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Regional Morning Notes Summary

Core Content Overview

This document provides a comprehensive update on financial markets and corporate developments across China, Malaysia, Singapore, and Thailand, with a focus on economic policy, market performance, and specific company updates. It also includes analyst recommendations and key financial metrics for major financial institutions and companies in the region.

Main Points by Region

China

• Economic Policy: The Chinese government introduced reform measures, including SOE (State-Owned Enterprise) reform guidelines and the "new 50 guidelines" to liberalize the economy. However, these measures were not seen as sufficiently detailed to boost market confidence.
• Monetary Policy: The PBOC (People's Bank of China) has more room for monetary easing due to the US Fed's decision to keep interest rates unchanged. This may lead to a sideways movement in the stock market.
• Liquidity Conditions: The PBOC extracted Rmb140b from the market through reverse repos. The overnight interbank lending rate stabilized, while the 7-day repo rate decreased. The yield curve flattened slightly due to lower long-term yields.
• Exchange Rate: The renminbi appreciated slightly against the US dollar following the Fed's decision, with the onshore rate decreasing by 22 pips and the offshore rate reflecting a stronger RMB.
• Banking Sector: There is a concern that some banks may report lower profits in 2016 due to increasing NPL (Non-Performing Loan) formation and declining coverage ratios, potentially leading to a reduction in dividend payout ratios. Large banks like ICBC and CCB are more likely to maintain their payout ratios.
• Corporate Update: China Railway Group (CRG) is restructuring its assets by injecting its manufacturing business into its subsidiary China Railway Erju (Erju), which is expected to be a strong catalyst for Erju but have limited impact on CRG. The company is also set to participate in the US XpressWest High-Speed Rail Project, which could boost its overseas expansion.
• Analyst Recommendations: ICBC and CCB are re-iterated as BUY recommendations. CRG is maintained at HOLD with a target price of HK$8.00.

Key Financial Data

Key Indices Performance (as of 17 September 2015)

Key Assumptions (GDP Growth and Prices)

Corporate Events

Key Recommendations and Views

• Market Expectation for Monetary Easing: Strong expectation for further monetary easing in China, with potential for another 50bp cut to the RRR (Required Reserve Ratio) in October 2015.
• Reform Measures: SOE reform and economic liberalization measures were not well-received by the market due to lack of operational details.
• Dividend Payout Ratio: Expected to decline from ~30% to ~20% if earnings fall below forecasts. Large banks like ICBC and CCB are more likely to maintain higher dividend yields.
• Valuation: The banking sector is trading at near trough valuations, with ICBC and CCB being preferred due to better asset quality and valuations.
• Capital Requirement: By 2018, the core tier-1 ratio is expected to increase, affecting dividend payout ratios.

China Railway Group (CRG) Update

• Asset Restructuring: CRG is restructuring by injecting its manufacturing business into Erju, which may help resolve internal conflicts and boost Erju's performance.
• Project Impact: The XpressWest High-Speed Rail Project in the US is a major catalyst for CRG's overseas expansion.
• Financial Performance: CRG reported a strong performance in the first half of 2015, with net profit of Rmb11,068m. The company is expected to report a pick-up in new orders in 3Q15.

Analyst Contact

• Chaoping Zhu: +8621 5404 7225 ext 822 | chaoping@uobkayhian.com
• Edmond Law: +852 2826 4837 | edmond.law@uobkayhian.com.hk
• Johnson Hu: +8621 5404 7225 ext 809 | johnsonhu@uobkayhian.com

Conclusion

The document outlines the economic and financial landscape of key Asian markets, emphasizing the potential for monetary easing in China, the mixed impact of reform measures, and the ongoing restructuring efforts of major companies like China Railway Group. Analysts suggest that while there is a strong expectation for further monetary stimulus, the lack of detailed reform plans may affect investor confidence. The banking sector is viewed as a near-trough opportunity, particularly for large banks like ICBC and CCB.