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Regional Morning Notes Summary

Core Content Overview

This document provides a detailed analysis of the financial and market conditions across various regions and sectors, with a focus on China, Hong Kong, Indonesia, and Malaysia, along with key indices and corporate events. It includes sector updates, stock recommendations, and market assumptions for the period ending on Friday, 10 February 2017.

Main Points by Region

China

• Property Sector: A strong rebound in the property sector was observed, but it is considered not sustainable without policy loosening. The sector is still under tight policy control, and a sector-wide rally is unlikely in the near term.
• Valuation and Earnings: Despite strong fundamentals, valuations are too low, and the sector is trading at 7.7x 2017F PE, or 40.3% discount to RNAV.
• Sector Picks:
  • China Resources Land (1109 HK): BUY, with a target price of HK$29.03, offering 33.5% upside.
  • Longfor (960 HK): BUY, with a target price of HK$14.69, offering 19.0% upside.
  • COLI (688 HK): BUY, with a target price of HK$30.22, offering 23.3% upside.
  • SUNAC China (1918 HK): SELL, with a target price of HK$4.34, indicating a 40.6% downside.
  • Agile (3383 HK): SELL, with a target price of HK$3.49, indicating a 20.3% downside.
• Recommendation: Maintain UNDERWEIGHT on the sector due to weak fundamentals and limited upside potential for most companies.

Hong Kong

• Banking Sector: Share prices have been firm since the end of December 2016, driven by the rise in HIBOR.
• HIBOR Impact: The increase in HIBOR has led to NIM expansion for some banks, especially BOCHK.
• Key Banks:
  • Bank of China Hong Kong (BOCHK): BUY, with a target price of HK$38.50, based on improved NIM and potential growth from new business.
  • Hang Seng Bank (HSB): HOLD, with a target price of HK$160.00, but with limited upside due to high valuation.
  • Bank of East Asia (BEA): SELL, with a target price of HK$25.90, due to weak fundamentals and lower expected NIM growth.
• Recommendation: Maintain MARKET WEIGHT on the sector, with a preference for BOCHK.

Indonesia

• XL Axiata (EXCL IJ): BUY, with a target price of Rp3,600. The company is expected to translate customer growth into financial growth, with a strong position in the 4G space.
• Subscriber Growth: 4.6 million net customer additions in 2016, indicating a turnaround. Continued post-paid growth is expected, driven by improved network quality and brand recognition.
• Recommendation: Resume coverage with a BUY rating and a target price of Rp3,600.

Malaysia

• Maxis (MAXIS MK): HOLD, with a target price of RM5.80. The stock was supported by good cost discipline and year-end roaming revenue, but valuations are high and earnings outlook is modest.
• Recommendation: Maintain HOLD due to lofty valuations and pedestrian earnings outlook.

Key Indices

Top Picks

BUY

• Air China (753 HK): Target price HK$6.50, with 14.4% potential upside.
• Ping An Insurance (2318 HK): Target price HK$47.00, with 13.1% potential upside.
• Ciputra Property (CTRP IJ): Target price Rp960.00, with 39.1% potential upside.
• Indosat (ISAT IJ): Target price Rp8,015.00, with 25.7% potential upside.
• Genting Bhd (GENT MK): Target price HK$10.15, with 19.3% potential upside.
• Inari Amertron (INRI MK): Target price HK$2.00, with 9.3% potential upside.
• City Dev (CIT SP): Target price S$10.36, with 8.7% potential upside.
• OCBC (OCBC SP): Target price S$10.65, with 9.9% potential upside.
• KSH Holdings (KSHH SP): Target price S$0.69, with 25.7% potential upside.

SELL

• Hartalega (HART MK): Target price HK$3.67, with 22.7% potential downside.

Key Assumptions

• GDP Growth (YoY):

  • US: 2.6 (2015), 1.7 (2016F), 2.7 (2017F)
  • Euro Zone: 2.0 (2015), 1.6 (2016F), 1.1 (2017F)
  • Japan: 1.2 (2015), 0.8 (2016F), 0.9 (2017F)
  • Singapore: 2.0 (2015), 1.4 (2016F), 1.8 (2017F)
  • Malaysia: 5.0 (2015), 4.2 (2016F), 4.5 (2017F)
  • Thailand: 2.8 (2015), 3.2 (2016F), 3.3 (2017F)
  • Indonesia: 4.8 (2015), 5.0 (2016F), 5.2 (2017F)
  • Hong Kong: 2.4 (2015), 2.1 (2016F), 1.8 (2017F)
  • China: 6.9 (2015), 6.5 (2016F), 6.2 (2017F)

• Brent Crude (Average, US$/bbl):

  • 2016: 45
  • 2017F: 56
  • 2018F: 61

• CPO (RM/mt):

  • 2016: 2,653
  • 2017F: 2,600
  • 2018F: 2,500

Corporate Events

• Luncheon with Keppel T&T: Singapore, 10 Feb
• Luncheon with Kim Loong Resources: Malaysia, 13 Feb
• Tea Session with Valuetronics: Singapore, 13 Feb
• Tea Session with Duty Free International: Singapore, 17 Feb
• SGX-UOB Kay Hian Corporate Day: Taipei, 21 Feb
• UOB Kay Hian ASEAN Conference: Taipei, 22 Feb
• Group Meeting with Bumilama Agri: Singapore, 27 Feb
• Annual Plantation Outlook Seminar: Malaysia, 6 Mar
• Roadshow with Guotai Junan: Singapore, 7 Mar

Analysts

• David Yang: +8621 5404 7225 ext 801, davidyang@uobkayhian.com
• Wendy Liu: +8621 5404 7225 ext 811, wendyliu@uobkayhian.com

Summary of Key Recommendations

• China Property: Maintain UNDERWEIGHT due to tight policy control and weak fundamentals. Focus on quality laggards like CRL, Longfor, and COLI.
• Hong Kong Banking: Maintain MARKET WEIGHT, with a preference for BOCHK (BUY) and caution on BEA (SELL).
• Indonesia: Resume coverage on XL Axiata (EXCL IJ) with a BUY rating.
• Malaysia: Maintain HOLD on Maxis (MAXIS MK) due to lofty valuations and modest earnings outlook.