Regional Morning Notes Summary
Core Content
This document provides an overview of financial market analysis for the Asia-Pacific region, focusing on China, Indonesia, Malaysia, and Singapore. It includes updates on company results, key indices, corporate events, investment strategies, and analyst recommendations.
Main Points
China Strategy
- As Growth Slows, Value Plays Outperform: With slowing economic growth and deflationary pressures, investors are advised to look for value stocks with a higher cash flow yield.
- Market Uncertainties: Despite government support, the MSCI China index has seen limited earnings growth and increased downside risk.
- Preferred Investment Matrix: Cash flow yield is emphasized as a better indicator of value than earnings, especially in deflationary environments.
Company Results
Agricultural Bank of China (1288 HK)
- 2014 Performance: Missed earnings consensus, with a 3% shortfall due to weaker fees growth and higher provisioning charges.
- Key Metrics:
- Net interest income increased by 14.3% yoy.
- Net fees and commissions declined by 3.7% yoy.
- Net profit rose by 7.9% yoy to Rmb179.5b.
- Challenges:
- NPL balance increased by 21% qoq.
- NPL ratio rose to 1.54% in 4Q14, above the industry average.
- NPL coverage ratio dropped from 367% in 2013 to 286% in 2014.
- Outlook: Cautious for 2015 with lower earnings visibility and potential NIM contraction due to interest rate cuts.
- Recommendation: HOLD with a target price of HK$3.90.
- Valuation:
- Current Price: HK$3.80
- Entry Price: HK$3.40
- P/E ratio: 5.5 (2015F), 5.2 (2016F), 4.8 (2017F)
- Dividend Yield: 6.0% (2015F), 6.2% (2017F)
China Overseas Land (688 HK)
- 2014 Performance: Strong revenue and core profit growth of 45.5% and 25.6% yoy respectively.
- Corporate Action: Proposed to issue 1,686m shares at HK$25.38 to fund 30 projects from COHL, with expected completion by end-May 15.
- Recommendation: BUY with a target price of HK$30.87.
Indonesia Update
- United Tractors (UNTR IJ):
- Headwinds from Pama's declining coal production.
- Maintain HOLD with a target price of Rp22,000.
Malaysia Results
- SapuraKencana (SAKP MK):
- Challenging times ahead.
- Downgrade to HOLD.
Singapore Update
- Wilmar International (WIL SP):
- Downstream operations benefit from lower feedstock prices.
- Focus on sustainability.
- Maintain HOLD with a target price of S$3.65.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18011.1 |
-0.6 |
0.9 |
-1.1 |
1.1 |
| S&P 500 |
2091.5 |
-0.6 |
0.8 |
-1.1 |
1.6 |
| FTSE 100 |
7019.7 |
-0.3 |
2.7 |
1.0 |
6.9 |
| AS30 |
5934.5 |
0.2 |
2.1 |
0.4 |
10.1 |
| CSI 300 |
3973.0 |
0.0 |
5.7 |
14.2 |
12.4 |
| FSSTI |
3413.3 |
0.1 |
1.3 |
-0.8 |
1.4 |
| HSCEI |
12005.0 |
-1.4 |
1.4 |
-0.5 |
0.2 |
| HSI |
24399.6 |
-0.4 |
2.1 |
-1.5 |
3.4 |
| JCI |
5447.6 |
0.2 |
0.2 |
0.0 |
