Regional Morning Notes Summary
Core Content
This document is a market update from UOB Kay Hian dated Thursday, 17 September 2015, covering key developments in various sectors across China, Indonesia, Malaysia, and Singapore, with a focus on the automobile sector in China, Phoenix Healthcare Group, and ZTE Corp. It also includes key indices, top picks, peer comparisons, earnings revisions, and risk factors for investors.
Main Points
China - Automobile Sector
- CGA's potential takeover of Baoxin has triggered a significant share price rally for Baoxin and other Hong Kong-listed Chinese auto dealers.
- Baoxin is downgraded from BUY to HOLD due to fair valuation after the price surge. Its current 2015F PE is 9.4x, matching the two-year historical average.
- Zhengtong is the top pick with a BUY rating, and its target price is HK$4.50 based on 9x 2016F PE.
- Zongsheng is downgraded to SELL due to high exposure to mid-range brands and high net gearing.
- The Hong Kong-listed Chinese auto dealers trade at a 75% discount to A-share listed peers, implying a good bargain.
- Industry catalysts include M&A activity, which can boost share prices.
- Risks include macroeconomic conditions, geopolitical tensions, and RMB depreciation affecting earnings.
Phoenix Healthcare Group (1515 HK)
- Phoenix Healthcare Group signed IOT agreements with Baoding No. 1 Central Hospital and Third Center Hospital, adding 2,100 beds to operations.
- The projects are expected to start generating revenue from 2016, with management fee income anticipated to be Rmb78.9m in 2016 and Rmb109.7m in 2017.
- Phoenix is the largest private hospital group in China, and the Baoding projects are expected to bring strategic value to its business expansion.
- The company has sufficient cash (Rmb1.0b) and a US$150m loan facility to fund the projects.
- Earnings revisions have been made to reflect the early completion of the Baoding projects and improved revenue projections.
Key Information
Top Picks
| Company |
Ticker |
Rating |
Share Price (HK$) |
Target Price (HK$) |
Upside (%) |
| Beijing Capital |
694 HK |
BUY |
7.48 |
11.40 |
52.4 |
| ICBC |
1398 HK |
BUY |
4.84 |
7.60 |
57.0 |
| Bank BJB |
BJBR IJ |
BUY |
685.00 |
980.00 |
43.1 |
| DiGi.Com |
DIGI MK |
BUY |
5.50 |
6.30 |
14.5 |
| Maybank |
MAY MK |
BUY |
8.57 |
10.00 |
16.7 |
| CapitaLand |
CAPL SP |
BUY |
2.77 |
4.08 |
47.3 |
| DBS |
DBS SP |
BUY |
17.43 |
23.75 |
36.3 |
| Kasikornbank |
KBANK TB |
BUY |
179.00 |
232.00 |
29.6 |
| PTT |
PTT TB |
BUY |
250.00 |
410.00 |
64.0 |
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
16740.0 |
0.8 |
3.0 |
-4.2 |
-6.1 |
| S&P 500 |
1995.3 |
0.9 |
2.7 |
-4.6 |
-3.1 |
| FTSE 100 |
6229.2 |
1.5 |
0.0 |
-4.9 |
-5.1 |
| AS30 |
5123.6 |
1.5 |
-2.2 |
-4.6 |
-4.9 |
| CSI 300 |
3309.2 |
5.0 |
-2.6 |
-18.8 |
-6.4 |
| FSSTI |
2868.7 |
0.9 |
-0.6 |
-6.5 |
-14.8 |
| HSI |
21966.7 |
2.4 |
-0.7 |
-7.8 |
-6.9 |
| KLCI |
1647.2 |
0.5 |
3.8 |
3.2 |
-6.5 |
| Nikkei 225 |
18171.6 |
0.8 |
-3.2 |
-11.9 |
4.1 |
| SET |
1381.8 |
0.8 |
-1.0 |
-1.9 |
-7.7 |
| TWSE |
8333.3 |
0.9 |
0.6 |
1.5 |
-10.5 |
| BDI |
814 |
1.5 |
-4.8 |
-22.8 |
-4.1 |
| CPO (RM/mt) |
2054 |
1.6 |
6.8 |
3.9 |
-10.6 |
| Brent Crude (US$/bbl) |
50 |
4.2 |
4.6 |
1.5 |
-13.2 |
Peer Comparison
| Company |
Market Cap (US$m) |
Rating |
