Regional Morning Notes Summary - 30 November 2015
Core Content Overview
This document provides a comprehensive market update on economic conditions and sector-specific insights for China, Indonesia, Malaysia, Singapore, and Thailand. It also includes key indices, top picks, and corporate events for the region.
Main Points
China
- Monetary Policy: The PBOC continues monetary easing, with the introduction of a new policy framework based on interest rate corridor and exchange rate rather than M2 money supply. The central bank injects liquidity via MLF and reverse repos to support small enterprises and agriculture.
- Economic Reform: A new "supply side" reform is proposed to improve public goods and services, focusing on innovation, market orientation, and policy support. However, the reform remains under scrutiny due to continued reliance on government-led investment.
- Sector Update - Battery: Tianneng and Chaowei have seen significant share price increases (nearly 100% and 50% respectively) due to a surge in lead-acid battery prices and the EV battery sector. However, valuations have reached peak levels (2.7x and 2.4x 2015F P/B), and the analysts downgrade both from HOLD to SELL.
- Company Update - Anhui Conch Cement Co (914 HK): Conch acquires a 30.4% stake in West China Cement (WCC) through asset injection, which is seen as fair. However, the mandatory general offer (GO) price is higher than the sector average, potentially reducing the benefit of the acquisition. Conch maintains a HOLD rating with a target price of HK$21.00.
Indonesia
- Indofood SuksesMakmur (INDF IJ): The company is recommended as a BUY with a target price of Rp6,900. The CPO price is a key catalyst, with a 26.8% EPS growth expected in 2016 due to increased demand and a discount to ICBP.
Malaysia
- Affin Holdings (AFG MK): Recommended as HOLD with a target price of RM3.80. Net profit in line with expectations, and stronger sequential revenue growth.
- Axiata (AXIATA MK): Recommended as HOLD with a target price of RM6.60. Celcom's postpaid revenue growth is positive, but core net profit contracts by 4% qoq and 17% yoy.
- Affin Holdings (AHB MK): Recommended as SELL with a target price of RM1.70. Earnings below expectations due to higher operating costs, provisions, and tax rate.
Singapore
- Jumbo Group (JUMBO SP): Recommended as BUY with a target price of S$0.49. The company is expected to perform well in 2016.
Thailand
- Bangkok Dusit Medical Services (BDMS TB): Recommended as BUY with a target price of Bt23.00. Earnings growth is expected to return in 2016 as management controls costs.
Key Indices (as of 30 November 2015)
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17798.5 |
(0.1) |
0.4 |
0.8 |
(0.1) |
| S&P 500 |
2090.1 |
0.1 |
0.4 |
0.5 |
1.5 |
| FTSE 100 |
6375.2 |
(0.3) |
0.6 |
0.2 |
(2.9) |
| AS30 |
5251.4 |
(0.2) |
(1.0) |
(0.7) |
(2.5) |
| CSI 300 |
3557.0 |
(5.4) |
(5.8) |
0.6 |
0.7 |
| FSSTI |
2859.1 |
(0.9) |
(2.0) |
(4.6) |
(15.0) |
| HSCEI |
9855.7 |
(2.5) |
(4.3) |
(5.2) |
(17.8) |
| HSI |
22068.3 |
(1.9) |
(3.0) |
(2.5) |
(6.5) |
| JCI |
4560.6 |
(0.8) |
(0.0) |
2.4 |
(12.7) |
| KLCI |
1682.6 |
(0.0) |
1.2 |
1.0 |
(4.5) |
| KOSPI |
2029.0 |
(0.1) |
2.0 |
(0.0) |
5.9 |
| Nikkei 225 |
19883.9 |
(0.3) |
0.1 |
4.2 |
13.9 |
| SET |
1363.1 |
(0.2) |
(2.2) |
(2.3) |
(9.0) |
| TWSE |
8398.4 |
(1.0) |
(0.8) |
(1.8) |
(9.8) |
| BDI |
581 |
3.4 |
16.7 |
(19.4) |
(25.7) |
| CPO (RM/ml) |
2086 |
1.1 |
0.1 |
(3.1) |
(9.2) |
| Brent Crude |
45 |
(1.3) |
0.4 |
(4.2) |
(21.8) |
Top Picks
| Company |
Ticker |
Rating |
Share Price (HK$) |
Target Price (HK$) |
