Regional Morning Notes Summary
Core Content Overview
This document provides a detailed analysis of stock performance and company updates for various regions, focusing on China and Malaysia, and includes insights into key indices, corporate events, and financial metrics. The main emphasis is on investment recommendations and valuation analysis for China TCM and Guangzhou Automobile Group (GAC), along with market trends and performance indicators for other regions.
Main Points
China TCM (570 HK)
- Acquisition of Tianjiang Pharma: The acquisition of an 87.3% shareholding in Tianjiang Pharma is expected to drive a 52% CAGR in net earnings from 2015 to 2017.
- Earnings Growth: Organic growth slowed to 15% yoy in May 2015 due to slow progress in drug tender and procurement, competition, and policy uncertainties. However, the company anticipates steady growth in 2H15 and potential upside if tender progress accelerates.
- Financial Impact: The acquisition is expected to contribute Rmb1,405m in 2015, Rmb4,600m in 2016, and Rmb5,520m in 2017. This will result in net earnings growth of 52% CAGR and EPS growth of 35% CAGR over the same period.
- Valuation: The stock is currently trading at 25x 2015F PE and 17x 2016F PE. The target price is HK$8.80, representing a 35.6% upside from the current price of HK$6.49.
- Stock Catalysts: Sustained sales growth, improved margins, and continued expansion of the TCM granule market.
- Risk Factors: Policy uncertainties, anti-corruption campaigns, lower drug tender prices, and intensifying competition.
Guangzhou Automobile Group (2238 HK)
- Sales Recovery: May 2015 sales grew 22% yoy, outperforming expectations. The company upgraded from HOLD to BUY due to the stock price correction and improved sales momentum.
- Target Price: HK$9.00, representing a 15% upside from the current price of HK$7.84.
- Sales Performance: May sales were 112,570 units, with a 22% yoy increase and 8% mom growth. The recovery in sales since April is attributed to new model launches and improved capacity utilization.
- Market Cap: HK$17,352 million (US$2,239 million), with a 3-mth avg daily turnover of US$12.4 million.
- Valuation: The stock now trades at 9.6x 2016F PE, which is a discount to its historical mean of 12x. The upgrade reflects the increased upside following the stock correction.
- Key Drivers: Sustained monthly sales growth and earnings recovery in 2Q15.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17,905.6 |
-0.9 |
-1.2 |
-0.9 |
0.5 |
| S&P 500 |
2,095.8 |
-0.9 |
-1.2 |
-0.9 |
1.8 |
| FTSE 100 |
6,859.2 |
-1.3 |
-2.6 |
-1.8 |
4.5 |
| AS30 |
5,511.3 |
-1.4 |
-3.6 |
-5.2 |
2.3 |
| CSI 300 |
5,181.4 |
0.7 |
7.2 |
12.7 |
46.6 |
| FSSTI |
3,345.0 |
-0.1 |
-2.3 |
-3.6 |
-0.6 |
| HSCEI |
14,127.0 |
0.1 |
-0.4 |
0.4 |
17.9 |
| HSI |
27,551.9 |
-0.4 |
0.4 |
-0.7 |
16.7 |
| JCI |
5,095.8 |
-0.7 |
-3.0 |
-1.2 |
-2.5 |
| KLCI |
1,741.5 |
-0.4 |
-0.8 |
-4.7 |
-1.1 |
| KOSPI |
2,072.9 |
0.5 |
-1.8 |
-2.8 |
8.2 |
| Nikkei 225 |
20,488.2 |
0.1 |
-0.3 |
4.9 |
17.4 |
| SET |
1,490.9 |
0.6 |
-0.7 |
-2.3 |
-0.5 |
| TWSE |
9,348.6 |
-2.2 |
-3.7 |
-4.8 |
0.4 |
| BDI |
603 |
0.8 |
2.6 |
2.7 |
-22.9 |
| CPO (RM/mt) |
2,270 |
-1.0 |
5.1 |
9.0 |
-1.2 |
| Nymex Crude |
58 |
-0.0 |
-3.8 |
-4.0 |
8.9 |
Corporate Events
- Pacific Radiance Luncheon: Singapore, 19 Jun
- M3 Marine Group Luncheon: Singapore, 25 Jun
Top Picks
BUY
- Beijing Capital (694 HK): CP 9.25, TP 12.30, Pot. +/- 33.0%
- ICBC (1398 HK): CP 6.75, TP 7.80, Pot. +/- 15.6%
- Bank BJB (BJBR J): CP 890.00, TP 1,300.00, Pot. +/- 46.1%
- Maybank (MAY MK): CP 9.19, TP 10.30, Pot. +/- 12.1%
- DBS (DBS SP): CP 20.38, TP 25.08, Pot. +/- 23.1%
- Pacific Radiance (PACRA SP): CP 0.57, TP 0.99, Pot. +/- 75.2%
- Krung Thai Bank (KTB TB): CP 18.10, TP 27.00, Pot. +/- 49.2%
- Sino Thai Engr (STEC TB): CP 22.90, TP 25.00, Pot. +/- 9.2%
SELL
- UMWH Holdings (UMWH MK): CP 10.42, TP 9.00, Pot. +/- -13.6%
Key Assumptions
| Metric |
2014 |
2015F |
2016F |
2017F |
| GDP (% yoy) |
4.4 |
2.9 |
2.9 |
- |
| Brent (US$/bbl) |
99.45 |
65 |
70 |
- |
| CPO (US$/mt) |
722 |
765 |
788 |
- |
| BDI |
1,101 |
1,300 |
1,400 |
- |
Summary of Key Financial Metrics for China TCM
| Metric |
2014 |
2015F |
2016F |
2017F |
| Net Profit (Rmbm) |
413.1 |
703.5 |
1,296.7 |
1,638.2 |
| EPS (Fen) |
16.3 |
20.0 |
28.9 |
36.5 |
| PE (x) |
31.1 |
25.2 |
17.5 |
13.9 |
| P/B (x) |
4.0 |
1.6 |
1.9 |
1.7 |
| EV/EBITDA (x) |
14.8 |
9.7 |
5.6 |
4.1 |
| Net Debt/Equity (%) |
23.0 |
7.6 |
8.9 |
0.7 |
| ROE (%) |
13.9 |
9.9 |
11.2 |
13.4 |
Summary of Key Financial Metrics for GAC
| Metric |
2014 |
2015F |
2016F |
2017F |
| Net Profit (Rmbm) |
3,185 |
3,840 |
4,688 |
5,229 |
| EPS (fen) |
49.5 |
53.7 |
65.5 |
73.1 |
| PE (x) |
12.7 |
11.7 |
9.6 |
8.6 |
| P/B (x) |
1.1 |
1.1 |
1.0 |
0.9 |
| Net Debt/Equity (%) |
2.8 |
3.6 |
2.4 |
-0.1 |
| ROE (%) |
9.3 |
10.4 |
11.7 |
12.0 |
