Regional Morning Notes Summary - 22 July 2016
Core Content Overview
This document provides a comprehensive summary of regional market updates, focusing on China, Malaysia, Singapore, and Thailand. It includes insights on sector performance, company-specific results, key indices, investment recommendations, and corporate events.
Key Sectors and Updates
China
- Infrastructure: Infrastructure construction contractors are expected to report solid earnings growth in 1H16, with margin expansion. CRRC (China Railway Rolling Stock Corporation) is highlighted for decent new order growth, driven by urban rail transit (URT) projects.
- Railway Investment Plan: The mid- to long-term railway network plan outlines targets for railway and high-speed rail (HSR) expansion, aiming for 150,000 km railway mileage and 30,000 km HSR by 2020, and 200,000 km railway mileage and 45,000 km HSR by 2030.
- Company Highlights:
- CRCC (1186 HK): Expected to achieve strong new order growth and double-digit earnings growth in 1H16. It has a significant presence in municipal projects and PPPs. Its PE is undemanding at 8x 2016F, with a target price of HK$12.50.
- Zhuzhou CRRC (3898 HK): Expected to report over 20% earnings growth in 1H16 due to strong EMU and URT sales. It is a top pick with a target price of HK$5.60.
- Air China (753 HK): Received A-share placement approval, which is a positive catalyst. The airline is de-gearing its USD debt and is trading at a low 6x 2016F PE. It is recommended to BUY with a target price of HK$9.00.
Malaysia
- Construction Sector: Smaller contractors are likely to benefit more than larger ones from the potential high-speed rail (HSR) roll-out. This suggests a shift in market dynamics favoring smaller players.
Singapore
- REITs: CCT and Cache reported results in line with expectations, while ART underperformed.
- Company Updates:
- Keppel Corp (KEP SP): Facing cash strains due to a harsh winter, but with a target price of S$5.70.
- SATS (SATS SP): Expected to have a good start to FY17 with TFK turning profitable.
Thailand
- Banking Sector:
- Bank of Ayudhya (BAY TB): Net profit surged 21% yoy, driven by healthy top-line growth and stable asset quality.
- Bangkok Bank (BBL TB): Weak net profit of Bt7.1b, down 14% yoy and 17% below expectations.
- Kasikorn Bank (KBANK TB): Earnings down 18% yoy due to weaker non-II and surging provisions, leading to a downgrade to HOLD.
- Krung Thai Bank (KTB TB): Earnings up 3% yoy due to moderate revenue growth and tight cost control.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18517.2 |
(0.4) |
0.1 |
3.9 |
6.3 |
| S&P 500 |
2165.2 |
(0.4) |
0.1 |
3.7 |
5.9 |
| FTSE 100 |
6699.9 |
(0.4) |
0.7 |
7.6 |
7.3 |
| AS30 |
5588.7 |
0.4 |
1.8 |
4.5 |
4.6 |
| CSI 300 |
3252.5 |
0.5 |
(0.7) |
3.8 |
(12.8) |
| FSSTI |
2940.5 |
(0.2) |
1.2 |
5.5 |
2.0 |
| HSCEI |
9057.1 |
0.4 |
0.5 |
3.4 |
(6.3) |
| HSI |
22000.5 |
0.5 |
2.0 |
5.8 |
0.4 |
| JCI |
5217.0 |
(0.5) |
2.6 |
6.5 |
13.6 |
| KLCI |
1657.5 |
(0.7) |
0.2 |
1.2 |
(2.1) |
| KOSPI |
2012.2 |
(0.2) |
0.2 |
1.0 |
2.6 |
| Nikkei 225 |
16810.2 |
0.8 |
3.6 |
4.6 |
(11.7) |
| SET |
1502.7 |
(0.5) |
1.9 |
5.5 |
16.7 |
| TWSE |
9056.6 |
0.5 |
2.1 |
3.9 |
8.6 |
| BDI |
726 |
(1.4) |
(1.6) |
25.2 |
51.9 |
| CPO (RM/ml) |
2369 |
2.1 |
2.7 |
(4.8) |
7.7 |
| Brent Crude |
46 |
(2.1) |
(2.5) |
(8.7) |
23.9 |
Top Picks
