20160711-大华继显-Regional_Morning_Notes_20页_1mb

Regional Morning Notes Summary

Date: Monday, 11 July 2016

Core Content Overview

This document provides a summary of economic and company updates from China, Malaysia, and Singapore, along with key indices, top picks, corporate events, and detailed financial analysis for China Resources Cement Holdings (1313 HK).

Main Points

China

• Inflation Trends:

  • CPI inflation declined to 1.9% yoy in June 2016 from 2.0% yoy in May, driven by easing food inflation.
  • PPI deflation eased to -2.6% yoy in June 2016 from -2.8% yoy in May, continuing to rise due to commodity price rebounds.
  • Food and pork prices were key contributors to CPI, with pork inflation decreasing by 3.5ppt to 30.1% yoy.
  • Non-food CPI edged up due to higher fuel prices and service costs, with gasoline and diesel prices rising 4.0% mom and 4.2% mom respectively.
  • Property prices in urban areas contributed to service price increases.

• Economic Outlook:

  • Inflation is expected to rebound mildly in 3Q16 due to flood impacts on vegetable and fruit prices and global commodity price trends.
  • The PBOC may cut the RRR by 50bp in late-July due to moderate inflation and weak demand conditions.
  • The Brent Crude average is expected to fall to $42/bbl in 2016, and CPO prices are forecasted to rise to RM2,500/mt.

• Company Update - China Resources Cement Holdings (1313 HK):

  • Profitability bottomed out in 2Q16 after a price hike in March 2016.
  • Further price increases are expected in September and 4Q16, which could drive earnings growth.
  • The company is expected to improve its GP/tonne from HK$43 in 1Q16 to HK$60 in 3Q16 and HK$75 in 4Q16.
  • Sales volume is projected to grow by mid-single digits in 2016, supported by demand in the Guangdong and Guangxi markets.
  • Foreign debt exposure has decreased from 80% to 45% by mid-2016, reducing forex risk.
  • Valuation is at 0.6x P/B, lower than historical averages, with a target price of HK$3.50.

• Stock Performance:

  • Current price: HK$2.44.
  • Upside potential: +43.4% to target price.
  • EPS is expected to rise from HK$25.9 in 2015 to HK$27.7 in 2016.
  • Net profit is forecasted to increase by 17% yoy in 2016.

• Key Financials:

  • EBITDA is projected to increase from HK$4,691.8m in 2015 to HK$4,844.4m in 2016.
  • Operating profit is expected to rise to HK$2,722.3m in 2016.
  • Net profit (adj.) is forecasted to be HK$1,463.9m in 2016.
  • Dividend yield is expected to increase to 2.2% in 2016.

• Valuation Metrics:

  • P/B is at 0.6x, with a discount of 50% compared to Conch.
  • EV/EBITDA is at 6.8x, with a target of 0.8x P/B.
  • Leverage has improved, with Net debt to equity expected to decrease to 50.7% in 2018.

Malaysia

• MISC (MISC MK):
  • LNG revenue implies chartering cost of only US$0.70/MMBtu, despite Asian LNG prices trending < US$7/MMBtu.
  • Low risk in long-term LNG rate renegotiation due to minimal exposure to spot rates.
  • Only one Seri-class vessel is used for spot LNG, with the rest on long-term contracts.
  • Maintain HOLD rating with a target price of RM8.10.

Singapore

• Triyards Holdings (ETL SP):
  • Lower earnings in 3QFY16 due to one-off costs and higher interest expenses.
  • Maintain HOLD rating with a target price of S$0.44.

Thailand

• Charoen Pokphand Foods (CPF TB):
  • Earnings may increase yoy and qoq in 2Q16.
• Thaicom (THCOM TB):
  • Earnings are expected to decline qoq due to the exit of a satellite pay-TV operator.

Key Indices (as of 11 July 2016)

Top Picks (BUY)

Top Picks (SELL)

Corporate Events

Key Assumptions

Conclusion

The report highlights the mixed inflation trends in China, with CPI easing and PPI rising. It provides a detailed outlook for China Resources Cement Holdings, emphasizing the potential for earnings improvement due to price hikes and demand recovery. The LNG market in Malaysia is viewed as low-risk for long-term charter renegotiation, and Thailand's market is noted for potential earnings fluctuations. Overall, the BUY recommendation is maintained for CR Cement due to its attractive valuation and profitability enhancement prospects.