Regional Morning Notes Summary - 03 July 2017
Core Content Overview
This document provides a detailed analysis of economic and sector updates across China, Indonesia, Malaysia, Singapore, and Thailand, focusing on key indicators, investment recommendations, and market trends.
China
Economic Highlights
- PMI: China's June official manufacturing and non-manufacturing PMI both rebounded and exceeded market expectations. The increase was attributed to recovery in manufacturing activities and demand, with infrastructure investment being a key driver.
- PMI Sub-Indices:
- Manufacturing output rose to 54.4% in June.
- New orders increased by 0.8ppt to 53.1%.
- Purchase prices rebounded to 50.4%, indicating a slight PPI recovery.
- Construction PMI reached 61.4%, showing strong activity in the sector.
- Non-Manufacturing PMI: Rose to 54.9%, supported by improved demand and service sector expansion.
- Key Concerns: Tight financing conditions and continued deleveraging efforts may slow economic recovery.
Sector Update - Banking
- Deleveraging Through DES: The Debt-to-Equity Swap (DES) market reached Rmb871b since October 2016. CCB and Huarong are leading in DES transactions.
- Market Dynamics: DES is market-oriented, with the government not bearing losses. It targets viable companies with liquidity issues.
- Top Buys: CCB, ICBC, and CMB are highlighted as top buys due to strong CASA ratios and CET-1 CARs.
- Key Catalysts: Stabilisation in asset quality and NIM, as well as regulatory focus on financial risk prevention.
- Risks: Earnings growth may moderate due to continued credit controls and interbank liquidity constraints.
Sector Update - Battery
- Lead Price Correction: The drop in lead prices has eased margin pressure for LAB makers Chaowei and Tianneng.
- Upgrade: Chaowei is upgraded from SELL to BUY, and Tianneng from SELL to HOLD. The sector is upgraded from UNDERWEIGHT to OVERWEIGHT.
- Market Share and Pricing Power: Chaowei and Tianneng together account for over 80% of the motive LAB market, but they lack pricing power due to excess capacity and competition.
- LIB Business: The lithium-ion battery segment is constrained by tightened EV subsidy policies, with expected low contribution to revenue (around 3%).
Indonesia
- XL Axiata: Data growth is expected to drive performance in 2Q-3Q17. Target price is raised to Rp3,900, with a BUY recommendation.
Malaysia
- Banking Sector: Gross impaired loan balance continues to rise in May 2017. The sector is rated MARKET WEIGHT due to mixed operating dynamics.
Singapore
- Alpha Picks: ISDN is added as a new conviction pick. FSSTI is considered fairly valued, and the strategy involves cherry-picking stocks with catalysts.
Thailand
- IRPC: 2Q17 results are expected to show sharp improvement. Target price is set at Bt6.70 with a BUY recommendation.
Key Indices
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
21349.6 |
0.3 |
-0.2 |
0.7 |
8.0 |
| S&P 500 |
2423.4 |
