Regional Morning Notes Summary - 07 August 2018
Core Content Overview
This document provides investment insights and recommendations for the Asian markets, focusing on China, Indonesia, Malaysia, and Singapore. It includes strategic analysis, stock performance, key indices, corporate events, and valuation data for selected companies.
Main Strategic Insights
China
- Return of Financial Repression: The PBOC has reintroduced a 20% reserve requirement for foreign exchange forward contracts, signaling a return to financial repression. This is expected to weigh on retail sales growth and consumption.
- Renminbi Weakening: The PBOC is prioritizing economic growth over currency stability, leading to potential further depreciation of the RMB to 7.80/US$ by the end of 2019.
- Infrastructure Preference: The report maintains a preference for infrastructure exposure due to its resilience against financial repression and the potential for growth.
Indonesia
- Consumer Stocks Outperform: Consumer stocks like GGRM, ASII, BBNI, and JSMR led the market in July, with expectations of continued outperformance due to recovering purchasing power.
- Alpha Picks: The report highlights several consumer and financial stocks as top picks, including Gudang Garam (GGRM), Astra International (ASII), Bank Negara Indonesia (BBNI), and Sarana Menara Nusantara (TOWR).
- Valuation Opportunities: Many of these stocks are undervalued relative to historical averages and offer potential upside due to improved earnings and re-rating prospects.
Key Market Indices Performance (as of 07 August 2018)
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
25502.2 |
0.2 |
0.8 |
4.3 |
3.2 |
| S&P 500 |
2850.4 |
0.4 |
1.7 |
3.3 |
6.6 |
| FTSE 100 |
7663.8 |
0.1 |
-0.5 |
0.6 |
-0.3 |
| AS30 |
6359.0 |
0.5 |
-0.2 |
0.1 |
3.1 |
| CSI 300 |
3273.3 |
-1.3 |
-6.9 |
-2.7 |
-18.8 |
| FSSTI |
3285.3 |
0.6 |
-0.7 |
2.9 |
-3.5 |
| HSCEI |
10702.0 |
0.1 |
-3.1 |
0.7 |
-8.6 |
| HSI |
27819.6 |
0.5 |
-3.2 |
-1.8 |
-7.0 |
| JCI |
1779.8 |
-0.0 |
0.5 |
7.0 |
-0.9 |
| KLCI |
1779.8 |
-0.0 |
0.5 |
7.0 |
-0.9 |
| KOSPI |
2286.5 |
-0.1 |
-0.3 |
0.6 |
-7.3 |
| Nikkei 225 |
22507.3 |
-0.1 |
-0.2 |
3.3 |
-1.1 |
| SET |
1696.2 |
-0.9 |
-0.3 |
5.0 |
-3.3 |
| BDI |
1773 |
1.0 |
4.1 |
9.3 |
29.8 |
| CPO (RM/mt) |
2161 |
-0.7 |
0.4 |
-5.6 |
-9.6 |
| Brent Crude (US$/bbl) |
74 |
0.7 |
-1.6 |
-4.4 |
10.3 |
Top Picks and Recommendations
BUY Recommendations
| Company |
Ticker |
Price (Rp) |
Target Price (Rp) |
Upside (%) |
| Gudang Garam |
GGRM LJ |
74,375 |
85,000 |
14.3 |
| Astra International |
ASII |
7,425 |
9,200 |
24.0 |
| Bank Negara Indonesia |
BBNI |
8,200 |
9,850 |
20.1 |
| Jasa Marga |
JSMR |
4,960 |
6,500 |
31.1 |
| Sarana Menara Nusantara |
TOWR |
555 |
880 |
58.6 |
| Tunas Baru Lampung |
TBLA |
990 |
1,700 |
71.7 |
SELL Recommendation
| Company |
Ticker |
Price (Rp) |
Target Price (Rp) |
Downside (%) |
| Hartalega |
HART MK |
6,140 |
4,020 |
-34.5 |
Key Assumptions (GDP Growth and Bond Yields)
| Region |
2017 GDP % |
2018F GDP % |
2019F GDP % |
| US |
2.3 |
2.5 |
2.3 |
| Euro Zone |
2.4 |
2.3 |
1.9 |
| Japan |
1.7 |
1.8 |
1.9 |
| Singapore |
3.6 |
2.8 |
3.0 |
| Malaysia |
5.9 |
5.0 |
5.3 |
| Thailand |
3.9 |
4.2 |
4.2 |
| Indonesia |
5.1 |
5.3 |
5.4 |
| China |
6.9 |
6.4 |
6.2 |
| CPO (RM/mt) |
2,783 |
2,400 |
2,500 |
| Brent (US$/bbl) |
55.00 |
67.00 |
66.50 |
Corporate Events
- Group luncheon with OCK Group: 13 Aug, Kuala Lumpur
- Analyst Presentation on Greater China 2H18 Strategy: 13 Aug, Singapore; 15-16 Aug, Kuala Lumpur; 20-22 Aug, Bangkok
- Group Meeting with YiChang HEC ChangJiang Pharmaceutical: 28 Aug, Hong Kong
- UOB Kay Hian Asian Gems Conference: 9 Oct, Singapore
- UOB Kay Hian Annual Regional 1H2019 Strategy Conference: 13 Nov, Kuala Lumpur
Company Updates
Sunway Construction (SCGB MK)
- Earnings Outlook: Expected to see stronger 2H18 earnings due to increased billings from the LRT3 project and margin improvements.
- Target Price: RM2.17 (Current: RM1.90, Upside: +14.2%)
- Key Projects: LRT3, ICPH yard, and hospital construction through Sunway Bhd.
- Financial Highlights:
- Net Profit (2018F): RM169m
- EPS (2018F): 13.1 sen
- PE (2018F): 14.5x
- P/B (2018F): 3.7x
- EV/EBITDA (2018F): 7.8x
Valuation Highlights
| Company |
2018F PE |
2019F PE |
2018F P/B |
2019F P/B |
ROE 2018F (%) |
Dividend Yield 2018F (%) |
| GGRM |
15.9 |
14.1 |
13.6 |
12.4 |
20.3 |
3.2 |
| JSMR |
27.9 |
30.4 |
30.4 |
30.4 |
8.3 |
1.6 |
| TOWR |
11.8 |
10.8 |
10.8 |
10.8 |
29.0 |
4.1 |
| TBLA |
5.3 |
4.8 |
4.8 |
4.8 |
23.3 |
6.8 |
| ASII |
14.1 |
12.4 |
12.4 |
12.4 |
16.6 |
12.0 |
| BBNI |
9.9 |
8.5 |
8.5 |
8.5 |
12.0 |
3.2 |
| BMRI |
15.9 |
13.6 |
13.6 |
13.6 |
13.7 |
4.1 |
Conclusion
The report highlights the continued importance of consumer stocks in Indonesia and the potential for infrastructure exposure in China and Malaysia. It also notes the impact of financial repression in China and the potential for earnings growth in Indonesian consumer and financial sectors. Investors are advised to focus on stocks with strong fundamentals and undervalued potential, while being cautious of those facing significant headwinds.
