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Regional Morning Notes Summary - 29 November 2016

Core Content Overview

This document provides a detailed analysis of the property and consumer staples sectors in China, as well as updates on market indices, corporate events, and stock performance in Indonesia, Malaysia, Singapore, and Thailand. It includes key financial metrics, analyst recommendations, and insights on market trends and company performance.

Key Regions and Sectors

China

Property Sector

• Market Trends:

  • Home sales in 30 monitored cities fell 11.7% week-over-week and 20.8% month-over-month, with a 27.5% year-over-year decline.
  • Tightening measures have intensified, leading to a cooling market and more city-specific policies to control ASP growth.
  • Transaction volumes turned negative, despite a slight rebound in new home supply.

• Corporate Activities:

  • M&A activity is increasing, with several developers acquiring stakes or assets, including:
    • CRL acquiring 20.9% stake in China Enterprise for Rmb7.32b.
    • Joy City acquiring a retail mall for Rmb1.4b.
    • Thaihot Group acquiring a 40% stake in two projects in Fuzhou for Rmb1.4b.
  • Developers are still in good financial positions, and monetary easing continues to support liquidity.

• Analyst Recommendations:

  • China Resources Land (1109 HK) and Longfor (960 HK) are recommended as BUY.
  • Poly Property (119 HK) and Sunac China (1918 HK) are SELL.
  • Tingyi (322 HK) is upgraded to HOLD with a target price of HK$9.20.

• Valuation:

  • The sector is trading at 7.7x 2017F PE, a 39.5% discount to RNAV.
  • Tingyi is trading at 31.5x 2017F PE, slightly above historical averages.
  • Tingyi's 3Q16 results showed a 1% yoy decline in net profit and narrowed sales contraction in instant noodles, while beverage sales improved by 3.6% yoy.

• Key Financials:

  • Net profit (2016F): US$182m.
  • EBITDA (2016F): US$891m.
  • PE (2016F): 37.9x.
  • P/B (2017F): 2.2x.
  • EV/EBITDA (2016F): 11.1x.

• Recent M&A Cases:

  • Evergrande acquired 10% stake of China Vanke.
  • China Vanke acquired 96.55% stake of SCP Group for Rmb12.9b.
  • CRL acquired 20.9% stake of China Enterprise for Rmb7.32b.

• Raw Material Price Changes:

  • Sugar increased by 12.4% yoy.
  • Palm oil rose by 17.5% yoy.
  • PET decreased by 5.6% yoy.
  • Milk powder declined by 1.0% yoy.

• Sales & Gross Margin Forecast:

  • Instant noodles revenue is expected to grow by 6.1% in 2017.
  • Beverage revenue is projected to increase by 6.1% in 2017.
  • Gross margin for instant noodles is expected to rise to 30.2% in 2017.
  • Gross margin for beverages is forecasted to stabilize at 32.8%.

• Key Indices:

  • DJIA: +1.2% (1W), +5.2% (1M), +9.6% (YTD).
  • S&P 500: +0.9% (1W), +3.5% (1M), +7.7% (YTD).
  • HSCEI: +4.6% (1W), +3.8% (1M), +2.2% (YTD).
  • HSI: +2.1% (1W), -0.5% (1M), +4.2% (YTD).

Indonesia

• Tax Amnesty Declarations:
  • Almost half of the declarations are in cash and investment.
• Recommended Names:
  • WSKT, PTPP, WSBP, BSDE, CTRA, GGRM, MAPI.

Malaysia

• Carlsberg Brewery Malaysia (CAB MK):

  • Missed expectations in 3Q16 due to weak top-line performance and higher A&P expenses.
  • 4Q16 outlook is subdued.

• IJM Corporation (IJM MK):

  • 2QFY17 results were in line with expectations.
  • Construction division was the key growth driver.

Singapore

• Jumbo Group (JUMBO SP):

  • Results in line with expectations.
  • Dividend surprise reported.
  • Target price: $0.65, with a current price of $0.655.

• United Engineers (UEM SP):

  • Downgraded to HOLD due to uncertainty.
  • Target price: $2.75, with a current price of $2.75.

Thailand

• CH Karnchang (CK TB):

  • Only major contractor able to deliver earnings growth.
  • Expected to continue growth into the next few years.

• YTD Home Price Growth:

  • Guangzhou: +13.0% yoy.
  • Fuzhou: +15.6% yoy.
  • Hangzhou: +22.6% yoy.
  • Wuhan: +20.8% yoy.

Summary of Recommendations

Key Insights

• Property sector in China continues to face pressure from tightening policies, but M&A activity is on the rise.
• Tingyi improved its beverage sales and narrowed the decline in instant noodles, but long-term growth remains uncertain.
• Market indices in China and Asia showed mixed performance, with some indices like HSCEI and HSI showing positive YTD returns.
• Corporate events such as the Sa Sa International Group Meeting and Thai Oil Roadshow took place in Singapore.
• Valuation of property stocks in China is still below historical averages, suggesting potential for further upside.

Analyst Contact

• David Yang

  • Email: davidyang@uobkayhian.com
  • Phone: +8621 5404 7225 ext 801

• Johnson Hu

  • Email: johnsonhu@uobkayhian.com
  • Phone: +8621 5404 7225 ext 809

• Mark Chen

  • Email: markchen@uobkayhian.com
  • Phone: +8621 5404 7225 ext 825

• Wendy Liu

  • Email: wendyliu@uobkayhian.com
  • Phone: +8621 5404 7225 ext 811