20140903-大华继显-Regional_Morning_Notes_17页_1mb

Regional Morning Notes Summary - 03 September 2014

Core Content Overview

This document provides a summary of market insights and investment strategies for several Asian markets, including China, Indonesia, Malaysia, and Singapore, focusing on the automobile and plantation sectors. It also includes key indices, corporate events, peer comparisons, and sensitivity analyses for investment decisions.

Main Points by Region

China - Automobile Sector

• Japanese Car Sales Recovery: In August 2014, Japanese carmakers (Toyota, Nissan, Honda) saw a sales rebound, with DF Honda experiencing the sharpest increase of 73% month-over-month (mom). The recovery was attributed to inventory drawdown in July and the launch of new models.
• Toyota's Sales Turnaround: Toyota's sales in China rose 8.9% yoy in August 2014, driven by the new Corolla model. GAC Toyota is expected to benefit from the launch of the Levin model in September.
• Nissan's Flat Sales: Nissan's sales in China were flat yoy in August, but the JV (DF Nissan) showed stronger growth than the overall brand.
• Honda's Performance: Honda's sales rebounded 33% mom, with DF Honda leading the growth. The yoy decline narrowed from -36% to -13%.
• Market Weight: Maintain MARKET WEIGHT on the automobile sector.
• Top Picks: Brilliance (1114 HK) and Dongfeng Motor (489 HK) are recommended as BUYs, with target prices of HK$19.00 and HK$17.50 respectively.
• Earnings and Valuation: Strong product pipelines are expected to drive earnings. Despite recent price rallies, the long-term prospects remain positive.
• Risks: Macroeconomic risks include credit tightening and potential geopolitical issues affecting Japanese car sales in China.

Indonesia - Plantation Sector

• CPO Price Decline: Crude palm oil (CPO) prices fell 14.9% mom to a five-year low of RM1,944/tonne. Factors include increased global soybean supply, a stronger Malaysian ringgit, and lower biodiesel demand.
• Tactical Asset Allocation: Trim exposure to CPO stocks and consider buying during November-December when prices are expected to rebound. The analysis of monthly seasonality patterns shows that CPO prices tend to decline in September-October and rise in November-February.
• Valuation Metrics: CPO stocks trade at an average EV/ha of US$8,796, which is 25-60% higher than new planting costs (US$5,500-7,000/ha). Investors should consider trimming positions if CPO prices fall to near production cost per tonne (RM1,200-1,500 for Indonesia, RM1,600-1,800 for Malaysia).
• Market Weight: Maintain MARKET WEIGHT on the plantation sector.
• Key Picks: AALI, BWPT, LSIP, and SGRO are held with target prices and re-enter prices provided. All are rated as HOLD.
• Sensitivity Analysis: A 5% decline in CPO prices leads to a 3.4-13.1% decrease in sales and net profit for the key plantation stocks.

Malaysia - 2Q14 Results

• Earnings Disappointments: 2Q14 results were largely disappointing, with a 29% to 11% ratio of negative to positive surprises. Only 60% of companies met expectations.
• Trimmed Profit Forecasts: Net profit forecasts for 2014 and 2015 were trimmed by 2.8% and 2.0%, respectively, due to weaker-than-expected earnings.
• Sector Outlook: Despite stretched valuations, domestic liquidity should support valuations. Maintain the end-2014 FBMKLCI target at 1,930 (16.1x prospective PE).
• Investment Strategy: Focus on thematic small/mid-cap plays with near-term event catalysts.

Singapore - Mid-Caps Strategy

• Mid-Cap Outperformance: Mid-cap stocks continued to outperform, with key picks including Riverstone, Pacific Radiance, Halcyon, Kris Energy, Silverlake, and OSIM.
• Valuation and Growth: These stocks are seen as having visible earnings growth and potential for valuation multiple expansion.
• Market Weight: Maintain MARKET WEIGHT on mid-cap stocks.

Key Indices

Key Assumptions

• Commodity Prices:
  • Brent (US$/bbl): 110 for all years.
  • CPO (US$/mt): 736 (2013), 788 (2014F), 848 (2015F).
  • BDI: 1,219 (2013), 1,500 (2014F), 1,800 (2015F).

Corporate Events

• China Healthcare Sector Analyst Presentation: Scheduled in Taipei, Singapore, and Kuala Lumpur on 3 Sep, 8 Sep, and 10 Sep respectively.
• China Traditional Chinese Medicine Corporate Roadshow: Held in Taipei, Singapore, Kuala Lumpur, and Hong Kong on 3 Sep, 4 Sep, 5 Sep, and 8 Sep.
• International Housewares Retail Luncheon: Hong Kong, 4 Sep.
• Xinchen China Power Luncheon: Hong Kong, 5 Sep.
• Sihuan Pharmaceutical Corporate Roadshow: Singapore, Kuala Lumpur, and Hong Kong on 8 Sep, 9 Sep, and 11 Sep.
• Xingda Corporate Roadshow: Taipei, 22 Sep.
• CIFI Holdings Corporate Roadshow: London and Milan on 25 Sep and 26 Sep.
• Asian Gems Conference: Singapore, 8-9 Oct.

Investment Recommendations

• BUY: Brilliance (1114 HK), Dongfeng Motor (489 HK), Baoxin (1293 HK), China Zhengtong (1728 HK), Dah Chong Hong (1828 HK), and Amata Corporation (AMATA TB).
• HOLD: AALI, BWPT, LSIP, SGRO, and others.
• SELL: BYD (1211 HK), Geely (175 HK), Great Wall Motor (2333 HK), and UMWH Holdings (UMWH MK).

Risks

• Macro Risk: Credit tightening and reduced liquidity could negatively impact automobile sales.
• Geopolitical Risk: Deteriorating Sino-Japan relations may lead to anti-Japanese sentiment, affecting Japanese car sales in China.
• Sector Risks: Plantation sector is vulnerable to CPO price declines and may require tactical adjustments.

Conclusion

The report highlights the recovery of Japanese car sales in China, the potential for CPO price bottoming in Indonesia, and the overall challenges faced by the Malaysian plantation sector. Investment strategies emphasize maintaining MARKET WEIGHT in certain sectors, trimming positions on underperforming stocks, and focusing on mid-cap stocks with strong fundamentals and growth potential. Key recommendations include holding or buying specific stocks based on their earnings outlook, valuation, and sensitivity to CPO price movements.