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Regional Morning Notes Summary - 28 November 2016

Core Content Overview

This document provides a detailed summary of market performance and analysis for various regions, focusing on key sectors and companies in Thailand, China, Hong Kong, Indonesia, and Malaysia, along with insights into Macau Gaming and Kimia Farma. It includes economic data, corporate results, investment ratings, and market forecasts.

Main Points

Thailand

• Sector Focus: Food
• Key Insight: Quarterly earnings reached a peak in 3Q16.
• Key Index: FSSTI (2859.3) showed a YTD decline of 0.8%.

China

• Economic Focus: Industrial Profit
• Key Insight: Industrial enterprises' performance improved in October 2016.
• Performance Highlights:
  • Industrial revenue grew by 5.4% yoy to Rmb10.2t.
  • Industrial profit hit a new high of Rmb618b, up 9.8% yoy.
  • Rising product prices and declining financing costs boosted profitability.
  • Average profit margin increased to 5.71% in 10M16.
• GDP Forecast:
  • 2016F: 6.5%
  • 2017F: 6.2%

Hong Kong

• Sector Focus: Macau Gaming
• Key Insight: Markets have priced in strong GGR expectations, leading to high valuations.
• Market Views:
  • All bets are off the table due to inflated valuations.
  • Wynn and MGM are downgraded due to near-term weakness and premium valuations.
  • SJM Holdings is recommended for a buy due to its value and business resilience.
• GGR Trends:
  • Industry GGR growth is expected to be 6-8% yoy for 4Q16.
  • 2017 projection: 4-6% yoy growth, with mass market expected to outperform VIP.
• Valuation:
  • Current EV/EBITDA is at 14.8x, above the historical average of 12.5x.
  • Sands China is at 16.5x 2017F EV/EBITDA, which is 1 SD above the mean.
• Top Picks:
  • SJM Holdings: BUY, Target Price HK$6.80 (12x 2017F EV/EBITDA)
  • MGM China: SELL, Target Price HK$12.50
  • Wynn Macau: SELL, Target Price HK$11.00
  • Genting Bhd: BUY, Target Price RM10.15
  • Kerjaya Prospek Group: BUY, Target Price RM2.65
  • Sime Darby: HOLD, Target Price RM8.65
  • Tune Protect Group: BUY, Target Price RM2.05
  • OCBC: BUY, Target Price RM10.45

Key Financial Indicators

Key Sector Insights

Macau Gaming

• GGR Growth:
  • 3Q16: 1.2% yoy growth.
  • Expected to continue with 6-8% yoy for 4Q16.
• Valuation:
  • Current EV/EBITDA at 14.8x, higher than historical average.
  • Sands China is at 16.5x 2017F EV/EBITDA, 1 SD above mean.
• Company Performance:
  • SJM Holdings: BUY, Target Price HK$6.80.
  • Wynn Macau: SELL, Target Price HK$11.00.
  • MGM China: SELL, Target Price HK$12.50.
  • Galaxy Ent: HOLD, Target Price HK$30.0.
  • Sands China: HOLD, Target Price HK$39.50.

Indonesia

Kimia Farma (KAEF IJ)

• Key Insight: Diversification into non-medicine manufacturing could be a positive.
• Business Strategy:
  • Aligns with Universal Health Care Insurance program.
  • Operates 365 health clinics, 44 labs, and 910 pharmacies.
  • Plans to open 50 new clinics annually.
• New Business:
  • Commenced construction of API factory with 15-30 tonnes of API and 75-150 tonnes of HFC annually.
  • Expected to reduce raw material imports by 50% over the next 10 years.
• E-catalogue Medicine:
  • Expected to contribute 10-15% of total revenue in 2017.
  • Booked >Rp600b in revenue from e-catalogue as of Nov 16.
• Valuation:
  • Trading at 50.1x forward PE, above the historical average of 24.2x.
  • Expected net income growth of 22% in 2017.

Malaysia

Kerjaya Prospek Group (KPG MK)

• Performance: Earnings within expectations.
• Stock Catalysts: New contract wins expected in early 2017.
• Rating: BUY, Target Price RM2.65.

Sime Darby (SIME MK)

• Performance: 1QFY17 expected to show stronger results due to contributions from plantation, property, and industrial divisions.
• Rating: HOLD, Target Price RM8.65.

Telekom Malaysia (T MK)

• Performance: Results within expectations.
• Rating: SELL, Target Price RM5.75.

Tune Protect Group (TIH MK)

• Performance: Results in line with estimates.
• Rating: BUY, Target Price RM2.05.

Key Financial Highlights

Kimia Farma (KAEF IJ)

• Performance by Segment:
  • Retailing: 14.2% revenue growth in 9M16.
  • Wholesales: 16.1% revenue growth in 9M16.
  • Manufacturing: 16.1% revenue growth in 9M16.
• Gross Profit:
  • 17.2% growth in 9M16.
• Operating Profit:
  • 53.8% growth in 3Q16.
• Net Income:
  • 6.6% growth in 9M16.

Analysts

• China Industrial Profit: Chaoping Zhu, Ye Xu
• Macau Gaming: Vincent Khoo, CFA, Cindy Lam
• Kimia Farma: Posmarito Pakpahan, Stevanus Juanda

Conclusion

The summary highlights the positive performance of key sectors in various regions, particularly the improvement in China's industrial enterprises and the strong earnings in Macau Gaming. However, it also notes caution regarding future growth in industrial profitability and the overvaluation of some Macau Gaming stocks. Kimia Farma is highlighted for its potential growth through diversification and its strong performance in key segments. Overall, the report suggests a mixed outlook, with some stocks recommended for buying on weakness and others downgraded due to valuations and market conditions.