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Regional Morning Notes Summary - April 3, 2014

Core Content Overview

This document provides a comprehensive review of the financial performance and market outlook for various sectors in China, Malaysia, and Singapore, as well as key company results and analyst recommendations.

Main Points

China - Property Sector

• 2013 Results Review:

  • The property sector experienced a slowdown in earnings and sales growth, with margins under pressure.
  • Higher dividend payouts were observed, with KWG leading at 36% and Agile at 34%, resulting in an average dividend yield of 4.2%.
  • The sector is expected to see a short-term rebound but remains affected by tight credit conditions.

• 2014 Outlook:

  • A 23% sales growth target is set for the sector, with an average required sell-through rate of 57%.
  • Gross margins are expected to remain stable or improve slightly.
  • Overall net gearing increased to 66.8% due to aggressive landbank replenishment and faster construction.
  • Companies like COLI and CR Land have lower borrowing costs and strong land banking capabilities, making them attractive for long-term investment.

• Key Picks:

  • BUY: COLI (688 HK), KWG (1813 HK), Shimao (813 HK)
  • SELL: Glorious Property (123 HK), Guangzhou R&F (2777 HK), Poly Property (119 HK)
  • HOLD: China Resources Land (1109 HK), Minmetals Land (230 HK)

• Sector Catalysts:

  • Policy relaxation, credit loosening, and sales pickup in April and May could trigger valuation recovery.
  • The sector is currently trading at 6.7x FY14F PE, 0.9x 2014F P/B, and a 39% discount to NAV, compared to historical averages.

• Risks:

  • A hard landing due to significant ASP declines in major cities could cause panic selling.
  • Tight liquidity and a difficult operating environment may lead to increased scrutiny for highly geared developers.

Malaysia - Rubber Gloves Sector

• Top Glove:
  • FY14-16 net profit forecasts were cut by 4.0-6.8% due to lower ASP assumptions.
  • It remains the key beneficiary of weak latex prices and a stronger US dollar.

Singapore - Noble Group

• Noble Group (NOBL SP):
  • Advised to sell with a target price of S$1.03.
  • Proceeds will be used to reduce gearing, but this may have a marginal impact on earnings.

Key Financial Data

Key Indices (as of 2014-04-03)

Key Assumptions

Corporate Events

• Xingda International Corporate Roadshow & Luncheons: Taipei, April 16-17
• Chaowei Power Corporate Roadshow: Singapore, April 3
• Malaysian Communications and Multimedia Commission: Kuala Lumpur, April 3
• SPT Energy Corporate Roadshow: Los Angeles, San Francisco, Boston, New York (April 3-10)
• Malaysian Oil & Gas Sector Analyst Presentation: Taipei, April 8
• Indonesia 2H14 Market Strategy: Singapore and Kuala Lumpur (April 8-11)
• LJM Corporation Corporate Roadshow: Taipei, April 9-10
• China Fiber Optic Network Luncheon: Hong Kong, April 10
• Palm Oil Dialogue Session: Kuala Lumpur, April 11
• Malaysia Alica Corporate Roadshow: Singapore, April 11

Company Highlights

Baoxin Auto Group (1293 HK)

• 2013 Results:

  • Net profit grew 42% yoy to Rmb1,007m, missing consensus due to lower contribution from Yanjun.
  • Organic profit growth was 19% yoy.
  • After-market revenue doubled to Rmb2.7b, with a steady gross margin of 47.5%.

• Recommendation:

  • Maintain BUY with a revised target price of HK$8.00.
  • The company is focusing on luxury and ultra-luxury brands, with a strong product pipeline from BMW and JLR.

• Key Financials:

  • Net profit (2013): Rmb1,007m
  • EBITDA (2013): Rmb2,043m
  • Operating profit (2013): Rmb1,769m
  • EPS (2013): 39.0 fen
  • PE (2013): 12.9x
  • P/B (2013): 3.5x
  • EV/EBITDA (2013): 7.6x
  • Dividend yield (2013): 2.4%
  • Net margin (2013): 3.0%
  • Net debt-to-equity (2013): 55.8%
  • Interest cover (2013): 3.5x
  • ROE (2013): 21.2%

• Outlook:

  • Management expects a 30% yoy growth in the after-market business for 2014.
  • The after-market business is expected to deliver a 23% CAGR in revenue and gross profit from 2014-16.
  • The share of after-market segment profit to total gross profit is projected to rise from 44% in 2013 to 49% in 2016.

Analysts

• Edison Bian: +852 2236 6761, edison.bian@uobkayhian.com.hk
• Cynthia Chan: +852 2826 4874, cynthia.chan@uobkayhian.com.hk
• Ken Lee: +852 2236 6760, ken.lee@uobkayhian.com.hk
• Renee Tai: +852 2826 1324, renee.tai@uobkayhian.com.hk

Summary

• The property sector in China is expected to show a short-term rebound, but credit conditions remain tight.
• Top Glove in Malaysia is a key beneficiary of weak latex prices and a stronger US dollar.
• Baoxin Auto Group is advised to maintain a BUY rating with a revised target price.
• Corporate events are ongoing in various regions, providing opportunities for market engagement.
• Key financial metrics and sector catalysts are outlined to guide investment decisions.