Regional Morning Notes Summary - 29 June 2016
Core Content
This document provides an overview of the financial and market performance of various companies and sectors across China, Indonesia, Malaysia, Singapore, and Thailand, with a focus on the automobile and energy sectors. It includes updates on company earnings, corporate events, market indices, and investment recommendations.
Key Sectors and Updates
China - Automobile
- Brexit Impact: Minimal effect on China's auto companies due to limited exposure to Europe.
- Industry Performance:
- Profit Growth: 8.9% yoy in May 2016, up from 7.4% in April 2016 and -1.9% in May 2015.
- Sales Growth: Passenger vehicle (PV) wholesales increased by 10.8% in May 2016, up from 6.1% in April 2016.
- Margin: Net margin slightly declined to 8.53% in May 2016 from 8.61% in May 2015, but profit growth outpaced sales volume growth due to sales mix optimization.
- Inventory-to-Sales Ratio: Dropped to 1.38 months in May 2016, below the seasonal average of 1.5 months.
- Top Picks:
- BUY: BYD (1211 HK), GAC (2238 HK), DFM (489 HK)
- SELL: GWM (2333 HK)
- Recommendations:
- Accumulate Geely at HK$3.30 due to its strong SUV pipeline.
- Maintain BUY on BYD, GAC, and DFM with target prices based on 28x, 10x, and 8x 2016F PE.
- Hold Brilliance as its new models launched in 2016 are not yet contributing to sales growth.
China - Gas Sector (China Gas Holdings)
- Core Earnings: Up 11.9% yoy in FY16 to HK$3,716.3m, in line with consensus.
- Net Profit: Down 32.6% yoy to HK$2,273.1m due to a significant non-operational loss.
- Performance Highlights:
- NG Sales: Increased by 9.9% yoy to 9,860m cum.
- Connections: Up 7.0% yoy to 2.1m new households, with a 48% penetration ratio.
- LPG Sales: Up 28.6% yoy, but revenue dropped 19.4% due to lower prices.
- Acquisitions:
- Acquired 11 city gas projects and Shandong pipelines from BEHL at 1.4x P/B.
- Purchased remaining 49% stake in 13 city gas projects from SK E&S at HK$329m, valued at 8.6x PE.
- Future Outlook:
- NG Sales Rebound: Expected to grow by 20% in FY17.
- City Gas Sales: Organic growth of 13% in FY17, with total growth of 15% including acquisitions.
- Wholesale Gas Sales: Organic growth of 15% in FY17, with total growth of 35% including Shandong pipeline.
- Valuation:
- Maintain BUY with target price HK$15.40, based on DCF.
Key Indices (as of 29 June 2016)
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17409.7 |
1.6 |
-2.4 |
-2.6 |
-0.1 |
| S&P 500 |
2036.1 |
1.8 |
-2.5 |
-3.0 |
-0.4 |
| FTSE 100 |
6140.4 |
2.6 |
-1.4 |
-2.1 |
-1.6 |
| AS30 |
5179.7 |
-0.7 |
-3.2 |
-5.3 |
-3.1 |
| CSI 300 |
3136.4 |
0.5 |
1.0 |
2.4 |
-15.9 |
| FSSTI |
2756.5 |
1.0 |
-1.2 |
-1.6 |
-4.4 |
| HSCEI |
8536.2 |
-0.4 |
-1.9 |
-0.7 |
-11.6 |
| HSI |
20172.5 |
-0.3 |
-2.4 |
-2.0 |
-7.9 |
| JCI |
4882.2 |
1.0 |
0.1 |
1.4 |
6.3 |
| KLCI |
1634.0 |
0.3 |
-0.2 |
-0.2 |
-3.5 |
| KOSPI |
1936.2 |
0.5 |
-2.3 |
-1.7 |
-1.3 |
| Nikkei 225 |
15323.1 |
0.1 |
-5.2 |
-9.0 |
-19.5 |
| SET |
1437.4 |
0.9 |
0.5 |
1.8 |
-11.6 |
| TWSE |
8505.5 |
0.6 |
-2.1 |
0.5 |
-2.0 |
| BDI |
627 |
1.8 |
8.1 |
3.5 |
31.2 |
| CPO (RM/ml) |
2465 |
0.0 |
-1.0 |
-5.3 |
12.0 |
| Brent Crude (US$/bbl) |
49 |
3.0 |
-4.0 |
-1.5 |
-30.3 |
Top Picks
| Company |
Ticker |
Rating |
Share Price (HK$) |
