20150113-大华继显-Regional_Morning_Notes_19页_992kb

Regional Morning Notes Summary

Core Content Overview

This document provides an analysis of the regional market conditions, focusing on the plantation sector, China's railway industry, and key financial metrics across various markets. It includes updates on Malaysia, Singapore, Hong Kong, Thailand, and Indonesia, along with corporate events, sector catalysts, financial forecasts, and investment recommendations.

Main Points and Key Information

Plantation Sector (Malaysia)

• CPO Production: Malaysia's CPO production for 2014 was 19.67m tonnes, a +2.3% yoy increase, driven by growth in Sarawak (+10.5%) and Sabah (+4.8%), but Peninsular Malaysia saw a decline (-1.5% yoy).
• CPO Exports: Exports in 2014 fell by -4.7% yoy, with significant drops to China (-23.3%) and Pakistan (-43.2%), though India showed strong growth (+39.0%).
• Inventory Levels: CPO inventory ended at 2.01m tonnes in December 2014, in line with expectations, and declined by 11.5% mom due to lower production and imports.
• Price Recovery: The market expects a slow CPO price recovery in 2015, with prices likely to trade between RM2,200-2,700/tonne, averaging RM2,525/tonne.
• Sector Recommendation: Maintain MARKET WEIGHT for the plantation sector, as the rally is expected to be short-term and sustainable only if floods continue.

China's Railway Sector

• CSR-CNR Merger: A merger between CSR Corporation (3898 HK) and China CNR (6199 HK) is expected to create a new entity, CRRC, with Zhuzhou CSR (3898 HK) as a key beneficiary.
• Yongji Xinshisu: A subsidiary of CNR, Yongji, is expected to be acquired by Zhuzhou CSR, which could significantly boost its revenue and earnings.
• Pro-forma EPS: Based on various valuation scenarios, Zhuzhou CSR's pro-forma EPS for 2015 and 2016 is expected to be 18-33% and 17-34% higher than original projections, respectively.
• Target Price: Maintained at HK$62.60, implying a 24x 2015F PE. This is aggressive, but supported by historical valuation and strong fundamentals.
• Recommendation: Maintain BUY for Zhuzhou CSR, driven by China's One Belt One Road strategy, strong railway spending, and enhanced competitiveness in the overseas rolling stock market.

Market Performance (Key Indices)

• Indices: The document includes data for the DJIA, S&P 500, FTSE 100, AS30, CSI 300, FSSTI, HSCEI, HSI, JCI, KLCI, KOSPI, Nikkei 225, SET, TWSE, and BDI.
• CPO Price: CPO price closed at RM2,144/tonne on Dec 14, with a +0.5% yoy increase. It peaked at RM2,855/tonne in March 2014 and fell to RM2,056/tonne in September 2014.
• GDP Forecasts: Expected GDP growth for 2015 is 3.2% for the US, 1.4% for the Euro Zone, 2.0% for Japan, 3.3% for Singapore, 5.2% for Malaysia, 3.9% for Thailand, and 5.8% for Indonesia.

Corporate Events

• Regional Oil & Gas Conference: Held in Kuala Lumpur on 13 Jan 2015.
• Meeting with Malaysia Ministry of Finance: Scheduled for 15 Jan 2015 in Kuala Lumpur.
• Singapore and Indonesia Telecom Analyst Presentation: Scheduled for 26-27 Jan 2015 in Kuala Lumpur.

Top Picks

• BUY: Sunac China (1918 HK), ICBC (1398 HK), Bank Mandiri (BMRI J), Gamuda (GAM MK), DBS (DBS SP), Pacific Radiance (PACRA SP), Bangkok Bank (BBL TB), Advanced Info (ADVANC).
• SELL: UMWH Holdings (UMWH MK).

Sector Catalysts

• Palm oil shortage: Due to dryness in 1Q14 and floods in Dec 14/Jan 15, leading to supply tightness.
• Restocking in China: Palm oil inventories in China fell 53% from peak in Feb 2014.
• Biodiesel demand: Indonesia and Malaysia are expected to increase biodiesel blending, which could reduce global palm oil supply.

Risks

• Backtracking of biodiesel mandates: Due to falling crude oil prices.
• Bumper soybean crops from the US could capped CPO price recovery.
• Weak demand in China during the winter season.
• Seasonal low production in Peninsular Malaysia for 1Q15.

Investment Recommendations

• Zhuzhou CSR: Maintained BUY rating, with HK$62.60 as the target price.
• Malayan Banking (MAY MK): Maintained BUY due to overreaction to 1MDB concerns.
• Sa Sa (178 HK): HOLD due to unusually weak sales in December.
• Halcyon Agri Corp (HACL SP): HOLD due to challenging rubber market.

Summary of Key Financial Metrics

Conclusion

The document highlights market dynamics, corporate developments, and investment opportunities in the plantation and railway sectors. Key factors influencing the market include supply tightness, seasonal production cycles, biodiesel demand, and global economic growth. The CSR-CNR merger is a major catalyst for Zhuzhou CSR, with positive EPS growth expected. Despite short-term volatility, the plantation sector is seen as resilient, with potential for price recovery in 2015. Overall, the report maintains a BUY stance on several companies, while HOLD or SELL is recommended for others based on performance and valuation.