Regional Morning Notes Summary
Core Content Overview
This document is a regional financial update from UOB Kay Hian dated Wednesday, 31 August 2016, covering key insights on China, Singapore, and Thailand markets, including stock recommendations, company results, and key financial metrics.
China Highlights
Sino Biopharmaceutical (1177 HK)
- Rating: HOLD
- Target Price: HK$5.20
- Entry Price: HK$4.60
- Upside: +4.0%
Key Points
- Transition to Oncology: The company is transitioning from its traditional hepatitis B business to oncology, which is expected to become a major growth driver.
- Pipeline Strength: Sino Biopharmaceutical has a strong R&D pipeline, with R&D expenses at 13.5% of total revenue in 1H16, significantly higher than the industry average.
- Hepatitis B Segment Challenges:
- Accounts for 46.3% of 1H16 sales.
- Sales growth slowed to 3.6% yoy in 1H16 from 10.6% in 2H15.
- Faces long-term pressure due to declining prevalence of Hepatitis B and stricter healthcare regulations.
- Tenofovir, a newer drug, may substitute Entecavir due to similar cost and better efficacy.
- A recent fire at the factory impacted hepatitis B production, though details were not disclosed.
Financial Performance (1H16)
- Revenue: HK$8,040m (up 8.0% yoy)
- Operating Profit: HK$1,285m (up 22.3% yoy)
- Net Profit: HK$1,009m (up 8.7% yoy)
- EPS: 0.14 Fen (up 8.7% yoy)
- Net Profit Margin: 12.5%
Valuation Metrics
- PE (2016F): 18.0x
- EV/EBITDA (2016F): 11.1x
- P/B (2016F): 3.3x
- ROE (2016F): 23.6%
Key Financial Forecasts
| Metric |
2016F |
2017F |
2018F |
| Net Turnover |
HK$16,064m |
HK$17,844m |
HK$19,960m |
| EBITDA |
HK$3,483m |
HK$3,963m |
HK$4,546m |
| Operating Profit |
HK$3,100m |
HK$3,533m |
HK$4,052m |
| Net Profit (adj.) |
HK$2,054m |
HK$2,281m |
HK$2,551m |
| Net Profit Margin |
12.6% |
12.6% |
12.6% |
Risks and Outlook
- The company is trading at a 3-year low due to the slowdown in hepatitis B growth.
- The oncology segment is expected to grow at 25% CAGR through 2017.
- The anti-hepatitis B segment may continue to drag growth in 2H16.
China Southern Airlines (1055 HK)
- Rating: BUY
- Target Price: HK$6.40
- Entry Price: HK$4.72
- Upside: +35.6%
Key Points
- 1H16 Results: Earnings in line with expectations; however, the stock price decline was deemed unjustified.
- Yield Decline: Pax yields declined by 6.2% yoy, but unit cost fell by 9.3%, driven by a 30% drop in fuel costs.
- Forex Impact: Forex losses were higher than expected, but the proportion of USD debt reduced to 42% as of end-Jun 2016, leading to lower forex risk in 2H16.
- Capacity Adjustments: Plans to reduce capacity on European routes and shift to lower-capacity aircraft to improve yields.
Financial Performance (1H16)
- Revenue: RMB54,119m (+1.4% yoy)
- Operating Profit: RMB7,051m (+17.8% yoy)
- Net Profit: RMB3,118m (-10.4% yoy)
- Core Net Profit: RMB4,634m (+27.5% yoy)
Valuation Metrics
- PE (2016F): 6.9x
- EV/EBITDA (2016F): 5.7x
- P/B (2016F): 0.9x
- ROE (2016F): 13.6%
Key Financial Forecasts
| Metric |
2016F |
2017F |
2018F |
| Net Turnover |
RMB112,754m |
RMB126,565m |
RMB139,211m |
| EBITDA |
RMB25,340m |
RMB27,332m |
RMB28,611m |
| Operating Profit |
RMB12,676m |
RMB14,258m |
RMB14,667m |
| Net Profit (adj.) |
RMB5,753m |
RMB7,500m |
RMB8,959m |
Outlook
- Expected to see a moderation in yield decline in 2H16 due to reduced capacity growth on international routes.
- The move to Daxing airport in 2019 is anticipated to improve operational efficiency and access to international markets.
Singapore Highlights
- Sector Focus: REITs
- Key Insight: The hospitality sector is experiencing a "tourist wave" that is driving significant spending.
Thailand Highlights
- Electricity Generating (EGCO TB)
- Rating: HOLD
- Target Price: Bt220.00
- Current Price: Bt197.00
- Upside: +11.6%
Key Insight
- The company's impressive growth is already priced in, suggesting that further upside may be limited.
