Regional Morning Notes Summary
Core Content Overview
This document provides a comprehensive summary of regional economic and corporate performance for the week of 10 August 2016, with a focus on China, Hong Kong, Indonesia, Malaysia, and Singapore. It includes insights on inflation trends, company results, stock recommendations, and key financial metrics.
China
Economic Highlights
- Consumer Inflation (CPI):
- CPI declined to 1.8% yoy in July 2016, down from 1.9% yoy in June, mainly due to lower pork prices.
- Core inflation (excluding food and energy) rose slightly to 1.8% yoy, indicating possible pressure from property prices.
- PPI (Producer Price Index) rose to 1.7% yoy, showing improvement in upstream sectors like oil, coal, steel, chemicals, and construction materials.
- PPI deflation eased, and downstream sectors (e.g., clothing, consumer durables) also showed signs of improvement.
Company Results - Uni-President China (220 HK)
- 1H16 Performance:
- Net profit increased by 12.9% yoy to Rmb775m, slightly above the analyst’s estimate but below the market consensus.
- Sales declined by 2.4% yoy to Rmb11.7b, with beverage sales down 8.2% yoy and instant noodles up 9.8% yoy.
- Gross margin decreased to 36.9%, primarily due to a sales mix shift and lower beverage sales.
- Operating margin increased to 8.1%, driven by lower SG&A costs.
- Analyst View:
- Downgraded from HOLD to SELL due to uncertain beverage product life cycles and demanding valuation.
- Target price set at HK$5.50, with an upside of -18.0% from current price.
Key Financials
- Sales & EBITDA: Sales declined in 1H16, but EBITDA increased.
- Valuation Metrics: PE (2017F) at 28x, lower than previous estimates, leading to a revised target price.
- Raw Material Prices:
- PET and milk powder prices dropped 9% and 13% yoy, respectively, but these benefits are expected to fade in 2H16.
- Industry Trends:
- Instant noodles saw 6% yoy growth, outperforming the industry.
- Beverage sales growth was slower than expected, with a notable decline in juice sales.
Hong Kong
Company Highlights
- Cathay Pacific Airways (293 HK):
- Expected to report a 40% decline in earnings for 1H16, due to weaker yields and loads.
- Maintained a HOLD rating with a target price of HK$12.90.
Indonesia
Company Highlights
- Indosat (ISAT LJ):
- Maintained a BUY rating with a target price of Rp9,500.
- Nippon Indosari Corpindo (ROTI IJ):
- Downgraded to HOLD due to persistently high salary costs and losses from the Philippines.
- Target price set at Rp1,560.
Malaysia
Economic & Strategic Insights
- Oil & Gas Default Risk Assessment:
- Weak oil prices and the likelihood of continued weakness have led to a reassessment of banking sector default risks.
- Short to mid-term risks are a focus due to the impact of oil price volatility on the economy.
Singapore
Sector & Company Highlights
- Banking Sector:
- Weathering offshore market volatility in 2Q16.
- Company Results:
- DBS Group Holdings (DBS SP):
- Maintained a BUY rating with a target price of S$19.15.
- 2Q16 results showed resilience against Swiber’s impact.
- SMRT Corporation (MRT SP):
- Accept Offer due to earnings challenges in rail operations.
- Target price at S$1.32.
Thailand
Company Results
- GFPT (GFPT TB):
- Earnings better than estimates and market consensus, maintaining a HOLD rating.
- KCE Electronics (KCE TB):
- Core profit in line with expectations, downgraded to HOLD.
- Thai Union Group (TU TB):
- Earnings below analyst estimate but in line with market consensus, maintaining a HOLD rating.
