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Regional Morning Notes Summary

Core Content Overview

This document provides a comprehensive analysis of the regional financial and healthcare sectors as of Wednesday, 17 August 2016, with a focus on China, Malaysia, Singapore, and Thailand. It highlights key developments, stock performances, and investment recommendations across these markets.

Main Points and Key Information

China

• Healthcare Sector:

  • SZ-HK Connect has been announced, which is expected to benefit 24 Hong Kong-listed healthcare companies by increasing liquidity and boosting sector valuation.
  • The Hong Kong healthcare sector is currently undervalued compared to A-share peers, with significant discounts in the pharma, healthcare services, and medical device segments.
  • Seven healthcare stocks have been selected as tier-1 recommendations based on criteria such as exclusivity in the SZ-HK connection, low valuation, business scarcity, and strong earnings growth.
  • China Resources Gas (1193 HK) reported a 26% yoy increase in net profit (HK$1,957m), 8.6% above the consensus, driven by a rebound in NG sales and margin expansion.
  • Sunny Optical (2382 HK) beat earnings expectations and was upgraded to BUY due to its focus on dual cameras in the module segment.

• Insurance Sector:

  • 1H16 earnings are expected to decline by 10–70% yoy due to weaker investment returns and higher reserve expenses.
  • Life insurers have shown strong premium growth (e.g., China Life and Ping An reported 25.0% and 32.7% yoy growth), but their results may have already been priced in.
  • P&C insurers are preferred over life insurers due to less sensitivity to discount rates and better visibility.
  • PICC P&C is highlighted as a top pick with a BUY recommendation and a target price of HK$14.80.
  • China Life, Ping An, and CPIC are expected to report 30–70% NBV growth in 1H16.

Malaysia

• WCT Holdings (WCTHG MK) is recommended as a BUY, with a target price of RM2.05. The company is expected to benefit from 2H16 results, potential contract wins, and asset monetisation.

Singapore

• ST Engineering (STE SP) is recommended as a BUY, with a target price of S$3.60. The firm is confident about its long-term growth prospects.

Thailand

• Bangkok Chain Hospital (BCH TB) reported strong 2Q16 earnings, and its sales and earnings are expected to continue growing, albeit at a slower pace in 2H16.
• Charoen Pokphand Foods (CPF TB) also beat market expectations in 2Q16 and was upgraded to BUY with a target price of Bt37.00.

Key Indices Performance

Top Picks

Sector Recommendations

• Healthcare (China): UNDERWEIGHT due to the sector's discount to A-share peers and the potential for SZ-HK Connect to improve liquidity and valuation.
• Insurance (China): MARKET WEIGHT with a preference for P&C insurers over life insurers.
• Malaysia: WCT Holdings (WCTHG MK) is a BUY.
• Singapore: ST Engineering (STE SP) is a BUY.
• Thailand: Bangkok Chain Hospital (BCH TB) and Charoen Pokphand Foods (CPF TB) are both BUY.

Analysts Contact

• Alex Jiang: +852 2236 6749 | alexjiang@uobkayhian.com.hk
• Fu Jun Wei: +8621 54047225 ext 817 | jwfu@uobkayhian.com

Key Assumptions

• GDP Growth (2016F):
  • China: 6.5%
  • Malaysia: 4.2%
  • Singapore: 2.7%
  • Thailand: 3.2%
• Brent Crude (2016F): 42 US$/bbl
• CPO (2016F): 2,500 RM/mt

Conclusion

The document outlines a positive outlook for certain stocks in the healthcare and insurance sectors in China, with SZ-HK Connect expected to enhance liquidity and valuation for Hong Kong-listed healthcare companies. It also highlights the underperformance of life insurers compared to P&C insurers, due to the impact of lower investment returns and higher reserve expenses. Malaysia and Singapore also show promising investment opportunities, with specific stocks recommended for BUY.