20180813-大华继显-Regional_Morning_Notes_25页_1mb

报告摘要

Regional Morning Notes Summary - 13 August 2018

Core Content

This document provides an analysis of the regional markets and specific companies in China, Indonesia, Malaysia, and Singapore, with a focus on the paper and cement sectors. It includes updates on corporate events, key indices, company results, financial assumptions, and investment recommendations.

Main Points

China Paper Sector

Trade War Impact: China imposed an extra 25% tariff on US imported OCC (old corrugated cardboards) effective 23 August 2018, as retaliation against US tariffs on Chinese exports. This is expected to raise costs for large paper manufacturers by 4-6%.
Import Ban by 2020: China plans to ban all OCC imports by 2020, which will lead to a structural shortage of OCC and a potential spike in prices. The recycling rate for containerboard paper in China exceeds 80%, which is not expected to compensate for the import ban.
Large Players' Strategy: Large paper producers like Nine Dragons Paper (NDP) and Lee & Man Paper (LMP) are expanding overseas to secure raw materials and mitigate the risk of the import ban. They are likely to gain market share from smaller players.
Cost Advantage: Currently, large paper manufacturers benefit from lower production costs due to access to cheaper imported OCC. The import ban will reduce this advantage, making their costs similar to smaller producers.
Market Weight: The paper sector is maintained at market weight, with NDP and LMP as top picks.
Valuation Adjustments: Target prices for NDP and LMP have been cut due to increased costs and reduced profit margins.

China Resources Cement Holdings (1313 HK)

Strong 1H18 Performance: The company reported net profit of HK$4.0b, up 145.5% yoy, driven by higher cement ASP and production volume. Gross margin improved to 39.4% from 30.7% in 2017.
Dividend Yield: The company announced an interim dividend of HK$0.275 per share, resulting in a 6% dividend yield.
Balance Sheet Strength: Net debt-to-equity ratio dropped to 15.7% from 38.3% due to a private placement and strong cash flow.
Earnings and Profitability: The company's net profit margin is expected to remain high in 2H18, supported by favorable supply-demand dynamics and potential infrastructure stimulus.
Investment Recommendation: The recommendation to BUY is maintained, with a target price of HK$10.00 based on 9x 2018F PE. The stock is currently trading at 8.2x 2018F PE and 1.5x 2018F P/B, indicating attractive valuations.

Key Information

Corporate Events

Group Luncheon with OCK Group: Kuala Lumpur, 13 August 2018.
Analyst Presentation on Greater China Strategy: Singapore (13 Aug), Kuala Lumpur (15-16 Aug), and Bangkok (20-22 Aug).
Group Dinner Meeting with China Traditional Chinese Medicine Holdings: Hong Kong, 17 August 2018.
Group Meeting with Xstep International Holdings: Hong Kong, 24 August 2018.
Group Meeting with YiChang HEC ChangJiang Pharmaceutical: Hong Kong, 28 August 2018.
UOB Kay Hian Asian Gems Conference: Singapore, 9 October 2018.
UOB Kay Hian Annual Regional 1H2019 Strategy Conference: Kuala Lumpur, 13 November 2018.

Key Indices

Index	Prev Close	1D %	1W %	1M %	YTD %
DJIA	25313.1	(0.8)	(0.6)	1.2	2.4
S&P 500	2833.3	(0.7)	(0.2)	1.1	6.0
FTSE 100	7667.0	(1.0)	0.1	0.1	(0.3)
AS30	6366.8	(0.3)	0.6	0.2	3.2
CSI 300	3405.0	0.2	2.7	(2.5)	(15.5)
FSSTI	3284.8	(1.3)	(0.0)	0.7	(3.5)
HSCEI	10943.1	(0.7)	2.3	1.8	(6.5)
HSI	28366.6	(0.8)	2.5	(0.6)	(5.2)
JCI	6077.2	0.2	1.2	2.2	(4.4)
KLCI	1805.8	0.0	1.4	4.9	0.5
KOSPI	2282.8	(0.9)	(0.2)	(1.2)	(7.5)
Nikkei 225	22298.1	(1.3)	(1.0)	(1.3)	(2.1)
SET	1706.0	(1.0)	(0.4)	3.8	(2.7)
TWSE	10983.7	(0.4)	(0.3)	1.1	3.2
BDI	1691	(0.2)	(4.6)	1.5	23.8
CPO (RM/ml)	2206	0.4	1.4	(2.5)	(7.7)
Brent Crude (US$/bbl)	73	0.1	(1.2)	(3.2)	9.0

Top Picks (BUY)

Nine Dragons Paper (2689 HK): Target price HK$13.50, potential upside of 10.9%.
Lee & Man Paper (2314 HK): Target price HK$9.30, potential upside of 29.0%.

Sell Recommendation

Hartalega (HART MK): Target price HK$4.02, potential downside of 39.1%.

Investment Insights

Market Weight: The paper sector is maintained at market weight.
Valuation Factors: The target prices reflect changes in earnings and cost structures. Both NDP and LMP are expected to benefit from the shift to domestic OCC sourcing and increased prices.
Earnings Forecasts: For NDP, FY18 net profit is expected to be Rmb7.37b, and FY19 and FY20 forecasts have been reduced by 9% and 13%, respectively.
LMP: FY18 net profit is expected to be HK$5.77b, with a 2% reduction in profit forecasts due to higher costs and ASP.

Risk Factors

Renminbi Depreciation: May increase the cost of imported OCC, which is a significant input for NDP and LMP.
Trade War: May indirectly reduce China's containerboard demand by less than 5%.
OCC Shortage: The import ban by 2020 could lead to a structural shortage and higher prices.

Company Results

China Resources Cement Holdings (1313 HK)

1H18 Results: Net profit increased by 145.5% yoy to HK$4.0b, with revenue up 40.4% yoy.
Performance Drivers: Higher cement ASP and production volume.
Earnings Forecast: Maintained, with FY18 net profit forecast at Rmb7.37b.
Dividend Yield: 6% for the interim dividend.

Key Financials

Metric	2018F (HK$m)	2019F (HK$m)	2020F (HK$m)
Net Turnover	38,552.1	38,802.1	39,330.4
EBITDA	12,771.5	12,559.2	12,378.6
Net Profit (rep./act.)	7,498.6	7,326.3	7,181.5
Net Profit (adj.)	7,498.6	7,326.3	7,181.5
EPS (HK cent)	111.0	104.9	102.8
PE (x)	8.2	8.7	8.8
P/B (x)	1.5	1.4	1.2
ROE (%)	21.0	16.7	14.4

Investment Catalysts

Cement ASP Increase: Expected in September 2018 during the peak season.
Infrastructure Stimulus: Potential announcements of the Great Bay Area Development plan.
Fiscal Spending: Updates on government stimulus in 2H18.
Prefabricated Construction Business: Expected to contribute better-than-expected earnings.

Conclusion

The paper and cement sectors in China are facing challenges due to the US-China trade war and the planned import ban on OCC by 2020. Large players are adapting by expanding overseas and adjusting pricing strategies. Nine Dragons Paper and Lee & Man Paper are highlighted as top picks with revised target prices. China Resources Cement Holdings is showing strong performance and remains a BUY with a target price of HK$10.00. The analysis also includes key corporate events and market indices to provide a comprehensive view of the regional market landscape.

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