4.2 |
| KLCI |
1814.0 |
1.0 |
1.5 |
-0.1 |
3.0 |
| KOSPI |
2041.4 |
0.2 |
0.6 |
2.6 |
6.6 |
| Nikkei 225 |
19713.5 |
-0.2 |
1.4 |
6.1 |
13.0 |
| SET |
1514.5 |
-0.4 |
0.1 |
-4.7 |
1.1 |
| TWSE |
9731.7 |
-0.3 |
2.0 |
0.3 |
4.6 |
| BDI |
597 |
0.5 |
5.1 |
15.7 |
-23.7 |
| CPO (RM/ml) |
2196 |
0.3 |
0.1 |
-2.8 |
-4.4 |
| Nymex Crude |
48 |
0.1 |
6.5 |
-6.7 |
-10.7 |
Top Picks (BUY)
| Company |
Stock Code |
Current Price (LC) |
Target Price (LC) |
Upside (%) |
| Sunac China |
1918 HK |
6.51 |
9.29 |
42.7 |
| ICBC |
1398 HK |
5.58 |
6.80 |
21.9 |
| Bank Negara |
BBNI LJ |
7,100.00 |
7,500.00 |
5.6 |
| Genling Msia |
GENM MK |
4.19 |
4.47 |
6.7 |
| DBS |
DBS SP |
20.18 |
23.55 |
16.7 |
| Pacific Radiance |
PACRA SP |
0.65 |
1.00 |
55.0 |
| Krong Thai Bank |
KTB TB |
22.90 |
29.00 |
26.6 |
| Sino Thai Engr |
STEC TB |
19.80 |
30.25 |
52.8 |
Key Assumptions
| Region |
GDP (YoY) |
2013 |
2014 |
2015F |
| US |
3.2 |
1.9 |
2.7 |
3.2 |
| Euro Zone |
1.4 |
-0.4 |
0.9 |
1.4 |
| Japan |
2.0 |
1.5 |
1.5 |
2.0 |
| Singapore |
3.3 |
3.9 |
3.2 |
3.3 |
| Malaysia |
5.2 |
4.7 |
5.9 |
5.2 |
| Thailand |
3.9 |
2.9 |
1.5 |
3.9 |
| Indonesia |
5.8 |
5.8 |
5.2 |
5.8 |
| Hong Kong |
3.7 |
2.9 |
3.5 |
3.7 |
| China |
7.0 |
7.7 |
7.2 |
7.0 |
| Commodity |
2014 |
2015F |
2016F |
| Brent (US$/bbl) |
99.45 |
65 |
70 |
| CPO (US$/mt) |
722 |
765 |
788 |
| BDI |
1,101 |
1,300 |
1,400 |
Corporate Events
- Indofood Sukses Makmur Roadshow: Singapore, 27 Mar
- Sunway Berhad Luncheon: Kuala Lumpur, 31 Mar
- Singamas Container Holdings Roadshow: Singapore, 31 Mar
- Roadshow: Kuala Lumpur, 1 Apr
- Sihuan Pharmaceutical Holdings Corporate Roadshow: Taipei, 30 Mar
- Corporate Roadshow: Singapore, 2 Apr
- Corporate Roadshow: Kuala Lumpur, 3 Apr
- Corporate Roadshow: Hong Kong, 16 Apr
- Amata Corporation Roadshow: Kuala Lumpur, 9 Apr
- Amata Corporation Roadshow: Singapore, 10 Apr
Analysts
Summary of Key Financial Metrics
| Metric |
2014 |
2015F |
2016F |
2017F |
| Net interest income |
14.3% |
4.6% |
7.0% |
7.0% |
| Fees & commissions |
-3.7% |
3.2% |
2.6% |
2.6% |
| Pre-provision profit |
12.4% |
2.5% |
5.3% |
5.3% |
| Net profit |
7.9% |
5.1% |
4.2% |
4.2% |
| Net profit (adj.) |
7.9% |
5.1% |
4.2% |
4.5% |
| Customer loans |
12.1% |
12.1% |
11.7% |
11.7% |
| Customer deposits |
6.1% |
7.1% |
7.0% |
7.0% |
| Net interest margin |
2.9% |
2.8% |
2.7% |
2.7% |
| Cost/income ratio |
42.7% |
43.8% |
44.3% |
45.1% |
| Adjusted ROA |
1.2% |
1.1% |
1.1% |
1.1% |
| Reported ROE |
19.2% |
17.2% |
16.0% |
15.8% |
| Adjusted ROE |
19.2% |
17.2% |
16.0% |
15.8% |
| P/BV (x) |
1.0 |
0.9 |
0.8 |
0.7 |
| P/NTA (x) |
1.0 |
0.9 |
0.8 |
0.7 |
| Adjusted P/E (x) |
5.5 |
5.2 |
5.0 |
4.8 |
| Dividend Yield (%) |
6.0 |
5.7 |
6.0 |
6.2 |
| Payout ratio (%) |
32.9 |
30.0 |
30.0 |
30.0 |
Summary of Key Financial Indicators
| Indicator |
