Regional Morning Notes Summary - 14 July 2014
Core Content Overview
This document provides a summary of investment insights and market updates for various regions, including Thailand, China, Hong Kong, Indonesia, and Malaysia, with a focus on China Oilfield Services (COSL) and Huadian Power International Corp (Huadian). It outlines key investment strategies, financial forecasts, and market analysis for the listed companies and indices, along with corporate events and valuation metrics.
Key Investment Strategies
Thailand
- Strategy: Selective BUY on laggard stocks due to limited upside to the SET index target.
China
- COSL (China Oilfield Services):
- 1H14 Results Preview: Stable growth continues with increased drilling capacity and strong day rates.
- Company Visit Takeaways: Strong earnings growth momentum.
- Recommendation: Maintain BUY with a target price of HK$25.00.
- Upside: +25.1% from current price of HK$19.98.
- Capacity Expansion: Added new jack-ups and leased more rigs, increasing total available days to 6,556 in 1H14.
- Utilisation: Increased to 92% in 1H14, with semi-sub utilisation remaining high due to demand in deepwater segment.
- Day Rates: Stable in 1H14, with jack-ups showing a 4% increase in day rates over six months.
- Financials: Net profit forecast for 2014 is Rmb7,477m, with EBITDA margin at 39.1% and EV/EBITDA at 7.7x.
- Leverage: Net debt to equity decreased from 57.0% to 32.6% in 2014.
Malaysia
- Uzma (UZMA MK):
- Update: Raised 2014–16 net profit forecasts due to recent acquisitions.
- Recommendation: Downgraded to HOLD due to limited upside to the target price of RM4.40.
Key Market Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
16943.8 |
0.2 |
-0.7 |
1.0 |
2.2 |
| S&P 500 |
1967.6 |
0.1 |
-0.9 |
1.6 |
6.4 |
| FTSE 100 |
6690.2 |
0.3 |
-2.6 |
-1.3 |
-0.9 |
| AS30 |
5474.6 |
0.4 |
-0.7 |
1.7 |
2.3 |
| CSI 300 |
2148.0 |
0.2 |
-1.4 |
-1.3 |
-7.8 |
| FSSTI |
3293.7 |
0.7 |
0.7 |
0.0 |
4.0 |
| HSCEI |
10379.6 |
0.1 |
-1.0 |
-1.3 |
-4.0 |
| HSI |
23233.5 |
0.0 |
-1.3 |
-0.4 |
-0.3 |
| JCI |
5032.6 |
-1.3 |
2.9 |
2.2 |
17.7 |
| KLCI |
1883.2 |
-0.5 |
-0.1 |
0.3 |
0.9 |
| KOSPI |
1988.7 |
-0.7 |
-1.0 |
-0.1 |
-1.1 |
| SET |
1518.0 |
0.7 |
1.7 |
3.7 |
16.9 |
| TWSE |
9495.8 |
-0.7 |
-0.1 |
3.3 |
10.3 |
| BDI |
814 |
-2.6 |
-8.8 |
-10.2 |
-64.3 |
| CPO (RM/mt) |
2437 |
-0.2 |
-0.7 |
1.4 |
5.3 |
| Nymex Crude (US$/bbl) |
101 |
0.0 |
-2.6 |
-5.6 |
2.5 |
Top Picks (BUY)
| Company |
Ticker |
Current Price |
Target Price |
Upside |
| CNBM |
3323 HK |
7.12 |
9.82 |
37.9% |
| ICBC |
1398 HK |
4.98 |
6.15 |
23.5% |
| Bank Mandiri |
BMRI IJ |
10,500.00 |
10,800.00 |
2.9% |
| Gamuda |
GAM MK |
4.77 |
5.60 |
17.4% |
| DBS |
DBS SP |
17.17 |
22.60 |
31.6% |
| Pacific Radiance |
PACRA SP |
1.43 |
1.55 |
8.4% |
| Bangkok Bank |
BBL TB |
203.00 |
237.00 |
16.7% |
| PTT |
PTT TB |
326.00 |
361.00 |
10.7% |
Corporate Events
| Event |
Venue |
Dates |
| Nam Cheong Corporate Roadshow |
Kuala Lumpur |
14 Jul |
| Kingdee International Corporate Roadshow |
Taipei |
14 Jul – 15 Jul |
| Lung Cheong International Luncheon |
Hong Kong |
16 Jul |
| Singapore 2H14 Strategy & Mid-Cap Outlook |
Kuala Lumpur |
16 Jul – 17 Jul |
Key Assumptions
