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Regional Morning Notes Summary

Core Content Overview

This document provides a summary of market insights and stock analysis for the week of April 4, 2014, focusing on key sectors in China, Hong Kong, Indonesia, and Malaysia. It highlights company performance, valuation, and future outlook for selected stocks, along with market indices and corporate events.

Main Points by Region

China

• Banking Sector:

  • 2013 results showed a slight net profit growth of 11.6% yoy, but the NIM (Net Interest Margin) trend is unlikely to be sustainable in 2014 due to easing interbank rates and increasing cost of deposits.
  • Banks faced challenges with asset quality, as NPL (Non-Performing Loan) formation increased to 38bp in 2013 from 14bp in 2012, and coverage ratios declined.
  • CCB and ABC are better positioned in the near term due to stronger NIM trends and less intense NPL formation.
  • ICBC remains the top long-term pick.
  • BoCom and Minsheng are downgraded to SELL due to weak NPL coverage and higher earnings volatility.

• Chaowei Power Holdings (951 HK):

  • 2013 saw a decline in gross margin, but it is expected to rebound due to a more concentrated industry structure and stricter environmental regulations.
  • The company has a market share of 38.3%, and is the largest electric bicycle battery producer in China.
  • It expects to expand its capacity by 20% in 2014, which should reduce reliance on OEMs and improve gross margin.
  • Maintain BUY with a target price of HK$5.30.

Hong Kong

• Macau Gaming:

  • 2014 GGR (Gross Gaming Revenue) growth assumption was lifted to 16.4%.
  • Preference shifted to Sands China.

• Property Sector:

  • An exciting reporting season with more than just results.
  • China Overseas Grand Oceans (81 HK) is expected to have better sales performance in 2Q14.

Indonesia

• Oilfield Services:
  • Companies are playing catch-up with regional peers.

Malaysia

• RAPID:
  • Petronas approved the final investment decision for the Pengerang Integrated Complex (PIC) in Johor.
  • Bursa Malaysia (BURSA MK) is expected to have a healthy 1H14 on the back of foreign fund inflows, followed by a seasonally softer 2H14.

Key Indices

Top Picks

Key Assumptions

Corporate Events

Company Results - Chaowei Power Holdings (951 HK)

• 2013 Performance:

  • Revenue: Rmb14,973.2m (+56.6% yoy)
  • Gross profit: Rmb2,026.7m (+7.0% yoy)
  • Net profit: Rmb310.2m (-37.5% yoy)
  • Net margin: 2.6% (down from 6.5%)
  • EPS: Rmb0.31 (-36.7% yoy)
  • Dividend: Rmb0.093/share

• 2014F & 2015F Forecasts:

  • Net profit: Rmb643.4m and Rmb757.8m
  • EBITDA: Rmb1,228.2m and Rmb1,431.4m
  • Net debt to equity: 0.5% (2014F) and (15.4%) (2015F)

• Valuation:

  • Target price: HK$5.30
  • Current price: HK$3.72
  • Upside: +42.5%

• Market Share:

  • Reaches 38.3%, making it the largest electric bicycle battery producer in China.

• Key Drivers:

  • Sales volume and ASP (Average Selling Price) hikes in 3Q14
  • Environmental regulations and reduced price competition

Conclusion

• Chaowei Power Holdings is well-positioned for margin recovery in 2014 due to reduced price competition and a strong balance sheet.
• CCB and ABC are better positioned in the short term than other Chinese banks, with stronger NIM and less NPL formation.
• The overall market outlook for the region is cautiously optimistic, with some sectors showing potential for improvement.
• Corporate events and market dynamics will influence the performance of selected stocks in the coming months.