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Regional Morning Notes Summary - 28 August 2015

Core Content Overview

This document provides a detailed analysis of stock performance and market outlook for several Asian markets, including Singapore, Thailand, China, and Indonesia, with a focus on key companies and their financial results. It includes investment recommendations, valuation analysis, and market-related updates.

Key Markets and Sectors

Singapore

• Sector Focus: Property
• Key Recommendation: REITs are upgraded to OVERWEIGHT due to an attractive risk-reward proposition.
• Update on Ezra Holdings (EZRA SP): Upgraded to BUY with a target price of S$0.176. The company entered a 50:50 joint venture with Chiyoda, supporting its subsea ambitions.

Thailand

• Sector Focus: Banking
• Key Strategy: Valuation screen indicates the banking sector is too oversold, suggesting a potential rebound play.

Indonesia

• Sector Focus: Banking
• Key Insight: Banks are expected to withstand rupiah depreciation and maintain an NPL ratio of 5%.

China Market Analysis

Agricultural Bank of China (1288 HK)

• Stock Status: Upgraded to BUY with a target price of HK$4.20.
• 1H15 Performance: Earnings missed estimates due to lower fees growth and higher credit costs. NPL ratio increased to 1.83% (up 18bp qoq).
• Key Positives:
  • Loan-to-deposit ratio remains low among large banks.
  • Higher coverage ratio (239%) compared to peers.
  • Strong assets growth (9.3%).
• Key Negatives:
  • NIM narrowed by 13bp to 2.72%.
  • NPL growth is expected to accelerate in 2H15.
  • Core-tier 1 ratio is 9.30%, a concern.
• Financial Metrics:
  • P/BV: 0.67x (2016F)
  • Dividend Yield: 6.4%
  • EPS (Fen): 55.6 (2016F)
  • PE (x): 4.7 (2015F)
  • Net Profit (Adj.): 180,713 Rmbm (2015F)
• Stock Impact:
  • Earnings in 2Q15 were 3.7% below estimates.
  • NIM dropped by 13bp to 2.72%.
  • Gross profit declined due to weaker cement sales and lower prices.
  • Net interest income grew by 3.5% in 2Q15.
  • EPS dropped by 6.3% in 2Q15.

BBMG Corporation (2009 HK)

• Stock Status: Maintained as BUY with a target price of HK$8.60.
• 1H15 Performance: Earnings declined by 28% yoy, but property business helped cushion the impact.
• Key Insights:
  • Cement business faced 11% revenue decline due to lower sales volume and price drops.
  • Property business showed 45% gross margin in 1H15, up from 37% in 1H14.
  • BTH integration is expected to boost regional cement demand and convert industrial land to residential, unlocking value.
• Financial Metrics:
  • PE (x): 14.7 (2015F)
  • P/B (x): 0.6 (2015F)
  • EBITDA: 3,505 Rmbm (2015F)
  • Net Profit (Adj.): 1,345 Rmbm (2015F)
  • EPS (fen): 28.1 (2015F)
• Stock Impact:
  • Contracted sales GFA declined 42% yoy in 1H15.
  • Property sales recognition is expected to pick up in 2H15.
  • Projected contracted sales for 2016: Rmb19b, up 36% yoy.
  • Property revenue growth is expected to be 2% in 2015 and 15% in 2016.

Key Indices (as of 28 August 2015)

Top Picks (BUY)

Key Assumptions (GDP Growth)

Corporate Events

Summary of Key Points

• Agricultural Bank of China (ABC): Earnings missed due to weaker fees and higher credit costs, but the bank is undervalued with a high dividend yield and strong asset growth.
• BBMG Corporation: Despite a 28% earnings drop, the property business is a key driver and catalyst for future growth. BTH integration is expected to boost demand and convert land to residential.
• Market Valuation: The banking sector in Thailand is oversold, suggesting a rebound opportunity.
• Regional Outlook: Strong GDP growth is expected in Singapore, Malaysia, and Indonesia, while China and Thailand show more moderate growth.
• Investment Focus: Several stocks are highlighted for BUY based on valuation, dividend yield, and growth potential.