20160504-大华继显-Regional_Morning_Notes_33页_1mb

Regional Morning Notes Summary - 04 May 2016

Core Content Overview

This document provides a detailed analysis of the financial and market performance of various companies and indices across China, Hong Kong, Indonesia, Malaysia, and Singapore, with a particular focus on the Chinese bond market turmoil and the performance of Brilliance Auto (1114 HK).

Key Points

China

• Bond Market Turmoil:

  • 22 bond defaults occurred in 2016, surpassing the 21 defaults in 2015.
  • The government is attempting to break "rigid repayment" rules, leading to increased risk premiums and market panic.
  • SOEs and local governments were found to have manipulated defaults to evade liabilities, prompting regulatory intervention.

• Regulatory Response:

  • The PBOC, CSRC, CBRC, and CIRC released guidelines to curb debt evasion and stabilize the market.
  • Regulators are expected to intervene to prevent further market instability.

• Economic Outlook:

  • Economic and social stability is a top priority for the central government.
  • Structural reforms and the rule of law are seen as the long-term solutions to the bond market issues.

Brilliance Auto (1114 HK)

• Performance:

  • 1Q16 results missed expectations with a 21% year-over-year drop in net profit to Rmb714m.
  • Downgraded to HOLD from BUY, with a revised target price of HK$8.20.

• Reasons for Disappointment:

  • Lower-than-expected margins due to weaker pricing for the 5-series before the launch of new models.
  • Upfront costs for production and capacity expansion impacted earnings.

• Sales and Market Trends:

  • Sales volume for the 5-series dropped 23.4% year-over-year in 1Q16.
  • Sales are expected to recover from 2Q16 onwards with the launch of new models.

• Financial Metrics:

  • Net profit forecast for 2016 was cut by 4% to Rmb3,437m.
  • Net margin assumptions were revised from 8% to 7.7%.
  • The stock price had rallied 40% from HK$6.00 to HK$8.50 but corrected to HK$7.40.

• Valuation:

  • Current price implies a 9x 2016F PE, close to the target multiple of 10x.
  • Re-entry price is set at HK$6.50.

Hong Kong

• SJM Holdings (880 HK):
  • 1Q16 results were slightly above expectations, with resilient satellite casinos.
  • VIP market improved qoq, while mass market revenues were affected.
  • Maintained BUY recommendation with a target price of HK$6.80.

Indonesia

• Mitra Adiperkasa (MAPI IJ):

  • 1Q16 net income increased by 49.3% yoy, indicating a strong start to the recovery.
  • Recommended BUY with a target price of Rp5,000.

• Waskita Karya (WSKT IJ):

  • 1Q16 net income surged 965% yoy, exceeding expectations.
  • Recommended BUY with a target price of Rp3,000.

Malaysia

• Hartalega Holdings (HART MK):

  • 4QFY16 earnings fell 15% qoq due to lower nitrile glove prices and front-loaded expenses.
  • Recommended SELL with a target price of RM3.10.

• Malayan Banking (MAY MK):

  • Held a luncheon talk on insurance and Takaful business to provide investor insight.
  • Recommended BUY with a target price of RM9.55.

• British American Tobacco (ROTH MK):

  • Share price fell to a four-year low, down 21% since its peak.
  • Recommended HOLD with a revised target price of RM46.50.

Singapore

• DBS Group Holdings (DBS SP):
  • 1Q16 non-interest income exceeded expectations.
  • Recommended BUY with a target price of S$19.22.

Key Indices

Key Assumptions

Corporate Events

• Shengjing Bank Roadshow: Europe, 6 May to 10 May
• Construction and Transport Sector Analyst Presentation: UK/Europe, 18 May to 25 May
• China Financial Sector Analyst Presentation: New York/Boston, 23 May to 25 May
• Dawnrays Phama Roadshow: Singapore, 24 May
• Valuetronics Roadshow: Singapore, 26 May
• China Financial Sector Analyst Presentation: Canada, 26 May to 28 May

Top Picks

Company Description

Brilliance Auto, through its 50%-owned joint venture BMW Brilliance, produces and sells BMW cars such as the 5-series, 3-series, and X1 in China. It also produces and sells mini-buses and MPVs under its proprietary brand Jinbei.

Stock Data

Key Metrics

Analysts

• Ken Lee: +852 2236 6760, ken.lee@uobkayhian.com.hk
• Sophie Yu: +852 2826 1392, sophie.yu@uobkayhian.com.hk