20150415-大华继显-Regional_Morning_Notes_19页_870kb

Regional Morning Notes Summary - 15 April 2015

Core Content Overview

This document provides a comprehensive update on regional financial markets and specific sectors in China, Indonesia, and Malaysia, along with key economic indicators, analyst views, and stock recommendations.

Main Points

China

Monetary Policy

• M2 Growth Misses Expectations: In March 2015, M2 money supply increased by 11.6% yoy, lower than the expected 12.4% yoy. This was attributed to the central bank's reduced forex purchases and tighter regulations on interbank lending and off-balance-sheet financing.
• New Loans Rise: Total new Rmb loans amounted to Rmb1.18t, exceeding the consensus forecast of Rmb1.04t. This reflects the PBOC's efforts to lower lending costs to the real economy.
• Social Financing Down: Total social financing (TSF) fell to Rmb1.18t in March, below the expected Rmb1.5t. Off-balance-sheet financing decreased, while direct financing via equity and bonds increased.
• RRR Cut Expected: The PBOC is likely to cut the required reserve ratio (RRR) in 2Q15, which will release more low-cost funds to commercial banks.

Aviation Sector

• Downgrade to UNDERWEIGHT: High valuations are no longer justifiable due to the revised fuel surcharge formula, which leaves airlines vulnerable to fuel price increases. The sector P/B multiple has risen to 1.4x, which is +1SD above the long-term mean.
• Downgrade Specific Airlines: Air China and China Southern Airlines (CSA) are downgraded to SELL due to their overvalued risk premiums.
• Fuel Surcharge Impact: The revised formula means fuel surcharges will only be applied when jet fuel prices exceed Rmb5000/tonne, which is US$101/bbl. This reduces the benefit of lower fuel prices and may lead to lower earnings in 2015.
• Earnings Dependent on Ticket Price Increases: Earnings growth is expected to rely heavily on base ticket price increases. The market is unlikely to see such increases, leading to cautious outlook.

Property Sector

• Recovery Still Ongoing: Property companies reported weaker margins and flat earnings growth in 2014, but improved net debt levels. Sales targets for 2015 are only marginally higher than 2014.
• Sector Margins and Net Profit: Core net profit fell 1.1% yoy, while gross margins dropped to 28.0% from 30.7% in 1H14. Sector core net margin is expected to recover to 12.8% in 2015.
• Dividend Payouts: Nine out of 16 developers under coverage increased dividend payouts, with Sino-Ocean, Yuexiu, and Shimao reporting over 40%. R&F was the only developer that did not propose a dividend in 2014.
• Preferred Stocks: Large-cap and SOE developers with strong landbank exposure and lower funding costs are favored. Top picks include CIFI (884 HK), Evergrande (3333 HK), and Joy City (207 HK).

Key Indices

• DJIA: 18036.7, +0.3% (1D), +0.9% (1W), +1.6% (1M), +1.2% (YTD)
• S&P 500: 2095.8, +0.2% (1D), +0.9% (1W), +2.1% (1M), +1.8% (YTD)
• FTSE 100: 7075.3, +0.2% (1D), +1.6% (1W), +5.0% (1M), +7.8% (YTD)
• AS30: 5916.2, -0.2% (1D), +0.4% (1W), +2.2% (1M), +9.8% (YTD)
• CSI 300: 4438.2, +0.4% (1D), +4.2% (1W), +22.7% (1M), +25.6% (YTD)
• FSSTI: 3521.1, +1.1% (1D), +1.6% (1W), +4.7% (1M), +4.6% (YTD)
• HSCEI: 14264.8, -2.2% (1D), +12.6% (1W), +21.8% (1M), +19.0% (YTD)
• HSI: 27561.5, -1.6% (1D), +9.0% (1W), +15.7% (1M), +16.8% (YTD)
• JCI: 5419.1, -0.5% (1D), -1.9% (1W), -0.1% (1M), +3.7% (YTD)
• KLCI: 1839.6, -0.1% (1D), -0.9% (1W), +3.2% (1M), +4.4% (YTD)
• KOSPI: 2111.7, +0.6% (1D), +3.2% (1W), +6.3% (1M), +10.2% (YTD)
• Nikkei 225: 19908.7, +0.0% (1D), +1.4% (1W), +3.4% (1M), +14.1% (YTD)
• SET: 1547.8, +0.2% (1D), +1.0% (1W), +0.4% (1M), +3.3% (YTD)
• TWSE: 9642.2, -0.3% (1D), +0.0% (1W), +0.7% (1M), +3.6% (YTD)
• BDI: 581, +0.5% (1D), -0.3% (1W), +3.4% (1M), -25.7% (YTD)
• CPO (RM/ml): 2149, +1.0% (1D), -2.8% (1W), -4.2% (1M), -6.4% (YTD)
• Nymex Crude (US$/bbl): 54, +0.5% (1D), +6.2% (1W), +19.4% (1M), +0.5% (YTD)

