Regional Morning Notes Summary
Core Content Overview
This document provides a detailed market update for the plantation and automobile sectors across China, Indonesia, Malaysia, and Singapore, with a focus on palm oil, car sales, and market valuations as of Tuesday, 12 May 2015.
Main Points
Plantation Sector
- Palm Oil Inventory Surge: Malaysian palm oil inventory reached a 5-month high at 2.19m tonnes, exceeding market expectations due to strong FFB yield recovery and palm oil imports.
- CPO Production Growth: CPO production rose 13.3% month-on-month and 8.8% year-on-year to 1.69m tonnes, driven by improved weather and yield. However, 4M15 production was 6.3% lower year-on-year, primarily due to the lagged impact of dry weather in 1Q14.
- Export Trends: April 2015 exports remained flat at 1.18m tonnes, but exports to China and EU increased significantly. Exports to India dropped sharply due to shipments being delayed to May.
- Inventory Impact: The increase in inventory is unlikely to cause price weakness, as Indonesia's B15 blending is expected to boost demand. CPO prices are expected to remain range-bound.
- Sector Outlook: The plantation sector is maintained at MARKET WEIGHT, with strong growth in SUV and MPV sales being a key catalyst for the automobile sector in China.
China Automobile Sector
- April Sales: April PV sales grew 6.2% year-on-year, but the disappointment came from sedan sales, which fell 6.6% year-on-year. The growth was driven by SUVs and MPVs, with SUV sales up 56% and MPVs up 20%.
- DFM Downgrade: Dongfeng Motor was downgraded from BUY to HOLD due to unexpected weak sales of old models and margin pressure from price competition. Its target price was cut from HK$15.00 to HK$14.00.
- GWM as Top Pick: Great Wall Motor (GWM) remains the top pick with a BUY rating and a target price of HK$69.00, based on its dominant position in the SUV market and strong product pipelines.
- Geely Upgrade: Geely was upgraded from HOLD to BUY due to its strong product pipelines based on Volvo technology, with a target price increase from HK$4.50 to HK$5.50.
- GAC Maintain HOLD: GAC is maintained at HOLD, with a target price increase from HK$8.50 to HK$9.00, reflecting its fair valuation and projected earnings growth.
- BMW Brilliance Downgrade: BMW Brilliance was downgraded to SELL, as its sales growth slowed and earnings declined due to an outdated product portfolio and intense competition.
Key Information
Market Indices (as of 12 May 2015)
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18105.2 |
(0.5) |
0.2 |
0.3 |
1.6 |
| S&P 500 |
2105.3 |
(0.5) |
(0.4) |
0.2 |
2.3 |
| FTSE 100 |
7029.9 |
(0.2) |
0.6 |
(0.8) |
7.1 |
| AS30 |
5627.6 |
(0.1) |
(3.2) |
(5.2) |
4.4 |
| CSI 300 |
4690.5 |
2.9 |
(2.0) |
8.0 |
32.7 |
| FSSTI |
3470.8 |
0.5 |
(0.3) |
(0.0) |
3.1 |
| HSCEI |
14183.0 |
0.9 |
(1.9) |
1.4 |
18.3 |
| HSI |
27718.2 |
0.5 |
(1.4) |
1.6 |
17.4 |
| JCI |
5172.5 |
(0.2) |
0.6 |
(5.8) |
(1.0) |
| KLCI |
1805.5 |
(0.1) |
(0.7) |
(2.1) |
2.5 |
| KOSPI |
2097.4 |
0.6 |
(1.4) |
0.5 |
9.5 |
| Nikkei 225 |
19620.9 |
1.2 |
(2.2) |
(1.4) |
12.4 |
| SET |
1501.3 |
(0.6) |
(1.4) |
(3.0) |
0.2 |
| TWSE |
9663.7 |
(0.3) |
(1.8) |
0.5 |
3.8 |
| BDI |
578 |
0.7 |
(1.5) |
(0.3) |
(26.1) |
| CPO (RM/mt) |
2146 |
(0.6) |
3.1 |
(1.6) |
(6.6) |
| Nymex Crude (US$/bbl) |
59 |
0.1 |
(1.9) |
14.8 |
11.3 |
Top Picks
| Company |
Ticker |
Current Price |
Target Price |
Potential % Change |
| Great Wall Motor |
2333 HK |
HK$54.30 |
HK$69.00 |
22.5% |
| Wilmar International |
WIL SP |
S$3.21 |
S$3.65 |
13.7% |
| Golden Agri-Resources |
GGR SP |
S$0.425 |
S$0.480 |
13.0% |
| First Resources |
FR SP |
S$1.81 |
S$2.40 |
32.7% |
| Bumitama Agri Ltd |
BAL SP |
RM0.965 |
RM1.45 |
50.9% |
| Sampoerna Agro |
SGRO IJ |
Rp1,845 |
Rp2,540 |
37.5% |
Key Assumptions
| Country/Region |
2015F GDP (%) |
2016F GDP (%) |
| US |
3.2 |
3.2 |
| Euro Zone |
1.4 |
1.4 |
| Japan |
2.0 |
2.0 |
| Singapore |
3.3 |
3.3 |
| Malaysia |
5.2 |
5.2 |
| Thailand |
3.9 |
3.9 |
| Indonesia |
5.8 |
5.8 |
| Hong Kong |
3.7 |
3.7 |
| China |
7.0 |
7.0 |
| Commodity |
2014 Price |
2015F Price |
2016F Price |
| Brent (US$/bbl) |
99.45 |
65 |
70 |
| CPO (US$/mt) |
722 |
765 |
788 |
| BDI |
1,101 |
1,300 |
1,400 |
Sector Catalysts
- CPO Price Recovery: If crude oil prices recover above US$80/bbl, non-mandated biodiesel demand could increase, boosting the plantation sector.
- SUV and MPV Sales: SUV and MPV segments are the main growth drivers in the automobile sector, with GWM and Geely showing strong sales momentum.
- El Nino Impact: If El Nino conditions occur, it could lead to drought in Southeast Asia, negatively impacting CPO production for 2016.
Risks
- Macro Risk: Credit tightening could hurt auto sales, especially for GWM and Geely, which have long bill receivable days.
- Geopolitical Risk: Deterioration in Sino-Japan relations could trigger anti-Japanese riots, negatively impacting Japanese car sales in China, especially for DFM and GAC.
Summary
- Palm oil inventory surged to a 5-month high, driven by strong imports and FFB yield recovery, but CPO prices are expected to remain range-bound.
- April PV sales in China were 6.2% year-on-year, but sedan sales were weak, while SUVs and MPVs led the growth.
- GWM is the top pick in the automobile sector, with strong SUV product pipelines and a target price of HK$69.00.
- Geely was upgraded to BUY due to Volvo technology integration and projected growth.
- DFM was downgraded to HOLD due to weak sales of old models and margin pressure.
- Market weights for plantation and automobile sectors are maintained.
- CPO production is expected to recover in the coming months, but 4M15 results were weak due to seasonal factors and lower yields.
Additional Notes
- Corporate Events: Various roadshows and luncheons are scheduled in Kuala Lumpur, Singapore, and Taipei.
- Market Valuation: The plantation sector is under review for CPO price assumptions, with potential earnings declines if prices drop by 10%.
- Export Trends: Exports to China and EU improved, but exports to India fell sharply due to delayed shipments.
