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报告摘要

Regional Morning Notes Summary - 22 August 2018

Core Content Overview

This document provides a detailed market analysis and investment recommendations for the Chinese and Thai markets, with a focus on the aviation and auto sectors. It includes earnings previews, stock recommendations, corporate events, and key financial metrics for various companies.

Main Points and Key Information

China Aviation Sector

Earnings Preview: Chinese airlines are expected to report a 45-62% decline in net profit for 1H18, mainly due to forex losses and rising fuel costs.
Performance: Despite the decline, core earnings are showing growth. Air China and China Southern Airlines (CSA) are highlighted as top picks, with Air China upgraded to BUY from HOLD.
Valuation: The sector is trading at -1SD to long-term P/B and at 0.9x 2018F book value, suggesting downside risk is low.
Yield and Cost: Domestic pax yields are expected to rise by 1%, while international yields may remain flat. Air China has the largest forex loss, but its cargo earnings are strong.
Catalysts: Improved domestic yields, higher pax load factors, and the potential for domestic fuel surcharges.

China Meidong Auto Holdings (1268 HK)

1H18 Results: Net profit rose 46% yoy to Rmb158m, beating estimates. Core net profit increased 31% yoy to Rmb131m.
Performance: New car sales revenue grew 29% yoy due to a 25% volume increase and 4% ASP hike. After-sales service revenue increased 40% yoy, driven by store expansion.
Recommendation: Maintained BUY with a target price of HK$4.50 (upside of +30.1%).
Company Profile: Operates mid-to-high end and premium car dealerships in China.
Store Growth: Added two stores in 1H18, plans to expand to 58 stores by end-19, with a focus on luxury brands.
Financial Assumptions:
- Store growth: 39 to 52 to 58 to 64
- Luxury car sales: 12.4% to 16.2% to 20.7% to 25.6%
- New car sales volume: 28.7k to 33.2k to 38.4k to 43.3k units
- Gross margin: 5.6% for new car sales and 49.0% for after-sales services

Key Indices Performance

Index	Previous Close	1D %	1W %	1M %	YTD %
DJIA	25822.3	0.2	2.1	3.0	4.5
S&P 500	2863.0	0.2	0.8	2.2	7.1
FTSE 100	7565.7	-0.3	-0.6	-1.5	-1.6
AS30	6383.0	-0.8	-0.0	0.1	3.5
CSI 300	3326.6	1.8	-1.4	-4.8	-17.5
FSSTI	3199.9	-0.2	-1.3	-3.0	-6.0
HSCEI	10737.6	1.0	-0.1	0.5	-8.3
HSI	27752.8	0.6	-0.0	-1.7	-7.2
JCI	5944.3	0.9	1.4	1.2	-6.5
KLCI	1798.1	0.6	0.8	2.5	0.1
KOSPI	2270.1	1.0	1.0	-0.8	-8.0
Nikkei 225	22219.7	0.1	-0.6	-2.1	-2.4
SET	1694.6	-0.4	-0.0	1.4	-3.4
TWSE	10792.2	0.9	-0.3	-1.3	1.4
BDI	1736	0.5	0.6	2.8	27.1
CPO (RM/ml)	2200	0.5	0.3	1.6	-8.0
Brent Crude	73	0.6	0.2	-0.6	8.6

Top Picks

BUY

Air China (753 HK): Target price HK$7.90
China Southern Airlines (CSA, 1055 HK): Target price HK$6.70
China Meidong Auto Holdings (1268 HK): Target price HK$4.50
Kerry Properties (683 HK): Downgraded to SELL
Wasion Group Holdings (3393 HK): Maintained HOLD
Kingsoft Corp (3888 HK): Maintained BUY

Corporate Events

Greater China 2H18 Strategy and Outlook: Bangkok, 20-22 Aug 18
Roadshow with Galaxy Entertainment Group (27 HK): Taipei, 21-22 Aug 18
Group Meeting with Xtep International Holdings (1368 HK): Hong Kong, 24 Aug 18
Group Meeting with YiChang HEC ChangJiang Pharmaceutical (1558 HK): Hong Kong, 28 Aug 18
Roadshow with China Traditional Chinese Medicine Holdings (570 HK): Shanghai, 30-31 Aug 18
Roadshow with Bright Scholar Education Holdings Limited (BEDU US): Singapore (3 Sep 18), Kuala Lumpur (4 Sep 18)
UOB Kay Hian Asian Gems Conference: Singapore, 9 Oct 18
UOB Kay Hian Annual Regional 1H2019 Strategy Conference: Kuala Lumpur, 13 Nov 18

Key Assumptions

Region	GDP Growth (%)
US	2.3 / 2.5 / 2.3
Euro Zone	2.4 / 2.3 / 1.9
Japan	1.7 / 1.8 / 1.9
Singapore	3.6 / 2.8 / 3.0
Malaysia	5.9 / 5.0 / 5.3
Thailand	3.9 / 4.2 / 4.2
Indonesia	5.1 / 5.3 / 5.4
Hong Kong	3.8 / 3.8 / 2.8
China	6.9 / 6.4 / 6.2
CPO (RM/mt)	2,783 / 2,400 / 2,500
Brent Crude	55.00 / 67.00 / 66.50 (US$/bbl)

Earnings and Valuation

China Meidong Auto Holdings (1268 HK)

Earnings: Net profit up 46% yoy to Rmb158m, core net profit up 31% yoy to Rmb131m
Revenue: Rmb4,347m for 1H18, up 30.4% yoy
New Car Sales: Rmb3,779m, up 29% yoy
After-sales Services: Rmb567m, up 40% yoy
Gross Margin: 48.4% for after-sales services
Dividend Yield: 4.1% for 1H18
Target Price: HK$4.50, up from HK$3.50

Analysts

K Ajith: +65 6590 6627, ajith@uobkayhian.com
Charles Wong Kok Min: +603 2147 1913, kokmin@uobkayhian.com
Ken Lee: +852 2236 6760, ken.lee@uobkayhian.com.hk
Johnny Yum: +852 2826 6706, johnny.yum@uobkayhian.com.hk

Thai Market

CH Karnchang PCL (CK TB): BUY, target price Bt30.00, earnings growth positive and expected to strengthen next year.
MK Restaurant Group Plc (M TB): BUY, target price Bt88.00, positive outlook for 2H18 and 2019.

Summary of Investment Outlook

The aviation sector in China is expected to report weak earnings due to forex and fuel costs, but core earnings are growing.
Air China and CSA are upgraded to BUY, while CEA remains on HOLD.
China Meidong Auto Holdings exceeded earnings expectations and is recommended as a BUY due to strong performance in after-sales services and potential for growth.
The sector is undervalued, with P/B at -1SD, indicating a potential rebound.
Corporate events and strategic meetings are scheduled across the region, providing opportunities for engagement.

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