Regional Morning Notes Summary
Core Content Overview
This document provides a summary of financial updates and market analysis for several companies in China, Malaysia, and Singapore, along with key indices, corporate events, and valuation insights. The focus is on earnings performance, upcoming corporate actions, and investment recommendations for the listed companies.
Main Points by Region
China
- China Southern Airlines (1055 HK):
- Proposed a new share placement to raise Rmb12.7b for aircraft capex and working capital.
- The placement includes A-shares and H-shares, with a dilution of approximately 16% to 2017F EPS.
- The A-share issuance price is set at Rmb8.00/share (90% of the 20-day average trading price or the most recent book value).
- The H-share subscription price is fixed at HK$6.27/share (or Rmb5.50/share) for Nan Lung, a subsidiary.
- The company is expected to issue 1.99b new A-shares.
- The share price is currently HK$6.56, with a target price of HK$6.60.
- Maintain HOLD recommendation pending share issuance completion.
- Suggested entry price: HK$5.80.
- The acquisition of MTUZ (a joint venture for engine maintenance) is expected to provide revenue and earnings support in 2018.
- Possible further share placements in 2018-19 for Beijing Daxing airport investment.
Malaysia
-
Gamuda (GAM MK):
- 3QFY17 net profit was RM171m, lifting 9MFY17 net profit to RM499m, which is 71% of the full-year estimate.
- Earnings growth is expected to continue due to strong performance in construction and property divisions.
- Raised target price to RM6.00.
- Ambitious construction orderbook win of RM10b p.a. in the next two years, targeting ECRL, HSR, and LRT projects.
- Current outstanding construction orderbook is RM8.2b, mostly from MRT Line 2 and Pan Borneo Highway.
- Property division earnings have bottomed out, but are expected to show marginal growth in 3-4 quarters.
- Property sales in 3QFY17 reached RM620m, up 3.3x yoy, lifting 9MFY17 property sales to RM1.4b, 67% of the full-year target.
- FY18 property sales target raised to RM3b, with RM2b of unbilled sales as of end-3QFY17.
-
Bumi Armada (BAB MK):
- Achieved first oil on 23 Jun 17, within schedule, addressing investor concerns.
- Target price increased to RM1.01.
Singapore
- Oversea-Chinese Banking Corporation (OCBC SP):
- Divesting non-core businesses and investing in wealth management.
- Target price raised to S$11.70.
Key Indices Performance (as of 28 June 2017)
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
21310.7 |
(0.5) |
(0.7) |
1.1 |
7.8 |
| S&P 500 |
2419.4 |
(0.8) |
(0.7) |
0.1 |
8.1 |
| FTSE 100 |
7434.4 |
(0.2) |
(0.5) |
(1.5) |
4.1 |
| AS30 |
5752.5 |
(0.1) |
(0.7) |
(0.7) |
0.6 |
| CSI 300 |
3674.7 |
0.2 |
3.6 |
5.6 |
11.0 |
| FSSTI |
3219.5 |
0.3 |
(0.9) |
0.0 |
11.8 |
| HSI |
25840.0 |
(0.1) |
(0.0) |
0.8 |
17.5 |
| JCI |
5829.7 |
0.2 |
0.9 |
1.7 |
10.1 |
| KLCI |
1779.5 |
0.1 |
(0.7) |
0.4 |
8.4 |
| KOSPI |
2392.0 |
0.1 |
1.0 |
1.6 |
18.0 |
