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Regional Morning Notes Summary - April 15, 2016

Core Content Overview

This document provides an analysis of the automobile and renewable energy sectors in China, along with updates on Malaysia and Singapore. It includes key market insights, performance data, and investment recommendations.

China: Automobile Sector

Main Points

• Competition Intensifies: In March 2016, 17 new domestically-made car models were launched, with a significant focus on SUVs (6 new models), sedans (6), and MPVs (5). The number of SUV launches increased from 27 in 2015 to 30 in 2016, making it the most competitive segment.
• Market Share Shifts: Established automaker Great Wall Motor (GWM) faces increasing pressure from new entrants like Geely, DFM, and GAC, who are gaining market share due to competitive pricing and better value propositions.
• GWM's Challenges: GWM has cut prices to maintain market share, but its performance lags behind the industry. In March 2016, GWM's SUV sales grew by only 6.2% yoy, compared to the industry's 44%. Its market share in the SUV segment fell to 9.8% from 13.5%. GWM's net margin is expected to drop from 10.6% in 2015 to 8.7% in 2016, leading to a 14% decline in net profit to Rmb6.9b.
• Geely Boyue's Success: Geely's Boyue SUV is the best-selling new model, with 1,018 units sold within 6 days of launch and an orderbook exceeding 10,000 units. It is priced at Rmb98,800-157,800, significantly lower than its previous guidance and the H6 model.
• Sector Recommendations:
  • Top Pick: DFM (Dongfeng Motor) with a target price of HK$13.00 based on 8x 2016F PE.
  • Top SELL: GWM with a target price of HK$5.00 based on 6x 2016F PE.
• Price Cuts: GWM has initiated price cuts across several models, including H9, H8, H6, H2, and H1. Chang'an also cut prices for its CS75 model by 16%.
• New Models in April 2016: Six new SUV models are expected to be launched in April, including GWM Haval H7, Chang'an CS15, and BYD Yuan.

Key Performance Metrics

• DFM reported a 9.2% yoy sales growth in March 2016 and a 9.0% 1Q16 growth.
• GWM reported 3.2% yoy sales growth in March 2016 and 5.7% 1Q16 growth.
• Geely reported 2.9% yoy sales growth in March 2016 and 2.0% 1Q16 growth.
• GAC reported 44.9% yoy sales growth in March 2016 and 35.9% 1Q16 growth.

China: Renewable Energy Sector

Main Points

• Government Support: The Chinese government introduced supportive policies in March 2016 to address grid curtailment in the renewable energy sector, particularly for wind power.
• Guaranteed Dispatch Scheme: A new policy aims to guarantee minimum utilisation hours for renewable energy in curtailed regions, starting from 2017. For example, Gansu province is expected to have 1,800 minimum hours for wind power, a 52% increase from 2015.
• Renewable Portfolio Standards (RPS): By 2020, China will require more than 9% of electricity to come from renewable sources, up from the current 4%. This will provide a long-term push for renewable energy.
• Sector Outlook: The sector is recommended as OVERWEIGHT due to the positive impact of the new policies, which are expected to improve wind power utilisation and profitability.
• Top Pick: Huaneng Renewables with a target price of HK$3.30 and a BUY rating, due to its strong potential for capacity growth and minimal curtailment impact.
• Datang Renewables: Also seen as a potential opportunity if curtailment improves, due to its high exposure in curtailed regions.

Key Policies and Guidance

• 11 Apr: Approval of the pilot run programme to encourage local consumption of renewable energy in Gansu, Inner Mongolia, and Jilin.
• 28 Mar: Regulation on Guaranteed Dispatch of Renewable Energy.
• 21 Mar: Notice on Wind Power Construction and Development.
• 17 Mar: Notice on Wind Power Consumption Work 2016.
• 3 Mar: Guidance on Renewable Portfolio Standards.

Malaysia: CapitaLand Malaysia Mall Trust (CMMT)

Main Points

• 1Q16 Results: CMMT reported RM41.0m net profit, in line with expectations. This accounts for 24.6% of the analyst's full-year forecast and 23.8% of the consensus.
• Performance Highlights:
  • Rental Income: RM74.1m (+1.5% qoq, +15.4% yoy).
  • Car Park Income: RM6.4m (+6.2% qoq, +21.7% yoy).
  • Other Revenue: RM13.1m (-7.9% qoq, +14.3% yoy).
  • Total Revenue: RM93.6m (+0.4% qoq, +15.6% yoy).
• Dividend Policy: No dividend was declared for the quarter due to a semi-annual dividend policy.
• Sector Recommendation: HOLD with a target price of RM1.48 and an entry price of RM1.33.

Singapore: Sector Strategy and Investment Outlook

Main Points

• Monetary Policy Impact: The Singapore dollar is on a neutral appreciation slope, prompting a selective positioning strategy.
• Preferred Companies: Companies with foreign-denominated earnings or resilient profits are preferred.

Key Indices (as of 15 April 2016)

Top Picks and Recommendations

Automobile Sector

• BUY: DFM (489 HK) – Target Price: HK$13.00
• SELL: GWM (2333 HK) – Target Price: HK$5.00
• HOLD: Geely (175 HK), GAC (2238 HK), BYD (1211 HK)

Renewable Energy Sector

• BUY: Huaneng Renewables (958 HK) – Target Price: HK$3.30
• HOLD: Datang Renewables (1798 HK)

Analysts Contact

• Ken Lee: +852 2236 6760, ken.lee@uobkayhian.com.hk
• Sophie Yu: +852 2826 1392, sophie.yue@uobkayhian.com.hk
• Daniel Yang: +852 2236 6706, daniel.yang@uobkayhian.com.hk
• Yan Shi: +8621 5404 7225 ext. 819, yan.shi@uobkayhian.com

Key Risks

• Automobile Sector: Macro risk from a potential slowdown in the Chinese economy.
• Renewable Energy Sector: Slow policy execution, weaker-than-expected wind speeds, and uncertainty in solar power demand due to delayed installation targets.

Conclusion

The automobile sector in China is undergoing significant changes with new entrants like DFM, Geely, and GAC challenging established players like GWM. The government's new policies are expected to improve the renewable energy sector, especially wind power, and reduce curtailment risks. CapitaLand Malaysia Mall Trust (CMMT) reported in-line results in Q1 2016, with a HOLD recommendation. The overall market outlook remains cautiously optimistic, with a focus on companies with strong earnings momentum and strategic advantages.