Regional Morning Notes Summary
Core Content
This document is a Regional Morning Notes report dated Friday, 27 May 2016, summarizing market updates and investment recommendations across China, Hong Kong, Indonesia, and Malaysia, with a focus on ENN Energy Holdings, Macau Gaming, and other relevant companies and indices.
Main Points
China
- ENN Energy Holdings (2688 HK/BUY/HK$37.75/Target: HK$58.00)
- Performance: Still showing solid growth, with a guidance of over 15% recurring earnings growth for 2016.
- Natural Gas Sales: Natural gas (NG) sales volume increased by 10% YoY in Q4 2016, and is expected to grow by 15% for the year.
- LNG Business: The rebound in oil prices is expected to improve the cost competitiveness of NG and help ENN reduce losses in its LNG business in North America.
- Debt and FX: ENN has reduced its USD debt balance to USD1.4b from USD1.8b in 2015. A 5% RMB depreciation would result in a RMB270m forex loss, which is 8% of net profit.
- Valuation: The company is trading at 10.8x 2016F PE, at the low end of its historical range. The target price is based on DCF analysis.
Hong Kong
- Macau Gaming Sector
- Trend: The market is becoming more mass-market driven, with a focus on non-gaming facilities to attract visitors and boost gaming revenue.
- Non-gaming Revenue: The government targets non-gaming to account for at least 9% of revenue by 2020, up from 6.6% in 2014.
- Infrastructure: Completion of infrastructure projects in Macau will extend mass-market reach and increase hotel room capacity.
- Junket Market: Junkets are diversifying into countries like the Philippines and Laos due to tighter regulations in Macau. The smaller junkets face liquidity constraints and are likely to be consolidated.
Indonesia
- Tax Amnesty and Reduction in Personal Tax
- The Parliament approved another round of personal income tax reduction, which is expected to benefit the property sector and increase government spending in the second half of 2016.
Malaysia
- AirAsia (AIRA MK/HOLD/RM2.12/Target: RM2.06)
- 1Q16: Strong earnings growth, but the Indonesian associate is still in the red and debt-to-OCF remains elevated at 8.4x.
- CIMB Group (CIMB MK/HOLD/RM4.37/Target: RM4.40)
- 1Q16: Earnings below expectations due to a sharp fall in capital market-related revenue, with a 19% YoY decline in non-interest income.
- IJM Corporation (IJM MK/BUY/RM3.44/Target: RM3.95)
- FY16: Supported by construction and infrastructure divisions, but property and plantation divisions are key drags.
- WCT Holdings (WCTHG MK/BUY/RM1.54/Target: RM2.05)
- The construction division is showing significant improvements and has several potential job wins in 2H16 as key catalysts.
Key Indices (as of 27 May 2016)
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17828.3 |
-0.1 |
2.3 |
-0.9 |
2.3 |
| S&P 500 |
2090.1 |
-0.0 |
2.5 |
-0.1 |
2.3 |
| FTSE 100 |
6265.7 |
0.0 |
3.5 |
-0.3 |
0.4 |
| AS30 |
5451.9 |
0.3 |
1.2 |
3.8 |
2.0 |
| CSI 300 |
3064.2 |
0.2 |
0.1 |
-3.2 |
-17.9 |
| FSSTI |
2773.3 |
0.2 |
1.2 |
-3.5 |
-3.8 |
| HSCEI |
8526.2 |
-0.1 |
3.4 |
5.7 |
11.7 |
| HSI |
20397.1 |
0.1 |
3.6 |
-4.5 |
-6.9 |
| JCI |
4784.6 |
0.2 |
1.7 |
-1.3 |
4.2 |
| KLCI |
1631.1 |
-0.0 |
-0.2 |
-3.6 |
-3.6 |
| KOSPI |
1957.1 |
-0.2 |
0.5 |
-2.9 |
-0.2 |
| Nikkei 225 |
16772.5 |
0.1 |
0.8 |
-3.0 |
-11.9 |
