Regional Morning Notes Summary
Core Content Overview
This document provides a comprehensive analysis of the regional financial markets as of Friday, 16 January 2015, with a focus on China, Indonesia, and Malaysia, and includes insights into key stocks, sector updates, and market indices.
Key Stories and Stock Recommendations
China
Insurance Sector
- Ping An is highlighted as the top pick due to its:
- Better fundamentals
- Re-rating of banking operations
- Potential spin-off of its P2P internet financing platform
- The sector has rallied over 35% since the interest rate cut, with valuations reaching historical means.
- Catalysts include:
- Unified pension system: Workers now contribute 8% of their salary to the social pension system.
- Adoption of Solvency II: Expected to benefit large and quality insurers by differentiating balance sheets.
- China Life and CPIC have seen lackluster premium growth (1.4% and 3.8% YoY in 2014), while Ping An led with 19.1% YoY growth.
- Earnings sensitivity to the A-share market: A 1% increase in the A-share market translates into 0.86%, 0.88%, and 1.20% earnings increases for China Life, Ping An, and CPIC respectively.
Property Sector
- Stick to SOEs and large caps due to risks associated with smaller developers and non-SOE names.
- Large-cap laggards like Longfor (960 HK) and CR Land (1109 HK) are recommended for their strong growth prospects and defensive positioning.
- Residential sales in 32 cities rose 17.7% MoM and 26.8% YoY in December 2014, reaching a new high since March 2013.
- Sales recovery is expected in 1H15, supported by monetary easing and loosened credit measures.
- Risks include weaker-than-expected sales recovery and delayed credit easing.
Key Stocks
- Alibaba Group (BABA US/BUY/US$99.58/Target: US$117.00):
- Accounts for 80% of online shopping GMV in China.
- Leads in e-commerce segments with significant market shares.
- Initiate Coverage with a BUY recommendation and 17% upside to the target price.
- Beijing Capital International Airport (694 HK/BUY/HK$7.00/Target: HK$12.00):
- Game changer due to lower risks and enhanced growth prospects.
- China TCM (570 HK/BUY/HK$4.48/Target: HK$6.20):
- Growth outlook remains bright.
Indonesia
- Waskita Karya (WSKT IJ/NOT RATED/Rp1,475):
- Proven leadership in toll road projects.
- No rating provided, but remains a key name in the infrastructure space.
Malaysia
- Oil & Gas:
- A potential rebound is expected if oil prices recover in 2H15.
- Rule of thumb: If capex dries up, the wells dry up too.
- Pavilion REIT (PREIT MK/HOLD/RM1.46/Target: RM1.44):
- 4Q14 driven by beneficial AEIs.
- Perisai Petroleum (PPT MK/BUY/RM0.46/Target: RM0.80):
- Near-term prospects remain bleak, but the stock is still a good proxy for the asset localisation theme.
Key Indices Performance
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17320.7 |
-0.6 |
-3.3 |
0.8 |
-2.8 |
| S&P 500 |
1992.7 |
-0.9 |
-3.4 |
0.2 |
-3.2 |
| FTSE 100 |
6498.8 |
1.7 |
-1.1 |
5.1 |
-1.0 |
| AS30 |
5310.6 |
-0.4 |
-0.9 |
3.5 |
-1.4 |
| CSI 300 |
3604.1 |
2.9 |
1.3 |
9.1 |
2.0 |
| FSSTI |
3338.8 |
0.4 |
-0.2 |
3.8 |
-0.8 |
| HSCEI |
12190.5 |
1.5 |
1.4 |
9.5 |
1.7 |
| HSI |
24350.9 |
1.0 |
2.2 |
7.4 |
3.2 |
| JCI |
5188.7 |
0.6 |
-0.4 |
3.2 |
-0.7 |
| KLCI |
1745.0 |
0.2 |
1.0 |
4.2 |
-0.9 |
| KOSPI |
1914.1 |
0.0 |
0.5 |
0.5 |
-0.1 |
| Nikkei 225 |
17108.7 |
1.9 |
1.3 |
2.1 |