Target Price (HK$) |
Pot. +/- (%) |
| BYD |
1211 HK |
BUY |
45.90 |
54.00 |
99.6 |
| Ping An Insurance |
2318 HK |
BUY |
33.35 |
45.00 |
34.9 |
| Bank BJB |
BJBR J |
BUY |
1,100.00 |
1,170.00 |
6.4 |
| Genting Bhd |
GENT |
BUY |
7.98 |
10.40 |
30.3 |
| City Developments |
CIT SP |
BUY |
8.17 |
10.86 |
32.9 |
| DBS |
DBS SP |
BUY |
15.30 |
19.30 |
26.1 |
| Bangkok Dusit |
BDMS |
BUY |
23.70 |
27.70 |
16.9 |
| Siam Cement |
SCC TB |
BUY |
482.00 |
630.00 |
30.7 |
Sell Picks
| Company |
Ticker |
Rating |
Share Price (HK$) |
Target Price (HK$) |
Pot. +/- (%) |
| Hartalega |
HART |
SELL |
4.17 |
3.10 |
-25.7 |
| Sembcorp Marine |
SMM SP |
SELL |
1.54 |
0.90 |
-41.6 |
Key Assumptions (GDP Growth, 2015-2017F)
| Region |
2015 |
2016F |
2017F |
| US |
2.4 |
2.5 |
2.7 |
| Euro Zone |
1.6 |
1.5 |
1.6 |
| Japan |
0.5 |
0.6 |
0.8 |
| Singapore |
2.0 |
2.7 |
3.0 |
| Malaysia |
5.0 |
4.2 |
5.0 |
| Thailand |
2.8 |
3.2 |
3.6 |
| Indonesia |
4.8 |
5.0 |
5.5 |
| Hong Kong |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.5 |
6.2 |
Corporate Events
| Event |
Venue |
Begin |
Close |
| Kingboard Laminates Holdings Ltd Luncheon |
Hong Kong |
29 Jun |
29 Jun |
| Khon Kaen Sugar Industry Plc and Sappe Plc Luncheon |
Thailand |
30 Jun |
30 Jun |
| Tonking New Energy Roadshow |
Hong Kong |
4 Jul |
5 Jul |
| Modern Dental Group Luncheon |
Hong Kong |
6 Jul |
6 Jul |
Sensitivity Analysis for Euro Depreciation
| Company |
Net Profit Impact (10% Depreciation) |
Remark |
| Geely (175 HK) |
-0.2% |
1.9% of revenue from Europe |
| GWM (2333 HK) |
-0.1% |
<0.9% of revenue from Europe |
| BYD (1211 HK) |
-0.3% |
1.8% of revenue from Europe |
| Brilliance (1114 HK) |
+0.2% |
40% of parts from Europe |
| Nexteer (1316 HK) |
-0.5% |
10% of revenue from Europe |
| Baoxin (1293 HK) |
+0.1% |
40% of revenue from European cars |
| Zhengtong (1728 HK) |
+0.1% |
40% of revenue from European cars |
| Zhongsheng (881 HK) |
+0.1% |
30% of revenue from European cars |
Company Results (China Gas Holdings)
- FY16 Core Earnings: Up 11.9% yoy to HK$3,716.3m, in line with consensus.
- Net Profit: Down 32.6% yoy to HK$2,273.1m, due to non-operational losses.
- Key Financials:
- Net Turnover (FY16): HK$29,139m
- EBITDA (FY16): HK$5,148m
- EBIT (FY16): HK$4,092m
- Net Profit (FY16): HK$2,273m
- Core Earnings (FY16): HK$3,716.3m
- EPS (FY16): 45.8 cents
- PE (2016F): 14.6x
- P/B (2016F): 3.0x
- EV/EBITDA (2016F): 13.4x
Investment Catalysts
- A gradual sales pick-up in yoy growth in the next few months could boost share prices.
- Earnings growth is expected to rebound from 1Q16 to 2Q-3Q16 before slowing in 4Q16 and 1Q17.
Risks
- Macro Risks: A slowdown in the Chinese economy or a tumble in capital markets could hurt automobile sales and pricing, impacting carmakers' profits.
Analysts
Conclusion
The document highlights the positive outlook for China's automobile sector despite Brexit, with a focus on companies like BYD, GAC, and DFM. It also discusses the improved performance of China Gas Holdings, with core earnings up and potential for future growth through acquisitions and a rebound in NG sales. Investment recommendations include BUY for several companies and SELL for GWM and Sembcorp Marine, based on their exposure to currency fluctuations and market performance.
