20170621-大华继显-Regional_Morning_Notes_23页_1mb

Regional Morning Notes Summary - 21 June 2017

Core Content Overview

This document provides a summary of market updates and company analyses for various regions including China, Indonesia, Malaysia, Singapore, and Thailand. It highlights stock performance, corporate events, financial metrics, and investment recommendations.

Main Points by Region

China

• Air China (753 HK):
  • Key Insight: Strong traffic growth is observed, but international pax throughput growth is weak, indicating potential demand destruction and lower yields.
  • Performance: International traffic grew 11% YoY in May, but pax carriage declined 1.3% YoY.
  • Risk Factors: Overcapacity on long-haul routes, potential yield decline, and risks from terrorist attacks.
  • Valuation: Target price is HK$7.70, with a HOLD rating. The stock is expected to decline ahead of interim results in August.
  • Financials: Net profit is expected to remain flat or slightly decline in 2017. Net debt to equity is projected to decrease from 144.4% in 2016 to 98.9% in 2017.
  • Key Metrics: EBITDA margin is expected to decline from 26.9% in 2016 to 23.2% in 2017. Net margin is expected to drop from 5.9% to 5.5%.

Indonesia

• Catur Sentosa Adiprana (CSAP IJ):
  • Key Insight: Continuous expansion in distribution and retail business is driving revenue growth.
  • Performance: Net profit grew 47.6% YoY in Q1 2017, driven by expansion into south Sumatra and new Mitra10 stores.
  • Segment Contributions: Building materials distribution (BMD) contributed 49% of consolidated revenue in Q1 2017, with flooring being the largest contributor at 57%.
  • FMCG Expansion: FMCG distribution expanded into south Sumatra, with P&G, KLBF, and Frisian Flag as key principals.
  • Capex: CSAP allocated Rp250b for 2017 capex, with 60% allocated to Mitra10 store expansion and 40% to warehouse expansion.
  • Valuation: Traded at an average PE of 16.1x for 2017-2018, close to its 5-year average of 16.8x.
  • Potential Changes: Management is considering divesting the chemical distribution segment, which contributes only 3% of revenue and impacts profitability.

Key Indices

Corporate Events

• Lunarion with Wisdom Education International Holdings Co. Ltd.: Hong Kong, 27 Jun
• Group meeting with IGG Inc: Shanghai, 29 Jun
• Lunarion with United Overseas Bank: Singapore, 3 Jul
• Site Visit to Sarawak Oil Palms Bhd: Sarawak, 3 Jul
• Roadshow with Hopefluent Group Holdings Limited: Singapore (4 Jul), Kuala Lumpur (6 Jul)
• Analyst Marketing on Thai Strategy & Thai Telco: Hong Kong (3 Jul), Singapore (5 Jul), Malaysia (6 Jul)
• Lunarion with Wisdom Education International Holdings: Hong Kong, 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
• Visit to Sarawak Corridor of Renewable Energy: Sarawak, 1 Aug - 3 Aug
• Roadshow with Top Glove Corporation: US/Canada, 5 Sep - 12 Sep

Top Picks

BUY

• Alibaba (BABA US): Target price $173.00, current price $138.38, potential +25.0%
• Beijing Ent. Water (371 HK): Target price HK$7.60, current price HK$6.20, potential +22.6%
• Telekomunikasi Indo (TLKM IJ): Target price Icy $5,000.00, current price Icy $4,490.00, potential +11.4%
• V.S. Industry (VSI MK): Target price MK $2.40, current price MK $2.08, potential +15.4%
• OCBC (OCBC SP): Target price SP $11.70, current price SP $10.64, potential +10.0%
• Siam Cement (SCC TB): Target price TB $600.00, current price TB $510.00, potential +17.6%

SELL

• Great Wall Motor (2333 HK): Target price HK$6.00, current price HK$10.06, potential -40.4%
• MGM China (2282 HK): Target price HK$15.00, current price HK$17.64, potential -15.0%
• Hartalega (HART MK): Target price MK $4.07, current price MK $6.85, potential -40.6%

Key Assumptions

Summary of Financials and Valuation

• Air China (753 HK):

  • Operating Performance: Domestic yields are expected to remain stable or improve slightly, while international yields are likely to decline due to overcapacity and demand risks.
  • Valuation: Fair value is HK$7.70, with a target price of HK$7.70. A HOLD rating is maintained.
  • Key Metrics: EBITDA margin is expected to decrease from 26.9% to 23.2% in 2017. Net margin is projected to decline from 5.9% to 5.5%.
  • Leverage: Net debt to equity is expected to fall from 144.4% in 2016 to 98.9% in 2017.

• Catur Sentosa Adiprana (CSAP IJ):

  • Financials: Net profit grew 47.6% YoY in Q1 2017, with BMD contributing 49% of consolidated revenue.
  • Valuation: Average PE for 2017-2018 is 16.1x, close to its 5-year average of 16.8x.
  • Segment Performance: Gross margin expanded by 50bp YoY, and net profit margin increased by 30bp YoY due to lower interest expenses.
  • Potential Divestment: Management is considering selling the chemical distribution segment, which contributes only 3% of revenue.

Conclusion

The document emphasizes the mixed performance of regional markets and key companies, with a focus on Air China and Catur Sentosa Adiprana. While Air China shows strong traffic growth, international pax throughput and yields are under pressure due to overcapacity and geopolitical risks. Catur Sentosa Adiprana benefits from expansion in distribution and retail, particularly in the building materials and FMCG segments, and is positioned for continued growth. The overall market sentiment is cautious, with mixed ratings and potential risks highlighted for several stocks.