20151102-大华银行-Regional_Morning_Notes_46页_2mb

Regional Morning Notes Summary - 02 November 2015

Core Content Overview

This document provides a comprehensive summary of financial and economic updates for various Asian markets, focusing on China, Indonesia, Malaysia, Singapore, and Thailand. It includes key performance indicators, company results, sector updates, and investment recommendations for the period of 3Q15 and 9M15.

China

Economic Indicators

• PMI: China's official manufacturing PMI was flat at 49.8% in October 2015, missing market expectations of 50.0%.
• Sub-Indices:
  • New Orders: Slight rebound to 50.3%, indicating improved demand for large manufacturers.
  • Export Orders: Declined by 0.5ppt to 47.4%, reflecting weak overseas demand.
  • Purchase Prices: Declined to 44.4%, driven by lower global commodity prices, suggesting ongoing deflationary pressure.
• GDP Growth: Expected to slow to 6.5% in 2015 and 6.7% in 2016.

Sector Updates

• Railway: Contractors reported 3-12% earnings growth in 9M15, in line with market expectations.
  • CRRC-H (1766 HK): Flat sales and earnings in 9M15, but expects 10% earnings growth in 2015 due to increased delivery in 4Q15.
  • CRCC (1186 HK): Strong improvement in new orders, with 1.5% yoy decline in 9M15, and BUY recommendation.
  • CCCC (1800 HK): Notable 11% yoy revenue growth in 9M15, driven by overseas orders.
• Key Railway Investment:
  • Railway investment is expected to increase in 4Q15, with China Railway Co (CRC) aiming to meet its full-year target.
  • The 13th Five-Year Plan is projected to see 30,000km of new railway lines with Rmb3.5t investment, aligning with the previous period's spending.

Company Results

• Air China (753 HK):

  • Achieved record operating profit in 3Q15.
  • Net profit was at the higher end of its guidance, driven by lower fuel costs.
  • Free Cash Flow (FCF) increased by 197% yoy.
  • Adjusted Operating Profit rose to Rmb6,599m, with a 21.1% operating margin.
  • BUY recommendation with a revised target price of HK$10.60.

• China Minsheng Bank (1988 HK):

  • 3Q15 results slightly above estimate, but NIM (Net Interest Margin) weaker than expected.
  • BUY recommendation with a target price of HK$10.60.

• ICBC (1398 HK):

  • Earnings above expectations due to stronger fee income.
  • BUY recommendation with a target price of HK$7.60.

• China Singyes Solar Technologies (750 HK):

  • Strategic focus on co-investment model.
  • BUY recommendation with a target price of HK$8.50.

Investment Picks

• Top Picks:
  • CRCC (1186 HK): BUY with a target price of HK$14.90.
  • ICBC (1398 HK): BUY with a target price of HK$7.60.
  • China Minsheng Bank (1988 HK): BUY with a target price of HK$10.60.
  • China Singyes Solar Technologies (750 HK): BUY with a target price of HK$8.50.

Key Assumptions

• Valuation: China railway contractors are trading at 9.6x 2016F PE, below historical averages.
• Growth Drivers: Continued railway investment, especially under the One Belt One Road (OBOR) initiative, and potential new orders from overseas projects.
• Risks: PPP project delays, CRC procurement issues, and slowdown in infrastructure spending.

Indonesia

Company Results

• Adhi Karya (ADHI IJ):
  • 9M15 net income rose by 36% yoy.
  • BUY recommendation with a target price of Rp3,000.
• United Tractors (UNTR IJ):
  • 3Q15 net profit increased by 22.4% qoq, a positive earnings surprise.
  • BUY recommendation with a target price of Rp23,700.
• Waskita Karya (WSKT IJ):
  • 9M15 net income surged by 210% yoy.
  • BUY recommendation with a target price of Rp2,100.

Malaysia

Sector Update

• Banking: Loans growth moderated, while deposit growth lagged, keeping funding costs elevated.
• IJM Corporation (IJM MK):
  • Orderbook at all-time high.
  • BUY recommendation with a target price of RM3.95.

Singapore

Company Results

• Neptune Orient Lines (NOL SP):
  • 3Q15 loss of US$96m, attributed to lower rates and volumes.
  • Downgrade to HOLD with a revised target price of S$1.06.
• United Overseas Bank (UOB SP):
  • Not rated, but reported quality earnings ahead of expectations.

Thailand

Company Results

• Bumrungrad Hospital (BH TB):
  • Good earnings despite business disruption.
  • Upgrade to BUY with a target price of Bt250.00.
• Banpu (BANPU TB):
  • Short-term hiccup but positive long-term outlook with full operations of Hongsa.

Key Indices

Top Picks

Corporate Events

• Malaysia & Indonesia Strategy, Indonesia Consumer and Regional Gaming:
  • Events in Frankfurt, Milan, London (02-04 Nov).
• China City Railway Transportation Technology Roadshow:
  • Shanghai (09 Nov).
• Venture Corporation Corporate Roadshow:
  • Singapore (11 Nov).
• Bumitama Agri Luncheon:
  • Singapore (12 Nov).
• Valutronics Tea Session:
  • Singapore (17 Dec).
• Regional 1H16 Strategy Forum:
  • Kuala Lumpur (02 Dec).

Conclusion

The report highlights economic pressures in China, with a flat PMI and deflationary trends, but also notes potential for growth through fiscal stimulus and One Belt One Road initiatives. Indonesia and Malaysia show positive results and strong growth prospects, while Singapore faces mixed performance. Air China and railway contractors are highlighted as BUY recommendations due to strong earnings and valuations. The market remains optimistic about infrastructure development and overseas expansion as key drivers for future growth.