Key Indices
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18533.1 |
0.0 |
1.2 |
2.1 |
6.4 |
| S&P 500 |
2181.7 |
0.0 |
1.1 |
2.4 |
6.7 |
| FTSE 100 |
6851.3 |
0.6 |
3.1 |
4.0 |
9.8 |
| AS30 |
5636.7 |
0.2 |
0.3 |
6.0 |
5.5 |
| CSI 300 |
3257.0 |
0.7 |
2.1 |
2.0 |
-12.7 |
| FSSTI |
2870.8 |
1.5 |
-0.8 |
0.8 |
-0.4 |
| HSCEI |
9301.2 |
0.3 |
1.9 |
9.0 |
-3.7 |
| HSI |
22465.6 |
-0.1 |
1.5 |
9.2 |
2.5 |
| JCI |
5440.3 |
-0.3 |
1.2 |
9.4 |
18.4 |
| KLCI |
1671.7 |
-0.1 |
0.7 |
1.7 |
-1.2 |
| Nikkei 225 |
16765.0 |
0.7 |
2.3 |
11.0 |
-11.9 |
| SET |
1548.2 |
0.4 |
3.4 |
6.4 |
20.2 |
| TWSE |
9155.1 |
0.1 |
1.0 |
6.0 |
9.8 |
| BDI |
631 |
-0.8 |
-2.2 |
-10.2 |
32.0 |
| CPO (RM/mt) |
2513 |
0.9 |
4.9 |
8.2 |
14.2 |
| Brent Crude |
45 |
-0.9 |
7.6 |
-3.8 |
20.7 |
Top Picks (BUY)
| Company |
Ticker |
Current Price |
Target Price |
Potential Upside (%) |
| Air China |
753 HK |
5.96 |
9.00 |
51.0 |
| Ping An Insurance |
2318 HK |
37.50 |
45.00 |
20.0 |
| Bumi Serpong Damai |
BSDE IJ |
2,310.00 |
2,390.00 |
3.5 |
| Genting Bhd |
GENT MK |
8.30 |
10.40 |
25.3 |
| City Developments |
CIT SP |
8.76 |
10.36 |
18.3 |
| DBS |
DBS SP |
15.04 |
18.90 |
25.7 |
| Bangkok Dusit |
BDMS TB |
22.30 |
25.75 |
15.5 |
| Siam Cement |
SCC TB |
520.00 |
630.00 |
21.2 |
Sell Recommendations
| Company |
Ticker |
Current Price |
Target Price |
Upside (%) |
| Uni-President China |
220 HK |
HK$6.71 |
HK$5.50 |
-18.0 |
Key Assumptions
| Region |
2015 GDP (% yoy) |
2016F GDP (% yoy) |
2017F GDP (% yoy) |
| US |
2.4 |
2.5 |
2.7 |
| Euro Zone |
1.6 |
1.5 |
1.6 |
| Japan |
0.5 |
0.6 |
0.8 |
| Singapore |
2.0 |
2.7 |
3.0 |
| Malaysia |
5.0 |
4.2 |
5.0 |
| Thailand |
2.8 |
3.2 |
3.6 |
| Indonesia |
4.8 |
5.0 |
5.5 |
| Hong Kong |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.5 |
6.2 |
| Indicator |
2015 ASP |
2016F ASP |
% Chg |
| Brent (US$/bbl) |
53.60 |
42 |
-21.6 |
| CPO (RM/mt) |
2,168 |
2,500 |
15.3 |
Corporate Events
| Event |
Venue |
Begin |
Close |
| Venture Corporation Luncheon |
Singapore |
10 Aug |
10 Aug |
| China Economics and Coal & Wind Supply Analyst Presentation |
Taipei |
11 Aug |
12 Aug |
| ST Engineering Luncheon |
Singapore |
16 Aug |
16 Aug |
| China Resources Gas Luncheon |
Hong Kong |
17 Aug |
17 Aug |
| Cowell E Holdings Luncheon |
Hong Kong |
18 Aug |
18 Aug |
| Q Technology Group Luncheon |
Hong Kong |
26 Aug |
26 Aug |
| Q Technology Group Roadshow |
Shanghai |
2 Sep |
2 Sep |
| China Resources Gas Roadshow |
Canada |
12 Sep |
16 Sep |
| China Aviation Oil Roadshow |
UK/Europe |
13 Sep |
16 Sep |
| Sembcorp Industries Corp Roadshow |
Canada |
26 Sep |
27 Sep |
| Regional Financial and Telco Sector Analyst Presentation |
UK/Europe |
26 Sep |
30 Sep |
| Metro Pacific Investments Corporate Roadshow |
Canada |
26 Oct |
28 Oct |
Summary of Key Points
- China's CPI dropped to 1.8% yoy due to lower pork prices, while core inflation increased, likely due to property prices.
- PPI improved, with upstream sectors showing better performance and downstream sectors also showing signs of recovery.
- Uni-President China saw slower-than-expected beverage sales and declining gross margin, leading to a downgrade to SELL.
- Singapore's banking sector managed to weather offshore volatility.
- DBS Group Holdings is BUY-rated with a target price of S$19.15.
- Malaysia is assessing oil & gas default risk due to weak oil prices.
- Thailand saw mixed results, with some companies outperforming expectations and others falling short.
- Indonesia had profitable 2Q16 for Indosat, while Nippon Indosari Corpindo was downgraded to HOLD.
- Hong Kong companies like Cathay Pacific are expected to report significant earnings declines.
- Key indices across regions show mixed performance, with some rising and others falling.
- Valuation metrics were revised for several companies, including Uni-President China, which now has a target price of HK$5.50.
- Corporate events are scheduled in Singapore, Hong Kong, and other regions for the remainder of the year.
