Regional Morning Notes Summary - 04 September 2017
Core Content Overview
This document provides a summary of financial and market performance for key regions and companies, including China, Indonesia, Singapore, and Thailand, with a focus on the banking sector in China and highlights on small/mid-cap stocks in Indonesia.
Main Points
China Banking Sector (2Q17)
- Positive Trends:
- Net Interest Margin (NIM) expanded by 4-8 bps quarter-over-quarter (qoq).
- Industrial & Commercial Bank of China (ICBC), Bank of China (BOC), and Agricultural Bank of China (ABC) achieved a twin reduction in Special Mention Loans (SMLs) and overdue loans.
- Deposit Growth:
- The Big-4 banks saw total deposit growth of 6-7% year-over-year (yoy) in 1H17, driven by strong deposit franchises.
- Fee Income:
- Most banks saw a contraction in fee income due to declining agency commissions and wealth management contributions, except for China Construction Bank (CCB), which managed to hold fees steady.
- Provisions:
- The Big-4 banks increased provisions by 10-40% yoy, except BOC, which saw an 86% drop due to the base effect of gains from the divestment of Nanyang Commercial Bank in 2Q16.
- Recommendations:
- Top BUYs: ICBC and CCB.
- HOLD: BOC due to its attractive dividend yield of 5.6%.
Key Indices (as of 04 September 2017)
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
21987.6 |
0.2 |
0.8 |
-0.5 |
11.3 |
| S&P 500 |
2476.6 |
0.2 |
1.4 |
-0.0 |
10.6 |
| FTSE 100 |
7438.5 |
0.1 |
0.4 |
-1.0 |
4.1 |
| AS30 |
5786.1 |
0.2 |
-0.3 |
0.2 |
1.2 |
| CSI 300 |
3830.5 |
0.2 |
0.9 |
3.3 |
15.7 |
| FSSTI |
3277.3 |
0.4 |
0.2 |
-1.8 |
13.8 |
| HSCEI |
11285.6 |
-0.1 |
-0.0 |
2.6 |
20.1 |
| HSI |
27953.2 |
-0.1 |
0.4 |
1.4 |
27.1 |
| JCI |
5864.1 |
-0.1 |
-0.5 |
1.0 |
10.7 |
| KLCI |
1773.2 |
0.7 |
0.0 |
0.7 |
8.0 |
| Nikkei 225 |
19691.5 |
0.2 |
1.2 |
-1.3 |
3.0 |
| SET |
1618.4 |
0.1 |
2.7 |
2.5 |
4.9 |
| TWSE |
10594.8 |
0.1 |
0.8 |
0.8 |
14.5 |
| BDI |
1183 |
-0.1 |
-2.2 |
14.6 |
23.1 |
| CPO (RM/ml) |
2701 |
-0.3 |
-0.1 |
2.2 |
-15.6 |
| Brent Crude (US$/bbl) |
52 |
-0.5 |
1.1 |
0.1 |
-7.6 |
Top Picks (BUY)
| Company |
Ticker |
Current Price (HK$) |
Target Price (HK$) |
Pot. +/- (%) |
| ICBC |
1398 HK |
5.80 |
6.78 |
19.8 |
| CCB |
939 HK |
6.81 |
8.25 |
21.7 |
| Ace Hardware |
ACES IJ |
1,090.00 |
1,300.00 |
19.3 |
| Waskita Karya |
WSKT IJ |
2,220.00 |
3,350.00 |
50.9 |
| Ekovest |
EKO MK |
1.15 |
1.55 |
34.8 |
| OCBC |
OCBC SP |
11.17 |
13.38 |
19.8 |
Key Assumptions (GDP Growth)
| Region |
2016 (%) |
2017F (%) |
2018F (%) |
| US |
1.6 |
2.5 |
2.5 |
| Euro Zone |
1.7 |
1.8 |
1.6 |
| Japan |
1.0 |
0.9 |
1.2 |
| Singapore |
2.0 |
2.4 |
2.5 |
| Malaysia |
4.2 |
5.0 |
4.9 |
| Thailand |
3.2 |
3.3 |
3.3 |
| Indonesia |
5.0 |
5.2 |
5.5 |
| Hong Kong |
1.9 |
2.0 |
2.0 |
| China |
6.7 |
6.6 |
6.3 |
| Brent |
- |
45 |
