Regional Morning Notes Summary - 17 August 2015
Core Content Overview
This summary covers economic observations and company results from China, Malaysia, Singapore, and Thailand, along with key indices, corporate events, and analyst insights.
China: Economic Highlights
- PBOC Interventions: The People's Bank of China (PBOC) devalued the renminbi (RMB) by 1,136 basis points on 11 August, triggering depreciation in both onshore and offshore markets. The PBOC intervened on 13 and 14 August to stabilize market expectations and prevent capital flight.
- Market Expectation Support: The PBOC is expected to maintain short-term RMB stability, although a potential US Fed interest rate hike could lead to renewed depreciation.
- Liquidity Measures: The PBOC injected Rmb50b and Rmb40b via reverse repos, keeping the interest rate at 2.5%. The interbank lending rate rose slightly to 2.5259%.
- Yield Curve Shift: Treasury note yields increased across various maturities, reflecting risk aversion and higher expectations of risk.
- Gold Reserves: China's official gold reserves rose to 1,677.4 metric tonnes, indicating efforts to stabilize the RMB.
Malaysia: Oil & Gas Sector Update
- Petronas Performance: Petronas reported 2Q15 earnings of RM11.1b, in line with 1Q15 but down 47% from 2Q14. It emphasized the need for more austerity measures to meet capex and dividend commitments.
- Downside Risks: Concerns remain about further margin pressures on local service players due to lower oil and LNG prices.
- Capex and Dividend Obligations: Petronas has a total capex budget of RM70b for 2015 and a RM26b dividend obligation to the government.
- Segmental Results: Upstream earnings dropped significantly, while downstream improved due to higher refining margins and better plant utilization.
- Corporate Actions: Petronas is continuing its industry-wide cost rationalization initiatives, which may lead to further rate reductions and cost cuts.
Singapore: Company Results
- Ezion Holdings (EZI SP): 2Q15 results were weak due to unanticipated setbacks in Australia and rig interchanging. Earnings are expected to recover in 4Q15.
- Olam International (OLAM SP): 2Q15 core net profit reached S$95.2m (+26% qoq, +96% yoy), and the 1H15 core net profit was S$224m (+48% yoy), above expectations.
- ST Engineering (STE SP): 2Q15 results were in line with expectations, and the guidance for a better second half generated interest.
Thailand: Company Results
- PTT (PTT TB): 2Q15 results were below estimates but beat consensus by 6%. Upgraded to BUY with a target of Bt410.00.
- Robinson Department Store (ROBINS TB): Healthy operating income growth, but the bottom line was held back by higher operating expenses.
- Samart Corp (SAMART TB): Results stronger than expectations.
- Thai Union Frozen Products (TUF TB): Earnings better than expectations, upgraded to BUY with a target of Bt21.10.
Key Indices Performance
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17477.4 |
0.4 |
0.6 |
-3.4 |
-1.9 |
| S&P 500 |
2091.5 |
0.4 |
0.7 |
-1.7 |
1.6 |
| FTSE 100 |
6550.7 |
-0.3 |
-2.5 |
-3.3 |
-0.2 |
| AS30 |
5360.0 |
-0.5 |
-2.1 |
-5.2 |
-0.5 |
| CSI 300 |
4073.5 |
-0.0 |
4.3 |
-1.9 |
15.3 |
| FSSTI |
3114.3 |
0.7 |
-2.4 |
-7.1 |
-7.5 |
| HSCEI |
11060.1 |
-0.2 |
-1.5 |
-6.7 |
-7.7 |
| HSI |
23991.0 |
-0.1 |
-2.3 |
-5.6 |
1.6 |
| JCI |
4585.4 |
0.0 |
-3.9 |
-5.8 |
-12.3 |
| KLCI |
1596.8 |
-1.5 |
-5.1 |
-7.5 |
-9.3 |
| KOSPI |
1983.5 |