| Company |
Ticker |
Recommendation |
Price (HK$) |
Target Price (HK$) |
Upside (%) |
| Air China |
753 HK |
BUY |
5.87 |
9.00 |
+53.3 |
| CRCC |
1186 HK |
BUY |
9.54 |
12.50 |
+17.2 |
| Ping An Insurance |
2318 HK |
BUY |
36.50 |
45.00 |
+23.3 |
| Bumi Serpong Damai |
BSDE IJ |
BUY |
2,040.00 |
2,390.00 |
+17.2 |
| Miltra Adiperkasa |
MAPI IJ |
BUY |
4,300.00 |
5,000.00 |
+16.3 |
| Genting Bhd |
GENT MK |
BUY |
8.68 |
10.40 |
+19.8 |
| City Developments |
CIT SP |
BUY |
8.77 |
10.36 |
+18.1 |
| DBS |
DBS SP |
BUY |
16.30 |
19.30 |
+18.4 |
| Bangkok Dusit |
BDMS TB |
BUY |
23.00 |
27.70 |
+20.4 |
| Siam Cement |
SCC TB |
BUY |
500.00 |
630.00 |
+26.0 |
Key Assumptions
| Country |
GDP % yoy (2015) |
GDP % yoy (2016F) |
GDP % yoy (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 |
2.7 |
3.0 |
| 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 |
| Commodity |
2015 (Rmb/mt) |
2016F (Rmb/mt) |
2017F (Rmb/mt) |
| CPO |
2,168 |
2,500 |
2,600 |
| Brent Crude |
53.60 |
42 |
54 |
Corporate Events
| Event |
Venue |
Dates |
| Malaysia 2016 Outlook Strategy Analyst Presentation |
Taipei |
2 Aug - 3 Aug |
| China Strategy & Coal & Wind Supply Analyst presentation |
Hong Kong |
25 Jul - 26 Jul |
| China Strategy & Coal & Wind Supply Analyst presentation |
Singapore |
27 Jul |
| China Strategy & Coal & Wind Supply Analyst presentation |
Kuala Lumpur |
28 Jul - 29 Jul |
| Uzma Bhd Luncheon |
Kuala Lumpur |
26 Jul |
| Kerjaya Prospek Corp Roadshow |
Taipei |
4 Aug - 5 Aug |
| China Aviation Oil Corp Roadshow |
Malaysia |
4 Aug - 5 Aug |
| Venture Corporation Luncheon |
Singapore |
10 Aug |
| Sembcorp Industries Corp Roadshow |
Canada |
26 Sep - 27 Sep |
| Regional Financial and Telco Sector Analyst Presentation |
UK/Europe |
26 Sep - 30 Sep |
| Metro Pacific Investments Corporate Roadshow |
Canada |
10 Nov - 11 Nov |
Stock Impact
- CRCC (1186 HK): Strong new order growth and lower interest cost. It has a low net gearing of 49% in 1Q16. Earnings estimates have been raised by 5-8% for 2016-2018.
- Air China (753 HK): A-share placement is a key catalyst. The airline is de-gearing USD debt and is trading at a low 6x 2016F PE. It offers a decent dividend yield of 2.9%.
Valuation & Recommendation
- Air China: Maintained BUY with a target price of HK$9.00, based on 1.4x 2016F book value.
- CRCC: Top pick with a target price of HK$12.50, based on its strong performance and undemanding valuation.
Analysts
Summary of Key Insights
- Infrastructure in China: Strong earnings growth and new order growth are expected for major contractors and CRRC. The long-term railway expansion plan supports continued investment.
- Air China: A-share placement and de-gearing USD debt are positive factors. Despite international yield pressure, domestic yields have stabilised.
- Malaysia: Smaller construction contractors are likely to benefit more from the HSR roll-out.
- Singapore REITs: CCT and Cache results were in line with expectations, while ART underperformed.
- Thailand: Bank of Ayudhya outperformed, while others faced earnings declines due to various factors. The banking sector is showing mixed performance.
Risk and Earnings
- CRCC: Earnings growth expected to be 10.4 fen for 2016F, with 5% growth compared to previous estimates.
- Air China: No significant earnings revisions or risks noted. Maintained BUY recommendation.
