Regional Morning Notes Summary - June 1, 2015
Core Content Overview
This document provides a comprehensive market update on banking and related sectors in China, Indonesia, and Malaysia, focusing on macroeconomic factors, regulatory changes, and stock recommendations. It also includes key indices, corporate events, and valuation data.
China
Key Points
- VAT Reform Impact: The Ministry of Finance (MOF) is planning to replace the existing business tax with VAT for banks starting in October 2015. The estimated impact on earnings is limited due to the offsetting effect of new deductible items, with a net negative impact of 2-3% if implemented in 2014.
- Monetary Policy: Despite recent rumors of liquidity withdrawal by the PBOC, the overall liquidity remains abundant. Monetary loosening is expected to continue until meaningful economic data improvements are seen.
- LDR Cap Removal: The potential removal of the 75% Loan-to-Deposit Ratio (LDR) cap is anticipated, which could benefit mid-sized banks. BoCom is upgraded from SELL to HOLD, with a target price of HK$8.10, due to its likely exposure to the LDR cap removal.
- Market Weight: The banking sector is maintained at MARKET WEIGHT.
- Performance: BoCom is recommended as a BUY due to its lagging share price and potential benefits from LDR cap removal.
Key Indices
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18010.7 |
-0.6 |
-1.5 |
-0.1 |
1.1 |
| S&P 500 |
2107.4 |
-0.6 |
-1.1 |
-0.0 |
2.4 |
| FTSE 100 |
6984.4 |
-0.8 |
-0.4 |
-0.0 |
6.4 |
| AS30 |
5774.9 |
1.1 |
1.9 |
-0.4 |
7.2 |
| CSI 300 |
4840.8 |
0.1 |
-2.2 |
1.9 |
37.0 |
| FSSTI |
3392.1 |
-0.8 |
-1.7 |
-2.7 |
0.8 |
| HSCEI |
14103.8 |
-0.6 |
-0.2 |
-2.3 |
17.7 |
| HSI |
27424.2 |
-0.1 |
-0.4 |
-2.5 |
16.2 |
| JCI |
5216.4 |
-0.4 |
-1.9 |
2.6 |
-0.2 |
| KLCI |
1747.5 |
-0.5 |
-2.2 |
-3.9 |
-0.8 |
| KOSPI |
2114.8 |
0.2 |
-0.4 |
-0.6 |
10.4 |
| Nikkei 225 |
20563.2 |
0.1 |
1.5 |
5.3 |
17.8 |
| SET |
1496.1 |
0.2 |
-1.8 |
-2.0 |
-0.1 |
| TWSE |
9701.1 |
-0.1 |
0.6 |
-1.2 |
4.2 |
| BDI |
589 |
0.2 |
-0.5 |
0.3 |
24.7 |
| CPO (RM/mt) |
2175 |
0.7 |
1.5 |
4.0 |
-5.3 |
| Nymex Crude |
60 |
-0.6 |
0.4 |
1.4 |
12.6 |
Top Picks
- BUY: Beijing Capital (694 HK), ICBC (1398 HK), Bank BJB (BJBR IJ), Maybank (MAY MK), DBS (DBS SP)
- SELL: Telekom Malaysia (TMK)
Valuation Table
| Company |
Ticker |
Rec. |
Price (HK$) |
Target Price (HK$) |
Market Cap (US$m) |
PE 2015F |
PE 2016F |
P/B 2015F |
P/B 2016F |
ROE 2015F |
ROE 2016F |
ROA 2015F |
ROA 2016F |
Yield |
| ICBC |
1398 HK |
BUY |
6.75 |
7.80 |
296,074 |
6.6 |
6.3 |
1.1 |
1.0 |
17.9 |
16.5 |
1.4 |
1.3 |
4.6 |
| CCB |
939 HK |
BUY |
7.79 |
8.90 |
251,444 |
6.6 |
6.4 |
1.1 |
1.0 |
17.9 |
16.4 |
1.4 |
1.3 |
4.5 |
| ABC |
1288 HK |
HOLD |
4.21 |
4.50 |
189,354 |
5.8 |
5.6 |
0.9 |
0.8 |
17.2 |
16.0 |
1.1 |
1.1 |
5.1 |
| BOC |
3988 HK |
HOLD |
5.15 |
5.50 |
202,767 |
6.6 |
6.3 |
0.9 |
0.9 |
15.0 |
14.3 |
1.1 |
1.1 |
4.8 |
| BoCom |
3328 HK |
HOLD |
7.38 |
8.10 |
76,512 |
6.6 |
6.6 |
0.9 |
0.8 |
13.6 |
12.5 |
1.0 |
1.0 |
3.8 |
| CMB |
3968 HK |
HOLD |
23.60 |
25.50 |
74,107 |
7.9 |
7.3 |
1.3 |
1.2 |
18.0 |
17.2 |
1.2 |
1.1 |
3.9 |
| Minsheng |
1988 HK |
BUY |
10.68 |
13.30 |
53,673 |
5.2 |
4.9 |
1.4 |
2.0 |
18.0 |
16.3 |
1.1 |
1.0 |
2.1 |
Indonesia
Key Points
- Property & Infrastructure Strategy: Bank Indonesia (BI) is likely to extend downpayment allowances for second home buyers, relax LDR rules, and support infrastructure development. Construction activities in May 2015 grew by 30-60% mom.