Key Indices (as of 31 August 2016)
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18,454.3 |
-0.3 |
-0.5 |
+0.1 |
+5.9 |
| S&P 500 |
2,176.1 |
-0.2 |
-0.5 |
+0.1 |
+6.5 |
| FTSE 100 |
6,820.8 |
-0.3 |
-0.1 |
+1.4 |
+9.3 |
| AS30 |
5,573.5 |
+0.2 |
-1.3 |
-1.2 |
+4.3 |
| CSI 300 |
3,312.0 |
+0.1 |
-0.9 |
+3.4 |
-11.2 |
| FSSTI |
2,828.4 |
-0.0 |
-0.8 |
-1.4 |
-1.9 |
| HSI |
23,016.1 |
+0.9 |
+0.1 |
+5.1 |
+5.0 |
| JCI |
5,362.3 |
-0.2 |
-1.0 |
+2.8 |
+16.7 |
| KLCI |
1,678.1 |
-0.2 |
-0.3 |
+1.5 |
-0.9 |
| KOSPI |
2,039.7 |
+0.4 |
-0.5 |
+1.2 |
+4.0 |
| Nikkei 225 |
16,725.4 |
-0.1 |
+1.4 |
+0.9 |
-12.1 |
| SET |
1,546.1 |
+0.1 |
+0.4 |
+1.4 |
+20.0 |
| TWSE |
9,110.6 |
+0.0 |
+0.9 |
+1.4 |
+9.3 |
| BDI |
715 |
-0.7 |
+4.1 |
+9.0 |
+49.6 |
| CPO (RM/mt) |
2,823 |
-0.3 |
+0.2 |
+20.5 |
+28.3 |
| Brent Crude (US$/bbl) |
48 |
-1.8 |
-3.2 |
+13.9 |
+29.7 |
Top Picks (BUY)
| Company |
Ticker |
Current Price |
Target Price |
Upside (%) |
| Air China |
753 HK |
5.66 |
9.00 |
59.0 |
| Ping An Insurance |
2318 HK |
40.40 |
47.00 |
16.3 |
| Ciputra Property |
CTRP IJ |
590.00 |
960.00 |
62.7 |
| Indosat |
ISAT IJ |
6,000.00 |
9,500.00 |
58.3 |
| Genting Bhd |
GENT MK |
7.80 |
9.75 |
25.0 |
| Citiv Dev |
CIT SP |
8.58 |
10.36 |
20.7 |
| OCBC |
OCBC SP |
8.57 |
10.30 |
20.2 |
| Bangkok Dusit |
BDMS TB |
23.40 |
30.00 |
28.2 |
| Siam Cement |
SCC TB |
520.00 |
630.00 |
21.2 |
Sell Recommendations
| Company |
Ticker |
Current Price |
Target Price |
Pot. +/- (%) |
| Hartalega |
HART MK |
4.38 |
3.10 |
-29.2 |
Key Assumptions
| Region |
GDP (yoy) |
2016F |
2017F |
| US |
2.4 |
2.5 |
2.7 |
| Euro Zone |
1.6 |
1.5 |
1.6 |
| Japan |
0.5 |
0.6 |
0.8 |
| Singapore |
2.0 |
2.2 |
3.2 |
| Malaysia |
5.0 |
4.2 |
5.0 |
| Thailand |
2.8 |
3.2 |
3.6 |
| Indonesia |
4.8 |
5.0 |
5.5 |
| Hong Kong |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.5 |
6.2 |
Corporate Events (September 2016)
| Event |
Venue |
Start |
End |
| China Titans Luncheon |
Hong Kong |
31 Aug |
31 Aug |
| China TCM Roadshow |
Shanghai |
1 Sep |
1 Sep |
| Dawnrays Pharma Roadshow |
Shanghai |
1 Sep |
1 Sep |
| Kingboard Laminates Luncheon |
Hong Kong |
1 Sep |
1 Sep |
| Q Technology Group Roadshow |
Shanghai |
2 Sep |
2 Sep |
| Inari Amerton Corporate Roadshow |
Taipei |
6 Sep |
6 Sep |
| China Power International Roadshow |
Shanghai |
7 Sep |
7 Sep |
| Frasers Logistics & Ind'l Trust Luncheon |
Singapore |
8 Sep |
8 Sep |
| O-Net Technologies Luncheon |
Hong Kong |
8 Sep |
8 Sep |
| Sihuan Pharmaceutical Holdings Group Corporate Roadshow |
Taipei |
8 Sep |
9 Sep |
| China Resources Gas Roadshow |
Canada |
12 Sep |
13 Sep |
| Skyworth Digital Hldgs Group Meeting |
Hong Kong |
21 Sep |
21 Sep |
| Sembcorp Industries Corp Roadshow |
Canada |
26 Sep |
27 Sep |
| Regional Financial and Telco Sector Analyst Presentation |
UK/Europe |
26 Sep |
30 Sep |
| Xstep International Holdings Roadshow |
Taipei |
7 Oct |
7 Oct |
| Metro Pacific Investments |
Canada |
26 Oct |
28 Oct |
| Corporate Roadshow |
- |
- |
- |
| Xstep Roadshow |
Kuala Lumpur |
15 Nov |
15 Nov |
Summary of Key Financials and Metrics
- Sino Biopharmaceutical is transitioning from hepatitis B to oncology, with oncology showing strong growth and a robust R&D pipeline.
- China Southern Airlines reported strong operating profit growth in 1H16 despite yield declines, and is expected to benefit from reduced USD debt and capacity adjustments.
- The Thailand market's growth is already reflected in the stock price of EGCO.
- Singapore's REITs sector is highlighted for the "tourist wave" effect on hospitality spending.
- The global indices show mixed performance, with China and Singapore leading in growth expectations.
