20180919-大华继显-Regional_Morning_Notes_22页_1mb

Regional Morning Notes Summary - 19 September 2018

Core Content Overview

This document provides an analysis of the regional stock market and highlights key investment opportunities and risks in China, Indonesia, Malaysia, Singapore, and Thailand. It includes insights on sector performance, corporate events, and specific company updates, particularly in the education and construction sectors, along with valuation metrics and investment recommendations.

Key Sectors and Companies

China - Education Sector

• Regulatory Risks: Tightening regulations for K12 after-school tutoring (AST) and private schools are affecting stock valuations.
• Impact on AST Providers: AST providers face challenges due to requirements on teaching qualifications and restrictions on fee collection (<3 months). Teachers without proper qualifications need to pass tests by the end of 2018.
• Private Schools: The VIE structure is not necessarily prohibited, and the law is not applicable retrospectively. Not-for-profit schools can continue operations, though they may face scrutiny.
• Valuation: PEG valuations have been cut by 30% to 0.7x. Despite regulatory risks, current prices are considered attractive.
• Top Picks:
  • New Oriental (EDU): BUY with a target price of US$115.00.
  • China Maple Leaf (CML): BUY with a target price of HK$5.60.
  • Wisdom Education (WISDOM): BUY with a target price of HK$5.00.
  • TAL Education (TAL): HOLD with a target price of US$42.00.

Indonesia - Catur Sentosa Adiprana (CSAP)

• Expansion: CSAP is scaling up its expansion of Mitra 10, with an expected increase in store openings.
• Financials: 1H18 net profit declined by 24.9% yoy due to increased interest and operating expenses, but the company targets a 28.2% yoy increase in net income to Rp100b in 2018.
• Valuation: CSAP is trading at 26.5x 2018F consensus PE, which is +1SD above its 5-year historical average PE of 20.2x.
• Segment Performance:
  • Distribution: Sales grew by 8.9% yoy.
  • Retail: Sales increased by 26.3% yoy.
  • FMCG: Sales contributions from principals are expected to balance out, reducing reliance on any single principal.
• Key Financial Metrics:
  • GPM: 13.2% for distribution, 9.8% for FMCG, 20.6% for retail.
  • OPM: 2.5% for distribution, 1.2% for FMCG, 2.5% for retail.
  • NPM: 0.3% for distribution, 0.5% for FMCG, 1.5% for retail.
• Corporate Events: Roadshow with China Traditional Chinese Medicine Holdings and PT. Sarimelati Kencana.

Malaysia - Construction Sector

• Uncertainty: The construction sector is still under uncertainty, which has dampened valuations.
• Future Outlook: Valuations are likely to recover due to future pipeline projects.
• Company Update: VS Industry (VSI) is recovering from a poor 3QFY18 performance. New capacities are expected to yield better results, but more patience is needed.

Singapore - CapitaLand (CAPL)

• Acquisition: CapitaLand acquired a US multi-family portfolio, which may impact its performance and valuation.

Thailand - Dynasty Ceramic (DCC) and Khon Kaen Sugar Industry (KSL)

• DCC (BUY): Earnings have bottomed out in 2Q18, and the company is expected to perform better in 3Q18 onwards.
• KSL (SELL): Weak sugar prices are expected to pressure FY19 earnings.

Key Indices Performance

Key Assumptions

Investment Recommendations

BUY Recommendations

• New Oriental (EDU): Target price of US$115.00.
• China Maple Leaf (CML): Target price of HK$5.60.
• Wisdom Education (WISDOM): Target price of HK$5.00.

HOLD Recommendation

• TAL Education (TAL): Target price of US$42.00.

Risks

• Regulatory Risk: Uncertainty in regulations, especially for the education sector, could affect earnings and valuations.
• Earnings Risk: Unpredictable changes in interest income, potential delays in store openings, and weak purchasing power.
• Market Risk: Continued uncertainty in the construction sector may dampen overall performance.

Analysts

• Julia Pan (China Education Sector)
• Charles Wong (China Education Sector)
• Jovin Anwar (Indonesia - CSAP)

Corporate Events

• Roadshow with China Traditional Chinese Medicine Holdings (570 HK) - 20 Sep to 21 Sep
• Roadshow with PT. Sarimelati Kencana (PZZA IJ) - 25 Sep to 26 Sep
• Analyst Presentation on China Automobile Sector - 25 Sep to 26 Sep
• Corporate Roadshow with BBI Life Sciences Corporation (1035 HK) - 26 Sep
• Analyst Presentation on 2H18 Malaysia Strategy & Outlook - 27 Sep to 28 Sep
• Analyst Presentation on ASEAN Plantation - 4 Oct
• Roadshow with CSE Global (CSE SP) - 4 Oct
• UOB Kay Hian Asian Gems Conference - 9 Oct to 10 Oct
• Roadshow with Digi.com (DIGI MK) - 30 Oct to 2 Nov
• UOB Kay Hian Annual Regional 1H2019 Strategy Conference - 13 Nov

Summary of Key Points

• China Education Sector: High regulatory risks are affecting valuations, but current prices are seen as attractive. The worst-case scenario of zero profit for not-for-profit schools is unlikely.
• Indonesia - CSAP: Despite a decline in 1H18 net profit, the company is optimistic about 2018 performance. It is expanding its retail operations and has a strong market position.
• Malaysia Construction: Valuations are expected to recover with future projects.
• Singapore - CAPL: Acquired a US multi-family portfolio.
• Thailand - DCC: Earnings have bottomed out, but the company is expected to improve in 3Q18. KSL is under pressure due to weak sugar prices.
• Valuation Adjustments: PEG valuations have been reduced due to regulatory uncertainty.
• Investment Outlook: Current valuations present good buying opportunities for private K12 education stocks.
• Market Risks: Regulatory changes and economic conditions could impact performance.