20170116-大华继显-Regional_Morning_Notes_24页_1mb

Regional Morning Notes Summary - 16 January 2017

Core Content

This summary provides an overview of the regional market updates and investment recommendations for the week of 16 January 2017, focusing on China, Indonesia, Malaysia, and Singapore. It includes sector updates, company performance, key indices, top picks, and corporate events.

Main Points

China: City Gas Distribution Sector

• Air Pollution Controls: The worsening air pollution in China has led to increased government focus on environmental protection, with policies aiming to boost natural gas (NG) consumption.
• NG Consumption Targets: The government plans to increase NG to 8-10% of total primary energy by 2015 and 15% by 2020, with a CAGR of 14.0-16.5%.
• Policy Support: The draft plan on "The Acceleration Of NG Consumption" encourages NG usage in rural areas, transportation, and industry.
• Sector Upgrade: The sector is upgraded to OVERWEIGHT due to strong policy support and expected long-term growth.

Company Update: Sunac China Holdings (1918 HK)

• Investment in Leshi: Sunac invested Rmb15b in Leshi and its subsidiaries, which may stretch its weak balance sheet.
• Earnings Contribution: The earnings contribution from Leshi is expected to be minimal in the short term.
• Contracted Sales Target: Sunac aims for Rmb210b in 2017, a 39.4% increase from 2016, but faces challenges due to tightening policies and market conditions.
• Valuation: The company is currently trading at a high valuation, with a 13.3x 2017F PE and 1.1x P/B. Analysts maintain a SELL rating, with a target price of HK$4.34.

Top Picks (BUY)

• ENN Energy (2688 HK): Expected to achieve 15% CAGR in recurring earnings, with a target price of HK$49.00.
• CR Gas (1193 HK): Anticipated NG sales volume CAGR of 15% and earnings CAGR close to 20%, with a target price of HK$32.50.

Top Picks (SELL)

• Hartalega (HART MK): SELL rating maintained, with a target price of HK$3.33.

Key Indices Performance

• The DJIA, S&P 500, FTSE 100, and other indices show mixed performance in the short and long term.
• The CSI 300 and HSI have shown positive YTD performance, while the AS30 and KLCI have seen declines.

Key Information

GDP Growth Assumptions

• China: Expected to grow at 6.2% in 2017.
• Malaysia: 4.5% growth in 2017.
• Thailand: 3.3% growth in 2017.
• Indonesia: 5.2% growth in 2017.
• Singapore: 1.8% growth in 2017.
• Brent Crude: Expected to average 56 US$/bbl in 2017, with a 2.0% decline in the past month.

Corporate Events

• China Healthcare Sector Analyst Marketing: Scheduled for 16-18 January in Singapore and Malaysia.
• Malayan Banking (MAY MK): Expected to have short-term trading opportunities ahead of GE14.
• PTT Exploration and Production Roadshow: Scheduled for 6-7 February in Singapore.
• SGX-UOB Kay Hian Corporate Day: Scheduled for 21 February in Taipei.
• UOB Kay Hian ASEAN Conference: Scheduled for 22 February in Taipei.
• Annual Plantation Outlook Seminar: Scheduled for 6 March in Malaysia.

Investment Recommendations

OVERWEIGHT

• City Gas Distribution: Upgraded due to policy support and expected growth in NG consumption.
• Key Companies: ENN Energy and CR Gas are highlighted as top picks with BUY ratings.

HOLD

• Malayan Banking (MAY MK): Target price RM8.50, with a HOLD recommendation.
• TISCO Financial Group (TISCO TB): Upgraded to BUY with a target price of Bt74.00, due to strong earnings growth and improved NIM.

SELL

• Sunac China Holdings (1918 HK): SELL rating maintained due to weak fundamentals and high gearing.
• Hartalega (HART MK): SELL rating maintained, with a target price of HK$3.33.

Key Risks and Assumptions

• Economic Slowdown: Market concerns over a weak economy may lead to policy changes.
• EV Subsidies: A significant cut in EV subsidies is expected in 2017, which may help rebound NG sales.
• Oil Price Rebound: Expected to improve the price competitiveness of NG.
• Policy Impact: Environmental protection is now a key KPI for local governments, which could accelerate NG adoption.

Conclusion

The report highlights the potential for growth in the city gas distribution sector in China due to policy support and environmental concerns. While some companies like ENN Energy and CR Gas are recommended as BUYs, others like Sunac China Holdings are SELLs due to weak fundamentals and high leverage. The overall market sentiment is mixed, with some indices showing positive performance and others facing challenges.