20180712-大华继显-Regional_Morning_Notes_17页_1mb

Regional Morning Notes Summary - 12 July 2018

Core Content Overview

This document provides a summary of market insights and analysis for various regions including China, Indonesia, Malaysia, Singapore, and Thailand, with a focus on financial performance, investment outlook, and key corporate events. It also includes stock analysis for China Display Optoelectronics Technology (CDOT) and telecommunications sector updates for Indonesia.

Main Points and Key Information

China Display Optoelectronics Technology (334 HK)

• Company Description: Specializes in the manufacturing, sales, and distribution of small- to medium-sized display modules, primarily for handheld mobile devices on an ODM basis.
• Performance Outlook: Expected to deliver poor results in 2018 due to weak smartphone demand, rising costs, and fierce competition.
• Financial Impact:
  • Net Profit: Forecasted to decline by 79% for 2018 and 65% for 2019.
  • Gross Margin: Projected to drop to c.2% in 1H18 and remain at c.5% for 2018.
• Valuation:
  • Target Price: Cut to HK$0.65 (1.8x 2017 P/B).
  • Entry Price: HK$0.48.
• Strategic Moves:
  • Targeting smart home-related display modules with a new production line.
  • Exploring entry into the automotive display market through partnerships and alternative routes.
• Challenges:
  • AMOLED panel supply constraints are expected to persist until 2020.
  • Competition is intensifying, with smaller players gaining market share.
  • P/B Ratio: 2.5x in 2017, 2.6x in 2018, and 2.4x in 2020.

Indonesia Telecommunications Sector

• Sector Stabilization: Data prices have stabilized, indicating no pricing war.
• Earnings Drivers:
  • Lebaran and FIFA World Cup are expected to boost data revenue in 2Q18 and 3Q18.
  • All three major operators (Indosat, XL Axiata, Telekomunikasi) saw significant increases in data traffic during Lebaran.
• Performance:
  • TLKM recorded the highest data traffic growth (109% yoy) and has surpassed market expectations with 4m subscribers.
  • XL has gained market share, particularly from ISAT, and has the least decline in ARPU.
• Valuation:
  • TLKM is the top pick with a BUY recommendation and a target price of Rp4,500.
  • XL Axiata is also recommended with a target price of Rp2,950.
  • Indosat (ISAT) is under review, with a BUY call pending due to its low valuation and potential for improvement.

Key Indices

Top Picks

Key Assumptions

Corporate Events

• Group Luncheon with China Yongda Automobiles Services Holdings (3669 HK) – 12 Jul
• Group Meeting with China Resources Gas Group (1193 HK) – 12 Jul
• Analyst Presentation on 2H18 Malaysia Strategy and Outlook – 19–20 Jul
• Industry 4.0 Conference – 26 Jul
• Group Luncheon with Singapore Airlines (SIA SP) – 30 Jul

Risk and Catalysts

• Risks:
  • Continued weak demand from smartphone manufacturers.
  • Intensified market competition.
  • Low data pricing and declining voice revenue affecting ISAT.
• Catalysts:
  • Potential increase in data prices.
  • Expansion of smart home and automotive display markets.
  • Continued growth in data traffic from events like Lebaran and FIFA World Cup.

Summary

The report outlines a challenging environment for CDOT due to declining smartphone demand, cost pressures, and intense competition. It suggests a HOLD recommendation with a revised target price based on P/B. Meanwhile, the Indonesian telecommunications sector is showing signs of stabilization, with TLKM and XL Axiata as top picks due to strong performance and growth potential. The BUY call for ISAT is under review due to its current underperformance and low valuation.