20150909-大华银行-Regional_Morning_Notes_13页_1mb

Regional Morning Notes Summary

Core Content

This document provides a regional economic and sector update for China, Malaysia, and Singapore, focusing on trade, property, and rubber glove industries, as well as key market indices and stock recommendations.

Main Points

China: Trade and Property

Trade

• August 2015 Export and Import Data:
  • Exports fell by 5.5% yoy, slightly better than the expected 6.6% yoy decline.
  • Imports dropped by 13.8% yoy, worse than the expected 7.9% yoy drop.
  • Trade surplus reached US$60.2b, but foreign reserves fell by US$93.9b, indicating rapid capital outflow following the RMB devaluation.
  • Export to major markets (US, EU, Japan, HK) showed mixed results, with US and Japan seeing slight declines.
  • Import prices for crude oil and iron ore dropped significantly, -41.9% and -35.1% respectively, indicating weak domestic demand and deflationary pressure.

Property

• Sector Overview:
  • Property stocks have been traded down to -1SD since the peak in May, but are not close to the bottom (-2SD).
  • Valuation recovery is expected to be led by large players, and microeconomic stability is crucial.
• Key View:
  • Downtrend in Chinese foreign trade may persist throughout 2015 due to weak domestic and foreign demand.
  • PMI new export index dropped to 47.7% in August, suggesting dim prospects for exports.
  • RMB under pressure from capital outflow, with PBOC using reserves to support the currency.
• Sector Picks:
  • BUY recommendations for COLI (688 HK), China Resources Land (1109 HK), China Vanke (2202 HK), Dalian Wanda (3699 HK), and Evergrande (3333 HK).
  • SELL recommendation for Poly Property (119 HK) and Guangzhou R&F (2777 HK).
  • HOLD for Kaisa (1638 HK), SUNAC China (1918 HK), and Shimao Property (813 HK).
• Risks:
  • Debt restructuring and loan defaults could pressure valuation recovery.
  • Limited room for credit easing after five interest rate cuts since November 2014.

Malaysia: Rubber Gloves

Sector Overview

• 2Q15 Results:
  • Sector earnings grew 17% qoq and 36% yoy.
  • Top Glove led with a record net profit of RM72.3m, driven by 30% qoq sales increase, favourable exchange rate, and higher utilisation rates.
  • Kossan and Hartalega saw modest sequential earnings growth due to new production lines.
• Key View:
  • Margin expansion is expected in 2H15 due to the strong US dollar.
  • Capacity expansion is on track, with Hartalega expected to fully commission its new plant by end-2015.
  • Nitrile glove segment may face margin contraction in the long term due to capacity overtake, but near-term gains from US dollar strength are expected.
• Valuation:
  • The sector is currently trading at 23x 2016F PE, close to 2SD above historical mean.
  • A reversal in US dollar strength could lead to profit-taking, and share price retracements of 7.0–9.2%.
  • Hartalega is the most vulnerable due to rich valuations.

Singapore: Advertising Revenue

Sector Update

• SPH (Singapore Press Holdings):
  • Advertising revenue remained weak, with a -2% yoy decline in 4QFY15 and -9% yoy in 3QFY15.
  • Print revenue (including magazines) is expected to decline 6% yoy in FY15 and remain flat in FY16 and FY17.
  • Real GDP growth is projected at 2.5% for 2015 and 2.9% for 2016.
• Key View:
  • No near-term share price catalysts are expected.
  • Annual dividend yield of 5% is decent.
• Recommendation:
  • HOLD recommendation for SPH, with a target price of S$4.00.

Key Indices

Key Assumptions

Corporate Events

• Phoenix Healthcare Group Roadshow: Shanghai, 8–9 Sep
• Evergrande Real Estate Roadshow: Singapore, 11 Sep
• KWG Property Roadshow: Shanghai, 15 Sep
• Deleum Bhd Luncheon: Kuala Lumpur, 17 Sep
• Genting Singapore Luncheon: Singapore, 18 Sep
• Far East Consortium Roadshow: Toronto & Montreal, 8–9 Oct
• Asian Gems Conference: Singapore, 12–13 Oct

Conclusion

The report highlights weak demand in China's trade, challenging conditions in the property sector, and positive but volatile performance in Malaysia's rubber glove industry. While some companies are recommended for purchase, others are cautioned due to valuation risks and potential margin contraction. Singapore's SPH faces weak advertising revenue but remains dividend attractive. Overall, the market outlook is cautious, with valuation recovery in China and Malaysia's rubber glove sector dependent on macroeconomic factors and currency movements.