20150413-大华继显-Regional_Morning_Notes_17页_714kb

Regional Morning Notes Summary

Core Content

This document provides an overview of the regional market conditions and sector updates for April 13, 2015, with a focus on Malaysia, China, and Hong Kong. It includes analysis on palm oil production, export trends, and related market implications, as well as insights into the oilfield services sector in China and the impact of visa policy changes on Hong Kong's retail industry.

Main Points

Malaysia: Plantation Sector

• Palm Oil Inventory: Increased by 7.0% month-over-month (MoM) to 1.87m tonnes, driven by stronger production growth from yield recovery and more harvesting days.
• Production Growth: CPO production rose by 33.3% MoM in March 2015, with Peninsular Malaysia showing the strongest growth at 39.1% MoM.
• Exports: Exports increased by 21.5% MoM to 1.18m tonnes, mainly due to higher demand from China, Pakistan, and India.
• Yield Recovery: FFB yield recovered strongly after six consecutive months of decline, but still remained below the 5-year average.
• Inventory Trends: Inventory was up 10.5% YoY, but domestic demand fell by 3% MoM.
• CPO Price: CPO prices declined slightly to RM2,240/tonne in March 2015.
• Market Weight: Maintain MARKET WEIGHT for the plantation sector.

China: Oilfield Services Sector

• 2014 Results Recap: Private oilfield services companies (except COSL) reported significant declines in net profit, with some in net loss.
• Capex Reduction: Oil companies like PetroChina, Sinopec, and CNOOC reduced E&P capex by 10%, 15%, and 26-35% YoY, respectively.
• Anti-Corruption Impact: The anti-corruption campaign in China is expected to worsen the operating environment for private OFS companies.
• Private vs. SOE: Private OFS names face higher risks of insolvency, while SOEs like COSL are expected to see earnings decline due to capex cuts.
• Recommendations:
  • SPT Energy: BUY with target price of HK$1.90.
  • Petro-king: SELL with target price of HK$0.80.
  • Anton Oil: SELL with target price of HK$1.10.
  • COSL: SELL with target price of HK$10.60.
• Market Weight: Maintain UNDERWEIGHT for the oilfield services sector.

Hong Kong: Consumer Sector

• Visa Policy Changes: The Chinese government tightened the multiple entry visa scheme for Shenzhen residents, limiting them to one trip per week, which cannot be accumulated.
• Impact on Retailers: This is expected to reduce visitor arrivals by 4.5m annually, with Shenzhen tourists contributing 30% of Hong Kong's total tourist numbers.
• Retailers Affected:
  • Sa Sa: Most impacted due to high exposure to Shenzhen day-trippers (39% of stores near border and railway line, contributing 40% of Hong Kong sales).
  • Chow Tai Fook: Least impacted due to higher contribution from China business.
• Store Locations:
  • Sa Sa: 25 stores in Hong Kong, 28 in Kowloon, 34 in New Territories.
  • Chow Tai Fook: 6 stores in Hong Kong, 62 in Kowloon, 23 in New Territories.
• Recommendations:
  • Sa Sa: Downgraded to SELL with target price of HK$3.51.
  • Chow Tai Fook: Maintain HOLD with target price of HK$9.23.
• Market Weight: Maintain UNDERWEIGHT for the consumer sector.

Key Information

• Palm Oil Production and Exports: March 2015 saw a strong recovery in palm oil production, with inventory rising 7.0% MoM to 1.87m tonnes, but exports and domestic demand were mixed.
• China's Role: China's demand for palm oil increased in March, but its inventory remained low, suggesting a hand-to-mouth buying pattern.
• Export Levies: Indonesia's export levy on palm oil is expected to push more exports from the country in April 2015.
• Market Indices: The document includes performance data for various regional and global indices, with the CSI 300 showing the highest growth.
• Corporate Events: Several companies, including Sihuan Pharmaceutical and Amata Corporation, held roadshows in April 2015.
• Assumptions: CPO prices are expected to remain range-bound in 2015, with a target of RM2,525/tonne.
• Risks: Include potential backtracking of biodiesel mandates in Indonesia and Malaysia, another year of strong US soybean production, and political risks related to the oilfield sector.

Sector Catalysts

• Palm Oil Shortage: Expected due to adverse weather in 1Q14 and late-3Q14.
• Restocking in China: China's palm oil inventory dropped significantly to 372,000 tonnes in March 2015.
• Biodiesel Blending: Accelerated in Indonesia and Malaysia, which could reduce global palm oil supply.
• Anti-Corruption Campaign: Likely to further pressure private OFS companies in China.
• Currency Depreciation: May lead to more tourists being diverted to other countries.

Recommendations

• BUY: SPT Energy, First Resources, Bumitama Agri, Golden Agri-Resources, Sampoerna Agro, Astra Agro Lestari.
• SELL: Petro-king, Anton Oil, COSL, IJM Plantations, KLK, Eagle High Plantation.
• HOLD: Sime Darby, IOI Corporation, Genting Plantations, Wilmar International, Chow Tai Fook, Luk Fook, Emperor Watch.

Summary of Key Indices

Summary of Key Assumptions

Risks

• Biodiesel Mandates: May be backtracked in Indonesia and Malaysia due to lower crude oil prices.
• Soybean Production: Bumper crops in the US could impact global palm oil demand.
• Political Risks: Corruption investigations in the oilfield services sector.
• Oil Price Volatility: Could affect earnings for OFS companies.
• Geographical Risk: Shift in tourist flows to other countries due to currency depreciation.

Conclusion

The report highlights a mixed outlook for the plantation and oilfield services sectors, with strong production recovery in Malaysia and China, but challenges from weak demand, capex cuts, and regulatory changes. Hong Kong's consumer sector faces potential decline due to visa policy changes affecting Shenzhen tourists. The recommendations suggest a cautious approach with some companies being upgraded to BUY and others downgraded to SELL or HOLD.