Regional Morning Notes Summary
Core Content
This document is a financial summary report dated Thursday, 23 June 2016, focusing on market updates and investment recommendations for several Asian countries, including China, Indonesia, Malaysia, Singapore, Thailand, and key indices. It includes stock picks, key assumptions, corporate events, and detailed analysis of specific companies such as China Longyuan Power (916 HK) and Mitra Adiperkasa (MAPI IJ).
Main Points
China
- Supply-Side Reform: The Chinese government is implementing supply-side reforms, with the coal sector expected to be the biggest beneficiary in the short term due to capacity cuts and financial incentives.
- Top Picks: The coal sector is upgraded to OVERWEIGHT, with China Coal (1898 HK) as the top recommendation. Other beneficiaries include Anhui Conch (914 HK), CR Cement (1313 HK), and Baosteel.
- China Longyuan Power (916 HK):
- The company is transitioning from a capex-driven growth model to an organic growth model, which will reduce finance costs and improve utilization.
- It is expected to become free cash flow positive in 2017 and improve its ROE to 11.4% in 2018.
- Target Price: HK$8.00, with an upside of 27.4%.
- Market Cap: HK$50,468.5 million (as of 21 June 2016).
- Key Metrics:
- 2016F: Net profit (adj.) is forecasted to be Rmb3,737m, with a ROE of 9.4%.
- PE: 11.5x (2017F), P/B: 0.9x (2017F), EV/EBITDA: 8.7x (2017F).
- Net Debt/Equity: 190.6% (2016F), decreasing to 167.3% by 2018.
- Gearing Ratio: Expected to fall to 167.3% in 2018.
- Investment Strategy: The company is shifting its strategy to focus on organic growth and cost efficiency.
Indonesia
- Mitra Adiperkasa (MAPI IJ):
- The company is forming a new holding company, MAP Boga AdiPerkasa (MBA), to inject five high-margin brands (Starbucks, Pizza Express, Krispy Kreme, Cold Stone, and Godiva) into it.
- The F&B division is expected to drive ROE accretion and value creation.
- Target Price: Rp5,000.
- Key Metrics:
- 2016F: Net profit (adj.) is forecasted to be Rp2,260b, with a ROE of 17.3%.
- PE: 30.5x (2016F), P/B: 2.2x (2016F), EV/EBITDA: 6.5x (2016F).
- Bond Proceeds: Rp725b will be used to expand the F&B business, with potential dilution of MAPI's stake in MBA up to 29.9%.
- Investment: General Atlantic (GA) is involved in this transaction, with a valuation of 37x 2016F normalised PE.
Malaysia
- Top Glove (TOPG MK):
- The company is rated HOLD with a target price of RM4.39.
- Management expects an increasingly competitive nitrile glove market, which aligns with industry peers' outlook.
Singapore
- Starhill Global REIT (SGREIT SP):
- The REIT is rated BUY with a target price of S$0.92.
- Toshin has concluded a triennial rental review, which is expected to positively impact the REIT.
Thailand
- Healthcare Sector:
- Despite a hiccup in 1Q16, the sector is expected to resume strong earnings growth in 2H16 due to focus on intensity cases and cost control.
- The sector is maintained at OVERWEIGHT.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17780.8 |
(0.3) |
0.8 |
1.6 |
2.0 |
| S&P 500 |
2085.5 |
(0.2) |
0.7 |
1.6 |
2.0 |
| FTSE 100 |
6261.2 |
0.6 |
4.9 |
1.7 |
0.3 |
| AS30 |
5349.5 |
(0.1) |
2.3 |
(0.7) |
0.1 |
| CSI 300 |
3134.0 |
0.9 |
0.6 |
1.5 |
(16.0) |
| FSSTI |
2786.1 |
(0.1) |
0.4 |
0.7 |
(3.4) |
| HSCEI |
8763.1 |
0.7 |
1.8 |
5.5 |
(9.3) |
| HSI |
20795.1 |
0.6 |
1.6 |
5.0 |
(5.1) |
| JCI |
4896.9 |
0.4 |
1.7 |
3.2 |
6.6 |
| KLCI |
1637.7 |
0.2 |
0.6 |
0.2 |
(3.2) |
| KOSPI |
1992.6 |
0.5 |
1.2 |
1.9 |
1.6 |
| Nikkei 225 |
16065.7 |
(0.6) |
0.9 |
(3.5) |
(15.6) |
| SET |
1424.7 |
(0.4) |
(0.7) |
3.1 |
10.6 |
| TWSE |
8716.3 |
0.4 |
1.3 |
4.5 |
4.5 |
| BDI |
585 |
0.9 |
(3.1) |
(6.4) |
22.4 |
| CPO (RM/mt) |
2510 |
0.9 |
(4.6) |
(5.9) |
14.1 |
| Brent Crude (US$/bbl) |
50 |
(1.5) |
1.9 |
2.4 |
33.8 |
Key Assumptions
| Country |
GDP (yoy) |
2015 |
2016F |
2017F |
| US |
2.4 |
2.4 |
2.5 |
2.7 |
| Euro Zone |
1.6 |
1.6 |
1.5 |
1.6 |
| Japan |
0.5 |
0.5 |
0.6 |
0.8 |
| Singapore |
2.0 |
2.0 |
2.7 |
3.0 |
| Malaysia |
5.0 |
5.0 |
4.2 |
5.0 |
| Thailand |
2.8 |
2.8 |
3.2 |
3.6 |
| Indonesia |
4.8 |
4.8 |
5.0 |
5.5 |
| Hong Kong |
2.4 |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.9 |
6.5 |
6.2 |
Top Picks
| Company |
Ticker |
Current Price |
Target Price |
Upside (%) |
| Air China |
753 HK |
HK$5.38 |
HK$10.20 |
89.6 |
| Ping An Insurance |
2318 HK |
HK$34.45 |
HK$45.00 |
30.6 |
| Bank BJB |
BJR J |
HK$1,035.00 |
HK$1,170.00 |
13.0 |
| Genting Bhd |
GENT MK |
HK$8.21 |
HK$10.40 |
26.7 |
| City Developments |
CIT SP |
HK$8.75 |
HK$10.86 |
24.1 |
| DBS |
DBS SP |
HK$15.99 |
HK$19.30 |
20.7 |
| Bangkok Dusit |
BDMS TB |
HK$23.50 |
HK$27.70 |
17.9 |
| Siam Cement |
SCC TB |
HK$476.00 |
HK$630.00 |
32.4 |
Corporate Events
| Event |
Venue |
Begin Date |
End Date |
| UOB Roadshow |
US/Canada |
20 Jun |
24 Jun |
| Kingboard Laminates Holdings Ltd |
Hong Kong |
29 Jun |
29 Jun |
| Modern Dental Group Luncheon |
Hong Kong |
6 Jul |
6 Jul |
Analysts
Summary
- The report highlights the coal sector in China as the primary beneficiary of supply-side reforms, with China Coal as the top pick.
- China Longyuan Power is expected to shift to organic growth and achieve positive FCF by 2017.
- Mitra Adiperkasa is set to expand its F&B division with investment from General Atlantic, expected to boost ROE and margins.
- Stocks like Air China, Ping An Insurance, and Siam Cement are recommended as BUY.
- Key Indices show mixed performance, with some experiencing declines and others showing moderate gains.
- Analysts provide detailed insights and recommendations, emphasizing financial performance, market dynamics, and investment potential.
