Regional Morning Notes Summary - 26 May 2017
Core Content Overview
This document provides a summary of market updates and analysis for various Asian markets, focusing on financial performance, sector trends, and investment recommendations. It also includes insights into key companies, corporate events, and macroeconomic assumptions for the region.
Main Points by Region
China
- Deleveraging Progress: The corporate bond market has remained flat since 2016, with liquidity tightening as authorities reduce reliance on interbank loans and corporate debt.
- Banking Sector:
- Banks are gaining bargaining power as corporate sectors face difficulties in issuing bonds.
- CCB and ICBC are recommended as BUY due to strong CASA ratios and CET-1 CAR.
- CMB is downgraded to HOLD due to limited upside after recent price increase.
- BoCom and Minsheng are downgraded to SELL due to high interbank borrowing and poor ROE.
- CSPC Pharmaceutical Group (1093 HK):
- 1Q17 Performance: Oncology and Vitamin C segments exceeded expectations.
- Key Growth Drivers: Tender wins, improved margins, and favorable forex impact.
- Recommendation: BUY with a revised target price of HK$13.66.
- Catalysts: Sales volume expansion for NBP injections and upcoming approvals of generics.
Hong Kong
- Cathay Pacific (293 HK):
- Downgraded to SELL with a revised target price of HK$9.90.
- No quick recovery expected in 2017; earnings growth is subdued.
Indonesia
- Wijaya Karya (WIKA IJ):
- Recommended as BUY with a target price of Rp3,100.
- Key takeaways from management luncheon meeting.
Malaysia
- IJM Corporation (IJM MK):
- BUY with a target price of RM3.95.
- 4QFY17 earnings were in line with expectations.
- Kerjaya Prospek Group (KPG MK):
- BUY with a target price of RM3.69.
- Expected to win more contracts in the second half of 2017.
- Kossan Rubber (KRI MK):
- BUY with a target price of RM6.72.
- 1Q17 revenue rose by 14% due to restored glove production, favorable forex, and higher ASPs.
Singapore
- Cityneon Holdings (CITN SP):
- Recommended as BUY with a target price of S$1.28.
- Described as "Out with the old and in with the new."
Thailand
- Dynasty Ceramic (DCC TB):
- Downgraded to SELL with a target price of Bt3.60.
- Expected lower YoY earnings and moderate growth next year.
- Concerns over future RCI acquisition costs.
Key Indices Performance (as of 26 May 2017)
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
21083.0 |
0.3 |
2.0 |
0.5 |
6.7 |
| S&P 500 |
2415.1 |
0.4 |
2.1 |
1.2 |
7.9 |
| FTSE 100 |
7517.7 |
0.0 |
1.1 |
3.1 |
5.2 |
| AS30 |
5828.8 |
0.3 |
0.9 |
-1.8 |
1.9 |
| CSI 300 |
3485.7 |
1.8 |
2.6 |
1.2 |
5.3 |
| FSSTI |
3234.4 |
0.1 |
0.4 |
1.9 |
12.3 |
| HSI |
25630.8 |
0.8 |
2.0 |
4.3 |
16.5 |
| KLCI |
1774.0 |
0.2 |
0.4 |
0.3 |
8.1 |
| KOSPI |
2342.9 |
1.1 |
2.5 |
6.1 |
15.6 |
| Nikkei 225 |
19813.1 |
0.4 |
1.3 |
2.7 |
3.7 |
| SET |
1569.4 |
0.2 |
1.5 |
0.1 |
1.7 |
| TWSE |
10108.5 |
0.6 |
1.4 |
2.6 |
9.2 |
| BDI |
918 |
-1.7 |
-4.1 |
-20.5 |
-4.5 |
| CPO (RM/mt) |
2873 |
-1.1 |
-0.2 |
7.5 |
-10.2 |
| Brent Crude (US$/bbl) |
51 |
-4.6 |
-2.0 |
-1.2 |
-9.4 |
Key Assumptions
| Region |
GDP (yoy) 2016 |
GDP (yoy) 2017F |
GDP (yoy) 2018F |
| US |
1.6 |
2.7 |
2.5 |
| Euro Zone |
1.7 |
1.6 |
1.5 |
| Japan |
1.0 |
0.9 |
1.2 |
| Singapore |
2.0 |
2.4 |
2.8 |
| Malaysia |
4.2 |
4.5 |
4.7 |
| Thailand |
3.2 |
3.3 |
3.1 |
| Indonesia |
5.0 |
5.2 |
5.5 |
| Hong Kong |
1.9 |
2.0 |
2.0 |
| China |
6.7 |
6.3 |
6.3 |
| Brent (Average) |
45 |
55 |
60 |
| CPO |
