Regional Morning Notes Summary - 09 January 2017
Core Content Overview
This document provides a summary of market insights and investment recommendations for the paper, property, and renewable energy sectors in China, Indonesia, Malaysia, Singapore, and Thailand. It includes updates on market trends, corporate events, key assumptions, and sector performance. The focus is on re-rating opportunities, earnings expectations, and the impact of regulatory changes on industry dynamics.
Main Points
China Paper Sector
- Earnings Upgrade: Nine Dragons Paper (NDP) and Lee & Man Paper (LMP) are benefiting from structurally higher containerboard prices due to the closure of small plants.
- Capacity Reduction: Over 100 containerboard plants were closed in Dec 2016, leading to a net reduction of 1m tonnes in annual capacity.
- Price Trends:
- Containerboard prices surged over 40% in Dec 2016.
- OCC prices rose only 8% in the same period, due to increased domestic supply and stronger bargaining power of containerboard manufacturers.
- Target Price Increase: Target prices for NDP and LMP are raised from HK$8.00 and HK$7.20 to HK$11.00 and HK$8.00 respectively.
- Profit Forecasts:
- NDP's FY17-19 net profit forecasts are raised by 9-19%.
- LMP's 2016-18 net profit forecasts are raised by 5-10%.
- Sector Upgrade: The paper sector is upgraded from MARKET WEIGHT to OVERWEIGHT due to strong earnings potential.
China Property Sector
- Market Concentration: Large developers dominated the market in 2016, with the top 100 developers capturing 44% of the market share.
- Sales Growth: The top 15 developers saw a 60.1% YoY sales growth in 11M16, compared to the industry's 37.5%.
- Lending Conditions: Tightening regulations on domestic bond issuance favor large developers, while small developers face higher financial risks.
- Investment Picks:
- Maintain MARKET WEIGHT for the sector.
- SELL for Sunac and Poly Property due to high gearing and weak earnings growth.
- BUY for Longfor, China Resources Land (CRL), and others with quality growth and strong margins.
Renewable Energy Sector
- Favorable Environment: The operating environment is more favorable in 2017.
- Sector Status: Maintain OVERWEIGHT for the sector.
Indonesia
- Market Outlook: The rising market is expected to boost alpha returns in the next 1-3 months.
- Key Picks: MAPI, GGRM, BBNI, PTPP, and AALI are highlighted as potential investment opportunities.
Malaysia
- Scientex: Earnings uplift is expected from the new BOPP plant in 2HFY18, with expansion plans anticipated.
Singapore
- Triyards Holdings: Expected to see performance beyond margins in an order-challenged market.
Thailand
- Total Access Communication (DTAC): Upgraded to BUY due to new spectrums resolving spectrum shortage concerns.
Key Indices
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
19963.8 |
0.3 |
0.7 |
1.0 |
1.0 |
| S&P 500 |
2277.0 |
0.4 |
1.2 |
0.8 |
1.7 |
| FTSE 100 |
7210.1 |
0.2 |
1.3 |
3.7 |
0.9 |
| AS30 |
5809.0 |
0.1 |
1.1 |
3.4 |
1.6 |
| CSI 300 |
3347.7 |
(0.6) |
1.5 |
(4.2) |
1.1 |
| FSSTI |
2962.6 |
0.3 |
2.5 |
0.2 |
2.8 |
| HSCEI |
9611.1 |
0.1 |
3.2 |
(2.6) |
2.3 |
| HSI |
22503.0 |
0.2 |
3.3 |
(1.1) |
2.3 |
| JCI |
5347.0 |
0.4 |
0.8 |
0.7 |
0.9 |
| KLCI |
1675.5 |
0.9 |
2.3 |
2.1 |
2.1 |
| KOSPI |
2049.1 |
0.4 |
1.1 |
1.2 |
1.1 |
| Nikkei 225 |
19454.3 |
(0.3) |
0.3 |
2.4 |
1.8 |
| SET |
1571.5 |
0.0 |
3.1 |
3.0 |
1.8 |
| TWSE |
9372.2 |
0.2 |
2.4 |
(0.2) |
1.3 |
| BDI |
963 |
(2.0) |
3.8 |
(11.7) |
0.2 |
| CPO (RM/ml) |
3256 |
0.1 |
1.6 |
1.8 |
1.8 |
| Brent Crude |
57 |
0.4 |
1.7 |
5.9 |
0.5 |
Top Picks
| Company |
Ticker |
Rating |
Share Price (HK$) |
Target Price (HK$) |
Pot. +/- (%) |
| Nine Dragons |
2689 HK |
BUY |
7.50 |
11.00 |
27.2 |
| Lee & Man |
2314 HK |
BUY |
6.30 |
8.00 |
27.2 |
| Ciputra Property |
CTRP IJ |
BUY |
690.00 |
960.00 |
39.1 |