| Metric |
2013 |
2014F |
2015F |
2016F |
| GDP (yoy) |
2013 |
2014F |
2015F |
2016F |
| US |
1.9 |
3.0 |
3.5 |
3.5 |
| Euro Zone |
-0.4 |
1.0 |
1.0 |
1.0 |
| Japan |
1.5 |
2.1 |
2.1 |
2.1 |
| Singapore |
4.1 |
4.2 |
4.2 |
4.2 |
| Malaysia |
4.7 |
5.6 |
5.6 |
5.6 |
| Thailand |
2.9 |
1.5 |
1.5 |
1.5 |
| Indonesia |
5.8 |
5.5 |
5.5 |
5.5 |
| Hong Kong |
3.0 |
3.5 |
3.5 |
3.5 |
| China |
7.7 |
7.1 |
7.1 |
7.1 |
| Commodity |
2013 |
2014F |
2015F |
2016F |
| Brent (US$/bbl) |
110 |
110 |
110 |
110 |
| Aluminium (US$/ml) |
1,886 |
1,713 |
1,650 |
1,650 |
| Copper (US$/mt) |
7,354 |
6,850 |
6,750 |
6,750 |
| Gold (US$/ounce) |
1,407 |
1,200 |
1,300 |
1,300 |
| Iron Ore (US$/mt) |
135 |
120 |
110 |
110 |
| CPO (US$/mt) |
736 |
858 |
858 |
858 |
| BDI |
1,219 |
1,500 |
1,800 |
1,800 |
Huadian Power International Corp (1071 HK)
- Recommendation: Maintain BUY with a target price of HK$6.00.
- Earnings Forecast: 1H14 net profit is expected to grow 53% yoy to Rmb2,700m.
- Key Factors:
- Coal Price Retreatment: Standard coal price dropped to Rmb605/ton in 2Q14 from Rmb641/ton in 1Q14.
- Utilisation: Remained largely stable in 1H14.
- Capacity Expansion: 3,200MW new capacity in 2014, 2,000MW in 2015.
- Wind Power: Target to build four major wind farms, with 600MW and 800MW capacity added in 2014 and 2015 respectively.
- Financials:
- Net Profit: Rmb4,097m in 2013, Rmb4,958m in 2014F.
- EPS: 55.6 in 2013, 58.2 in 2014F.
- PE: 7.4 in 2013, 7.0 in 2014F.
- P/B: 1.6 in 2013, 1.3 in 2014F.
- EV/EBITDA: 7.4 in 2013, 4.9 in 2014F.
- Dividend Yield: 5.5% in 2013, 5.7% in 2014F.
- Net Margin: 6.2% in 2013, 7.1% in 2014F.
- Net Debt to Equity: 297.5% in 2013, 220.0% in 2014F.
- Interest Cover: 3.3 in 2013, 4.0 in 2014F.
- ROE: 19.3% in 2013, 19.6% in 2014F.
Earnings and Risk Analysis
China Oilfield Services (COSL)
- Earnings Growth: Expected to be flat in the marine support and geo & surveying segments in 1H14.
- One-off Gain: Rmb400m from legal settlement with Statoil in Norway, which may increase total earnings to Rmb4b.
- Earnings Risk: None noted for 2014.
- Valuation: Trading at 10.2x 2014F PE, lower than historical levels.
- DCF-based Target Price: HK$25.00, up from previous.
Stock Impact
- Huadian:
- 1H14 Net Profit: Rmb2,700m, up 53% yoy.
- 2Q14 Net Profit: Rmb1,500m, up 25% qoq, driven by weak coal prices.
- Tariff Cut Risk: Expected to be lower than previous estimates at Rmb1–1.5 cents/kWh.
- Asset Injection: Parent company Huadian Group may inject assets, providing growth potential.
Summary of Key Points
- COSL is expected to maintain strong earnings growth due to increased drilling capacity and stable day rates, despite lower utilisation in 1Q14.
- Huadian is a top performer in the power sector, with strong earnings growth due to falling coal prices and efficient operations.
- Thailand strategy focuses on selective BUYs on laggard stocks.
- Malaysia has a HOLD recommendation for Uzma due to limited upside to the target.
- Corporate events are ongoing in various markets, with roadshows and conferences planned for mid-July.
- Valuation metrics indicate a mix of growth and risk, with COSL trading at a discount and Huadian showing strong financial performance.
