20160229-大华继显-Regional_Morning_Notes_47页_2mb

Regional Morning Notes Summary

Core Content Overview

This document provides a detailed analysis of financial and economic developments across several Asian markets, including China, Indonesia, Malaysia, and Singapore, as of Monday, 29 February 2016. It includes sector updates, company-specific insights, market indices performance, and investment recommendations for various listed companies.

Main Points

China

• Economic Policy:

  • The G20 meeting called for supportive policies and reforms to foster global economic recovery.
  • China reiterated its commitment to maintaining a stable renminbi and advancing structural reforms.
  • Despite policy rhetoric, structural reform progress remains uncertain, and monetary stimulus is expected to continue.

• Auto Sector:

  • Auto dealers in China face high risk of earnings de-rating due to declining new-car sales margins and slowing after-sales revenue.
  • Baoxin Auto and Zhongsheng Group are expected to continue underperforming, with Zhengtong downgraded from BUY to HOLD.
  • New car sales margin for brands like JLR and Porsche dropped significantly in 2015 due to deep discounts and weak demand.
  • After-sales market is under pressure from independent repairers, which are gaining market share due to price discounts and lower service frequency.
  • Auto financing is not as promising as previously thought, with Zhengtong's loan book falling short of expectations.

• Key Companies:

  • China General Nuclear Corporation (1816 HK): 2015 results were in line with expectations. The company remains BUY, but the target price was cut to HK$3.60 due to lower expected utilisation hours.
  • Baoxin Auto (1293 HK): Target price cut from HK$3.80 to HK$3.30 due to lower 2016F EPS and revised PE multiple. Maintain SELL.
  • Zhengtong (1728 HK): Downgraded from BUY to HOLD, with target price cut from HK$4.50 to HK$2.60.
  • Zhongsheng (881 HK): Target price cut from HK$2.80 to HK$2.40, maintain SELL.

• Key Assumptions:

  • China's GDP growth is expected to slow from 7.3% in 2014 to 6.5% in 2015 and 6.7% in 2016.
  • Earnings forecasts for China auto dealers were revised downward by 10-40% for 2015-2017 due to lower margins and slower revenue growth.

• Corporate Events:

  • Analyst presentations and roadshows are scheduled for March 2016, including China Economy and Financial Sector in both Singapore and Kuala Lumpur.

Indonesia

• United Tractors (UNTR IJ):
  • 2015 net profit fell 28% yoy, below expectations.
  • Maintain SELL with a revised target price of Rp12,700 (from Rp13,900).

Malaysia

• AirAsia (AIRAMK):

  • Good results in 2015, but liquidity remains tight.
  • Maintain HOLD with a target price of RM1.36.

• AMMB Holdings (AMM MK):

  • 3QFY16 net profit was below expectations due to weak revenue lines and NIM pressure.
  • Maintain HOLD with a target price of RM4.10.

• Bumi Armada (BAB MK):

  • 2015 core profit was above expectations, but disappoints street estimates.
  • Target price revised to RM1.01, maintain HOLD.

• RHB Capital (RHBC MK):

  • 4Q15 results were below expectations due to conservative provisions.
  • Maintain BUY with a target price of RM6.25.

• WCT Holdings (WCTHG MK):

  • Recent briefing discussed prospects for the construction division, property development launches, and potential REITing of investment properties.
  • Maintain BUY with a target price of RM2.05.

Singapore

• ST Engineering (STE SP):

  • 2015 results were below-mean PE valuations.
  • Upgraded to BUY with a target price of S$3.28.

• Sembcorp Industries (SCI SP):

  • 4Q15 results were below expectations due to conservative provisions.
  • Maintain BUY with a target price of S$3.80.

• Key Indices:

  • DJIA, S&P 500, FTSE 100, AS30, CSI 300, FSSTI, HSI, JCI, KLCI, KOSPI, Nikkei 225, SET, TWSE, BDI, CPO, Brent Crude.
  • The CSI 300 showed the highest YTD % at -21.0%, while the Nikkei 225 had the largest 1M % increase at 7.2%.

Key Risks and Considerations

• M&A Risk:
  • The upside risk for Hong Kong-listed auto dealers is heavily dependent on M&A activity. If acquisition offers materialise, share prices could surge significantly, as seen with Baoxin.
• Market Volatility:
  • Despite the G20's calls for policy coordination, divergence in economic policies may still lead to market volatility.
• Exchange Rate and Reserves:
  • The PBOC may intervene in the market to support the renminbi, which could impact foreign reserves and market confidence.
• Reform Uncertainty:
  • Structural reform in China is seen as key to long-term growth, but its direction and pace remain unclear, leading to uncertainty in market confidence.

Summary of Investment Recommendations

Conclusion

The document highlights challenges in the Chinese auto sector, including declining margins, slow after-sales growth, and intensifying competition. Despite G20's supportive policies, the long-term structural reform in China remains a key uncertainty. In other markets, Malaysia and Indonesia show mixed results, while Singapore maintains a more optimistic outlook. Investment recommendations reflect cautious optimism in some sectors and conservative views in others, with target prices adjusted based on revised earnings expectations and market conditions.