0.4 |
-1.5 |
-3.7 |
3.5 |
| Nikkei 225 |
20519.5 |
-0.4 |
-1.0 |
-0.6 |
17.6 |
| SET |
1413.9 |
0.7 |
-1.2 |
-4.4 |
-5.6 |
| TWSE |
8305.6 |
-0.1 |
-1.6 |
-8.2 |
-10.8 |
| BDI |
1055 |
0.9 |
-12.1 |
0.7 |
34.9 |
| CPO (RM/mt) |
1959 |
-0.3 |
-2.6 |
-10.4 |
-14.7 |
| ICE Brent |
49 |
-1.1 |
-3.5 |
-14.8 |
-15.1 |
Top Picks (BUY)
| Company |
Ticker |
Current Price (Icy) |
Target Price (Icy) |
Potential Upside (%) |
| Beijing Capital |
694 HK |
8.40 |
12.30 |
46.4 |
| ICBC |
1398 HK |
5.25 |
7.80 |
48.6 |
| Bank BJB |
BJBRIJ |
750.00 |
1,300.00 |
73.3 |
| Maybank |
MAY MK |
8.29 |
10.30 |
24.2 |
| CapitaLand |
CAPL SP |
3.14 |
4.08 |
29.9 |
| DBS |
DBS SP |
19.26 |
25.12 |
30.4 |
| Kasikornbank |
KBANK TB |
173.00 |
232.00 |
34.1 |
| PTT |
PTT TB |
302.00 |
410.00 |
35.8 |
Sell Recommendations
| Company |
Ticker |
Current Price |
Target Price |
Potential Downside (%) |
| SIA Engineering |
SIE SP |
3.48 |
3.00 |
-13.8 |
| UMWH |
UMWH |
9.30 |
9.00 |
-3.2 |
Key Assumptions
| Region |
GDP (% yoy) |
2013 |
2014 |
2015F |
| US |
2.9 |
2.2 |
2.4 |
2.9 |
| Euro Zone |
1.3 |
-0.5 |
0.9 |
1.3 |
| Japan |
1.0 |
1.6 |
-0.1 |
1.0 |
| Singapore |
2.9 |
4.4 |
2.9 |
2.9 |
| Malaysia |
5.0 |
4.7 |
6.0 |
5.0 |
| Thailand |
2.7 |
2.8 |
0.9 |
2.7 |
| Indonesia |
5.0 |
5.6 |
5.0 |
5.0 |
| Hong Kong |
3.7 |
2.9 |
3.5 |
3.7 |
| China |
7.0 |
7.7 |
7.2 |
7.0 |
| Brent (Average) |
CPO (US$/mt) |
2014 |
2015F |
2016F |
| US$99.45 |
US$722 |
99.45 |
61 |
72 |
Corporate Events
- Phoenix Healthcare Group Roadshow: Singapore, 17–18 Aug
- Yoma Strategic Group Meeting: Singapore, 18 Aug
- Tongda Luncheon: Hong Kong, 24 Aug
- CIFI Holdings Roadshow: Singapore (24 Aug), Kuala Lumpur (25–26 Aug)
- SinoCom Luncheon: Hong Kong, 25 Aug
- China Resources Gas Luncheon: Hong Kong, 26 Aug
- Overseas Education New Campus Site Visit: Singapore, 28 Aug
- Asian Gems Conference: Singapore, 12–13 Oct
Analyst Views
Chaoping Zhu
- PBOC's intervention is aimed at stabilizing the RMB exchange rate and preventing capital flight.
- Expect further depreciation if the US Fed raises interest rates.
- Likely RRR cut in September to improve liquidity.
- Gold reserve disclosure aimed at restoring market confidence.
Kong Ho Meng
- Maintain MARKET WEIGHT for local service players despite overcapacity.
- Prefer defensive stocks like Dialog and MISC due to their diversified business and exposure to shipping and LNG.
- Recommend BUY for Deleum and SapuraKencana based on EBITDA cover and potential recovery in oil prices.
- Sell MMHE due to orderbook decline and poor ROE.
Company Insights
Guinness Anchor (GUIN MK)
- 4QFY15 Results: Net profit in line with expectations, but hit by a higher effective tax rate.
- Dividend Yield: Increased to 5.5%.
- Target Price: RM14.50, implying a 2016F PE of 17.5x.
- Market Share: Holds about 59% in the malt liquor market.
- Earnings Outlook: Expected low-single-digit yoy sales growth for 2015–2016.
Conclusion
The report highlights the impact of the RMB devaluation on Chinese markets and the ongoing challenges faced by oil and gas companies in Malaysia, Singapore, and Thailand. Key market players like Petronas and Guinness Anchor are under scrutiny for their financial performance and strategic responses. Analysts recommend maintaining a defensive stance in the face of continued deflationary pressures, with specific BUY and SELL recommendations based on earnings, valuations, and macroeconomic indicators.
