Regional Morning Notes Summary
Date: Monday, 10 July 2017
Core Content Overview
This document provides a summary of market insights and company-specific updates for several Asian markets, including China, Indonesia, Malaysia, and Singapore, along with key financial metrics and analyst recommendations.
Key Insights by Region
China
- Kingsoft Corp (3888 HK):
- Existing games show strong growth, with JX mobile ranking among the top 10-15 online games in China in 2Q17.
- The launch of JX mobile III may be postponed due to the company's confidence in the performance of JX mobile.
- Forecasted revenue growth for 2Q17 is 70% to Rmb1.3b, with 68% yoy growth in online games, 28% in WPS, and 114% in cloud business.
- Expected 33% yoy EPS growth in 2Q17.
- WPS is expected to list on the A-share market in 1H18, with a 30% yoy revenue growth forecast and a target price of HK$28.00.
- Maintained BUY recommendation with an upside of +45.3%.
- Key financials show improvement in profitability and net margin, with a forecasted 25% OPM in 2017.
Indonesia
- Banking Sector:
- The Jakarta Islamic Index (JII) has hit new highs, but higher valuations may shift the risk-reward trade-off towards more risk.
- BBRI is considered overvalued and maintained SELL.
- BBNI is undervalued and maintained BUY.
- The Big 4 banks have seen significant market cap growth since 2013, but book value growth has not kept pace, indicating potential asset quality issues.
- Forward P/B multiples are higher than the 2013 levels, suggesting a possible bias in valuation assumptions.
Malaysia
- Technology Sector:
- Local tech companies are expected to deliver strong results from 2Q17 onwards.
- Investors should focus on names with multi-year growth legs after the sharp share price run-up.
Singapore
- SIA Engineering (SIE SP):
- The company has a SELL recommendation with a target price of S$3.60.
- New engine joint ventures offer long-term growth prospects, but the current PE valuation is considered unjustified.
Key Financial Metrics (Selected)
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
21414.3 |
0.4 |
0.6 |
0.7 |
8.4 |
| S&P 500 |
2425.2 |
0.6 |
0.2 |
-0.3 |
8.3 |
| FTSE 100 |
7350.9 |
0.2 |
0.5 |
-2.3 |
2.9 |
| HSCEI |
10251.8 |
-0.9 |
-1.1 |
-3.2 |
9.1 |
| HSI |
25340.9 |
-0.5 |
-1.6 |
-2.6 |
15.2 |
| KLCI |
1759.9 |
-0.6 |
-0.2 |
-1.6 |
7.2 |
| Nikkei 225 |
19929.1 |
-0.3 |
-0.5 |
-0.4 |
4.3 |
| BDI |
822 |
-0.8 |
-6.8 |
-3.2 |
-14.5 |
| Brent Crude |
47 |
0.5 |
-5.5 |
-2.5 |
-17.4 |
| CPO (RM/mt) |
2658 |
-0.3 |
2.5 |
-3.1 |
-16.9 |
Top Picks (BUY)
| Company |
Ticker |
Current Price (lcy) |
Target Price (lcy) |
Pot. +/- (%) |
| Alibaba |
BABA US |
142.43 |
173.00 |
21.5 |
| Beijing Ent. Water |
371 HK |
5.94 |
7.60 |
27.9 |
| Telekomunikasi Indo |
TLKM IJ |
4,630.00 |
5,000.00 |
8.0 |
| V.S. Industry |
VSI MK |
1.99 |
2.40 |
20.6 |
| OCBC |
OCBC SP |
10.69 |
13.00 |
21.6 |
| Siam Cement |
SCC TB |
504.00 |
600.00 |
19.0 |
Sell Recommendations
| Company |
Ticker |
Current Price (lcy) |
Target Price (lcy) |
Pot. +/- (%) |
| Great Wall Motor |
2333 HK |
10.48 |
6.00 |
-42.7 |
| Hartalega |
HART MK |
6.85 |
4.07 |
-40.6 |