| Nikkei 225 |
20225.1 |
0.4 |
(0.0) |
2.7 |
5.8 |
| SET |
1586.5 |
0.1 |
0.5 |
1.1 |
2.8 |
| TWSE |
10512.1 |
(0.0) |
1.8 |
4.1 |
13.6 |
| BDI |
884 |
1.6 |
4.4 |
(3.1) |
(8.0) |
| CPO (RM/mt) |
2586 |
(0.8) |
(3.2) |
(11.2) |
(19.2) |
| Brent Crude (US$/bbl) |
47 |
1.8 |
1.4 |
(10.5) |
(17.9) |
Top Picks (BUY)
| Company |
Ticker |
Current Price |
Target Price |
Pot. +/- (%) |
| Alibaba |
BABA US |
141.53 |
173.00 |
22.2 |
| Beijing Ent. Water |
371 HK |
6.20 |
7.60 |
22.6 |
| Telekomunikasi Indo |
TLKM J |
4,520.00 |
5,000.00 |
10.6 |
| V.S. Industry |
VSI MK |
2.07 |
2.40 |
15.9 |
| OCBC |
OCBC SP |
10.73 |
11.70 |
9.0 |
| Siam Cement |
SCC TB |
508.00 |
600.00 |
18.1 |
Sell Recommendations
| Company |
Ticker |
Current Price |
Target Price |
Pot. +/- (%) |
| Great Wall Motor |
2333 HK |
10.18 |
6.00 |
(41.1) |
| MGM China |
2282 HK |
17.26 |
15.00 |
(13.1) |
| Hartalega |
HART MK |
6.99 |
4.07 |
(41.8) |
Key Assumptions
| Metric |
2016 |
2017F |
2018F |
| GDP (% yoy) |
US: 1.6 |
Euro Zone: 1.8 |
Japan: 0.9 |
| GDP (% yoy) |
Singapore: 2.4 |
Malaysia: 5.0 |
Thailand: 3.3 |
| GDP (% yoy) |
Indonesia: 5.2 |
Hong Kong: 2.0 |
China: 6.3 |
| Brent (Average) |
45 |
55 |
60 |
| CPO |
2,653 |
2,600 |
2,500 |
Corporate Events (28 June 2017 onwards)
| Event |
Venue |
Dates |
| Group meeting with IGG Inc |
Shanghai |
29 Jun |
| Roadshow with Jacobson Pharma |
Hong Kong |
29 Jun |
| Luncheon with United Overseas Bank |
Singapore |
3 Jul |
| Roadshow with Hopefluent Group Holdings Limited |
Singapore, Kuala Lumpur |
4 Jul, 6 Jul |
| Analyst Marketing on Thai Strategy & Thai Telco |
Hong Kong, Singapore, Malaysia |
3 Jul, 5 Jul, 6 Jul |
| Luncheon with Wisdom Education International Holdings |
Hong Kong |
7 Jul |
| New Economy Conference 2017 |
Kuala Lumpur |
11 Jul |
| Roadshow with Citic Envirotech Ltd |
Taipei |
18 Jul |
| Analyst Marketing on Singapore Strategy & Small & Mid Caps |
Taipei |
20 Jul |
| Visit to Sarawak Corridor of Renewable Energy and Roadshow with Top Glove Corporation |
Sarawak, US/Canada |
1 Aug, 3 Aug, 12 Sep |
Key Financials and Metrics (China Southern Airlines)
Profit & Loss
| Metric |
2016 |
2017F |
2018F |
2019F |
| Net turnover |
114,981.0 |
126,330.9 |
143,002.9 |
155,415.2 |
| EBITDA |
25,231.0 |
23,954.4 |
24,920.6 |
26,223.9 |
| Operating profit |
12,612.0 |
9,800.2 |
9,975.7 |
10,297.3 |
| Net profit (rep./act.) |
5,044.0 |
4,302.2 |
5,054.1 |
5,464.7 |
| Net profit (adj.) |
5,044.0 |
4,302.2 |
5,054.1 |
5,464.7 |
| EPS (fen) |
51.4 |
35.6 |
41.8 |
45.2 |
| PE (x) |
11.2 |
16.1 |
13.7 |
12.7 |
| P/B (x) |
1.3 |
1.1 |
1.0 |
1.0 |
| EV/EBITDA (x) |
6.3 |
6.7 |
6.4 |
6.1 |
| Net margin (%) |
4.4 |
3.4 |
3.5 |
3.5 |
| Net debt/(cash) to equity (%) |
238.3 |
147.6 |
134.0 |
127.6 |
| Interest cover (x) |
10.8 |
7.9 |
8.9 |
9.6 |
| ROE (%) |
12.2 |
8.2 |
7.8 |
7.9 |
Cash Flow
| Metric |
2016 |
2017F |
2018F |
2019F |
| Operating |
23,764.0 |
24,173.9 |
24,672.9 |
24,505.8 |
| Pre-tax profit |
7,661.0 |