52 |
| CPO |
- |
2,653 |
2,600 |
Corporate Events (04-13 September 2017)
| Event |
Venue |
Start Date |
End Date |
| Roadshow with Anta Sports Products |
Shanghai |
5 Sep |
5 Sep |
| Roadshow with Meidong Auto Holdings |
Shanghai |
5 Sep |
5 Sep |
| Lunteon with Ten Pao Group Holdings |
Hong Kong |
5 Sep |
5 Sep |
| Analyst Marketing on 2H17 |
Singapore |
5 Sep |
6 Sep |
| Roadshow with Health Management Int'l |
Kuala Lumpur |
6 Sep |
6 Sep |
| Roadshow with Xin Point Holdings |
Hong Kong |
7 Sep |
7 Sep |
| Analyst Marketing on Indonesia Construction Sector |
Singapore |
13 Sep |
13 Sep |
| Roadshow with Globetronics Technology |
Hong Kong |
12 Sep |
12 Sep |
| Tea Session with Cityneon Holdings |
Singapore |
12 Sep |
12 Sep |
| Roadshow with China Yongda |
Canada/US |
25 Sep |
29 Sep |
| Asian Gems Conference 2017 |
Singapore |
10 Oct |
11 Oct |
| UOB Kay Hian Annual Regional Strategy Conference |
Kuala Lumpur |
13 Nov |
13 Nov |
Sri Rejeki Isman (SRIL IJ) Highlights
- Capacity Expansion: Completed factory capacity expansion in 1H17 and launched a new rayon factory in July 2017.
- Utilisation Rates: Ranging from 50-92% across divisions, with expectations of full capacity by 2018.
- Revenue Growth: Targeting 8-12% yoy revenue growth to US$734m-762m and 11-15% yoy net profit growth to US$65m-68m in 2017.
- Export Sales: Contributed 52.5% of revenue in 1Q17, with significant growth in the US market (61.6% yoy).
- Rayon Production: New rayon factory can produce up to 100m tonnes of rayon fibre annually, reducing reliance on imports.
- Valuation: Trading at 2017-18F average PE of 6.5x.
- Key Risks:
- Slower demand in domestic and Asian markets.
- Higher raw material prices.
- Low utilisation rates due to reduced demand.
Key Financials (SRIL IJ)
| Metric |
2017 (US$m) |
2016 (US$m) |
yoy (%) |
| Net Turnover |
180.2 |
168.2 |
7.2 |
| EBITDA |
39.7 |
34.8 |
14.3 |
| Net Profit (adj.) |
17.7 |
16.4 |
7.8 |
| Net Profit (rep./act.) |
17.7 |
16.4 |
7.8 |
| Net Margin |
9 - 10% |
- |
- |
| Gross Margin |
22.1% |
20.7% |
- |
| Operating Margin |
18.5% |
17.0% |
- |
Summary of Key Trends
- China Banking Sector: Positive trends in NIM and asset quality continue, with ICBC and CCB recommended as top BUYs.
- Indonesia: SRIL IJ benefits from increased production capacity and new rayon factory, with strong export growth.
- Market Indices: Mixed performance across regions, with some showing positive growth and others declining slightly.
- Corporate Events: A series of roadshows and analyst meetings planned in the coming weeks to highlight key companies and sectors.
Analysts
Key Risks
- Banks: Earnings growth may moderate due to regulatory controls on credit expansion and WMPs.
- SRIL IJ: Slower demand in key markets, rising raw material costs, and lower utilisation rates could impact performance.
