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Regional Morning Notes Summary - 09 May 2014

Core Content

The Regional Morning Notes for 09 May 2014 provide an overview of key developments across various sectors in China, Hong Kong, Malaysia, and Singapore, alongside market indices and analyst insights. The report emphasizes the recovery in the shipping sector but highlights that a major upcycle is not expected in the near future due to surplus capacity. In the banking sector, it notes that regulatory control remains tight, and capital adequacy is expected to stay reasonable even under stress scenarios. The commodity market is under pressure due to demand risks and high inventory levels.

Main Sectors and Key Points

Shipping - Regional

• Recovery is expected, but not a major upcycle.
• Asia-Europe rates have improved significantly, while Transpacific rates are softer.
• Dry bulk market shows signs of recovery with BDI falling to 1,017, but Capesize rates are expected to rise the most.
• Capacity discipline is crucial for container shipping rates, and fleet growth is expected to be moderate.
• Top Pick: Orient Overseas International (OOIL) due to its attractive valuation and strong financial performance.

Banking - China

• PBOC stress tests indicate that banks can maintain reasonable capital adequacy ratios (CAR) even under worst-case scenarios.
• GDP growth is expected to slow, but capital adequacy is still manageable.
• 1Q14 results show better-than-expected performance, but asset quality remains a concern.
• Top Picks: China Construction Bank (CCB) and Agricultural Bank of China (ABC), with ICBC and BOC also noted for their strong performance.

China

• Great Wall Motor saw a 11% drop in April sales, and uncertainty over the H8 launch persists.
• City Gas Distribution remains in a safe harbour, with ENN Energy and CR Gas as top picks.
• Commodity prices are under pressure due to increasing demand risks and high inventory levels.

Hong Kong

• Hong Kong Exchanges & Clearing reported slightly ahead results with a positive outlook.
• Giordano saw weaker brand sales and gross margin, leading to a SELL recommendation.
• Sa Sa had a weak start to FY15 but expects growth to normalise in 2H14.
• Swire Properties showed steady performance in Hong Kong and growth in China.

Malaysia

• MPHB Capital is highlighted as a small/mid Cap strategy.
• Perisai Petroleum secured its first jack-up drilling rig contract, leading to a BUY recommendation.

Singapore

• Wilmar International reported a 39.2% drop in net profit qoq and a 31.7% drop yoy, but consumer pack exceeded expectations.
• Container shipping demand is expected to grow in the US and Europe, but supply remains a key factor.

Key Indices

Top Picks

Key Assumptions

Corporate Events

Risks

• High bunker fuel prices
• China tightening steel production
• Weaker consumption in the US and EU

Sector Catalysts

• Better economic indices in the US and Europe
• Stabilising economic data
• More aggressive loosening measures from the government

Analysts

• Lawrence Li: +8621 5404 7225 ext.813 | lawrenceli@uobkayhian.com
• Angela Zhou: +8621 5404 7225 ext.858 | angelazhou@uobkayhian.com
• Edmond Law: +852 2826 4837 | edmond.law@uobkayhian.com.hk
• Terrance Liu: +852 2826 1351 | Terrance.liu@uobkayhian.com.hk