6,449.4 |
7,651.5 |
8,307.3 |
| Tax |
(1,763.0) |
(1,418.9) |
(1,668.0) |
(1,811.0) |
| Net profit |
5,044.0 |
4,302.2 |
5,054.1 |
5,464.7 |
| Net cash inflow (outflow) |
(409.4) |
2,001.3 |
2,761.9 |
(2,699.0) |
| Ending cash & cash equivalent |
4,187.6 |
6,152.9 |
8,914.8 |
6,215.8 |
Balance Sheet
| Metric |
2016 |
2017F |
2018F |
2019F |
| Fixed assets |
146,746.0 |
156,165.9 |
162,454.1 |
171,934.5 |
| Other LT assets |
39,932.0 |
40,640.9 |
41,342.6 |
42,138.8 |
| Cash/ST investment |
4,152.0 |
6,152.9 |
8,914.8 |
6,215.8 |
| Shareholders' equity |
43,456.0 |
61,923.7 |
66,883.6 |
72,173.2 |
| Net debt/(cash) to equity (%) |
248.8 |
238.3 |
147.6 |
134.0 |
Key Financials and Metrics (Gamuda)
Profit & Loss
| Metric |
3QFY17 |
2QFY17 |
qoq % chg |
yoy % chg |
9MFY17 |
| Revenue |
839.5 |
853.9 |
(1.7) |
79.6 |
2,198.2 |
| Engineering & construction |
355.7 |
400.6 |
(11.2) |
75.0 |
952.6 |
| Property Dev & Club Operations |
370.8 |
332.1 |
11.7 |
156.1 |
885.9 |
| Water & Expressway concession |
113.0 |
121.2 |
(6.8) |
(5.3) |
359.7 |
| Net Profit |
170.9 |
166.3 |
2.8 |
11.9 |
499.3 |
Key Financials
| Metric |
2015 |
2016 |
2017F |
2018F |
2019F |
| Net turnover |
2,400 |
2,122 |
2,759 |
4,242 |
5,152 |
| EBITDA |
601 |
613 |
608 |
730 |
866 |
| Operating profit |
501 |
494 |
572 |
682 |
805 |
| Net profit (rep./act.) |
582 |
626 |
700 |
858 |
981 |
| Net profit (adj.) |
670 |
619 |
700 |
858 |
981 |
| EPS (sen) |
28.5 |
22.4 |
25.4 |
31.1 |
35.6 |
| PE (x) |
19.1 |
24.3 |
21.5 |
17.5 |
15.3 |
| P/B (x) |
2.0 |
2.2 |
2.2 |
2.1 |
1.9 |
| EV/EBITDA (x) |
28.3 |
27.7 |
27.9 |
23.3 |
19.6 |
| Net margin (%) |
24.2 |
29.5 |
25.4 |
20.2 |
19.0 |
| Net debt/(cash) to equity (%) |
42.6 |
48.5 |
49.2 |
39.5 |
29.4 |
| ROE (%) |
9.8 |
9.5 |
10.3 |
12.3 |
12.9 |
Stock Impact (Gamuda)
- Targeting RM10b p.a. in construction orderbook wins for FY18 and FY19.
- Property sales expected to grow from 4QFY17 onwards, with RM1.4b in 9MFY17.
- FY18 property sales target raised to RM3b.
- Unbilled sales as of end-3QFY17 stand at RM2b, representing 2.6x of FY16 property revenue.
- Earnings growth momentum expected to continue from MRT Line 2 and Sarawak Pan Borneo Highway projects.
Valuation & Recommendation
- Maintain BUY recommendation for Gamuda with a target price of RM6.00.
- The upside is +10.1% from current RM5.45.
- Previous target price was RM5.55.
Summary of Key Financial Highlights
- China Southern Airlines is undergoing a significant share placement, which will dilute earnings by ~16% for 2017F, but is expected to increase book value by ~5%.
- Gamuda reported strong 3QFY17 results, with earnings growth driven by construction and property divisions.
- Bumi Armada achieved first oil on schedule, improving investor sentiment.
- OCBC is shifting focus to wealth management, raising its target price.
- The document outlines key economic assumptions for major economies and provides insights into corporate events and financial performance.
