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Regional Morning Notes Summary - 12 July 2016

Core Content Overview

This document provides a comprehensive analysis of the financial and market performance of various companies and sectors across China, Malaysia, Singapore, and Thailand, with a focus on earnings, market trends, and investment recommendations.

Key Regions and Sectors

China

• Securities Sector: Earnings decline in 1H16 is largely priced in; expect sequential improvement in 2H16 due to resumed suspended businesses and the potential launch of the Shenzhen-Hong Kong Connect.
• Top Picks: Maintain OVERWEIGHT on the sector with CITICS and CGS as top picks.
• Sunac China Holdings (1918 HK):
  • Achieved strong sales growth in 1H16, hitting a historical high in June.
  • Contracted sales for 1H16 rose 102% yoy, with 70.1% of the full-year target achieved.
  • Maintains a BUY rating with a target price of HK$7.44.
  • Strong landbanking strategy in core tier-2 cities, leading to increased sales and growth visibility.
  • Net gearing ratio is expected to increase due to land replenishments, but funding costs are expected to lower from domestic bond issuances.

Malaysia

• DiGi.Com (DIGI MK):
  • 2Q16 results were within expectations with better margins due to robust postpaid revenue growth and good cost discipline.
  • Maintains a BUY rating with a target price of RM5.10.
• SapuraKencana (SAKP MK):
  • Neutral stance on the cessation of Balai RSC; profit forecasts now align with management's guidance.
  • Holds at RM1.40 with a target price of RM1.40.

Singapore

• China Aviation Oil Singapore Corp (CAO SP):
  • Strategy update suggests a focus on its lucrative SPIA associate.
  • Maintains a BUY rating with a target price of S$1.85.

Thailand

• TISCO Financial Group (TISCO TB):
  • 2Q16 net profit rose 20% yoy, driven by lower provisions.
  • Maintains a HOLD rating with a target price of Bt54.00.

Key Indices Performance

Top Picks

Key Assumptions

Corporate Events

Stock Impact and Valuation

• Securities Sector:

  • Earnings decline in 1H16 largely priced in; expect sequential improvement in 3Q16.
  • Brokers' earnings grew 97% mom, stronger than market turnover recovery (34% mom).
  • The potential launch of Shenzhen-Hong Kong Connect is positive for market sentiment but limited earnings contributions.
  • CITICS and CGS remain top picks due to diversified revenue mix and leading position in investment banking.

• Sunac China Holdings:

  • Maintains a BUY rating with a target price of HK$7.44.
  • Achieved strong sales growth in 1H16, with 70.1% of full-year target locked in.
  • Net gearing ratio is expected to increase, but funding costs are projected to fall.
  • Margins under pressure in 1H16 but expected to improve in 2H16.
  • ROE remains at a leading position in the sector.

Financial Highlights

Sunac China Holdings (1918 HK)

• Earnings: Net profit (adj.) for 2016F is expected to be RM3,510m.
• Sales: Contracted sales in 1H16 reached Rmb56.1b, up 102% yoy.
• Gross Margin: Expected to improve in 2H16 due to more profitable projects.
• Debt Structure: Net debt/(cash) to equity is projected to increase to 90.1% in 2016F.
• Valuation: Trading at a 72.0% discount to RNAV, with RNAV at HK$18.61/share.

Key Metrics

Analysts

• Jasmine Duan: +852 2826 1351 | jasmine.duan@uobkayhian.com.hk
• Edmond Law: +852 2826 4837 | edmond.law@uobkayhian.com.hk

Conclusion

The report highlights that the securities sector in China is expected to show improvement in the second half of 2016, with brokers resuming suspended activities and the potential launch of the Shenzhen-Hong Kong Connect. Sunac China Holdings is a strong performer with a BUY rating, driven by its proactive M&A strategy and strong landbanking. DiGi.Com and SapuraKencana are also noted for their performance in Malaysia, while Thailand's TISCO Financial Group showed a notable increase in net profit. The document provides detailed financial metrics and valuation data for each company, emphasizing growth potential and investment opportunities.