2014 |
2015F |
2016F |
2017F |
| NPL balance (Rmbm) |
124,970 |
124,970 |
124,970 |
124,970 |
| NPL ratio (%) |
1.54 |
1.8 |
1.8 |
1.8 |
| Loan loss coverage (%) |
286.5 |
240.0 |
228.0 |
222.0 |
| Loan loss reserve/gross loans |
4.4 |
4.3 |
4.1 |
4.0 |
| Increase in NPLs (%) |
42.4 |
29.4 |
13.8 |
10.6 |
| Credit cost (bp) |
84.9 |
77.0 |
75.6 |
68.8 |
| Tier-1 CAR (%) |
9.5 |
9.3 |
9.2 |
9.1 |
| Total CAR (%) |
12.8 |
12.7 |
12.3 |
12.0 |
| P/BV (x) |
1.0 |
0.9 |
0.8 |
0.7 |
| P/NTA (x) |
1.0 |
0.9 |
0.8 |
0.7 |
| Adjusted P/E (x) |
5.5 |
5.2 |
5.0 |
4.8 |
| Dividend Yield (%) |
6.0 |
5.7 |
6.0 |
6.2 |
| Payout ratio (%) |
32.9 |
30.0 |
30.0 |
30.0 |
Summary of Stocks Based on Value Screen
| Stock Code |
Name |
| 753 HK |
Air China Ltd |
| 914 HK |
Anhui Conch Cement Co Ltd |
| 386 HK |
China Petroleum & Chemical Corp |
| 1088 HK |
China Shenhua Energy Co Ltd |
| 762 HK |
CHINA UNICOM |
| 267 HK |
CITIC |
| 883 HK |
CNOOC |
| 2333 HK |
Great Wall Motor Co Ltd |
| 902 HK |
Huaneng Power International Inc |
| 857 HK |
PetroChina Co Ltd |
Summary of Investment Recommendations
- BUY: Sunac China, ICBC, Bank Negara, Genling Msia, DBS, Pacific Radiance, Krong Thai Bank, Sino Thai Engr
- SELL: UMWH Holdings
Summary of Earnings and Valuation
- ABC's 2014 Earnings: Missed consensus by 3% with a net profit of Rmb179.5b.
- Earnings Forecast: Revised down for 2015 and 2016, with a forecast of Rmb205.4b for 2017.
- Target Price: HK$3.90 for 2015, reflecting lower earnings.
- Valuation: Lower than peers, leading to HOLD recommendation.
Summary of Financial Highlights
- Net interest income: Expected to grow at a slower pace in 2015 due to lower pricing power.
- NPL coverage ratio: Fell to 286% in 2014 from 367% in 2013.
- Tier-1 CAR: Stood at 9.5% in 2014, expected to decline to 9.1% in 2017.
- Customer loans: Grew by 12.1% yoy in 2014.
- Customer deposits: Rose by 6.1% yoy in 2014.
Summary of Risk and Uncertainty
- Economic Slowdown: Leads to slower earnings growth and increased market uncertainty.
- Deflationary Pressures: Impact on profitability and margin.
- NPL Trends: Continued deterioration despite write-offs.
- Capital Adequacy: Concerns over meeting capital requirements in the medium term.
Summary of Company Description
- Agricultural Bank of China: Third-largest state-owned bank in China with extensive rural branch coverage.
- Focus: Agricultural-related and rural loans.
Summary of Stock Data
| Metric |
Value |
| GICS sector |
Financials |
| Bloomberg ticker |
1288 HK |
| Shares issued (m) |
30,738.8 |
| Market cap (HK$m) |
1,486,965.7 |
| Market cap (US$m) |
191,765.1 |
| 3-mth avg daily turnover (US$m) |
65.3 |
Summary of Price Performance
| Period |
% Change |
| 1 month |
-0.3 |
| 3 months |
0.0 |
| 6 months |
7.3 |
| 1 year |
18.4 |
| YTD |
-3.1 |
Summary of Analysts
