Regional Morning Notes Summary - 18 December 2015
Core Content
The Regional Morning Notes for 18 December 2015 provide insights into stock market performance, company updates, and sector analysis across various regions, with a focus on China's automobile sector and EV subsidies. The document highlights the impact of subsidy cuts on EV manufacturers, the performance of specific companies, and the broader implications for the industry.
Key Stories
Malaysia
- Westports Holdings (WPRTS MK/SELL/RM3.93/Target: RM3.30): Initiated with a SELL rating and a 16% downside. The company faces near-term earnings vulnerability and shipping consolidation uncertainties.
China
- EV Subsidies Cut Significantly: The government plans to reduce subsidies by 5-20% in 2016, and by 20-40% in 2017-2018, and 40% in 2019-2020. The cuts are expected to affect EV profitability, especially for PHEVs and short-range BEVs.
- Dongfeng Motor (489 HK/BUY/HK$11.10/Target: HK$15.00): November sales beat expectations by 22% yoy, driven by tax breaks and new model launches. Maintain BUY rating.
- China General Nuclear Corp (1816 HK/BUY/HK$2.85/Target: HK$4.70): Positive takeaways from analyst calls.
Indonesia
- Telekomunikasi Indonesia (TLKM IJ/BUY/Rp3,040/Target: Rp3,410): Expanding dominance in fixed broadband.
Singapore
- M1 (M1 SP/BUY/S$2.70/Target: S$3.26): The company is expected to transform from an underdog to a leader.
Thailand
- Massive Value Destruction: The 900-MHz spectrum auction caused significant negative impact on the sector.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17495.8 |
-1.4 |
-0.4 |
0.0 |
-1.8 |
| S&P 500 |
2041.9 |
-1.5 |
-0.5 |
-0.4 |
-0.8 |
| FTSE 100 |
6102.5 |
0.7 |
0.2 |
-2.7 |
-7.1 |
| AS30 |
5150.6 |
1.4 |
1.2 |
-0.7 |
-4.4 |
| CSI 300 |
3755.9 |
1.9 |
3.7 |
1.1 |
6.3 |
| FSSTI |
2861.2 |
0.7 |
0.4 |
-0.9 |
-15.0 |
| HSCEI |
9666.5 |
1.3 |
2.3 |
-3.9 |
-19.3 |
| HSI |
21872.1 |
0.8 |
0.8 |
-1.4 |
-7.3 |
| JCI |
4556.0 |
1.6 |
2.0 |
1.3 |
-12.8 |
| KLCI |
1656.5 |
1.4 |
0.5 |
0.0 |
-5.9 |
| KOSPI |
1978.0 |
0.4 |
1.3 |
0.8 |
3.3 |
| Nikkei 225 |
19353.6 |
1.6 |
1.6 |
-1.5 |
10.9 |
| SET |
1310.3 |
0.9 |
1.0 |
-4.8 |
-12.5 |
| TWSE |
8319.7 |
1.6 |
1.3 |
-0.2 |
-10.6 |
| BDI |
471 |
0.0 |
-11.8 |
-12.3 |
-39.8 |
| CPO (RM/mt) |
2133 |
-0.9 |
-0.9 |
1.9 |
-7.1 |
| Brent Crude (US$/bbl) |
37 |
-1.1 |
-6.9 |
-15.1 |
-35.5 |
Top Picks (BUY)
| Company |
Ticker |
Current Price |
Target Price |
Upside (%) |
| Beijing Capital |
694 HK |
HK$8.23 |
HK$11.40 |
38.5 |
| ICBC |
1398 HK |
HK$4.67 |
HK$7.60 |
62.7 |
| Bank BJB |
BJBRR IJ |
Rp735.00 |
Rp1,140.00 |
55.1 |
| CapitaLand |
CAPL SP |
S$3.26 |
S$4.08 |
25.2 |
| DBS |
DBS SP |
S$16.59 |
S$22.34 |
34.7 |
| Kasikornbank |
KBANK TB |
THB153.00 |
THB215.00 |
40.5 |
| PTT |
PTT TB |
THB242.00 |
THB340.00 |
40.5 |
Top Picks (SELL)
| Company |
Ticker |
Current Price |
Target Price |
Downside (%) |
| SIA Engineering |
SIE SP |
HK$3.55 |
HK$3.30 |
-7.0 |
| UMW Holdings |
UMH MK |
RM7.88 |
RM7.00 |
-11.2 |
Key Assumptions
| Region |
2014 GDP (yoy) |
2015F GDP (yoy) |
2016F GDP (yoy) |
| US |
2.4 |
2.5 |
2.5 |
| Euro Zone |
0.9 |
1.5 |
1.7 |
| Japan |
-0.1 |
0.5 |
1.5 |
| Singapore |
2.9 |
2.5 |
2.9 |
| Malaysia |
6.0 |
4.8 |
4.8 |
| Thailand |
0.9 |
2.7 |
4.0 |
| Indonesia |
5.0 |
4.8 |
5.4 |
| Indicator |
2014 |
2015F |
2016F |
| Brent (Average) |
99.45 |
56 |
57 |
| CPO (US$/mt) |
722 |
550 |
660 |
Sector Update: Automobile - China
- EV Subsidies Decline: The government is reducing EV subsidies significantly, especially in 2017 and 2019, which could impact profitability of EV manufacturers.