Key Sector Updates

Aviation Sector

• Downgrade to UNDERWEIGHT: Due to overvaluation and revised fuel surcharge rules that make airlines more vulnerable to fuel price increases.
• Risk Premium Changes: Air China and CSA have seen significant drops in risk premiums, leading to downgrades.
• Target Price Adjustments: Air China's target price is raised to HK$7.00, while CSA's fair value P/B multiple is increased to 1.1x.

Property Sector

• Maintain MARKET WEIGHT: Despite weaker margins and flat earnings growth, the sector is expected to benefit from a more relaxed policy environment in 2015.
• Top Picks: CIFI (884 HK), Vanke (2202 HK), Wanda (3699 HK), and others are highlighted as favorable stocks.

Key Stock Recommendations

BUY Recommendations

• CIFI Holdings (884 HK): Maintained BUY with a target price of HK$2.42.
• Sunac China (1918 HK): Target price HK$7.97, with a potential upside of -5.3%.
• ICBC (1398 HK): Target price HK$7.80, with a potential upside of 18.4%.
• Bank Negara (BBNI LJ): Target price HK$7,500.00, potential upside 5.6%.
• Maybank (MAY MK): Target price HK$10.30, potential upside 9.8%.
• DBS (DBS SP): Target price HK$23.55, potential upside 13.5%.
• Pacific Radiance (PACRA SP): Target price HK$1.06, potential upside 43.2%.
• Krong Thai Bank (KTB TB): Target price HK$29.00, potential upside 22.4%.
• Sino Thai Engr (STEC TB): Target price HK$30.25, potential upside 39.4%.

SELL Recommendation

• UMWH Holdings (UMWH MK): Target price HK$10.00, potential downside -7.2%.

Key Assumptions

Corporate Events

• Sihuan Pharmaceutical Holdings Corporate Roadshow: Hong Kong, 16–17 Apr
• PT Logindo Luncheon: Singapore, 17 Apr
• CapitaCommercial Trust Luncheon: Singapore, 22 Apr

Analysts

• Chaoping Zhu: +8621 5404 7225 ext. 822, chaoping@uobkayhian.com
• K Ajith: +656906627, ajith@uobkayhian.com
• Angela Zhou: +8621 5404 7225 ext 858, Angela.zhou@uobkayhian.com
• Edison Bian: +852 2236 6761, edison.bian@uobkayhian.com.hk
• David Yang: +8621 5404 7225 ext 801, davidyang@uobkayhian.com

Summary of Key Risks

• Fuel Price Recovery: Amid relatively high valuations, there is a risk of fuel prices rising, which could offset the benefits of lower fuel costs.
• Overvaluation in Aviation: High valuations are not justified by fundamentals, leading to a downgrade.
• Earnings Volatility: Earnings growth in property and aviation sectors may be volatile depending on fuel prices and ticket pricing strategies.

Conclusion

The document highlights the underperformance of Chinese aviation due to overvaluation and revised fuel surcharge rules, while the property sector is expected to benefit from a more relaxed policy environment. Monetary easing is anticipated in China, with the PBOC likely to cut RRR in 2Q15. BUY recommendations are made for several stocks, including CIFI Holdings and DBS, while SELL is recommended for UMWH Holdings. Overall, the market is expected to remain cautious due to economic and sector-specific risks.