20150908-大华继显-Regional_Morning_Notes_14页_709kb

Regional Morning Notes Summary

Core Content Overview

This document provides a comprehensive market update for the banking and telecommunications sectors across China, Malaysia, Singapore, and Thailand, as well as a detailed analysis of Great Wall Motor (GWM) in China. It includes assessments of non-performing loan (NPL) recognition quality, sector performance, key financial metrics, and investment recommendations.

Main Points and Key Information

China - Banking Sector

• NPL Recognition Quality:

  • Large banks (ICBC and CCB) maintain stronger NPL recognition standards with NPL-to-90-day-overdue-loans ratios above 1.0x, indicating more conservative booking.
  • BoCom and Minsheng show weaker trends with declining ratios (0.71x and 0.64x in 1H15), suggesting less conservative NPL recognition.
  • CCB stands out with the strongest overall ratio, declining SML ratio, and relatively higher coverage ratio.

• NPL Coverage Ratio:

  • Most banks report coverage ratios below 180% in 1H15, below the regulatory requirement.
  • ABC and CMB are the only banks with coverage ratios above 200% (239.0% and 204.2% respectively), providing a better earnings cushion.
  • Minsheng has the lowest coverage ratio at 162.1%.

• Recommendations:

  • Maintain BUY on ICBC and CCB due to their better asset quality and trough valuations.
  • HOLD on BoCom and other mid-sized banks with weaker NPL performance.

Great Wall Motor (2333 HK)

• Sales Performance:

  • August sales rebounded 18.5% yoy and 22.8% mom to 58,270 units, with the recovery driven by the H6 Coupe.
  • Sales of H6 increased 6% yoy to 27,202 units, and H1 and H2 sales rebounded 72% and 26% mom respectively.
  • Sales for 8M15 reached 521,054 units, up 17.1% yoy, aligning with the 850,000 unit full-year target.

• Valuation and Outlook:

  • GWM is currently trading at HK$18.88, with a target price of HK$30.00, indicating a 58.9% upside.
  • The stock has fallen over 50% in the past three months due to market correction, product price cuts, and sales slowdown.
  • Current valuation is at 5.2x 2015F PE, close to the historical trough of 4x during the global financial crisis.

• Earnings and Profitability:

  • 2015-17 EPS estimates are Rmb8.88b/Rmb9.83b/Rmb10.92b, implying growth of 10%/11%/11%.
  • These estimates are 8% below consensus due to lower margin assumptions.
  • Net profit for 2015F is expected to be Rmb8.88b, with a net margin of 10.9%.
  • EBITDA margin is expected to decline from 17.4% in 2014 to 14.9% in 2015F.

• Market Position:

  • GWM is the largest SUV manufacturer in China, with a long history in the market.
  • Despite a slowdown in the overall car market, the SUV segment continues to grow at double-digit rates.

Malaysia - Telecommunications Sector

• 2Q15 Performance:

  • Results were broadly in line with expectations, except for Digi, which missed by 11% due to weaker ARPU.
  • The Big 3 operators (Celcom, Digi, Maxis) saw core net profit decline 3% qoq and 15% yoy due to GST confusion.
  • TM reported sequential growth with higher voice revenue and lower maintenance charges, offsetting P1 WiMax’s widened loss.

• Market Dynamics:

  • Prepaid freebies and weak interim spending led to a 2% qoq and 3% yoy drop in service revenue.
  • Digi continues to gain market share, particularly in the prepaid segment.
  • Maxis retains 40% market share in service revenue.

• Sector Outlook:

  • 2H15 is expected to be relatively flat in 3Q15 due to customer acquisition costs, but growth momentum is expected to return in 4Q15.
  • New smartphone launches and increased Internet penetration will drive earnings momentum.

• Recommendations:

  • Maintain MARKET WEIGHT for the sector due to inelastic demand, defensive earnings outlook, and dividend yields of 4-5%.
  • Upgrade Digi to OVERWEIGHT as it is best positioned to monetize data growth from the prepaid segment.

Singapore - Property Sector

• Key Insight:
  • The property sector is under review for survival in the burn-down analysis.
  • No specific details are provided in the summary, but the focus is on the sector's resilience and performance in a challenging market.

Thailand - Telecommunications Sector

• Sector Update:
  • Upgrade to OVERWEIGHT due to expected earnings upside from 4G auctions.
  • The sector is anticipated to benefit from increased mobile data usage and infrastructure investment.

Key Indices Performance (as of 08 September 2015)

Top Picks

Sell Recommendations:

Key Assumptions

Brent Crude (US$/bbl):

• 2014: 99.45
• 2015F: 61
• 2016F: 67

CPO (US$/mt):

• 2014: 722
• 2015F: 765
• 2016F: 788

Corporate Events

Analyst Contact

Edmond Law
+852 2826 4837
edmond.law@uobkayhian.com.hk

Ken Lee
+852 2236 6760
ken.lee@uobkayhian.com.hk

Conclusion

The document emphasizes the importance of NPL recognition quality and coverage ratios in the Chinese banking sector, with large banks like ICBC and CCB showing stronger performance. In Malaysia, the telecommunications sector is expected to see a recovery in 4Q15 due to new smartphone launches and increased Internet adoption, with Digi being the top pick. Great Wall Motor is noted for its sales recovery and attractive valuation, maintaining a BUY rating with a target price of HK$30.00. The property sector in Singapore is under review for its ability to survive market downturns, while the telecommunications sector in Thailand is upgraded to OVERWEIGHT due to 4G auction opportunities.