Economic Data Preview: Expected improvement in economic data for September 2016.
Fixed Asset Investment (FAI) is anticipated to rise yoy in 9M16 on a low base and accelerating infrastructure investment.
Industrial Production (IP) growth is expected to rebound to 6.4% yoy, supported by increased coal consumption and steel output.
Retail sales growth is projected at 10.7% yoy, driven by strong auto and property sales.
CPI inflation may rise to 2.0% yoy, with PPI inflation expected for the first time since March 2012.
Exports are forecasted to fall 2.0% yoy, while imports may rise 0.5% yoy.
M2 growth is expected to rebound to 12.0% yoy, supported by PBOC liquidity injections and government spending.
Sector Update - Renewable Energy
Wind Power Tariff Cut: China plans to cut wind power benchmark tariffs by 3 Rmb cents/kWh, effective 2018.
This is earlier than market expectations and may lead to lower earnings visibility and reduced confidence in the sector.
The sector is downgraded to MARKET WEIGHT.
Technical improvements in wind turbines are expected to offset the impact of the tariff cut, helping achieve coal-wind parity by 2020.
Company Update - Sunac China Holdings (1918 HK)
Overly Aggressive Expansion: Sunac's aggressive acquisitions and share placements have led to a weaker balance sheet and dilution in core EPS.
The company issued new shares to Chairman Sun at a 6.6% premium, raising HK$2.8b to repay offshore debts.
Recent acquisitions include 17% of Jinke Property and 42 projects from Legend, increasing landbank exposure but raising gearing.
The net gearing ratio is expected to jump to 130% in 2016, and core EPS is projected to be diluted by 10.7%, 7.0%, and 5.5% in 2016-2018.
The company's RNAV/share is expected to drop 8.6% to HK$14.45 after the deals and share placement.
Maintain SELL recommendation with a target price of HK$4.34, representing a 23.3% downside from the current price.
Key Indices Performance
Index
Prev Close
1D %
1W %
1M %
YTD %
DJIA
18143.5
-1.1
-1.4
-1.9
4.1
S&P 500
2151.1
-0.9
-1.2
-1.3
5.2
FTSE 100
6919.4
1.0
0.1
1.2
10.8
AS30
5558.2
1.1
1.7
0.5
4.0
CSI 300
3244.4
0.4
-1.4
-2.5
-13.0
FSSTI
2885.7
1.0
1.4
2.3
0.1
HSI
23739.5
0.5
-0.1
3.3
8.3
KLCI
1669.6
0.3
-0.0
-0.5
-1.4
KOSPI
2068.7
0.8
0.9
1.7
5.5
Nikkei 225
16693.7
1.4
-0.7
-1.1
-12.3
SET
1491.4
0.8
-1.0
-3.7
15.8
TWSE
9270.9
0.8
1.2
2.2
11.2
BDI
888
-2.6
-5.2
23.3
85.8
CPO (RM/mt)
2788
-0.3
-3.9
-1.3
26.7
Brent Crude (US$/bbl)
49
1.1
3.3
-0.0
32.1
Top Picks
Company
Ticker
Recommendation
Last Price
Target Price
Pot. +/- (%)
Air China
753 HK
BUY
5.35
8.40
57.0
Ping An Insurance
2318 HK
BUY
41.00
47.00
14.6
Ciputra Property
CTRP LJ
BUY
655.00
960.00
46.6
Indosat
ISAT LJ
BUY
6,000.00
9,500.00
58.3
Genting Bhd
GENT MK
BUY
8.04
10.00
24.4
City Dev
CIT SP
BUY
9.11
10.36
13.7
OCBC
OCBC SP
BUY
8.68
10.30
18.7
Bangkok Dusit
BDMS TB
BUY
21.60
30.00
38.9
Siam Cement
SCC TB
BUY
520.00
645.00
24.0
Hartalega
HART MK
SELL
4.64
3.10
-33.2
Key Assumptions
Country
GDP (% yoy) 2015
GDP (% yoy) 2016F
GDP (% yoy) 2017F
US
2.6
2.0
2.7
Euro Zone
2.0
1.4
1.0
Japan
0.5
0.6
0.8
Singapore
2.0
2.2
3.2
Malaysia
5.0
4.2
4.5
Thailand
2.8
3.2
3.5
Indonesia
4.8
5.0
5.2
Hong Kong
2.4
2.1
1.8
China
6.9
6.5
6.2
Brent (Average)
-
42
54
CPO
-
2,500
2,600
Corporate Events
Event
Venue
Begin
Close
Regional Financial and Telco Sector Analyst Presentation
UK/Europe
26 Sep
30 Sep
Xingda In'l Group Meeting
Hong Kong
29 Sep
29 Sep
Citytheon Corporate Roadshow
Taipei
29 Sep
30 Sep
LVGEM (China) Real Estate Investment Shenzhen Company Limited Roadshow
Kuala Lumpur
30 Sep
30 Sep
Ricoh Site Visit
Kuala Lumpur
5 Oct
5 Oct
SIN Bank, SIN Teleco and ASEAN Banks Analyst Presentation
Kuala Lumpur
6 Oct
7 Oct
Xtep International Holdings Roadshow
Taipei
7 Oct
7 Oct
Xtep International Holdings Roadshow
Kuala Lumpur
15 Nov
15 Nov
Asian Gems Conference 2016
Singapore
11 Oct
12 Oct
Harmony China Auto Luncheon
Hong Kong
12 Oct
12 Oct
Joy City Roadshow
Shanghai
13 Oct
13 Oct
Metro Pacific Investments Roadshow
Canada
24 Nov
25 Nov
KL Kepong Site Visit
Malaysia
25 Oct
25 Oct
Peer Comparison
Company
Ticker
Rec
Last Price (HK$)
Target Price (HK$)
Market Cap (US$m)
EPS 2015 (x)
EPS 2016F (x)
EPS 2017F (x)
PE 2015 (x)
PE 2016F (x)
PE 2017F (x)
P/B 2016 (x)
ROE 2016F (%)
Longyuan Power
916 HK
HOLD
6.93
8.00
6,832
0.43
0.57
0.67
14.5
12.4
10.5
1.0
24.9
Huaneng Renewables
958 HK
HOLD
3.00
3.30
3,750
0.19
0.24
0.27
12.4
9.9
8.9
1.2
19.1
Datang Renewables
1798 HK
BUY
0.78
1.10
727
0.002
0.05
0.08
383.1
12.6
8.1
0.4
3.2
Concord New Energy
182 HK
BUY
0.45
0.70
449
0.06
0.08
0.10
8.0
5.5
4.4
0.6
n.m.
Summary of Key Points
China's Economic Outlook: Expectations of improved economic data for September 2016, with FAI, IP, and retail sales showing growth. CPI and PPI inflation are anticipated to rise.
Renewable Energy Sector: Wind power benchmark tariff cut is expected to reduce earnings visibility and confidence, leading to a downgrade to MARKET WEIGHT.
Sunac China Holdings: Aggressive expansion and acquisitions have led to a weaker balance sheet and dilution in core EPS. The company's RNAV/share is expected to decline, and the SELL recommendation is maintained.
Key Indices: Mixed performance across indices, with some showing positive growth and others negative.
Corporate Events: A series of events are scheduled in the coming weeks, including analyst presentations and roadshows.