- Interest Rate Outlook: BI is expected to keep interest rates flat, likely at 7.5%, due to concerns about currency and capital stability.
- Sector Impact: The proposed changes are expected to benefit state-owned banks (BBNI, BBRI), cement companies (SMGR, INTP), property names (ASRI), and construction firms (WIKA, WTON, WSKT, PTPP).
- Top Buys: ASRI, BBNI, BBRI, INTP, SMGR are recommended as BUYs.
Key Indices
- JCI Index: JCI index and MSCI Asia-Pacific Ex Japan are mentioned, though specific values are not listed.
Malaysia
Key Points
- Loan Growth Moderation: Loan growth in April 2015 slowed to 0.1% mom, down from 0.9% in March, due to the implementation of GST.
- NIM and NPL: Net interest margin (NIM) is under pressure, and NPLs have stabilized but are expected to rise due to new regulatory guidelines.
- Sector Outlook: Maintain MARKET WEIGHT. Maybank is the top BUY, while CIMB and AMMB are top SELLs.
- Loan Disbursement and Repayment: Loan disbursement and repayment rates have shown mixed performance, with some segments experiencing declines.
Top Sector Picks
Peer Comparison
| Company |
Ticker |
Rec. |
Price (RM) |
Target Price (RM) |
Market Cap (US$m) |
PE 2015F |
PE 2016F |
P/B 2015F |
P/B 2016F |
ROE 2015F |
ROE 2016F |
Div (sen) |
Div Yield (%) |
| Maybank |
MAY MK |
BUY |
9.03 |
10.30 |
23,473 |
15.8 |
15.1 |
1.5 |
58.0 |
13.6 |
14.0 |
58.0 |
6.4 |
| Public Bank |
PBK MK |
HOLD |
18.50 |
19.30 |
19,479 |
13.2 |
12.8 |
2.4 |
55.0 |
18.7 |
18.0 |
55.0 |
3.0 |
| HL Bank |
HLBK MK |
HOLD |
13.66 |
15.35 |
6,700 |
9.5 |
10.1 |
1.5 |
41.5 |
15.3 |
15.8 |
41.5 |
3.0 |
| RHB Capital |
RHBC MK |
HOLD |
7.70 |
7.60 |
5,435 |
9.4 |
10.0 |
1.0 |
23.0 |
11.5 |
12.5 |
23.0 |
3.0 |
| CIMB Group |
CIMB MK |
SELL |
5.67 |
5.60 |
13,125 |
11.6 |
11.5 |
1.2 |
18.0 |
9.1 |
9.9 |
18.0 |
3.2 |
| AMMB |
AMM MK |
SELL |
6.30 |
5.80 |
5,178 |
15.2 |
12.5 |
1.2 |
21.0 |
13.9 |
13.9 |
21.0 |
3.3 |
| HLFG |
HLFG MK |
SELL |
15.46 |
15.83 |
4,438 |
12.5 |
12.2 |
1.3 |
38.0 |
15.8 |
15.8 |
38.0 |
2.5 |
| AFG |
AFG MK |
SELL |
4.51 |
4.25 |
1,904 |
9.9 |
12.2 |
1.5 |
16.0 |
12.3 |
12.3 |
16.0 |
3.5 |
Key Assumptions
| Country/Region |
GDP (% yoy) 2013 |
GDP (% yoy) 2014 |
GDP (% yoy) 2015F |
| US |
2.2 |
2.4 |
2.9 |
| Euro Zone |
-0.5 |
0.9 |
1.3 |
| Japan |
1.6 |
-0.1 |
1.0 |
| Singapore |
4.4 |
2.9 |
2.9 |
| Malaysia |
4.7 |
6.0 |
5.0 |
| Thailand |
2.8 |
0.9 |
2.7 |
| Indonesia |
5.6 |
5.0 |
5.0 |
| Hong Kong |
2.9 |
3.5 |
3.7 |
| China |
7.7 |
7.2 |
7.0 |
| Item |
2014 (US$/bbl) |
2015F (US$/bbl) |
2016F (US$/bbl) |
| Brent |
99.45 |
65 |
70 |
| CPO (US$/mt) |
722 |
765 |
788 |
| BDI |
1,101 |
1,300 |
1,400 |
Corporate Events
- Pacific Radiance Luncheon: 19 Jun, Singapore
- M3 Marine Group Luncheon: 25 Jun, Singapore
Analysts
Recommendation Summary
- China: Prefer mid-sized banks and laggards; trading BUY on BoCom.
- Indonesia: Expect support for property and infrastructure; recommend BUY on ASRI, BBNI, BBRI, INTP, and SMGR.
- Malaysia: Maintain MARKET WEIGHT; Maybank is top BUY, CIMB and AMMB are top SELLs.
Conclusion
The report highlights the limited impact of VAT reform on Chinese banks, the potential for infrastructure and property sector growth in Indonesia, and the moderation in loan growth in Malaysia due to GST implementation. It emphasizes the importance of monetary policy and regulatory changes in shaping sector performance and provides actionable investment recommendations.