2,653 |
2,600 |
2,500 |
Top Picks (BUY)
| Company |
Ticker |
Current Price (HK$) |
Target Price (HK$) |
Upside (%) |
| Alibaba |
BABA US |
123.63 |
139.00 |
12.4 |
| Beijing Ent. Water |
371 HK |
6.11 |
7.60 |
24.4 |
| Telekomunikasi |
TLKM IJ |
4,360.00 |
5,000.00 |
14.7 |
| Tiga Pilar |
AISA IJ |
2,170.00 |
2,500.00 |
15.2 |
| V.S. Industry |
VSI MK |
1.97 |
2.20 |
11.7 |
| OCBC |
OCBC SP |
10.47 |
11.70 |
11.7 |
| Siam Cement |
SCC TB |
522.00 |
600.00 |
14.9 |
Corporate Events
- Analyst Marketing on China Internet Sector (Kuala Lumpur, 25-26 May)
- Roadshow with Singtel (Canada, 26 May)
- Analyst Presentation on Singapore Property & REITs Strategy (Canada, 29 May - 1 Jun)
- Group meeting with Fortune REIT (Hong Kong, 7 Jun)
- Roadshow with Tongda Group Holdings (Hong Kong, 1 Jun)
- Roadshow with United Overseas Bank (Canada, 2 Jun)
- Roadshow with Meidong Auto Holdings (Taipei, 8 Jun)
- Roadshow with Tonly Electronics Holdings (Taipei, 8-9 Jun)
- Roadshow with GFPT Public Company (Hong Kong, 8-9 Jun)
- Roadshow with PT Siloam Int'l Hospital (Canada, 5 Jun - 16 Jun)
- Analyst Presentation on Spore Strategy (Kuala Lumpur, 15-16 Jun)
- Luncheon with United Overseas Bank (Singapore, 3 Jul)
- Sarawak Oil Palms Site Visit (Sarawak, 3-5 Jul)
- Roadshow with Top Glove Corporation (US/Canada, 5 Sep - 12 Sep)
Sector Catalysts
- Banking:
- Stabilisation in asset quality and NIM.
- Regulators focusing on controlling financial risks.
- Pharmaceuticals:
- Strong growth in oncology and Vitamin C segments.
- Improved gross profit margins due to shift to high-margin products.
- Price increases in Vitamin C due to environmental restrictions.
Investment Recommendation Summary
- CSPC Pharmaceutical Group: Maintain BUY with a target price of HK$13.66.
- Cathay Pacific: Downgraded to SELL with a target price of HK$9.90.
- Wijaya Karya: Recommended as BUY with a target price of Rp3,100.
- IJM Corporation: Recommended as BUY with a target price of RM3.95.
- Kerjaya Prospek Group: Recommended as BUY with a target price of RM3.69.
- Kossan Rubber: Recommended as BUY with a target price of RM6.72.
- Minsheng Bank: Downgraded to SELL with a target price of HK$7.08.
- Bank of Communications: Downgraded to SELL with a target price of HK$5.25.
Key Financial Metrics (CSPC Pharmaceutical Group)
| Metric |
2016 |
2017F |
2018F |
2019F |
| Net Turnover (HK$m) |
12,369.0 |
14,310.4 |
16,804.9 |
19,286.3 |
| EBITDA (HK$m) |
3,237.2 |
3,820.3 |
4,599.5 |
5,378.3 |
| EBIT (HK$m) |
2,649.5 |
3,527.5 |
4,306.9 |
5,085.8 |
| Net Profit (HK$m) |
2,100.8 |
2,755.8 |
3,371.5 |
3,985.9 |
| EPS (HK$ cents) |
35.0 |
45.5 |
55.5 |
65.4 |
| PE (x) |
33.0 |
25.4 |
20.8 |
17.7 |
| PEG (x) |
1.4 |
1.02 |
1.01 |
0.98 |
| P/B (x) |
6.8 |
5.8 |
4.9 |
4.1 |
| Net Margin (%) |
17.0 |
19.3 |
20.1 |
20.7 |
| ROE (%) |
22.3 |
24.9 |
25.5 |
25.2 |
Analysts Contact
Summary of Key Takeaways
- The deleveraging of the corporate bond market is ongoing, impacting bank liquidity and NIM.
- CSPC Pharmaceutical Group is performing well, with strong growth in oncology and Vitamin C segments.
- Cathay Pacific and BoCom are underperforming due to weak earnings and high interbank borrowing.
- Malayan Banking is holding due to strong deposit franchise and diversified operations.
- Corporate bond yields have risen, and issuance has declined, forcing companies to be more selective.
- Investor sentiment is shifting towards larger SOE banks and away from smaller JSCBs due to risk control measures.