Price (HK$) |
Target Price (HK$) |
2015F PE |
2016F PE |
2017F PE |
EPS CAGR 2015F |
PEG 2015F |
PB 2015F |
ROE 2015F (%) |
Net Gearing 2014 (%) |
| Baoxin Auto |
1,158 |
HOLD |
3.51 |
3.80 |
10.4 |
9.4 |
8.5 |
11.0 |
0.9 |
1.3 |
14.2 |
41.8 |
| China Zhengtong |
918 |
BUY |
3.22 |
4.50 |
7.1 |
8.1 |
6.8 |
17.8 |
0.5 |
0.7 |
35.7 |
19.8 |
| Zhongsheng Group |
911 |
SELL |
3.29 |
2.80 |
7.4 |
8.4 |
8.0 |
5.3 |
1.6 |
6.7 |
123.7 |
0.5 |
| China Yongda Auto |
739 |
N.R. |
3.87 |
n.a. |
9.4 |
7.1 |
5.6 |
25.7 |
0.3 |
14.8 |
29.4 |
1.0 |
| China Harmony Auto |
522 |
N.R. |
3.70 |
n.a. |
6.0 |
7.5 |
5.9 |
26.5 |
0.3 |
20.0 |
71.7 |
1.1 |
| Rundong Auto |
466 |
N.R. |
3.36 |
n.a. |
8.1 |
5.9 |
5.2 |
12.8 |
1.3 |
24.5 |
366.8 |
1.3 |
| China Grand Auto |
10,050 |
N.R. |
17.46 |
n.a. |
180.6 |
33.6 |
27.7 |
21.2 |
1.6 |
17.1 |
3.0 |
2.4 |
Earnings Revisions
| Year |
Net Profit (Rmbm) |
Net Profit (Adj.) (Rmbm) |
| 2015F |
230.1 |
230.1 |
| 2016F |
268.5 |
268.5 |
| 2017F |
396.1 |
396.1 |
| 2018F |
498.3 |
498.3 |
Key Financials
| Metric |
2014 (Rmbm) |
2015F (Rmbm) |
2016F (Rmbm) |
2017F (Rmbm) |
| Net turnover |
1,206.3 |
1,405.2 |
1,788.3 |
2,143.3 |
| EBITDA |
268.3 |
321.9 |
510.1 |
652.1 |
| Pre-tax profit |
316.8 |
369.7 |
549.9 |
691.8 |
| Net profit |
230.1 |
268.5 |
396.1 |
498.3 |
| Net profit (adj.) |
230.1 |
268.5 |
396.1 |
498.3 |
Valuation & Recommendation
- Re-iterate BUY with a target price of HK$21.80.
- Valuation based on an industry PEG of 1.3x and 26% EPS growth for 2017.
- Expected 47.5% earnings growth in 2016 and 26% in 2017 due to the expansion and management efficiency improvements.
Risk Factors
- Macro risk: Credit tightening and economic challenges may impact auto sales.
- Geopolitical risk: Sino-Japan tensions could lead to anti-Japanese riots, affecting Japanese car sales in China.
- Currency risk: RMB depreciation may result in translation losses and higher interest payments for companies with US dollar loans.
- Policy uncertainties: Delays in pipeline projects and increasing competition in the healthcare sector.
Company Description
- Phoenix Healthcare Group is the largest private hospital group in China, with a market cap of HK$10,171.9m.
- The company has a strong hospital management capability, which is expected to drive network expansion and earnings growth.
- It has signed IOT agreements with Baoding hospitals, adding 2,100 beds to operations and expanding its business footprint.
Corporate Events
- Deleum Bhd Luncheon – Kuala Lumpur, 17 Sep
- Genting Singapore Luncheon – Singapore, 18 Sep
- China Traditional Chinese Medicine Roadshow – Hong Kong, 24 Sep
- Far East Consortium Roadshow – Toronto, 8 Oct; Montreal, 9 Oct
- Asian Gems Conference – Singapore, 12-13 Oct
Analysts
Conclusion
The report highlights the positive developments in the Chinese auto dealer sector, particularly CGA's potential takeover of Baoxin, and the expansion of Phoenix Healthcare Group in the healthcare sector. While Baoxin is downgraded due to fair valuation, Zhengtong is maintained as a BUY. Phoenix Healthcare Group is highlighted as a top pick with a target price of HK$21.80, driven by its IOT hospital projects and strategic growth. The report also emphasizes the risks associated with macroeconomic, geopolitical, and currency factors.
