Regional Morning Notes Summary - 21 September 2016
Core Content Overview
This document provides a regional financial update, focusing on key stocks in Singapore, China, Indonesia, Malaysia, and Thailand. It includes market insights, stock recommendations, corporate events, sector updates, and valuation data.
Key Stories by Region
Singapore
- Keppel Telecommunications & Transportation (KPTT SP/BUY/S$1.68/Target:S$2.28)
- Highlighted as a small/mid-cap stock with a "BUY" recommendation.
- Described as a "Developer of the future landscape."
China
- Aviation Sector Update
- Yields are at an inflection point, nearing 2009 lows.
- All three major Chinese airlines (Air China, China Eastern Airlines, China Southern Airlines) have reduced their US$ debt by 12–41%, with China Southern Airlines (CSA) showing the most significant reduction.
- The shift from offshore to local debt funding is a positive trend, reducing the mismatch between revenue and debt.
- The sector is rated OVERWEIGHT, with CSA as the short-term top pick and Air China as the long-term top pick.
Indonesia
- Nippon Indosari Corpindo (ROTI IJ/HOLD/Rp1,620/Target: Rp1,725)
- Maintained as a HOLD with a revised target price.
- The company is accelerating product launches, with 12 SKUs planned for 2H16 and 12–20 SKUs for 2017.
- Net margin for 2016 is expected to be 10.3%, with a recovery to 11.5% in 2017.
- Salaries are expected to remain high, which may affect net margins in 2016.
- Overseas expansion (Philippines) could lead to a Rp25b loss in 2017 but is viewed as long-term positive.
Malaysia
- Public Bank (PBK MK/BUY/RM19.56/Target: RM22.00)
- Upgraded to BUY due to stronger earnings resilience in a challenging environment.
Key Indices and Market Performance
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18130.0 |
0.1 |
0.3 |
-2.3 |
4.0 |
| S&P 500 |
2139.8 |
0.0 |
0.6 |
-2.0 |
4.7 |
| FTSE 100 |
6830.8 |
0.3 |
2.5 |
-0.4 |
9.4 |
| AS30 |
5397.3 |
0.1 |
1.6 |
-4.1 |
1.0 |
| CSI 300 |
3257.4 |
-0.2 |
-1.8 |
-3.2 |
-12.7 |
| FSSTI |
2854.7 |
0.1 |
1.3 |
0.4 |
-1.0 |
| HSCEI |
9751.4 |
0.0 |
1.0 |
1.5 |
0.9 |
| HSI |
23530.9 |
-0.1 |
1.0 |
2.6 |
7.4 |
| JCI |
5302.5 |
-0.4 |
1.7 |
-2.1 |
15.4 |
| KLCI |
1655.8 |
0.2 |
-1.8 |
-1.9 |
-2.2 |
| KOSPI |
2025.7 |
0.5 |
-1.8 |
-1.5 |
3.3 |
| Nikkei 225 |
16492.2 |
-0.2 |
-1.1 |
-0.3 |
-13.4 |
| SET |
1473.8 |
-1.3 |
1.9 |
-4.2 |
14.4 |
| TWSE |
9161.6 |
0.1 |
1.2 |
1.4 |
9.9 |
| BDI |
865 |
3.5 |
8.7 |
26.6 |
81.0 |
| CPO (RM/mt) |
2885 |
1.8 |
-0.4 |
0.9 |
31.1 |
| Brent Crude |
46 |
-0.2 |
-2.6 |
-9.8 |
23.1 |
Top Picks and Recommendations
BUY Recommendations
- Air China (753 HK/BUY/Rp5.47/Target:Rp8.40)
- Strongest yield resilience and lowest unit cost.
- Potential for further reduction in US$ debt exposure.
- China Eastern Airlines (670 HK/BUY/Rp3.83/Target:Rp6.00)
- Highest operating margin among the three airlines.
- Expected to show improvement in forex losses in 2H16.
- China Southern Airlines (1055 HK/BUY/Rp4.58/Target:Rp6.40)
- Most effective in reducing US$ debt exposure.
- Expected to outperform due to lower forex losses in 2H16.
- Khon Kaen Sugar Industry (KSL TB/BUY/Bt3.96/Target: Bt4.40)
- 3QFY16 earnings were lower than expected.
