20160622-大华继显-Regional_Morning_Notes_12页_678kb

Regional Morning Notes Summary - 22 June 2016

Core Content

This document provides an analysis of the Asian markets, focusing on China, Singapore, and Thailand, with specific emphasis on the electric vehicle (EV) sector in China and the property development company China Resources Land (CRL).

Main Points

China: Electric Vehicles Sector

• Lithium Carbonate (LCE) Price Correction:

  • LCE prices, which peaked at Rmb177,000/tonne in April 2016, dropped to Rmb160,000/tonne by June 2016.
  • The price surge in 2015-2016 was driven by a global supply shortage and increased demand from EV manufacturers.
  • The supply bottleneck is expected to ease by 2017, with global LCE supply growing at a CAGR of 30% and demand growth at 14% p.a.

• Battery Cost Assumptions:

  • A 50% drop in battery pack costs is expected from 2016 to 2021 due to economies of scale and falling LCE prices.
  • BYD is expected to reduce its battery pack cost from >Rmb3,000/kwh in 2014 to Rmb1,600/kwh in 2015 and aims to bring it below Rmb1,000/kwh by 2020.

• Sector Outlook:

  • Overweight recommendation is maintained for the EV sector.
  • Top Picks: BYD (1211 HK) and Yutong (600066 CH), both rated BUY.
  • Sell Recommendations: Tianneng (819 HK) and Chaowei (951 HK), due to margin risks and overcapacity in the EV battery industry.

Key Information

Key Indices

Top Picks

• Air China (753 HK): Price target HK$10.20, current price HK$5.33, upside 91.4%
• Ping An Insurance (2318 HK): Price target HK$45.00, current price HK$34.30, upside 31.2%
• Bank BJB (BJBR J): Price target HK$1,170.00, current price HK$1,000.00, upside 17.0%
• Genting Bhd (GENT MK): Price target HK$10.40, current price HK$8.21, upside 26.7%
• City Developments (CIT SP): Price target HK$10.86, current price HK$8.75, upside 24.1%
• DBS (DBS SP): Price target HK$19.30, current price HK$16.03, upside 20.4%

Sell Recommendations

• Hartalega (HART MK): Price target HK$3.10, current price HK$4.14, downside 25.1%
• Sembcorp Marine (SMM SP): Price target HK$0.90, current price HK$1.58, downside 43.0%

Key Assumptions

• LCE Price Outlook:
  • Expected to drop to Rmb120,000/tonne in 2017 due to new capacity coming online.
  • LCE supply in China is projected to increase from 61.4kt in 2015 to 86kt in 2017, while demand is expected to grow from 78.7kt to 95kt.

Corporate Events

Company Update: China Resources Land (1109 HK)

• Performance in Low-tier Cities:

  • Ganzhou, a tier-3 city, saw strong home sales growth, with a 63.3% yoy increase in 2015 and 34.7% ytd.
  • CRL's MIXc malls in Ganzhou and Hangzhou have high occupancy rates and foot traffic, with Ganzhou MIXc reaching 95% occupancy and 2.6m foot traffic in May 2016.
  • CRL is the market leader in Ganzhou, with a 10% market share and over Rmb4.3b in contracted sales over four years.

• Valuation:

  • Trading at a 52.1% discount to RNAV, compared to a historical average of 21.3%.
  • Current 2016F PE is 7.1x, which is below the historical mean of 7.6x.
  • Target price is HK$27.77, based on a 25% discount to RNAV of HK$37.02/share.

• Financial Highlights:

  • Net profit for 2016F is expected to be HK$16.971b.
  • Core net profit (adjusted) is expected to be HK$16.971b for 2016F.
  • Core EPS for 2016F is 251.0 cents, with a 3-year core net profit CAGR of 22.7%.

• Balance Sheet:

  • Total assets are projected to grow from HK$389.235b in 2015 to HK$535.401b in 2018.
  • Net gearing is expected to rise from 26.3% in 2015 to 41.1% in 2018.

Analysts

• Ken Lee: +852 2236 6760 | ken.lee@uobkayhian.com.hk
• Sophie Yu: +852 2826 1392 | sophie.yu@uobkayhian.com.hk
• David Yang: +8621 5404 7225 ext 801 | davidyang@uobkayhian.com

Risk Factors

• EV Safety Concerns: Any explosive accidents could negatively impact share prices.
• Overcapacity Risk: Expected overcapacity in the lithium-ion battery industry from 2017 onwards may affect margins for companies like Tianneng and Chaowei.

Sector Catalysts

• Higher EV Sales: Expected to drive share price rallies and improve margins for EV manufacturers.
• New Capacity in LCE Market: Expected to ease supply bottlenecks and reduce prices, benefiting EV battery producers.

Conclusion

The report highlights the positive outlook for the EV sector in China, particularly for BYD and Yutong, due to expected cost reductions and strong market position. It also emphasizes the performance of CRL in low-tier cities and its strong fundamentals, including a solid earnings growth track record and attractive valuation. However, caution is advised for companies like Tianneng and Chaowei due to margin risks and overcapacity in the EV battery industry. The report recommends maintaining a BUY rating for CRL and selecting stocks in Singapore with careful evaluation due to earnings uncertainty.