Potential % |
| Beijing Capital |
694 HK |
BUY |
8.59 |
11.40 |
32.7 |
| ICBC |
1398 HK |
BUY |
4.69 |
7.60 |
62.0 |
| Bank BJB |
BJBR LJ |
BUY |
730.00 |
980.00 |
34.2 |
| DiGi.Com |
DIGI MK |
BUY |
5.12 |
5.95 |
16.2 |
| Maybank |
MAY MK |
BUY |
8.44 |
10.00 |
18.5 |
| CapitaLand |
CAPL SP |
BUY |
3.04 |
4.08 |
34.2 |
| DBS |
DBS SP |
BUY |
16.60 |
22.34 |
34.6 |
| Kasikornbank |
KBANK TB |
BUY |
168.00 |
215.00 |
28.0 |
| PTT |
PTT TB |
BUY |
265.00 |
340.00 |
28.3 |
| Company |
Ticker |
Rating |
Share Price (HK$) |
Target Price (HK$) |
Potential % |
| SIA Engineering |
SIE SP |
SELL |
3.59 |
3.30 |
(8.1) |
| UMWH Holdings |
UMWH MK |
SELL |
8.03 |
7.00 |
(12.8) |
Key Assumptions
| Region |
GDP (% yoy) 2014 |
GDP (% yoy) 2015F |
GDP (% yoy) 2016F |
| US |
2.4 |
2.5 |
2.5 |
| Euro Zone |
0.9 |
1.5 |
1.7 |
| Japan |
-0.1 |
0.5 |
1.5 |
| Singapore |
2.9 |
2.5 |
2.9 |
| Malaysia |
6.0 |
4.8 |
4.8 |
| Thailand |
0.9 |
2.7 |
4.0 |
| Indonesia |
5.0 |
4.8 |
5.4 |
| Hong Kong |
2.5 |
1.8 |
1.5 |
| China |
7.3 |
6.5 |
6.7 |
| Indicator |
2014 (US$/bbl) |
2015F (US$/bbl) |
2016F (US$/bbl) |
| Brent (Average) |
99.45 |
56 |
63 |
| CPO |
722 |
550 |
660 |
Corporate Events
| Event |
Venue |
Start Date |
End Date |
| China City Railway Transportation Technology Luncheon |
Hong Kong |
1 Dec |
1 Dec |
| Regional 1H16 Strategy Forum |
Kuala Lumpur |
2 Dec |
2 Dec |
| Singapore O&G Corporate Roadshow |
Taipei |
8 Dec |
9 Dec |
| Singapore Strategy 2H15 Analyst Presentation |
Taipei |
10 Dec |
11 Dec |
Supply-Demand Balance of EV Batteries in China
| Company |
2015 (Gwh) |
2016F (Gwh) |
2017F (Gwh) |
| BYD |
4.80 |
9.00 |
12.00 |
| CALB |
2.00 |
2.00 |
4.00 |
| Hefei Guoxuan |
1.50 |
3.50 |
5.50 |
| Weihong |
1.50 |
1.50 |
5.50 |
| CATL |
1.40 |
1.40 |
3.00 |
| Tianneng |
1.25 |
1.25 |
1.63 |
| Coslight |
1.00 |
1.30 |
1.60 |
| Wanxiang |
1.00 |
1.00 |
1.00 |
| Tianjin Lishen |
1.00 |
1.00 |
2.00 |
| Shandong Weineng |
1.00 |
1.00 |
3.00 |
| Shenzhen BAK |
0.60 |
3.00 |
6.00 |
| Beijing BESK Tech |
0.20 |
0.20 |
0.40 |
| LG Chem |
- |
1.25 |
2.00 |
| Samsung SDI |
- |
1.00 |
1.50 |
| Others |
- |
6.00 |
17.10 |
| Total |
17.25 |
33.40 |
66.23 |
Risks and Opportunities
- China: The "supply side" reform is in the right direction, but the effectiveness is uncertain due to continued government intervention. The EV battery sector may face a surplus in 2016, reducing profitability for Tianneng and Chaowei.
- Indonesia: CPO price is a key catalyst for Indofood SuksesMakmur, with strong EPS growth expected.
- Malaysia: Affin Holdings and Axiata face mixed results, with Affin underperforming and Axiata showing stable performance.
- Singapore: The plantation sector is upgraded to OVERWEIGHT due to rising CPO prices and increased demand from Indonesia.
- Thailand: Bangkok Dusit Medical Services is expected to see earnings growth in 2016.
Analysts
- Chaoping Zhu: Focus on China's monetary policy and EV battery sector.
- Ken Lee: Highlights Tianneng and Chaowei's share price performance and the risks of overvaluation.
- Johnson Hu and Cynthia Wang: Provide insights on Anhui Conch Cement Co's acquisition and financials.
Conclusion
The document highlights ongoing economic reforms in China, the potential risks in the EV battery sector, and the performance of key companies in the region. It also outlines the current state of major indices and the outlook for various sectors across China, Indonesia, Malaysia, Singapore, and Thailand. Investors are advised to take profits in the battery sector and maintain a cautious stance on certain stocks due to overvaluation and market risks.
