Regional Morning Notes Summary
Core Content
This document provides an overview of stock market insights and investment highlights for the Asia-Pacific region, with a focus on Hong Kong, China, Indonesia, and Malaysia. It includes key stories, sector updates, stock picks, and company-specific analyses, along with valuation and financial metrics.
Key Stories
Hong Kong
- Jacobson Pharma Corporation (2633 HK):
- Undervalued pharmaceutical leader in Hong Kong.
- Initiated coverage with a BUY recommendation.
- Target price: HK$2.29.
- Trading at 12.3x 2017F PE, which is 32.8% below the average of large Hong Kong-listed players.
- Expected to achieve a 32.5% net profit CAGR in FY17-19F.
- Strong growth drivers include off-patent drugs, M&A activity, and operating leverage.
- Major proprietary medicine, Po Chai Pills, has been licensed for sale in China's pharmacies.
China
- Aviation Sector:
- Strong traffic growth and attractive value proposition.
- The Big 3 Chinese airlines (Air China, China Eastern, China Southern) showed significant pax traffic growth in January 2017, with China Southern leading.
- Yields are almost on par with GFC levels, and pricing power is expected to return as fuel prices rise.
- Chinese carriers have outperformed the MSCI China H Index by 7-11ppt YTD.
- Sector is trading at 0.9x 2017F P/B, much lower than US carriers at 3.1x.
- The Big 3 are recommended with a BUY, and the sector is rated OVERWEIGHT.
Stock Picks
| Company |
Ticker |
Recommendation |
Share Price (HK$) |
Target Price (HK$) |
Upside (%) |
| Air China |
753 HK |
BUY |
5.84 |
6.50 |
11.3 |
| China Eastern Airlines |
670 HK |
BUY |
4.29 |
4.50 |
11.2 |
| China Southern Airlines |
1055 HK |
BUY |
4.94 |
5.90 |
19.4 |
| Bumi Serpong Damai |
BDE IJ |
BUY |
Rp1,900 |
Rp2,290 |
20.5 |
| DBS Group Holdings |
DBS SP |
BUY |
S$18.52 |
S$21.50 |
16.1 |
| ST Engineering |
STE SP |
BUY |
S$3.40 |
S$3.70 |
8.8 |
| British American Tobacco |
ROTH MK |
HOLD |
RM48.78 |
RM46.00 |
- |
| Siam Cement |
SCC TB |
BUY |
Bt394.00 |
Bt430.00 |
9.1 |
Key Financial Metrics (Jacobson Pharma Corporation)
| Metric |
FY16 |
FY17F |
FY18F |
FY19F |
| Net Turnover (HK$m) |
1,083.9 |
1,221.5 |
1,398.1 |
1,585.8 |
| EBITDA (HK$m) |
255.4 |
277.5 |
367.7 |
439.7 |
| Net Profit (HK$m) |
145.6 |
170.8 |
282.5 |
339.8 |
| Net Profit (Adj.) (HK$m) |
145.6 |
193.4 |
282.5 |
339.8 |
| EPS (fen) |
32.8 |
46.1 |
20.3 |
20.3 |
| Net Margin (%) |
13.4 |
14.0 |
20.2 |
21.4 |
| ROE (%) |
15.6 |
16.2 |
17.2 |
17.2 |
| Debt to Equity (%) |
48.4 |
23.9 |
18.4 |
13.5 |
| Net Debt/(Cash) to Equity (%) |
39.3 |
(3.7) |
(0.3) |
(7.1) |
Sector Updates
Aviation - China
- Traffic Growth:
- Air China, China Eastern, and China Southern reported double-digit pax traffic growth in January 2017.
- China Southern led with the highest growth and pax load factor.
- Yields and Pricing Power:
- Yields are near GFC levels, and pricing power is expected to recover with rising fuel prices.
- Cargo Performance:
- Cargo traffic growth was mixed, with some carriers improving.
- Temporary modal shift from sea to air freight due to Hanjin's bankruptcy led to improved cargo margins.
- Valuation:
- Chinese airlines trade at a lower P/B than US airlines, offering better value.
- The sector is rated OVERWEIGHT due to strong traffic growth and potential yield recovery.
Corporate Events
| Event |
Venue |
Date |
| Tea Session with Duty Free International |
Singapore |
17 Feb |
| SGX-UOB Kay Hian Corporate Day |
Taipei |
21 Feb |
| UOB Kay Hian ASEAN Conference |
Taipei |
22 Feb |
| Group Meeting with Bumitama Agri |
Singapore |
27 Feb |
| Greater China Strategy Analyst Marketing |
UK/Europe |
27 Feb - 1 Mar |
| Lunchon with Yinson Holdings |
Malaysia |
1 Mar |
| Teleconference with First Resources |
Malaysia |
2 Mar |
| Annual Plantation Outlook Seminar |
Malaysia |
6 Mar |
| Roadshow with Guotai Junan |
Singapore |
7 Mar |
Key Assumptions
| Region |
2015 GDP (yoy) |
2016F GDP (yoy) |
2017F GDP (yoy) |
| US |
2.6 |
1.7 |
2.7 |
| Euro Zone |
2.0 |
1.6 |
1.1 |
| Japan |
1.2 |
0.8 |
0.9 |
| Singapore |
2.0 |
1.4 |
1.8 |
| Malaysia |
5.0 |
4.2 |
4.5 |
| Thailand |
2.8 |
3.2 |
3.3 |
| Indonesia |
4.8 |
5.0 |
5.2 |
| Hong Kong |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.5 |
6.2 |
| Metric |
2016 |
2017F |
2018F |
| Brent Crude (US$/bbl) |
45 |
56 |
61 |
| CPO (RM/mt) |
2,653 |
2,600 |
2,500 |
Investment Highlights
Jacobson Pharma Corporation
- Market Position:
- Largest generic drug company in Hong Kong with over 30% market share.
- Dominates the Hospital Authority segment with 75% of annual purchases post-MediPharma acquisition.
- Growth Drivers:
- Off-patent trend, M&A activity, and operating leverage.
- Expected 32.5% net profit CAGR in FY17-19F.
- Proprietary Medicine:
- Po Chai Pills is the most recognized GI medicine in Hong Kong and now available in China.
- Expected to contribute significantly to proprietary medicine growth.
- Acquisitions:
- Acquired Ho Chai Kung for HK$568m (11x 2017F PE).
- Expected to contribute HK$48.8m in net profit in FY18.
Valuation
- SOTP Valuation:
- Proprietary medicine: 18.0x 2017F PE.
- Generic drugs: 15.0x 2017F PE (20% discount to sector average).
- Total target price: HK$2.29.
Analysts
Summary of Key Insights
- The Chinese aviation sector is showing strong traffic growth and attractive valuations.
- Jacobson Pharma is a promising undervalued player in Hong Kong's pharmaceutical industry.
- Several companies in the region are expected to see improved performance in 2017, particularly in the mid-range to high-end segments.
- Valuation metrics indicate potential upside for the stocks recommended.
