnings remain weak due to price declines and rising energy costs.
- SMGR (Semen Indonesia) is the best performer, while INTP (Indocement TP) and SMCB (Holcim Indonesia) are underperforming.
- The sector is expected to bottom out, and the market share of incumbents is stable, with new players being less aggressive.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
21374.6 |
0.2 |
0.9 |
1.9 |
8.2 |
| S&P 500 |
2437.9 |
-0.1 |
0.2 |
1.5 |
8.9 |
| FTSE 100 |
7474.4 |
-0.3 |
-0.1 |
0.3 |
4.6 |
| AS30 |
5862.2 |
1.0 |
2.7 |
-0.1 |
2.5 |
| CSI 300 |
3535.3 |
-1.3 |
0.0 |
4.0 |
6.8 |
| FSSTI |
3253.4 |
-0.1 |
0.7 |
-0.3 |
12.9 |
| HSI |
25875.9 |
0.1 |
-0.4 |
2.0 |
17.6 |
| JCI |
5792.9 |
1.5 |
1.3 |
1.8 |
9.4 |
| KLCI |
1792.4 |
0.4 |
0.1 |
0.8 |
9.2 |
| KOSPI |
2372.6 |
-0.1 |
0.5 |
3.6 |
17.1 |
| Nikkei 225 |
19883.5 |
-0.1 |
-0.5 |
0.1 |
4.0 |
| SET |
1577.0 |
0.3 |
0.7 |
2.6 |
2.2 |
| TWSE |
10072.5 |
-0.5 |
-1.3 |
0.4 |
8.9 |
| BDI |
870 |
0.0 |
6.0 |
-14.2 |
-9.5 |
| CPO (RM/mt) |
2662 |
-1.1 |
-2.9 |
-5.6 |
-16.8 |
| Brent Crude (US$/bbl) |
47 |
-3.5 |
-2.2 |
-7.6 |
-17.3 |
Top Picks and Sell Recommendations
BUY Recommendations
| Company |
Ticker |
Current Price |
Target Price |
Potential Upside (%) |
| Alibaba |
BABA US |
136.67 |
173.00 |
26.6 |
| Beijing Ent. Water |
371 HK |
5.81 |
7.60 |
30.8 |
| Telekomunikasi Indo |
TLKM LJ |
4,360.00 |
5,000.00 |
14.7 |
| V.S. Industry |
VSI MK |
2.10 |
2.40 |
14.3 |
| OCBC |
OCBC SP |
10.72 |
11.70 |
9.1 |
| Siam Cement |
SCC TB |
520.00 |
600.00 |
15.4 |
SELL Recommendations
| Company |
Ticker |
Current Price |
Target Price |
Potential Downside (%) |
| Great Wall Motor |
2333 HK |
10.28 |
6.00 |
-41.6 |
| MGM China |
2282 HK |
17.06 |
15.00 |
-12.1 |
| Hartalega |
HART MK |
6.86 |
4.07 |
-40.7 |
Key Assumptions
| Country/Region |
GDP Growth (% yoy) 2016 |
2017F |
2018F |
| US |
1.6 |
2.7 |
2.5 |
| Euro Zone |
1.7 |
1.6 |
1.5 |
| Japan |
1.0 |
0.9 |
1.2 |
| Singapore |
2.0 |
2.4 |
2.8 |
| Malaysia |
4.2 |
4.5 |
4.7 |
| Thailand |
3.2 |
3.3 |
3.1 |
| Indonesia |
5.0 |
5.2 |
5.5 |
| Hong Kong |
1.9 |
2.0 |
2.0 |
| China |
6.7 |
6.3 |
6.3 |
| Brent Crude (US$/bbl) |
45 |
55 |
60 |
| CPO (RM/mt) |
2,653 |
2,600 |
2,500 |
Corporate Events
| Event |
Venue |
Dates |
| Roadshow with PT Siloam Int'l Hospital |
Canada/US |
5 Jun - 16 Jun |
| Analyst Presentation on Spore Strategy |
Kuala Lumpur |
15 Jun |
| Luncheon with Loob Holdings |
Kuala Lumpur |
20 Jun |
| Luncheon with Wisdom Education International |
Hong Kong |
27 Jun |
| Luncheon with United Overseas Bank |
Singapore |
3 Jul |
| Site Visit to Sarawak Oil Palms Bhd |
Sarawak |
3 Jul - 5 Jul |
| Analyst Marketing on Thai Strategy & Thai Telco |
Singapore/Malaysia |
5 Jul - 7 Jul |
| New Economy Conference 2017 |
Kuala Lumpur |
11 Jul |
| Roadshow with Citic Envirotech Ltd |
Taipei |
18 Jul |
| Analyst Marketing on Singapore Strategy & Small & Mid Caps |
Taipei |
20 Jul - 21 Jul |
| Visit to Sarawak Corridor of Renewable Energy |
Sarawak |
1 Aug - 3 Aug |
Sector Catalysts and Risks
China - Education Sector
- Catalysts:
- Accelerating market consolidation.
- Online education expanding into suburban areas.
- Risks:
- Policy risk: Unpredictable regulatory changes.
- Intense competition: Fragmented and competitive market.
- Execution risk: Failure to execute expansion plans.
- Recruitment risk: Difficulty in retaining quality teachers.
Indonesia - Cement Sector
- Catalysts:
- Java remains a strong growth driver.
- SMGR outperforms others in the market.
- Risks:
- Weak financial performance in 1H17 due to ASP decline.
- Higher energy costs impacting profitability.
Company Comparisons
| Company |
Ticker |
Recommendation |
Current Price (US$) |
Target Price (US$) |
Upside/Downside (%) |
Market Cap (US$m) |
2017F PE (x) |
2018F PE (x) |
ROE (%) |
| New Oriental |
EDU US |
BUY |
73.69 |
79.00 |
-9.6 |
11,619 |
48.1 |
41.9 |
13.3 |
| TAL Education |
TAL US |
BUY |
120.33 |
140.00 |
-14.7 |
9,893 |
75.8 |
56.0 |
14.7 |
| Semen Indonesia |
SMGR |
HOLD |
9,850 |
8,900 |
-9.6 |
4,393 |
15.9 |
13.8 |
13.3 |
| Indocement TP |
INTP |
SELL |
18,150 |
14,000 |
-22.9 |
5,024 |
20.4 |
18.5 |
12.3 |
| Holcim Indonesia |
SMCB |
SELL |
765 |
800 |
4.6 |
440 |
n.m |
n.m |
-4.3 |
Conclusion
The report highlights moderate economic slowdown in China, stabilizing cement prices in Indonesia, and opportunities in the education sector due to market consolidation. While moderate monetary easing is anticipated in China, Indonesia's cement sector is expected to bottom out in the short term. Investment recommendations are BUY for key players like Alibaba, New Oriental, and TAL Education, while SELL recommendations are made for Great Wall Motor, MGM China, and Hartalega.