- Company is focusing on driving sales through new product launches.
HOLD Recommendation
- Nippon Indosari Corpindo (ROTI IJ/HOLD/Rp1,620/Target: Rp1,725)
- Company is accelerating product launches and expanding internationally.
- Maintained HOLD due to high salary costs and potential short-term margin pressure.
SELL Recommendation
- Hartalega (HART MK/SELL/Rp4.45/Target:Rp3.10)
- Noted as a SELL due to concerns about its performance.
Key Assumptions and Economic Outlook
GDP Growth Forecasts
| Country |
2015 |
2016F |
2017F |
| US |
2.4 |
2.5 |
2.7 |
| Euro Zone |
1.6 |
1.5 |
1.6 |
| Japan |
0.5 |
0.6 |
0.8 |
| Singapore |
2.0 |
2.2 |
3.2 |
| Malaysia |
5.0 |
4.2 |
5.0 |
| Thailand |
2.8 |
3.2 |
3.6 |
| Indonesia |
4.8 |
5.0 |
5.5 |
| Hong Kong |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.5 |
6.2 |
Brent Crude and CPO Forecasts
| Item |
2015 |
2016F |
2017F |
| Brent Crude (US$/bbl) |
53.60 |
42 |
54 |
| CPO (RM/mt) |
2,168 |
2,500 |
2,600 |
Corporate Events
- Coal, Wind & Water sector Analyst Presentation (US/Canada, 14–22 Sep)
- HC International Roadshow (Hong Kong, 20–21 Sep)
- Plaza Premium Group Luncheon (Kuala Lumpur, 21 Sep)
- Skyworth Digital Hldgs Group Meeting (Hong Kong, 21 Sep)
- Summit Ascent Luncheon (Hong Kong, 21 Sep)
- Ekovest Bhd Luncheon (Kuala Lumpur, 22 Sep)
- Tsaker Chemical Roadshow (Hong Kong, 22 Sep)
- Sembcorp Industries Corp Roadshow (Canada, 26–27 Sep)
- Regional Financial and Telco Sector Analyst Presentation (UK/Europe, 26–30 Sep)
- Xingda In'l Group Meeting (Hong Kong, 29 Sep)
- Cityneon Corporate Roadshow (Taipei, 29–30 Sep)
- Ricoh Site Visit (Kuala Lumpur, 5 Oct)
- Xstep International Holdings Roadshow (Taipei, 7 Oct; Kuala Lumpur, 15 Nov)
- Metro Pacific Investments Roadshow (Canada, 24–25 Nov)
Stock Catalysts and Earnings Forecasts
- Nippon Indosari Corpindo (ROTI IJ)
- Raised 2017 net income forecast by 1.6%.
- Raised 2016 and 2017 revenue forecasts by 5.0% and 3.1%, respectively.
- Net income forecasts are 8.4% and 2.5% lower than the market consensus.
- Risks include rising commodity prices and operating expenses.
Valuation and Financial Metrics
Nippon Indosari Corpindo (ROTI IJ)
| Metric |
2016F (Rp) |
2017F (Rp) |
2018F (Rp) |
| Net turnover |
2,610 |
3,011 |
3,491 |
| EBITDA |
522 |
636 |
704 |
| Net profit (rep./act.) |
270 |
345 |
409 |
| Net profit (adj.) |
270 |
345 |
409 |
| EPS |
53.4 |
68.3 |
80.8 |
| PE (x) |
30.4 |
23.7 |
20.1 |
| P/B (x) |
5.7 |
4.7 |
3.9 |
| EV/EBITDA (x) |
17.1 |
14.0 |
12.6 |
| Net margin (%) |
10.4 |
11.5 |
- |
| ROE (%) |
20.6 |
21.7 |
- |
Conclusion
- The document emphasizes the importance of deleveraging and cost efficiency in the Chinese aviation sector.
- Nippon Indosari Corpindo is highlighted for its product launch strategy and potential for long-term growth, despite short-term margin pressure.
- Air China is the top long-term pick due to its strong yield resilience and potential for further debt reduction.
- The overall market sentiment is cautiously optimistic, with a focus on fundamental improvements and strategic moves in key sectors.
