Regional Morning Notes Summary - 09 April 2014
Core Content Overview
This document provides a summary of financial updates and market analysis for various companies and sectors in China, Malaysia, and Singapore, along with key indices and investment recommendations.
Main Points by Region
China
- Power Sector:
- 2013 saw strong earnings growth for Hong Kong-listed Independent Power Producers (IPPs), driven by coal price declines and cost control measures.
- The sector is expected to maintain OVERWEIGHT due to stable coal prices and improved profitability.
- The potential tariff cut is likely to be the final one, with minimal impact due to lower coal prices.
- Top picks remain Huadian Power and China Power International for their attractive valuations and lower risk.
- The sector is trading at a 1x 2014F P/B, representing a 31% discount to historical levels and global peers.
- Dividend yields are expected to remain attractive at 4-7% for 2014.
China Railway Group (390 HK)
- Maintained BUY with a new target price of HK$5.02.
- The company is expected to report growth in 2014 from a high 2013 base of Rmb930b.
- Margin recovery and cost control are key growth drivers.
- The gearing ratio is expected to decrease over time.
- Railway investment is projected to expand significantly, with the network expected to reach 150,000km by 2020.
- New orders increased by 36% yoy, with a 72.6% increase in railway orders and 41% increase in highway orders.
- Dividend yield is expected to rise to 1.7% in 2014, up from 1.6% in 2013.
Guangzhou Automobile Group (2238 HK)
- March sales missed expectations due to dealers destocking old models.
- Maintain BUY with a target price of HK$10.50.
Malaysia
- Tropicana Corp (TRCB MK): Downgraded to HOLD after a strong performance.
- Key market developments include corporate roadshows and strategy sessions.
Singapore
- Bumitama Agri (BAL SP): Maintained BUY with a target price of S$1.40.
- Expected better-than-peers FFB production growth in 1Q14 due to good rainfall in Kalimantan.
- Frasers Centrepoint Trust (FCT SP): Acquired Changi City Point for S$305m.
Key Indices
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
16256.1 |
0.1 |
-1.7 |
-1.2 |
-1.9 |
| S&P 500 |
1852.0 |
0.4 |
-1.8 |
-1.4 |
0.2 |
| FTSE 100 |
6590.7 |
-0.5 |
-0.9 |
-1.8 |
-2.3 |
| AS30 |
5409.2 |
-0.1 |
0.3 |
-1.2 |
1.0 |
| CSI 300 |
2237.3 |
2.4 |
4.2 |
3.2 |
-4.0 |
| FSSTI |
3204.1 |
0.3 |
0.2 |
2.2 |
1.2 |
| HSCEI |
10321.8 |
1.6 |
2.2 |
6.3 |
-4.6 |
| HSI |
22597.0 |
1.0 |
0.7 |
-0.3 |
-3.0 |
| JCI |
4921.4 |
0.0 |
1.0 |
5.0 |
15.1 |
| KLCI |
1852.3 |
-0.6 |
0.2 |
1.1 |
-0.8 |
| KOSPI |
1993.0 |
0.2 |
0.1 |
0.9 |
-0.9 |
| Nikkei 225 |
14606.9 |
-1.4 |
-1.3 |
-4.4 |
-10.3 |
| SET |
1379.3 |
-0.9 |
0.2 |
1.8 |
6.2 |
| TWSE |
8888.3 |
0.1 |
0.4 |
2.0 |
3.2 |
| BDI |
1098 |
-7.4 |
-16.6 |
-28.8 |
-51.8 |
| CPO (RM/mt) |
2669 |
-0.8 |
-3.0 |
-7.8 |
3.8 |
| Nymex Crude (US$/bbl) |
102 |
-0.4 |
2.6 |
-0.4 |
3.8 |
Key Assumptions
| Region |
GDP (% yoy) |
| US |
3.0 |
| Euro Zone |
1.0 |
| Japan |
2.5 |
| Singapore |
4.3 |
| Malaysia |
5.2 |
| Thailand |
3.0 |
| Indonesia |
6.0 |
| Hong Kong |
3.5 |
| China |
6.9 |
- Brent remains at $110/bbl.
- Aluminium prices are expected to decline to $1,650/mt by 2015.
- Copper prices are forecasted to drop to $6,750/mt by 2015.
- Gold is expected to fall to $1,300/ounce by 2015.
- Iron Ore is projected to decline to $110/mt by 2015.
- CPO is expected to rise to $858/mt by 2015.
- BDI is expected to rise to $1,800 by 2015.
Top Picks (BUY)
| Company |
Ticker |
Current Price (HK$) |
Target Price (HK$) |
Upside (%) |
| CNBM |
3323 HK |
8.15 |
9.82 |
20.5 |
| ICBC |
1398 HK |
4.90 |
5.90 |
20.4 |
| Bank Mandiri |
BMRI J |
10,250.00 |
10,800.00 |
5.4 |
| Gamuda |
GAM MK |
4.45 |
5.54 |
24.5 |
| DBS |
DBS SP |
16.48 |
21.90 |
32.9 |
| Pacific Radiance |
PACRA SP |
1.10 |
1.22 |
10.9 |
| Bangkok Bank |
BBL TB |
186.50 |
220.00 |
18.0 |
| PTT |
PTT TB |
302.00 |
360.00 |
19.2 |
Key Risks and Opportunities
- Risks:
- Potential slowdown in China's railway investment.
- Further margin erosion.
- Sector de-rating.
- Economic slowdown in China.
- Opportunities:
- Tariff cut expected to be final, with minimal impact due to lower coal prices.
- Dividend yields are attractive at 4-7%.
- Attractive valuations for IPPs.
- Positive outlook on railway expansion and infrastructure development.
Valuation Highlights
- CRG is trading at 6.2x 2014F PE, 5.5x 2015F PE, and 0.8x 2013 P/B.
- Payout ratios are expected to be maintained at 40%.
- ROE is projected to rise to 13.1% by 2016.
- Gearing ratios are expected to decrease to 115-347% by 2015, from 152-418% in 2013.
- Net profit is expected to grow from Rmb9.4b in 2013 to Rmb13.2b in 2014.
Analysts
Corporate Events
| Event |
Venue |
Date (Begin) |
Date (Close) |
| SPT Energy Corporate Roadshow |
New York |
8 Apr |
10 Apr |
| Indonesia 2H14 Market Strategy |
Kuala Lumpur |
10 Apr |
11 Apr |
| LJM Corporation Corporate Roadshow |
Taipei |
9 Apr |
10 Apr |
| China Fiber Optic Network Luncheon |
Hong Kong |
10 Apr |
10 Apr |
| Palm Oil Dialogue Session |
Kuala Lumpur |
11 Apr |
11 Apr |
| Malaysia Aica Corporate Roadshow |
Singapore |
11 Apr |
11 Apr |
| Xingda International Corporate Roadshow & Luncheons |
Taipei |
16 Apr |
17 Apr |
Conclusion
- The power sector in China is expected to maintain good profitability and attractive valuations despite potential tariff cuts.
- China Railway Group is a top pick with BUY recommendation and HK$5.02 target price.
- The dividend yield is a key attraction for investors.
- The sector offers good buying opportunities for long-term investors due to underperformance and positive outlook.
- Macroeconomic uncertainties may affect valuations, but the potential for growth remains strong.