| SET |
1401.6 |
0.3 |
0.1 |
-0.7 |
8.8 |
| TWSE |
8394.1 |
-0.0 |
3.7 |
-2.0 |
0.7 |
| BDI |
601 |
-0.7 |
-5.2 |
-14.6 |
25.7 |
| CPO (RM/ml) |
2557 |
-0.4 |
-3.1 |
-3.5 |
16.2 |
| Brent Crude (US$/bbl) |
50 |
-0.3 |
1.6 |
8.4 |
33.0 |
Top Picks
| Company |
Ticker |
CP (Icy) |
TP (Icy) |
Pot. +/- (%) |
| Air China |
753 HK |
5.23 |
10.20 |
95.0 |
| Ping An |
2318 HK |
33.45 |
45.00 |
34.5 |
| Bank BJB |
BJBR J |
925.00 |
1,170.00 |
26.5 |
| Gamuda |
GAM MK |
4.73 |
5.55 |
17.3 |
| WCT Holdings |
WCTHG MK |
1.54 |
2.05 |
33.1 |
| City |
CIT SP |
8.33 |
10.86 |
30.4 |
| DBS |
DBS SP |
15.32 |
19.30 |
26.0 |
| Bangkok Dusit |
BDMS TB |
24.00 |
27.70 |
15.4 |
| Siam Cement |
SCC TB |
468.00 |
630.00 |
34.6 |
Key Assumptions
| Region |
GDP (% yoy) 2015 |
2016F |
2017F |
| US |
2.4 |
2.5 |
3.0 |
| Euro Zone |
1.6 |
1.7 |
1.7 |
| Japan |
0.5 |
0.6 |
1.0 |
| 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 |
| Indicator |
2015 (US$/bbl) |
2016F (US$/bbl) |
2017F (US$/bbl) |
| Brent (Average) |
53.60 |
42 |
54 |
| Indicator |
2015 (RM/mt) |
2016F (RM/mt) |
2017F (RM/mt) |
| CPO |
2,168 |
2,500 |
2,600 |
Corporate Events
| Event |
Venue |
Begin |
Close |
| Meidong Auto Roadshow |
United Kingdom |
6 Jun |
7 Jun |
| S'pore Strategy for 2H16 & Small-Mid Caps Analyst Presentation |
Taipei |
6 Jun |
7 Jun |
| China Aviation Oil Singapore Corporate Roadshow |
Taipei |
7 Jun |
8 Jun |
Financial Highlights (ENN Energy)
| Metric |
2015 (Rmbm) |
2016F (Rmbm) |
2017F (Rmbm) |
2018F (Rmbm) |
| Net turnover |
32,063 |
35,785 |
40,158 |
42,465 |
| EBITDA |
4,692 |
5,754 |
6,396 |
6,812 |
| Operating profit |
3,874 |
4,871 |
5,456 |
5,814 |
| Net profit (rep./act.) |
2,036 |
3,212 |
3,726 |
3,984 |
| Net profit (adj.) |
2,739 |
3,212 |
3,726 |
3,984 |
| EPS (fen) |
216.4 |
252.9 |
296.6 |
344.1 |
| PE (x) |
12.6 |
10.8 |
9.3 |
8.7 |
| P/B (x) |
2.6 |
2.2 |
1.8 |
1.6 |
| EV/EBITDA (x) |
6.4 |
5.3 |
4.7 |
4.4 |
| Dividend yield (%) |
2.0 |
2.8 |
3.2 |
3.5 |
| Net margin (%) |
6.3 |
9.0 |
9.3 |
9.4 |
| Net debt/(cash) to equity (%) |
-37.0 |
-47.4 |
-59.0 |
-66.6 |
| Interest cover (x) |
8.7 |
13.5 |
15.1 |
16.0 |
| ROE (%) |
15.1 |
20.1 |
19.9 |
18.4 |
Sector Update: Macau Gaming
- Non-gaming Businesses: Expected to grow due to the integration of resorts and leisure destinations, which will attract more mass-market visitors.
- SJM Holdings is the top pick due to its cheap valuation and resilient satellite casinos.
- Sands China is a HOLD but has high dividend yield and will benefit from the opening of Parisian in mid-September 2016.
- MGM China is a HOLD due to weak Q1 earnings, but has a higher target price due to its Cotai expansion.
- Galaxy Entertainment Group is a HOLD due to its heavy VIP revenue exposure.
Analysts
- Vincent Khoo, CFA
- Cindy Lam
Conclusion
The report highlights the positive growth prospects for ENN Energy Holdings in the context of a weak economic environment, driven by strong NG sales, improving LNG performance, and supportive policy changes. It also emphasizes the shift in Macau gaming towards non-gaming as a strategy to attract more visitors, with SJM Holdings being the top recommendation due to its valuation and business resilience. The market outlook is cautiously optimistic, with sector-specific updates and investment recommendations provided.
