Regional Morning Notes Summary - 04 June 2015
Core Content Overview
This document provides an analysis of the financial markets and investment opportunities in several Asian countries, including Indonesia, China, Malaysia, Singapore, and Thailand, with a focus on the oil and gas (O&G) sector in Indonesia and Daqin Railway (DR) in China. It also includes insights on key indices, top picks, key assumptions, corporate events, financial metrics, and analyst insights.
Main Points by Region
Indonesia
- Oil and Gas Sector: Initiate coverage with a MARKET WEIGHT rating. The sector is seen as more resilient during downturns due to the midstream and downstream players' "cost plus margin" business model.
- Top Picks:
- AKR Corporindo (AKRA IJ): BUY, target price Rp6,600 (21.1% upside).
- PGAS: BUY, target price Rp5,100 (16.8% upside).
- Key Factors:
- Elimination of gasoline subsidies is expected to boost demand for gasoline RON 92 and improve working capital cycles.
- Energy consumption shift from oil to gas is a long-term trend, supported by the government's policy.
- Gas infrastructure gap creates opportunities for midstream players.
- Power generation will drive natural gas demand.
- AKR's JIPE (Java Integrated Port and Estate) is a key growth driver, offering recurring income and diversification from the petroleum distribution business.
- Valuation: AKR is undervalued, trading at 17.4x 2016F PE, close to its historical average.
China
- Daqin Railway (601006 CH):
- Initiate coverage with a BUY rating and target price of Rmb15.00.
- Key benefits:
- Railway reform: Deregulation of cargo tariffs and potential increase in dividend payouts.
- Asset injections by the state-owned China Railway Corporation.
- Key rail lines: Daqin Line is the busiest coal-dedicated line in China.
- Yield: Decent yield of 4.5%, offering solid valuation support.
- Financial Highlights:
- Net profit expected to grow from Rmb14.185b in 2015 to Rmb18.362b in 2017.
- Dividend yield projected to rise to 4.8% in 2016.
- Valuation: Target price implies 15.1% upside from current price (Rmb12.90).
Malaysia
- Banking Sector:
- 1Q15 earnings were disappointing due to weak investment banking income and NIM pressure.
- Maintain MARKET WEIGHT rating.
- AMATA is the top pick in the sector.
Singapore
- Singapore Telecommunications (ST SP/BUY/S$4.07/Target: S$4.80):
- Key insights from SingTel Investor Day 2015.
- The company is seen as a BUY with a 16.3% upside.
Thailand
- Industrial Estate Sector:
- 1Q15 net profit dropped by 70.3% qoq and 50.7% yoy to Bt797.2m, below market expectations.
- Maintain MARKET WEIGHT with AMATA as the top pick.
Key Indices
| Index |
Previous Close |
1 Day % |
1 Week % |
1 Month % |
YTD % |
| DJIA |
18076.3 |
0.4 |
(0.5) |
0.3 |
1.4 |
| S&P 500 |
2114.1 |
0.2 |
(0.4) |
0.3 |
2.7 |
| FTSE 100 |
6950.5 |
0.3 |
(1.2) |
(0.5) |
5.9 |
| AS30 |
5588.3 |
(0.9) |
(2.4) |
(3.9) |
3.7 |
| CSI 300 |
5143.6 |
(0.4) |
(0.7) |
7.4 |
45.6 |
| FSSTI |
3349.8 |
0.3 |
(3.2) |
(3.8) |
(0.5) |
| HSCEI |
14114.9 |
(0.6) |
(4.0) |
(2.4) |
17.8 |
| HSI |
27657.5 |
0.7 |
(1.5) |
(1.7) |
17.2 |
| JCI |
5130.5 |
(1.6) |
(3.6) |
(0.2) |
(1.8) |
| KLCI |
1749.2 |
0.4 |
(0.3) |
(3.8) |
(0.7) |
| KOSPI |
2063.2 |
(0.7) |
(2.1) |
(3.2) |
7.7 |
| Nikkei 225 |
20473.5 |
(0.3) |
0.0 |
4.8 |
17.3 |
| SET |
1482.1 |
0.4 |
(1.1) |
(2.9) |
(1.0) |
| TWSE |
9556.5 |
(0.6) |
(1.4) |
(2.9) |
2.7 |
| BDI |
598 |
1.2 |
1.9 |
1.9 |
(23.5) |
| CPO (RM/mt) |
2293 |
2.4 |
6.2 |
10.1 |
(0.2) |
| Nymex Crude |
60 |
(0.1) |
3.3 |
1.1 |
11.8 |
Top Picks
BUY
- Beijing Capital (694 HK): Potential upside of 32.8%.
- ICBC (1398 HK): Potential upside of 16.1%.
- Bank BJB (BJBR J): Potential upside of 46.1%.
- Maybank (MAY MK): Potential upside of 12.4%.
- DBS (DBS SP): Potential upside of 24.7%.
- Pacific Radiance (PACRA SP): Potential upside of 70.7%.
- Krong Thai Bank (KTB TB): Potential upside of 50.0%.
- AKR Corporindo (AKRA IJ): Potential upside of 21.1%.
- PGAS (Perusahaan Gas Negara): Potential upside of 16.8%.
SELL
- UMWH Holdings (UMWH MK): Potential downside of 13.8%.
Key Assumptions
| Country/Region |
2013 GDP % |
2014 GDP % |
2015F GDP % |
| US |
2.2 |
2.4 |
2.9 |
| Euro Zone |
-0.5 |
0.9 |
1.3 |
| Japan |
1.6 |
-0.1 |
1.0 |
| Singapore |
4.4 |
2.9 |
2.9 |
| Malaysia |
4.7 |
6.0 |
5.0 |
| Thailand |
2.8 |
0.9 |
2.7 |
| Indonesia |
5.6 |
5.0 |
5.0 |
| Hong Kong |
2.9 |
3.5 |
3.7 |
| China |
7.7 |
7.2 |
7.0 |
| Indicator |
2014 |
2015F |
2016F |
| Brent (US$/bbl) |
99.45 |
65 |
70 |
| CPO (US$/mt) |
722 |
765 |
788 |
| BDI |
1,101 |
1,300 |
1,400 |
Corporate Events
| Event |
Venue |
Date |
| Pacific Radiance Luncheon |
Singapore |
19 Jun |
| M3 Marine Group Luncheon |
Singapore |
25 Jun |
Analysts
Conclusion
The report highlights positive investment opportunities in the oil and gas sector in Indonesia, particularly for midstream and downstream players, and Daqin Railway in China, which is expected to benefit from railway reform and potential asset injections. The market weight rating is given to both the Indonesian O&G sector and the Malaysian banking sector, while the Singapore and Thai industrial estate sectors show mixed performance. The target price and upside potential are emphasized for several stocks, with Daqin Railway and AKR Corporindo being the top picks in their respective markets.
