20150303-大华继显-Regional_Morning_Notes_29页_1mb

Regional Morning Notes Summary - 03 March 2015

Core Content

This document provides a comprehensive overview of market insights and recommendations for various regions and sectors, with a focus on plantation and railway industries, along with company-specific results and analysis.

Main Sectors and Key Points

Plantation Sector

• Palm Oil Prices: Expected to be well-supported due to low oilseed availability and tight palm oil supply.
• Earnings Outlook: Companies should focus on productivity and operational efficiency to improve returns, especially during low price cycles.
• Replanting Strategy: Companies with aging palm trees are encouraged to replant to participate in future price upcycles.
• Soybean Impact: High global soybean production and stock levels may cap palm oil price increases.
• Biodiesel Demand: Discretionary biodiesel demand is expected to slow, impacting palm oil demand.
• CPO Production Forecast:
  • Malaysia: 20.2m tonnes in 2015, 20.1m tonnes in 2014/15.
  • Indonesia: 32.4m tonnes in 2015, 31.4m tonnes in 2014/15.
• Key Catalysts:
  • Dry weather in Malaysia and Kalimantan.
  • Restocking in China.
  • Accelerated biodiesel blending in Indonesia and Malaysia.
• Assumptions:
  • Maintained CPO price forecasts of RM2,525/tonne for 2015 and RM2,600/tonne for 2016.

Railway Sector - China

• Rate Cuts: The PBOC cut interest rates by 25bp, benefiting construction contractors with high gearing and low interest coverage.
• Earnings Impact:
  • CRG, CRCC, and CCC are expected to see earnings accretion of 1.8-3.1% due to lower interest expenses.
  • If another rate cut occurs in 2H15, the full-year accretion could reach 2.7-3.8%.
• VAT Reform: Expected in 2H15, which may create mild uncertainties for earnings but is theoretically beneficial.
• Top Picks:
  • Construction Contractors: CCC, CRG, CRCC.
  • Equipment Makers: Zhuzhou CSR, China Automaton.
• Risks:
  • Delays in URT projects due to high local government gearing.
  • Potential slowdown in railway spending in 2016.

Key Companies and Their Performance

Indonesia

• Astra International (ASII IJ):
  • 2014 net profit: Rp19,181b, down 1.2% yoy.
  • 4Q14 net profit: Rp4,689b, down 21.2% yoy but flat qoq.
  • Maintain HOLD with target price of Rp8,200.
• E for L Aim (EFORL TB):
  • BUY recommendation with target price of Bt2.20.
• Esso Thailand (ESSO TB):
  • SELL recommendation due to huge loss in 4Q14 from weaker GRM.
• Minor International (MINT TB):
  • BUY recommendation with target price of Bt40.75.
• Home Product Center (HMPRO TB):
  • HOLD recommendation, with 7.3% net profit growth in 2014.

Malaysia

• Genting Msia (GENM MK):
  • BUY recommendation with target price of HK$4.47.
• First Resources (FR SP):
  • BUY recommendation with target price of HK$2.80.
• Bumitama Agri (BAL SP):
  • BUY recommendation with target price of HK$1.45.
• IJM Plantations (IJMP MK):
  • SELL recommendation with target price of HK$2.90.
• Sarawak Oil Palm (SOP MK):
  • HOLD recommendation with target price of HK$6.20.

Singapore

• Golden Agri-Resources (GGR SP):
  • BUY recommendation with target price of HK$0.480.
• Wilmar International (WIL SP):
  • HOLD recommendation with target price of HK$3.65.
• Indofood Agri Resources (IFAR SP):
  • HOLD recommendation with target price of HK$0.970.
• Kencana Agri (KAGR SP):
  • HOLD recommendation with target price of HK$0.230.

Market Indices and CPO Prices

Top Picks

BUY

• Sunac China (1918 HK): Target price HK$9.29, potential upside 30.8%.
• ICBC (1398 HK): Target price HK$6.80, potential upside 19.7%.
• Bank Mandiri (BMRI IJ): Target price Rp12,500, potential upside 4.2%.
• Genting Msia (GENM MK): Target price HK$4.47, potential upside 9.8%.
• First Resources (FR SP): Target price HK$2.80, potential upside 22.1%.
• Bumitama Agri (BAL SP): Target price HK$1.45, potential upside 19.0%.
• Golden Agri-Resources (GGR SP): Target price HK$0.480, potential upside 17.1%.
• Sampoerna Agro (SGRO IJ): Target price Rp2,540, potential upside 3.3%.
• CSR-H (1766 HK): Target price HK$14.00, potential upside 22.1%.
• CNR-H (6199 HK): Target price HK$15.40, potential upside 19.0%.
• Times Electric (3898 HK): Target price HK$62.60, potential upside 27.2%.
• China Automaton (569 HK): Target price HK$1.97, potential upside 11.0%.

SELL

• Esso Thailand (ESSO TB): Target price HK$5.00, potential downside 9.9%.
• Kuala Lumpur Kepong (KLK MK): Target price HK$20.00, potential downside 13.4%.
• IJM Plantations (IJMP MK): Target price HK$2.90, potential downside 13.4%.
• BW Plantation (BWPT IJ): Target price HK$300, potential downside 17.4%.

Key Assumptions

Risks

• Biodiesel Mandates: Backtracking in Indonesia and Malaysia due to lower crude oil prices.
• Soybean Supply: Another year of bumper soybean crops may affect palm oil demand.
• Railway Spending: Potential slowdown in 2016 due to high gearing of local governments.
• VAT Reform: Initial mild negative impact on construction contractors due to difficulty in issuing VAT invoices to small suppliers.

Summary

This report outlines the current market outlook for the plantation and railway sectors in the Asia-Pacific region, highlighting key drivers and risks. It emphasizes the importance of productivity and cost management in the plantation industry, the impact of rate cuts and VAT reform on construction contractors, and the potential for higher CPO prices due to tight supply and lower soybean availability. The report also includes top picks for various companies based on their financial performance and growth prospects.