20160411-大华继显-Regional_Morning_Notes_25页_1mb

Regional Morning Notes Summary - April 11, 2016

Core Content Overview

This document provides a summary of key market updates and analysis for various regions, including China, Indonesia, Malaysia, and Singapore, focusing on sectors such as City Gas Distribution, Infrastructure, and specific company updates.

Main Points and Key Information

China: City Gas Distribution

• NG Pricing Reform: The reform aims to open upstream and downstream markets, with a long-term positive impact on city gas distributors.
• Short-term Impact: The policy will be neutral in the short term but beneficial in the long term.
• Residential Gas Price Hike: Prices for residential users will increase, converging with non-residential rates. The price hike will be offset by cost pass-through mechanisms and affordability of gas bills for residential users.
• Sales Volume Growth: Companies expect a rebound in NG sales volume, driven by price cuts and increased consumption.
• Sector Outlook: Maintain OVERWEIGHT due to long-term benefits and attractive valuation (9.9x 2017F PE).
• Top Picks:
  • CR Gas (1193 HK): Target price HK$28.00, expected 15% sales growth.
  • ENN Energy (2688 HK): Target price HK$58.00, expected 15% sales growth and 15% earnings growth.
  • China Gas (384 HK): Target price HK$15.40, expected 18% sales growth.

China: Infrastructure

• VAT Reform Impact: Concerns on VAT reform eased after government guidelines were issued. The reform will not impact 2016 earnings significantly and any impact from 2017 onwards should be manageable.
• Tax Calculation: The VAT general calculation method involves a 11% output VAT rate and a 17% input VAT rate for deductible costs.
• Sensitivity Analysis:
  • CRG (390 HK): Earnings could decrease by 20% to increase by 16% depending on the deductible cost percentage.
  • CRCC (1186 HK): Earnings could decrease by 21% to increase by 13%.
  • CCCC (1800 HK): Earnings could decrease by 14% to increase by 3%.
• Sector Outlook: Maintain MARKET WEIGHT. Prefer contractors over rolling stock manufacturers due to higher growth visibility and lower valuation.
• Top Pick: CRCC (1186 HK) with a target price of HK$12.50, expected 15% new order growth and 7.4x 2016F PE.

Indonesia

• Unilever Indonesia (UNVR IJ): Maintain SELL. Expected 19% growth in 2016 EPS, but still trading at +2SD.

Malaysia

• QL Resources (QLG MK): Maintain HOLD. Mid-single digit earnings growth in FY16 due to strong performance in MPM division offset by underperformance in ILF and POA divisions.

Singapore

• IHH Healthcare (IHHP): Maintain HOLD. Priced for long-term growth but currently overvalued.

Thailand

• Charoen Pokphand Foods (CPF TB): Maintain BUY. Expected flat 1Q16 earnings but potential increase in QoQ. Target price Bt30.00.

Key Financial Indicators

Company Updates

BYD Company (1211 HK)

• Subsidy Cut: Shanghai reduced PHEV subsidies by two-thirds to Rmb10,000/vehicle for 2016, from Rmb30,000/vehicle in 2015.
• Impact on Earnings: Minimal impact on 2016 earnings, as effective retail prices have been adjusted to reflect the subsidy cut.
• Target Price: HK$44.00, with current price at HK$41.35 (upside: -1.5%).
• Company Description: Produces automobiles, rechargeable batteries, and handset components.
• Stock Data:
  • Market Cap: HK$142,945 million
  • Shares Issued: 2,476 million
  • 3-month average daily turnover: US$33.6 million

Analysts

• China City Gas Distribution: Yan Shi, Daniel Yang
• China Infrastructure: Johnson Hu, Cynthia Wang
• BYD Company: Ken Lee, Sophie Yu

Summary of Key Assumptions

Summary of Key Financials for BYD Company

Sector Catalysts

• Infrastructure: Large new orders from contractors, ramp-up in public-private partnerships (PPP), and continued high-level infrastructure investment in China.
• City Gas Distribution: NG pricing reform, which is expected to drive long-term growth and efficiency improvements.

Conclusion

The document outlines a positive outlook for the Chinese city gas distribution sector, driven by long-term NG pricing reform and expected sales growth. It also highlights that the infrastructure sector is expected to remain stable with the VAT reform having minimal impact on 2016 earnings. Specific companies such as CR Gas, ENN Energy, and CRCC are highlighted as top picks due to their growth potential and favorable valuations. For BYD Company, the subsidy cut is expected to have limited impact on earnings, and the company is maintained on HOLD with a target price of HK$44.00.