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Regional Morning Notes Summary

Core Content

This document provides a detailed market analysis and stock recommendations for the Asia-Pacific region, focusing on China, Malaysia, and Singapore. It includes updates on key companies, sector performance, and market indices, along with investment recommendations and risk factors.

Main Points

China

Sector Updates

• Automobile Sector:

  • Channel checks indicate sales growth, stabilized discounting, and healthy inventory levels.
  • Premium car brands (BMW, JLR) and Japanese brands (Toyota, Honda, Nissan) are expected to see strong sales growth due to new models and entry-level offerings.
  • Car loans are becoming a significant factor in sales, with interest rates rising slightly.
  • Recommended to BUY Brilliance, DFM, and GAC due to robust product pipelines and steady pricing.
  • SELL Geely, GWM, and BYD due to losing market share and weak performance.

• Consumer Sector:

  • Labour Day holiday sales were weak, with tier-1 cities underperforming compared to tier-2 and lower-tier cities.
  • E-commerce and mobile commerce saw strong growth, with mobile payments accounting for 50% of Tmall transactions.
  • Mass-market catering and gold & jewellery remained resilient despite the slowdown in luxury sales.
  • Retail sales are expected to become less reliant on holiday seasons due to changing consumer behavior.

Key Companies

• Sino-Ocean Land (3377 HK):
  • Sales progress has been weak, leading to a bleak outlook for valuation recovery.
  • Contracted sales declined by 41.1% ytd, and the company faces challenges from credit tightening and regional housing price curbs.
  • Target price: HK$3.44, with a recommendation to SELL.

Malaysia

• Tropicana Corp (TRCB MK):
  • Results were in line with expectations, with progress in billings.
  • Recommendation: HOLD.

Singapore

• Bumitama Agri (BAL SP):

  • Net profit rose to Rp276b, driven by higher CPO and PK ASP, and strong FFB production growth.
  • Recommendation: BUY.

• Overseas Union Enterprise (OUE SP):

  • Profits surged to S$1b due to deconsolidation and writedown for Twin Peaks.
  • Recommendation: BUY.

• Singapore Airlines (SIA SP):

  • Announced plans for premium economy seating and benefited from tax credit returns.
  • Recommendation: HOLD.

• ST Engineering (STE SP):

  • PBT rose by 6%, showing commendable performance.
  • Recommendation: BUY.

• Wilmar International (WIL SP):

  • Better outlook for other businesses is expected to offset margin pressure from soybean crushing.
  • Palm division is more stable.
  • Recommendation: BUY.

• Essco Thailand (ESSO TB):

  • Results were disappointing, with the worst not over.
  • Recommendation: SELL.

Key Indices

Top Picks

Key Assumptions

Corporate Events

Market Weight

• Automobile: Maintained as MARKET WEIGHT
• Consumer Staples: OVERWEIGHT (MAINTAINED)
• Consumer Discretionaries: MARKET WEIGHT (MAINTAINED)

Essential Information

• Sino-Ocean Land:
  • Contracted sales declined by 41.1% ytd.
  • Sales target for 2014 is over Rmb40b, with a 12% increase from 2013.
  • The company plans to increase new project launches to nine in 2014, with seven newly acquired in 2013 and Jan 2014.
  • Expected to launch these projects in 4Q14, with a potential for price cuts in lower-tier cities.

Risks

• Worse-than-expected slowdown in China's economy.
• Anti-Japanese riots in China.
• Imposition of car license quotas in more cities.
• Deteriorating market sentiment towards small- and middle-cap property stocks.

Stock Impact

• Sino-Ocean Land is expected to require a 55% sell-through rate to meet its 2014 sales target.
• The company aims to shorten the land acquisition to pre-sales period to 9 months from 15 months.

Analysts

• Ken Lee: +852 2236 6760 | ken.lee@uobkayhian.com.hk
• Renee Tai: +852 2826 1324 | renee.tai@uobkayhian.com.hk
• Edison Bian: +852 2236 6761 | edison.bian@uobkayhian.com.hk
• David Yang: +8621 5404 7225 ext 801 | davidyang@uobkayhian.com

Summary of Key Financials (Sino-Ocean Land)

Conclusion

The report highlights mixed performance across key sectors and companies in the Asia-Pacific region. While some companies like Brilliance, DFM, and GAC are recommended for purchase due to strong product pipelines, others like Geely, GWM, and BYD are advised to be sold due to weak market positions. The consumer sector in China shows resilience in certain segments, but overall performance is weak, with e-commerce and mobile commerce playing a growing role. Sino-Ocean Land is under pressure and faces a bleak outlook for valuation recovery, with a recommendation to maintain the SELL rating.