0.2 |
-0.6 |
-0.6 |
8.2 |
| FTSE 100 |
7312.7 |
-0.5 |
-1.5 |
-3.1 |
2.4 |
| AS30 |
5764.0 |
-1.6 |
0.2 |
-1.0 |
0.8 |
| CSI 300 |
3666.8 |
-0.1 |
1.2 |
5.2 |
10.8 |
| FSSTI |
3226.5 |
-1.0 |
0.3 |
-0.4 |
12.0 |
| HSI |
25764.6 |
-0.8 |
0.4 |
-0.6 |
17.1 |
| JCI |
5829.7 |
0.2 |
0.9 |
1.7 |
10.1 |
| KLCI |
1763.7 |
-0.4 |
-0.7 |
-0.7 |
7.4 |
| KOSPI |
2391.8 |
-0.2 |
0.6 |
0.8 |
18.0 |
| Nikkei 225 |
20033.4 |
-0.9 |
-0.5 |
-0.7 |
4.8 |
| SET |
1574.7 |
-0.2 |
-0.5 |
0.5 |
2.1 |
| TWSE |
10395.1 |
-0.3 |
0.2 |
2.3 |
12.3 |
| BDI |
901 |
-2.1 |
1.9 |
8.6 |
-6.2 |
| CPO (RM/ml) |
2590 |
-1.3 |
0.1 |
-7.9 |
-19.0 |
| Brent Crude |
49 |
0.2 |
6.7 |
-2.1 |
-14.0 |
Top Picks
BUY
| Company |
Ticker |
Current Price (Icy) |
Target Price (Icy) |
Pot. +/- (%) |
| Alibaba |
BABA US |
140.90 |
173.00 |
22.8 |
| Beijing Ent. Water |
371 HK |
6.06 |
7.60 |
25.4 |
| Telekomunikasi Indo |
TLKM IJ |
4,520.00 |
5,000.00 |
10.6 |
| V.S. Industry |
VSI MK |
2.07 |
2.40 |
15.9 |
| OCBC |
OCBC SP |
10.79 |
11.70 |
8.4 |
| Siam Cement |
SCC TB |
504.00 |
600.00 |
19.0 |
SELL
| Company |
Ticker |
Current Price (Icy) |
Target Price (Icy) |
Pot. +/- (%) |
| Great Wall Motor |
2333 HK |
9.64 |
6.00 |
-37.8 |
| MGM China |
2282 HK |
17.36 |
15.00 |
-13.6 |
| Hartalega |
HART MK |
7.38 |
4.07 |
-44.9 |
Key Assumptions
| Region |
GDP (% yoy) |
2016 |
2017F |
2018F |
| US |
1.6 |
1.6 |
2.5 |
2.5 |
| Euro Zone |
1.7 |
1.7 |
1.8 |
1.6 |
| Japan |
1.0 |
1.0 |
0.9 |
1.2 |
| Singapore |
2.0 |
2.0 |
2.4 |
2.5 |
| Malaysia |
4.2 |
4.2 |
5.0 |
4.9 |
| Thailand |
3.2 |
3.2 |
3.3 |
3.3 |
| Indonesia |
5.0 |
5.0 |
5.2 |
5.5 |
| Hong Kong |
1.9 |
1.9 |
2.0 |
2.0 |
| China |
6.7 |
6.7 |
6.3 |
6.3 |
| Brent (Average) |
(US$/bbl) |
45 |
55 |
58 |
| CPO |
(RM/mt) |
2,653 |
2,600 |
2,500 |
Corporate Events
| Event |
Venue |
Begin |
Close |
| Luncheon with United Overseas Bank |
Singapore |
3 Jul |
3 Jul |
| Roadshow with Hopefluent Group Holdings |
Singapore, Kuala Lumpur |
4 Jul, 6 Jul |
5 Jul, 6 Jul |
| Analyst Marketing on Thai Strategy & Thai Telco |
Hong Kong, Singapore, Malaysia |
3 Jul, 5 Jul, 6 Jul |
4 Jul, 5 Jul, 7 Jul |
| Luncheon with Wisdom Education International Holdings |
Hong Kong |
7 Jul |
7 Jul |
| Roadshow with Jacobson Pharma |
Shanghai |
7 Jul |
7 Jul |
| New Economy Conference 2017 |
Kuala Lumpur |
11 Jul |
11 Jul |
| Roadshow with Citic Envirotech Ltd |
Taipei |
18 Jul |
19 Jul |
| Analyst Marketing on Singapore Strategy & Small & Mid Caps |
Taipei |
20 Jul |
21 Jul |
| Visit to Sarawak Corridor of Renewable Energy |
Sarawak, US/Canada |
1 Aug |
3 Aug, 12 Sep |
Sector Catalysts and Risks
- Catalysts: Stabilisation in asset quality and NIM, increased data growth in Indonesia, and potential improvement in IRPC's 2Q17 results.
- Risks: Tight financing conditions in China, potential margin pressure for LAB makers due to lead price fluctuations, and slower growth for smaller banks due to interbank liquidity constraints.
Analysts