| Indosat |
ISAT IJ |
BUY |
6,025.00 |
8,015.00 |
33.0 |
| Genting Bhd |
GENT MK |
BUY |
8.15 |
10.15 |
24.5 |
| City Dev |
CIT SP |
BUY |
8.47 |
10.36 |
22.3 |
| OCBC |
OCBC SP |
BUY |
9.18 |
10.65 |
16.0 |
| Bangkok Dusit |
BDMS TB |
BUY |
22.70 |
31.20 |
37.4 |
| Siam Cement |
SCC TB |
BUY |
498.00 |
645.00 |
29.5 |
Key Assumptions
GDP Growth (yoy)
| Country |
2015 |
2016F |
2017F |
| US |
2.6 |
1.7 |
2.7 |
| Euro Zone |
2.0 |
1.6 |
1.1 |
| Japan |
1.2 |
0.8 |
0.9 |
| Singapore |
2.0 |
1.4 |
1.8 |
| Malaysia |
5.0 |
4.2 |
4.5 |
| Thailand |
2.8 |
3.2 |
3.3 |
| Indonesia |
4.8 |
5.0 |
5.2 |
| Hong Kong |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.5 |
6.2 |
Brent (Average) & CPO
| Indicator |
2015 |
2016F |
2017F |
| Brent (US$/bbl) |
53,60 |
42 |
56 |
| CPO (RM/mt) |
2,168 |
2,500 |
2,600 |
Corporate Events
| Event |
Venue |
Begin |
Close |
| Luncheon with UOB Bank |
Singapore |
9 Jan |
9 Jan |
| Luncheon with UOB Bank Senior Economist Thailand |
Thailand |
12 Jan |
12 Jan |
| China Healthcare Sector Analyst Marketing |
Singapore |
16 Jan |
16 Jan |
| Malaysia China Healthcare Sector Analyst Marketing |
Malaysia |
17 Jan |
18 Jan |
| Annual Heineken-UOB Kay Hian Corporate Networking |
Malaysia |
19 Jan |
19 Jan |
| S'pore REITS Sector Analyst Marketing |
Malaysia |
19 Jan |
20 Jan |
| PTT Exploration and Production Roadshow |
Singapore |
6 Feb |
7 Feb |
| Luncheon with Kim Loong Resources |
Malaysia |
13 Feb |
13 Feb |
| SGX-UOB Kay Hian Corporate Day |
Taipei |
21 Feb |
21 Feb |
| UOB Kay Hian ASEAN Conference |
Taipei |
22 Feb |
22 Feb |
Risk Factors
- RMB Depreciation: A 5% depreciation could lower earnings forecasts.
- High Gearing: Developers with high gearing face greater financial risk during market downturns.
- Regulatory Impact: Tightening domestic bond issuance regulations may limit access for smaller developers.
Analysts
Peer Comparison (China Property)
| Company | Ticker | Rec | Price 6 Jan 17 (HK$) | Target Price (HK$) | Upside/ (Downside) (%) | Market Cap (US$m) | PE 2016F (x) | PE 2017F (x) | Yield 2016F (%) | Yield 2017F (%) | P/B 2017F | RNAV/ Share (HK$) | Current Disc. to RNAV (%) | Net Gearing 1H16 (%) |
|---------------|------------|--------|----------------------|--------------------|------------------------|------------------|-------------|-------------|----------------|----------------|-------------|-----------|------------------|------------------------|----------------------|
| Agile | 3383 HK | SELL | 4.07 | 3.49 | (14.3) | 2,056 | 5.5 | 4.8 | 4.7 | 5.4 | 0.3 | 13.95 | (70.8) | 63.1 |
| China Ovs Grand Oceans | 81 HK | HOLD | 2.64 | 2.39 | (9.5) | 777 | 5.3 | 3.9 | 0.9 | 1.3 | 0.4 | 9.56 | (72.4) | 24.5 |
| China Resources Land | 1109 HK | BUY | 18.12 | 29.03 | 60.2 | 16,195 | 7.3 | 6.1 | 3.8 | 4.6 | 0.9 | 38.71 | (53.2) | 32.3 |
| CIFI | 884 HK | BUY | 2.12 | 2.76 | 30.2 | 1,844 | 4.6 | 4.0 | 8.0 | 9.2 | 0.8 | 6.89 | (69.2) | 69.0 |
| China Vanke | 2202 HK | HOLD | 17.94 | 18.68 | 4.1 | 32,041 | 8.4 | 7.1 | 5.4 | 6.4 | 1.4 | 28.74 | (37.6) | 20.1 |
| Evergrande | 3333 HK | HOLD | 5.04 | 5.28 | 4.8 | 8,897 | 16.4 | 13.3 | 9.1 | 10.1 | 0.3 | 10.55 | (52.2) | 359.0 |
| Poly Real Estate | 600048 CH | BUY | 9.16 | 11.80 | 28.8 | 15,691.9 | 8.2 | 7.2 | 4.1 | 4.9 | 1.0 | 13.11 | (30.1) | 60.9 |
| Sector Weighted Avg | - | - | - | - | 24.5 | - | 8.2 | 6.9 | 4.8 | 5.5 | 0.8 | - | (47.2) | 89.4 |
Summary
The document outlines a positive outlook for the paper and property sectors in China, highlighting the structural benefits of higher product prices and market concentration. It also provides investment recommendations for other Asian markets, including Indonesia, Malaysia, Singapore, and Thailand. Key risks include currency depreciation and increased financial leverage for developers, which could impact profitability during market downturns.