-2.0 |
| SET |
1523.4 |
0.0 |
0.1 |
4.2 |
1.7 |
| TWSE |
9165.1 |
-0.2 |
-0.8 |
2.4 |
-1.5 |
| BDI |
749 |
-1.1 |
3.5 |
-11.4 |
-4.2 |
| CPO (RM/mt) |
2349 |
-0.3 |
1.4 |
7.5 |
2.3 |
| Nymex Crude |
46 |
-4.6 |
-5.2 |
-17.3 |
-13.2 |
Top Picks
| Company |
Ticker |
Current Price |
Target Price |
Upside (%) |
| Sunac China |
1918 HK |
HK$7.16 |
HK$9.29 |
29.7 |
| ICBC |
1398 HK |
HK$5.74 |
HK$6.90 |
20.2 |
| Bank Mandiri |
BMRI J |
JPY10,900.00 |
JPY12,500.00 |
14.7 |
| Gamuda |
GAM MK |
RM5.03 |
RM5.50 |
9.3 |
| DBS |
DBS SP |
S$19.99 |
S$22.68 |
13.5 |
| Pacific Radiance |
PACRA SP |
S$0.76 |
S$1.57 |
107.9 |
| Bangkok Bank |
BBL TB |
TB$186.00 |
TB$276.00 |
48.4 |
| Advanced Info |
ADVANC |
RM241.00 |
RM270.00 |
12.0 |
Key Assumptions
| Country/Region |
2013 |
2014 |
2015F |
| US |
1.9 |
2.7 |
3.2 |
| Euro Zone |
-0.4 |
0.9 |
1.4 |
| Japan |
1.5 |
1.5 |
2.0 |
| Singapore |
3.9 |
3.2 |
3.3 |
| Malaysia |
4.7 |
5.9 |
5.2 |
| Thailand |
2.9 |
1.5 |
3.9 |
| Indonesia |
5.8 |
5.2 |
5.8 |
| Hong Kong |
2.9 |
3.5 |
3.7 |
| China |
7.7 |
7.2 |
7.0 |
| Commodity |
2013 |
2014 |
2015F |
| Brent (US$/bbl) |
110 |
100 |
85 |
| CPO (US$/mt) |
736 |
725 |
765 |
| BDI |
1,219 |
1,200 |
1,300 |
Corporate Events
- Singapore and Indonesia Telecom Analyst Presentation:
- Venue: Kuala Lumpur
- Date: 26 Jan to 27 Jan
Valuation and Recommendations
- Earnings revisions for insurers are raised by 5-12% for 2014-16 due to higher investment gains.
- Target prices are raised by 20-35% after rolling forward valuation.
- Ping An is recommended with a target price of HK$100.00, currently trading at HK$86.65 (1.2x 2015F P/EV vs industry's 1.4x).
- China Life and CPIC are maintained as HOLD with target prices of HK$32.50 and HK$40.50, respectively.
Peer Comparison
| Company |
Ticker |
Rec |
Price (HK$) |
Target (HK$) |
Market Cap (US$m) |
PE (2014F) |
PE (2015F) |
P/B (2014F) |
P/B (2015F) |
P/EV (2014F) |
P/EV (2015F) |
Implied NBM (2014F) |
Implied NBM (2015F) |
Yield (2014F) |
Yield (2015F) |
| China Life |
2628 HK |
HOLD |
31.65 |
32.50 |
152,222 |
21.1 |
18.4 |
2.8 |
2.5 |
12.8 |
8.7 |
1.7 |
1.4 |
0.4 |
0.4 |
| Ping An |
2318 HK |
BUY |
86.65 |
100.00 |
110,686 |
13.6 |
11.8 |
2.4 |
2.0 |
8.0 |
4.8 |
1.3 |
1.4 |
0.8 |
0.8 |
| CPIC |
2601 HK |
HOLD |
38.65 |
40.50 |
47,937 |
22.8 |
18.8 |
1.7 |
1.6 |
15.0 |
12.1 |
0.9 |
0.9 |
0.4 |
0.4 |
Risks and Outlook
- China:
- Insurance: Weak premiums growth and reliance on A-share rally.
- Property: Risk of weaker sales recovery and delayed credit easing.
- Indonesia: Waskita Karya remains a key name in infrastructure.
- Malaysia: PPT has bleak near-term prospects but is a proxy for asset localisation.
- Alibaba: Faces risks such as:
- Partnership limitations on voting rights.
- Near-term margin pressure from aggressive investments in O2O, digital media, and logistics.
- Counterfeit products and potential lawsuits in its marketplace.
Conclusion
The report highlights China's insurance and property sectors as key areas of focus, with Ping An and large-cap SOEs as top picks. Alibaba Group is recommended with BUY due to its proxy role for rising consumption in China. Malaysia's oil and gas and Indonesia's infrastructure also show potential. The outlook remains positive for 1H15, driven by monetary easing and sales recovery, with risks primarily linked to market sentiment, credit easing, and investment strategies.
