20180828-大华继显-Regional_Morning_Notes_46页_2mb

Regional Morning Notes Summary - 28 August 2018

Core Content

This document provides a summary of company results, key financial metrics, and investment recommendations for various markets, including China, Hong Kong, Indonesia, and Malaysia. It also includes updates on key indices and corporate events.

Main Points by Region

China

• China National Building Material Co (3323 HK):

  • 1H18 Performance: Net profit surged 159.8% yoy, beating Bloomberg consensus but missing internal estimates due to weaker-than-expected cement sales and a loss in financial investments.
  • Segments: Cement segment saw a significant improvement in gross margin (34.0%) driven by a 28.5% increase in cement ASP, despite a 5.6% decline in production.
  • Other Segments: New material and engineering services segments also showed margin expansion and steady growth.
  • Deleveraging: Net debt ratio dropped to 148.1% from 164.9% as of end-2017.
  • Earnings Revision: Earnings estimates for 2018 and 2019 were cut by 14% and 13%, respectively, due to weaker cement sales and higher SG&A costs.
  • Valuation: Target price lowered to HK$10.65, with an upside of +32.9% based on 8x 2019F PE.
  • Key Risks: Weaker-than-expected cement ASP and sales volume, especially in the northeast and western regions of China.

• China Shenhua Energy (1088 HK):

  • 1H18 Performance: Net profit declined 6.8% yoy due to production suspension at the Har'erwusu mine.
  • Segments: Other segments (power, transport, coal chemicals) showed steady growth and margin improvements.
  • Coal Market Outlook: Coal prices expected to stay within the green zone (Rmb500-570/tonne) in 2H18, with cost control measures.
  • Earnings Forecast: Maintained BUY with a target price of HK$23.59, implying a 38.0% upside.
  • Valuation: PE at 6.2x, P/B at 1.0x, and EV/EBITDA at 4.2x.
  • Key Risks: Ongoing cost pressures from Har'erwusu mine until 1H19.

Hong Kong

• Guangzhou Automobile Group (2238 HK):

  • 2Q18 Performance: Net profit increased 24% yoy, in line with expectations.
  • Outlook: Strong performance expected to continue.

• Shenzhen International (2313 HK):

  • 1H18 Performance: Distortion from RMB appreciation is expected to reverse in 2H18.
  • Outlook: Positive for the second half of 2018.

• YiChang HEC ChangJiang Pharmaceutical (1558 HK):

  • 1H18 Performance: Expected 20% sales CAGR for Kewei from 2019-2021.
  • GPO: Benefiting from newly-acquired generic drugs.

Indonesia

• Erajaya Swasembada (ERAA IJ):
  • 2018 Outlook: Expected earnings to double in 2018.
  • Recommendation: BUY with a target price of Rp3,600.

Malaysia

• BIMB Holdings (BIMB MK):

  • 2Q18 Performance: In-line net profit driven by strong Takaful income, fee income, and lower provisions.

• QL Resources (QLG MK):

  • 1QFY19 Performance: Results missed expectations. POA and MPM segments underperformed, leading to only 2.8% yoy growth in group PBT.

• WCT Holdings (WCTHG MK):

  • 1H18 Performance: Core net profit within expectations, supported by earnings growth from construction and investment property arms.

• Ann Joo Resources (AJR MK):

  • 1H18 Performance: Weak results within expectations, with potential for export recovery and possible bottoming out of local demand in 2Q18.

Key Indices

Top Picks

• Sell: Hartalega (HART MK) - Target price at 4.02, with a potential decline of -44.2%.

Key Assumptions

Corporate Events

Summary of Key Financials for China National Building Material Co

• 1H18 Net Profit: Rmb3.8b, up 159.8% yoy.
• Revenue: Rmb95.2b, up 22.0% yoy.
• Gross Profit: Rmb28.5b, up 49.1% yoy.
• Operating Profit: Rmb13.7b, up 79.3% yoy.
• EBITDA: Rmb39.5b, up 51.9% yoy.
• Net Margin: 4.0% in 1H18, expected to rise to 5.0% in 2020.
• PE: 6.9x in 2018F, 6.2x in 2019F.
• P/B: 0.8x in 2018F, 0.6x in 2020F.
• EV/EBITDA: 6.5x in 2018F, 5.8x in 2020F.
• Dividend Yield: 2.4% in 2018F, expected to rise to 2.9% in 2020.

Summary of Key Financials for China Shenhua Energy

• 1H18 Net Profit: Rmb24.5b, down 6.8% yoy.
• Revenue: Rmb127.4b, up 5.7% yoy.
• Gross Profit: Rmb44.7b, up 4.3% yoy.
• Operating Profit: Rmb39.9b, up 3.3% yoy.
• EBITDA: Rmb97.9b, up 51.9% yoy.
• Net Margin: 19.2% in 1H18, expected to rise to 17.9% in 2020.
• PE: 6.2x in 2018F, 6.6x in 2020F.
• P/B: 1.0x in 2018F, 0.8x in 2020F.
• EV/EBITDA: 4.2x in 2018F, 4.1x in 2020F.
• Dividend Yield: 5.6% in 2018F, expected to rise to 7.1% in 2020.

Key Risks

• China National Building Material Co:
  • Weaker-than-expected cement ASP.
  • Weaker-than-expected cement and clinker sales volume in certain regions.
• China Shenhua Energy:
  • Ongoing cost pressures from Har'erwusu mine.
  • Weaker-than-expected coal sales and production in certain areas and periods.

Investment Recommendations

• BUY:
  • China National Building Material Co (3323 HK): Target price HK$10.65.
  • China Shenhua Energy (1088 HK): Target price HK$23.59.
• SELL:
  • Hartalega (HART MK): Target price HK$4.02.