- Subsidy Criteria Tightened: For BEVs, the minimum range increased from 80km to 100km in 2016, and energy efficiency is now a factor.
- Impact on Margins: EVs with subsidies have higher margins compared to conventional cars, but subsidy cuts will reduce gross profit significantly.
What's New
- Subsidy Cuts: In 2016, BEVs with range 100-150km and PHEVs will see subsidy reductions.
- Subsidy Amounts (2016):
- BEV (100km ≤ range < 150km): Rmb25,000/unit
- PHEV: Rmb30,000/unit
- Post-subsidy Prices: For example, the BAIC EV200 would be priced at Rmb230,800 without subsidies, but with Rmb95,000 in subsidies, it drops to Rmb135,800.
- EV Demand Impact: Subsidy cuts could lead to a sharp increase in post-subsidy prices, which might reduce demand.
Company Update: Dongfeng Motor (489 HK)
- November Sales: Grew 22% yoy, driven by tax breaks and new models.
- Sales Momentum: Accelerated across all brands, including DF Honda, DF Nissan, and DF PSA.
- 2016 Sales Expectation: Could grow faster than 9% yoy, with 16 new models planned, including 6 SUVs.
- Valuation: Currently trades at less than 7x 2016F PE, but the analyst maintains BUY with a target of HK$15.00 based on 9x 2016F PE.
Profit & Loss (DFM)
| Metric |
2014 |
2015F |
2016F |
2017F |
| Net Turnover |
80,954 |
134,640 |
141,645 |
161,070 |
| EBITDA |
186 |
2,760 |
2,900 |
3,194 |
| Net Profit (recurrent) |
10,435 |
10,967 |
11,967 |
12,344 |
Balance Sheet (DFM)
| Item |
2014 |
2015F |
2016F |
2017F |
| Fixed Assets |
12,223 |
16,023 |
19,823 |
23,623 |
| Cash/ST Investment |
25,212 |
34,323 |
34,780 |
35,087 |
| Shareholders' Equity |
73,829 |
83,558 |
93,922 |
104,591 |
Cash Flow (DFM)
| Item |
2014 |
2015F |
2016F |
2017F |
| Operating |
-4,054 |
8,920 |
-1,388 |
-1,576 |
| Net Cash Inflow |
3,473 |
9,111 |
457 |
308 |
Analyst Notes
- Ken Lee, UOB Kay Hian, is the lead analyst.
- Recommendation: Maintain BUY on Geely and Dongfeng Motor, and SELL on GWM.
- Reasoning: Geely has strong EV development plans, while GWM is a latecomer with high costs and low returns.
Risks
- Local Government Subsidy Cuts: May hit BYD hard, as it relies heavily on PHEVs and short-range BEVs.
- EV Profitability: Subsidy reductions could lead to significant margin compression and reduced demand.
Summary of Key Points
- EV Subsidies in China are expected to drop significantly, with a 20-40% cut in 2017 and 2019.
- Dongfeng Motor has strong sales momentum, with 22% yoy growth in November.
- Geely is a top pick with aggressive EV plans and support from Volvo.
- GWM is not recommended due to high costs and slow progress.
- BYD is vulnerable due to its reliance on PHEVs and local subsidies.
- Subsidy cuts will impact gross margins and post-subsidy prices, potentially reducing demand.
This summary highlights the key trends, risks, and opportunities in the automobile sector and EV market in China, alongside other regional updates and financial metrics.
