20160308-大华继显-Regional_Morning_Notes_19页_1mb

Regional Morning Notes Summary

Core Content Overview

This document provides a comprehensive analysis of regional markets, focusing on plantation, property, and key indices across China, Indonesia, Malaysia, and Thailand. It includes sector updates, top picks, corporate events, key assumptions, and risks for the plantation and property sectors.

Plantation Sector Highlights

CPO Price Outlook

• Strong El Nino Impact: The 2015 El Nino is expected to have a lagged effect on palm oil production, potentially reducing output in 2016-2017.
• Supply Tightness: The current CPO prices have not yet factored in the potential supply tightness due to the El Nino.
• Price Forecast: CPO prices are expected to trend higher in 2016, potentially reaching RM2,500/tonne (average) or even RM2,800/tonne by 2H16.
• Demand Factors: Biodiesel demand from Malaysia and Indonesia is expected to support prices, although implementation of biodiesel mandates may be delayed due to low crude oil prices.

Production Forecasts

• 2016 Production:
  • Mr Ling Ah Hong: 60.2m tonnes
  • Mr Thomas Mielke: 62.8m tonnes
  • Our Forecast: 62.3m tonnes (2015: 62.5m tonnes)
• Regional Impact:
  • Indonesia: Severe moisture deficit in South Sumatra, Riau, East Kalimantan, Central Kalimantan, and South Kalimantan.
  • Malaysia: More severe drought in Pahang and Sabah than in Sarawak.
  • High-Rainfall Areas: Sarawak and North Kalimantan may benefit from El Nino due to reduced flooding.

Top Picks

• First Resources (FR SP): Target price S$2.00 (current: S$1.92), upside 27.3%
• Bumitama Agri (BAL SP): Target price S$1.10 (current: S$0.78), upside 21.3%
• Wilmar (WIL SP): Target price S$3.60 (current: S$3.20), upside 12.5%

Property Sector - China

Market Trends

• Home Price Growth: Surging prices in Tier-1 cities (e.g., Shenzhen, Shanghai) and spreading to nearby Tier-2 and Tier-3 cities.
• Sales Growth:
  • Shenzhen: ASP up 35% for a new phase.
  • Dongguan: GFA sales up 75.2% yoy in 2015, ASP up 4.2% mom and 17.0% yoy in Feb 16.
  • Suzhou: Sales up 5.6% mom in Feb 16.
• Policy Impact: The central government is concerned about rapid price growth in Tier-1 cities and may introduce tighter measures, but overall policy stance is seen as positive with fine-tuning rather than a full reversal.

Top Picks

• China Resources Land (CRL): BUY, Target HK$27.62 (current: HK$20.70), upside 33.4%
• Poly Property (POLY A): BUY, Target HK$11.72 (current: HK$10.18), upside 15.1%
• COLI: BUY, Target HK$32.32 (current: HK$25.35), upside 27.5%
• Poly Real Estate (600048 CH): BUY, Target HK$11.72 (current: HK$10.18), upside 15.1%
• SUNAC China (1918 HK): HOLD, Target HK$6.19 (current: HK$5.70), upside 8.6%
• CIFI (884 HK): BUY, Target HK$1.72 (current: HK$1.74), upside -1.1%

Key Assumptions

• GDP Growth:
  • China: 6.5% (2015F), 6.7% (2016F)
  • Malaysia: 4.9% (2015F), 4.8% (2016F)
  • Indonesia: 4.8% (2015F), 5.4% (2016F)
• Income Tax Savings: Mortgage interest deduction is expected to provide tax savings, with a Rmb20,000/month salary and a Rmb1m mortgage, resulting in an after-tax income increase of 738 Rmb.

Key Indices

Key Risks and Catalysts

Risks

• Biodiesel Mandate Backtracking: Due to falling crude oil prices, there is a risk that the biodiesel mandates in Indonesia and Malaysia may be delayed or adjusted.
• Earnings Misses: Property sector may face lower margins and forex losses in the upcoming results season.

Catalysts

• Weather Disruption: Drought and dry conditions may negatively impact agricultural production, leading to higher prices.
• La Nina Occurrence: If La Nina develops by year-end, it may reduce soybean production, increasing prices.
• Policy Updates: Further tax and credit policy loosening may support home sales and destocking.

Sector Recommendations

Conclusion

The document highlights upside potential in CPO prices due to the lingering effects of the strong El Nino and supporting biodiesel demand, while the Chinese property market shows strong growth in Tier-1 and nearby cities. Top picks include plantation companies with exposure to Indonesia and Malaysia, and property firms with strong fundamentals and landbank exposure. Key risks include potential backtracking of biodiesel mandates and weather-related disruptions. The overall recommendation remains OVERWEIGHT for the regional sector.