20151112-大华继显-Regional_Morning_Notes_33页_1mb

Regional Morning Notes Summary

Core Content

This document provides a comprehensive overview of economic and sector performance across China, Hong Kong, Malaysia, and Thailand, with a focus on the cement industry in China, and company results for Hong Kong Exchanges & Clearing (HKEx). It also includes key financial indices and analyst recommendations.

Main Points

China

• Economic Activity:
  • Industrial production and Fixed Asset Investment (FAI) growth are on a downtrend, but show signs of improvement.
  • Industrial value-added growth declined to 5.6% yoy in October, while FAI growth hit a 15-year low of 10.2% yoy in 10M15.
  • Retail sales of consumer goods grew at 11.0% yoy, slightly above market expectations, supported by car sales and construction materials.
• Cement Sector:
  • Cement production declined by 3.5% yoy in October, with a 4.6% yoy contraction in 10M15.
  • Demand remains subdued, with property construction activities expected to show a moderate pick-up in the next 2-3 quarters.
  • Infrastructure investment growth slowed to 17.4% yoy in 10M15, but is expected to remain strong due to its role in GDP growth.
• Sector Catalysts:
  • More supportive policies for infrastructure spending.
  • SOE reforms and M&A activities, with Anhui Conch potentially acquiring West China Cement.
• Key Assumptions:
  • China's GDP growth is expected to slow from 7.3% in 2014 to 6.5% in 2016.
  • FAI growth is projected to remain in the mid-teens in 2016, despite potential slowdowns.

Hong Kong

• HKEx (388 HK):
  • 3Q15 results slightly ahead of expectations, with net profit at HK$2.3b, up 81.0% yoy.
  • Strong average daily turnover (ADT) of Rmb101.5b in 3Q15, and EBITDA margin increased to 76.5%.
  • One-off gains from property disposal contributed significantly to earnings.
• Recommendation:
  • Maintain BUY rating with a revised target price of HK$272.00.
  • Shenzhen Stock Connect is expected to launch in 1H16, with potential inclusion of ChiNext Board.
• Key Financials:
  • Net profit for 3Q15 was HK$8,440.7m, with a 3Q15 PE of 29.4x.
  • Operating profit grew to HK$10,073.8m, with staff costs declining by 2.2% qoq.

Malaysia

• Oil & Gas:
  • Petronas' 3Q15 earnings plunged, and future dividends were cut.
  • Global capex cuts do not equate to a drop in production, but 2016 is expected to be a testing year.
• Plantation:
  • Production was higher than expected, leading to an inventory level of $2.83m tonnes, exceeding market forecasts.

Thailand

• Banpu (BANPU TB):
  • 3Q15 results were below expectations, mainly due to extraordinary items.
• Sino-Thai Engineering & Construction (STEC TB):
  • Results weaker than expected, but performance is expected to improve from mid-2016.
• Thai Vegetable Oil (TVO TB):
  • Net profit higher than expected due to large forex gains, but the rating was downgraded to HOLD.

Key Information

Key Indices

Top Picks

Corporate Events

• Bumitama Agri Luncheon - Singapore, 12 Nov
• China Economics - Taipei, 16–17 Nov
• Analyst Presentation - Hong Kong, 18 Nov
• Valutronics Tea Session - Singapore, 17 Dec
• Regional 1H16 Strategy Forum - Kuala Lumpur, 2 Dec

Key Analyst Views

Chaoping Zhu (China)

• Remain cautiously optimistic about early-2016 growth, with potential improvement in the next two to three quarters.
• Expect continued fiscal support and directional policies to aid economic restructuring.
• Maintain UNDERWEIGHT on the cement sector due to weak production and prices, but prefer companies with exposure to alternative businesses.

Johnson Hu (Hong Kong)

• Maintain BUY rating on HKEx due to potential Shenzhen Connect launch and long-term outlook.
• HKEx is trading slightly below its mean valuation, with a revised target price of HK$272.00.

Summary of Sector Catalysts

• China: Government support for infrastructure and property development, potential consolidation in the cement industry.
• Hong Kong: Launch of Shenzhen Stock Connect and A-share market stability.
• Malaysia: Continued capex cuts in oil & gas, but no decline in production.
• Thailand: Expected improvement in property and construction sectors from mid-2016.

Conclusion

The document highlights the economic slowdown in China, with cement and property sectors under pressure, while indicating potential for recovery in the coming quarters. Hong Kong's HKEx is seen as a positive investment with the potential for growth through new initiatives like the Shenzhen Stock Connect. Malaysia and Thailand show mixed results, with some sectors expected to improve in 2016. Analysts suggest maintaining a cautious stance on China's cement industry, with a preference for companies with diversified exposure and potential for consolidation.