Key Assumptions (GDP YoY Growth)
| Region |
2016 |
2017F |
2018F |
| US |
1.6 |
2.5 |
2.5 |
| Euro Zone |
1.7 |
1.8 |
1.6 |
| Japan |
1.0 |
0.9 |
1.2 |
| Singapore |
2.0 |
2.4 |
2.5 |
| Malaysia |
4.2 |
5.0 |
4.9 |
| Thailand |
3.2 |
3.3 |
3.3 |
| Indonesia |
5.0 |
5.2 |
5.5 |
| Hong Kong |
1.9 |
2.0 |
2.0 |
| China |
6.7 |
6.3 |
6.3 |
Corporate Events
| Event |
Venue |
Date (Begin) |
Date (Close) |
| Teleconference Call with Pertamina |
Malaysia |
10 Jul |
10 Jul |
| New Economy Conference 2017 |
Kuala Lumpur |
11 Jul |
11 Jul |
| Roadshow with Citic Envirotech |
Taipei |
18 Jul |
19 Jul |
| Analyst Marketing on Singapore Strategy |
Taipei |
20 Jul |
21 Jul |
| Roadshow with Jacobson Pharma |
Shanghai |
28 Jul |
28 Jul |
| Visit to Sarawak Corridor of Renewable Energy |
Sarawak |
1 Aug |
3 Aug |
| Roadshow with Top Glove Corporation |
US/Canada |
5 Sep |
12 Sep |
Key Financial Highlights (Kingsoft Corp)
Financials (Rmbm)
| Metric |
2015 |
2016 |
2017F |
2018F |
2019F |
| Net turnover |
5,676 |
8,282 |
7,200 |
7,620 |
8,776 |
| EBITDA |
879 |
1,424 |
2,199 |
2,705 |
3,291 |
| Operating profit |
553 |
973 |
1,764 |
2,361 |
2,860 |
| Net profit (rep./act.) |
369 |
-271 |
1,642 |
2,138 |
2,746 |
| EPS (Fen) |
28.5 |
-20.7 |
126.9 |
164.6 |
210.4 |
| PE (x) |
68.2 |
n.m. |
15.3 |
11.8 |
9.3 |
| P/B (x) |
3.1 |
3.2 |
3.2 |
2.5 |
2.0 |
| EV/EBITDA (x) |
24.5 |
15.1 |
9.8 |
8.0 |
6.6 |
Profit & Loss (Rmbm)
| Metric |
2016 |
2017F |
2018F |
2019F |
| Net turnover |
8,282.1 |
7,199.8 |
7,620.1 |
8,776.1 |
| EBITDA |
1,423.6 |
2,199.0 |
2,704.7 |
3,291.5 |
| EBIT |
972.9 |
1,763.9 |
2,360.9 |
2,859.8 |
| Net profit |
-270.7 |
1,641.5 |
2,137.7 |
2,745.5 |
Valuation Summary (Kingsoft Corp)
| Segment |
2018F Revenue (HK$m) |
2018-21F Revenue CAGR |
2018F Non-GAAP Earnings (HK$m) |
2018-21F Earnings CAGR |
Assumed 2017F PE |
Fair Value (HK$m) |
Kingsoft's Holding (%) |
Fair Value per Share (HK$) |
| Online Games |
5,446 |
9% |
2,451 |
22% |
10x |
24,505 |
84% |
12.1 |
| WPS |
1,161 |
13% |
348 |
31% |
16x |
5,572 |
68% |
1.8 |
| Cheetah |
6,496 |
12% |
330 |
43% |
23x |
10,186 |
47% |
2.8 |
| Cloud |
2,351 |
55% |
- |
- |
- |
18,807 |
52% |
5.7 |
Analyst Notes
-
Julia Pan:
- Maintains BUY on Kingsoft Corp.
- Target price is HK$28.00.
- EPS growth is expected to be 24% for 2018-21.
- Key catalysts include higher-than-expected conversion rates, slower decline in old game life cycles, and faster breakeven in the cloud business.
-
Alexander Margaronis:
- Maintains SELL on BBRI due to overvaluation.
- BBNI is undervalued and recommended BUY.
- The market is using 2018 book values and long-term P/B multiples, which may be biased.
- ROE is a key factor in valuation models, and it's expected to decline in the industry.
Conclusion
The report highlights strong growth in Kingsoft Corp's existing games and cloud business, with cautious optimism around the potential delay of JX mobile III. In Indonesia, the banking sector is seen as overvalued, with BBRI as a top sell and BBNI as a top buy. Investors are advised to focus on long-term growth prospects and be cautious of valuation biases in the sector.
