20161026-大华继显-Regional_Morning_Notes_36页_3mb

Regional Morning Notes Summary - 26 October 2016

Core Content Overview

This document provides a regional financial update for various markets, including China, Malaysia, Indonesia, and Singapore, focusing on key companies and their performance, valuation, and future outlook. It also includes insights into key economic indicators and investment recommendations.

Key Stories

China

• CSPC Pharmaceutical Group (1093 HK):
  • Initiate Coverage: The company is expected to deliver over 30% sales growth in 2016-18 due to its key products being in the early stages of their product life cycles.
  • Growth Drivers: The company has successfully transformed from a bulk medicine producer to an innovative drug manufacturer through acquisitions. Its flagship products, such as NBP capsule/injection, Oulaining, and Xuanning, are major contributors to sales.
  • Market Potential: The oncology product portfolio is expected to grow significantly in the coming years.
  • Valuation: Current valuation does not fully reflect its earnings growth potential in a challenging healthcare policy environment.
  • Target Price: HK$9.71 (Buy recommendation).
  • Financial Highlights:
    • EBITDA margin is projected to improve from 24.3% in 2015 to 27.0% in 2018.
    • Net margin is expected to increase from 14.6% in 2015 to 19.8% in 2018.
    • Operating profit is projected to rise from HK$2,166m in 2015 to HK$4,072m in 2018.
    • Dividend yield is expected to increase from 1.2% in 2016 to 2.2% in 2018.

Malaysia

• Inari Amertron (INRI MK):

  • Initiate Coverage: The company has potential for expansion through new income streams, in addition to growth in the RF (revenue from finished goods) segment.
  • Buy Recommendation: Target price RM3.85.

• Nestle Malaysia (NESZ MK):

  • Results: 3Q16 results were within expectations, but EBIT declined 10% yoy due to increased advertising and promotional expenses.
  • Hold Recommendation: Target price RM84.00.

Indonesia

• Bank Rakyat Indonesia (BBRI IJ):
  • Results: 9M16 results were in line with estimates.
  • Hold Recommendation: Target price Rp12,400.

Singapore

• Sector: REITs.
  • Industrial REITs: Results for MIT and MLT were in line with expectations.
  • Sembcorp Marine (SMM SP):
    • Results: 3Q16 results were in line with expectations.
    • Hold Recommendation: Target price S$1.23.

Key Indices

Top Picks

Sell Pick:

• Hartalega (HART MK): Current price RM4.93, target price RM3.10, downside of 37.1%.

Key Assumptions

Corporate Events

Great Wall Motor (2333 HK)

• 3Q16 Results:

  • Net profit: Rmb2.28b, up 53% yoy but down 10% qoq.
  • Revenue: Rmb21,782m, up 40.4% yoy.
  • Net margin: 10.5% in 3Q16, up 0.9ppt yoy but down 1.7ppt qoq.
  • The results beat the analyst's estimate but missed the consensus forecast.

• Earnings Outlook:

  • Earnings are expected to peak in 2016 and decline in 2017-18 due to margin pressure from tax break expiry and increased competition.
  • Management raised 2016 net profit forecast by 10% to Rmb8.55b.
  • Earnings growth for 2016-18 is expected to be 6% yoy, with declines of 27% and 9% in 2017 and 2018 respectively.

• Recommendation:

  • Maintain SELL due to expected lower earnings and stretched valuation.
  • Target price: HK$5.80, downside of 36.7%.

• Stock Data:

  • GICS sector: Automobile
  • Bloomberg ticker: 2333 HK
  • Shares issued: 3,100m
  • Market cap (HK$m): 28,392
  • Market cap (US$m): 3,640
  • 3-mth avg daily turnover (US$m): 40.7

• Price Performance:

  • 52-week high/low: HK$11.2/HK$4.9
  • 1mth: 24.0%
  • 3mth: 16.4%
  • 6mth: 48.2%
  • 1yr: (7.4)%
  • YTD: 1.4%

• Risks:

  • Downside: Higher-than-expected price cuts.
  • Upside: Better-than-expected sales of new models like H7 and possible extension of the tax break into 2017.

Summary of Financial Highlights

CSPC Pharmaceutical Group (1093 HK)

• Growth: Expected to grow at 30% CAGR in 2016-18.
• Valuation: Target price HK$9.71 (Buy), with an upside of 16.3%.
• Financial Metrics:
  • Net turnover: HK$11,393.7m (2015) to HK$16,141.3m (2018).
  • EBITDA: HK$2,771.7m (2015) to HK$4,353.3m (2018).
  • Net profit: HK$1,665.3m (2015) to HK$3,193.9m (2018).
  • EPS: 28.1 (2015) to 52.8 (2018).
  • PE: 29.7 (2015) to 15.8 (2018).
  • P/B: 5.6 (2015) to 3.6 (2018).
  • EV/EBITDA: 18.1 (2015) to 11.5 (2018).
  • Net margin: 14.6% (2015) to 19.8% (2018).
  • ROE: 19.8% (2015) to 24.8% (2018).

Great Wall Motor (2333 HK)

• Earnings: Expected to peak in 2016, then decline.
• Margin Pressure: Expected to increase due to new competition and new plant capacity.
• Sales: 80% of sales in 9M16 were from small cars.
• Valuation: Current PE is 8.5x (2016F), below historical mean.
• Recommendation: Maintain SELL.

Analysts

• CSPC Pharmaceutical Group:

  • Alex Jiang: +852 2236 6749, alex.jiang@uobKayhian.com.hk
  • Fu Jun Wei: +8621 5404 7225 ext 817, jfwu@uobkayhian.com

• Great Wall Motor:

  • Ken Lee: +852 2236 6760, ken.lee@uobkayhian.com.hk
  • Sophie Yu: +852 2826 1392, sophie.yu@uobkayhian.com.hk