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SPOTLIGHT ON ASIA Summary

Core Content Overview

This document provides sector and company research insights for the Asia region, focusing on key areas such as China's oil and gas industry, India's consumer sector, coal prices, and specific company analyses like PICC Property & Casualty and Samsung Electronics. It also touches on Tata Motors and Infosys, highlighting their financial performance, strategic moves, and market outlook.

Key Sectors and Trends

China Oil & Gas

• PetroChina's Downstream Surprise: PetroChina showed strong performance in its downstream operations, with record OpFCF of RMB61b in 1H16. This outperformed its peers, Sinopec and CNOOC, in terms of profitability.
• Sinopec's Performance: Sinopec reported a lower-than-expected EPS of RMB0.16, with a significant E&P operating loss of RMB22b due to falling oil production and rising costs.
• Market Outlook: The author notes that while PetroChina's downstream turnaround is positive, sustainability is uncertain due to historical volatility in expense recognition.

India Consumer Sector

• Rural-led Recovery: The consumer sector is expected to show margin expansion in 1H17 and revenue growth acceleration in 2H17, driven by government rural spending and salary disbursements.
• Emerging Trends: Companies are increasing Capex and reducing ad spends. There is a growing focus on natural and herbal products, with a preference for companies like Emami and Dabur.
• Recommendations: Emami, Dabur India, HUL, and ITC are recommended as "Buy" due to their strong rural and natural product focus.

Asia Oil & Gas/Chemicals

• Weekly Spotlight: The document highlights the performance of the sector, including a slight decline in crude oil prices and an increase in refining margins.

China Power & Coal

• Coal Price Surge: Coal prices increased by RMB11/t in July 2016, with the China Coal index rising 6.1% m-m. However, overall coal consumption declined by 15.9% y-y over 7M16.
• Power Demand Growth: July 2016 saw a significant rise in power demand due to high temperatures, but utilization of power (UH) fell slightly due to lower thermal and nuclear output.
• Inventory and Freight: Coastal IPP inventory rebounded slightly, while freight rates declined. Imported coal prices showed a narrowing discount to domestic prices.

Company Research Highlights

PICC Property & Casualty (2328 HK)

• Performance: PICC P&C reported a net profit of HKD10,648m in 1H16, down 26% y-y but up 50.5% q-q.
• Key Factors: Strong auto insurance margin due to pricing reforms, stable net investment yield, and strategic collaborations with PICC Health and Hua Xia Bank.
• Valuation: 2016E P/E at 8.3x, P/B at 1.3x, Yield at 3.1%.
• Recommendation: BUY, with a target price of HKD15.79.

Samsung Electronics (005930 KS)

• Cloud Platform Development: Launched "Samsung Cloud" with Galaxy Note7 and expanded capabilities through the acquisition of Joyent.
• ARTIK Cloud: An open IoT platform that supports IoT device connectivity and application development.
• Market Outlook: The company is expected to improve its platform-based service offerings and maintain its BUY rating with a target price of KRW2,030,000.
• Valuation: 2016E P/E at 10.9x, EV/EBITDA at 3.9x, Dividend yield at 1.2%.

Infosys (INFO IN)

• Performance: Revenue growth guidance for FY17 was unchanged at 10.5% CC, but the company faced short-term challenges including client caution and contract losses.
• Strategic Moves: Launched the MANA automation platform and focused on employee training and innovation.
• Valuation: 2017E P/E at 15.7x, EV/EBITDA at 10.2x, Dividend yield at 3.2%.
• Recommendation: BUY with a target price of INR1,310.00.

Tata Motors (TTMT IN)

• Performance: Revenue was largely in line with expectations, but EBITDA missed due to unfavourable FX revaluation and lower margins.
• Strategic Focus: The company is focusing on volume growth, with a risk to ASP and margins if FX reverses.
• Valuation: 2017E P/E at 10.5x, P/B at 1.8x, Yield at 0.4%.
• Recommendation: HOLD with a target price of INR450.00.

Key Financial Data and Recommendations

Conclusion

The report emphasizes the mixed performance across the Asia region, with notable strengths in the downstream oil and gas sector and consumer companies focusing on rural and natural products. It highlights the importance of strategic initiatives and market dynamics in shaping future performance, particularly in the context of currency fluctuations, Capex, and digital transformation. The recommendations suggest a focus on companies with strong fundamentals and growth potential in these evolving markets.