20170612-大华继显-Regional_Morning_Notes_18页_981kb

Regional Morning Notes Summary

Core Content

This document provides a detailed analysis of the regional market outlook as of Monday, 12 June 2017, with a focus on China, Indonesia, Singapore, and Thailand. It includes economic indicators, sector updates, company-specific insights, and investment recommendations.

Key Economic Indicators - China

Inflation

• CPI inflation increased slightly to 1.5% yoy in May 2017, supported by rising service prices, but food prices remained weak.
• Core CPI inflation stayed stable at 2.1% yoy, driven by continued growth in service prices.
• PPI inflation decelerated to 5.5% yoy from 6.4% in April 2017, due to declining raw material prices and downstream pressure from overcapacity and intense competition.
• Weak inflation momentum is expected to persist into the next few quarters, leading to stagnant corporate profit recovery and slowdown in manufacturers' investment.

Sector Update - China Aviation

Key Points

• Chinese airline stocks outperformed the HSI index with YTD returns of 32-61%, mainly due to renminbi appreciation.
• Renminbi strength provides MTM gains for carriers with USD-denominated debt, but yield pressures and higher operating costs are expected to reduce core earnings.
• Air China, China Southern Airlines (CSA), and China Eastern Airlines (CEA) are downgraded to MARKET WEIGHT.
• CEA is the top pick in the sector, with a target price of HK$5.15.
• YTD performance:
  • Air China: 61%
  • CEA: 32%
  • CSA: 59%
  • HSI Index: 18%

Earnings Outlook

• 2017F net profit for the three airlines is expected to decline by -1.5% to -14.7%.
• Core net profit is forecasted to decline by -30.0% to -36.5%.
• Pax traffic growth is expected to be 6.8% (domestic) and -5.0% (international) for 2017.
• Pax yield growth is 2.0% (domestic) and -8.4% (international) for 2017.
• Pax load factor is expected to remain stable at 81.4%.

Company Update - China Traditional Chinese Medicine Holdings (570 HK)

Key Points

• 2Q17 sales growth decelerates to low single-digit, due to policy changes in Zhejiang and Fujian.
• Xianling Gubao is being removed from the OTC drug list, affecting finished products sales.
• Despite this, the company maintains a 20% sales growth target for TCM granules, driven by Heilongjiang market recovery.
• Valuation remains attractive at 15x 2017F PE, with a target price of HK$5.26.
• EPS growth is estimated at 25.6% for 2017F, and dividend yield is 2.2%.

Financial Highlights

• Net turnover is expected to grow from Rmb6,532.9m (2016) to Rmb7,541.5m (2017F).
• EBITDA is projected to increase from Rmb1,671.9m (2016) to Rmb1,846.0m (2017F).
• Net profit (adj.) is forecasted to reach Rmb1,145.2m (2017F).
• P/B ratio is 1.4x, and EV/EBITDA ratio is 10.6x.

Key Indices (as of 12 June 2017)

Top Picks and Recommendations

BUY Recommendations

• China Eastern Airlines (670 HK): Target price HK$5.15, with 27.1% upside.
• PT Siloam Int'l Hospital (TLKM LJ): Target price 5,000.00, with 15.5% upside.
• Siam Cement (SCC TB): Target price 600.00, with 15.4% upside.

SELL Recommendations

• Cathay Pacific (293 HK): Target price 9.90, with -33.9% downside.
• Great Wall Motor (2333 HK): Target price 6.00, with -33.9% downside.
• MGM China (2282 HK): Target price 15.00, with -8.6% downside.
• Hartalega (HART MK): Target price 4.07, with -41.9% downside.

Corporate Events

Investment Insights

• Renminbi appreciation supports Chinese airline stocks through MTM gains.
• Yield pressures and higher operating costs are expected to reduce core earnings.
• China TCM is still a BUY despite slower sales growth due to attractive valuation.
• PBOC's policy remains neutral, with mild liquidity injections and tightening regulations.
• Core inflation may remain stable at a high level due to sticky service prices.

Analyst Contact

• Zhu Chao Ping: +8621 5404 7225 ext. 822, chaoping@uobkayhian.com
• K Ajith: 65 6590 6627, ajith@uobkayhian.com
• Sophie Leong: 65 6590 6621, sophieleong@uobkayhian.com
• Alex Jiang Lei: +852 2236 6749, alex.jiang@uobkayhian.com.hk
• Fu Jun Wei: +8621 54047225 ext 817, jwfu@uobkayhian.com