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Regional Morning Notes Summary - April 1, 2016

Core Content Overview

This document provides a summary of stock performance, company results, and key financial metrics for various regions including China, Hong Kong, Indonesia, Malaysia, Singapore, and Thailand. It includes recommendations, earnings data, and market insights for selected companies and indices.

China

Company Results

• Air China (753 HK):

  • 2015: Net profit surged 116% yoy to Rmb7.06b, driven by a 30% yoy drop in jet fuel costs and improved cost control.
  • Maintain BUY with a target price of HK$10.20.
  • Upside potential: +85.1%.
  • Key factors for 2016: continued fuel cost reductions, direct sales growth, and a lower proportion of agency sales.
  • Operating margin expanded by 7.3ppt to 14.1% in 2015.
  • Net margin rose by 3.1ppt to 11.1% in 2015.
  • Dividend yield increased to 2.3% in 2015.
  • Net debt-to-equity ratio fell to 162.2% in 2015, indicating improved financial leverage.
  • Debt-to-total capital ratio dropped to 61.0% in 2015.
  • Air China is de-gearing its US dollar debt, reducing forex risk and improving financial stability.
  • Earnings growth is expected to continue in 2016, with operating and net profit likely to be the highest among the Big Three.
  • Key catalyst: Continued fuel price declines and the commencement of Shanghai Disneyland.

• Baoxin Auto Group (1293 HK):

  • 2015: Net profit fell 69% yoy to Rmb220m, missing expectations due to a 25% yoy drop in new car sales revenue and a margin squeeze in after-sales services.
  • Maintain SELL with a revised target price of HK$2.75.
  • Upside potential: -43.9%.
  • Earnings headwinds are expected to persist due to increased competition and saturation of the dealership network.
  • Net margin dropped to 0.8% in 2015, and interest cover fell to 1.7x.
  • PE ratio rose to 52.0x, indicating overvaluation.

• Beijing Enterprises Water Group (371 HK):

  • 2015: Attributable net profit increased 37% yoy, largely in line with expectations.
  • Maintain BUY with a target price of HK$7.60.

• Beijing Enterprises Holdings (392 HK):

  • 2015: Net profit rose 17.3% yoy.
  • Maintain BUY with a target price of HK$60.00.

• China Southern Airlines (1055 HK):

  • 2015: Positive operating leverage despite lower yields.
  • Maintain BUY with a target price of HK$6.60.
  • Rapid degearing of US dollar debt is a key catalyst for future performance.

• Shimao Property (813 HK):

  • 2015: Core earnings fell below expectations due to inventory clearance.
  • Maintain HOLD with a target price of HK$11.42.

Hong Kong

• CT Environment (1363 HK):
  • 2015: Core earnings rose 60% yoy, slightly below expectations.
  • Maintain BUY with a target price of HK$3.10.

Indonesia

• Indofood CBP (ICBP IJ):

  • 2015: Limited upside from earnings or valuation re-rating.
  • Downgrade to HOLD with a target price of Rp16,200.

• Sido Muncul (SIDO IJ):

  • 2015: Net income was Rp437b, in line with expectations.
  • Downgrade to HOLD due to a projected 4% yoy slowdown in net income growth in 2016.
  • Target price: Rp550.

Malaysia

• Banking Sector:

  • Loan growth moderated further, with loan approvals down 17% yoy.
  • Asset quality worsened in February 2016.
  • Maintain MARKET WEIGHT.

• Construction Sector:

  • MRT Corp awarded MMC-Gamuda the underground tunnelling package for MRT Line 2 worth RM15.5b.

Singapore

• Aviation Sector:
  • Strong growth at Changi Airport is expected to benefit SATS, SIA, and SIA Engineering in 4QFY16.
  • Maintain MARKET WEIGHT.

Key Indices

Top Picks

Sell Picks:

Key Assumptions

Corporate Events

Thailand

• Strategy:
  • Selective BUY recommendations for SCC, CPF, BDMS, CK, THCOM, AP, RATCH, DRT, and MAJOR.
  • Avoid overvalued sectors.
  • Upgrade Healthcare sector to OVERWEIGHT due to expected strong earnings growth from 2016 to 2017.

Summary of Key Insights

• Air China is a top pick with strong earnings and a clear path to profitability, driven by fuel cost savings and de-gearing.
• Baoxin Auto Group is underperforming due to margin compression and weak sales growth, with a downgrade to SELL.
• Market trends in China and other Asian regions show mixed results, with some companies outperforming and others underperforming.
• Valuation metrics suggest some companies are overvalued, while others offer good value.
• Corporate events are scheduled in multiple locations, highlighting the importance of investor relations and market engagement.