20160129-大华继显-Regional_Morning_Notes_24页_1mb

Regional Morning Notes Summary - 29 January 2016

Core Content

This document provides an overview of the regional markets, focusing on the plantation sector and electric vehicles (EVs) in China, along with key indices, top picks, and market assumptions. It also includes updates on corporate events and sensitivity studies related to biodiesel mandates and pricing.

Main Points

Plantation Sector - Malaysia

• Biodiesel Blending Increase: Malaysia is expected to increase biodiesel blending from 7% (B7) to 10% (B10) by April 16, 2016, which would utilize an additional 600,000 tonnes of palm oil annually.
• Inventory Impact: The increased biodiesel demand will help draw down Malaysia's current high palm oil inventory of 2.63 million tonnes, potentially supporting CPO prices.
• CPO Price Forecast: Based on a study by the Malaysian Biodiesel Association, B10 could boost CPO prices by RM680 per tonne.
• Capacity: The installed capacity of biodiesel producers in Malaysia is 2.5 million tonnes per year, with only 23% utilised in 2015, indicating no immediate capacity constraint.
• Recommendation: Maintain OVERWEIGHT for the plantation sector, with a preference for companies like Genting Plantations (GENP MK) due to its exposure to Indonesia's growing biodiesel market.

China - Electric Vehicles

• Sales Outlook: EV sales in China are expected to decline from 343% growth in 2015 to 21% in 2016, mainly due to the exhaustion of government buying power.
• Segment Growth: Electric passenger cars are expected to grow by over 40% yoy in 2016, driven by free licenses and lower entry barriers, while electric buses may see a 5% drop.
• Subsidy Cuts: EV subsidies for 2016 will be reduced by 5%, and further cut by 20% in 2017. The minimum range for BEVs will increase from 80km to 100km.
• Fake Sales: Approximately 20% of 2015 EV sales were fake, with EVs not registered or used. This is expected to cease in 2016.
• Battery Market: Over-capacity in EV battery production is expected in 2016, with a potential slump in utilization. The Chinese government has banned ternary batteries in electric buses, affecting companies like Tianneng.
• Recommendation: Maintain HOLD on BYD (1211 HK) and SELL on Tianneng (819 HK). Electric passenger vehicles are preferred over electric buses due to growth potential and policy support.

Key Information

Top Picks

• Regional:
  • FR SP (Target: S$2.40)
  • BAL SP (Target: S$1.10)
  • GENP MK (Target: RM11.45)
• China:
  • BYD (1211 HK): Hold with target price of HK$38.00
  • Tianneng (819 HK): Sell with target price of HK$5.00

Key Indices

Key Assumptions

• GDP Growth:
  • US: 2.4% (2014), 2.5% (2015F), 2.5% (2016F)
  • Euro Zone: 0.9% (2014), 1.5% (2015F), 1.7% (2016F)
  • Japan: -0.1% (2014), 0.5% (2015F), 1.0% (2016F)
  • Singapore: 2.9% (2014), 2.0% (2015F), 2.7% (2016F)
  • Malaysia: 6.0% (2014), 4.9% (2015F), 4.8% (2016F)
  • Thailand: 0.9% (2014), 2.7% (2015F), 3.2% (2016F)
• Brent Crude Average Price: RM53.60 (2015), RM54 (2016F), RM62 (2017F)
• CPO Price Forecast: RM2,500/tonne (2016), RM2,600/tonne (2017)

Sector Catalysts

• Lower Soybean Supply: USDA revised down US soybean harvest estimates, reducing oversupply concerns.
• Weather Disruption: Adverse weather can negatively impact agricultural production, potentially boosting prices.
• Biodiesel Mandates:
  • Malaysia: 7% (2015), 10% (2016)
  • Indonesia: 15% (2015), 20% (2016)

Corporate Events

• Greater China Strategy and Energy Sector Analyst Presentation: Dublin, 29 Jan 2016
• Dawnrays Pharma Roadshow: Shanghai, 29 Jan 2016
• MAL Utilities Analyst Presentation: Kuala Lumpur, 3 Feb 2016
• Singapore Airlines Luncheon: Singapore, 5 Feb 2016

Sensitivity Study

Risks

• Backtracking of Biodiesel Mandates: Due to falling crude oil prices, there may be delays or reductions in biodiesel mandates.
• Weakening Crude Oil Prices: Could affect the cost-effectiveness of biodiesel production and reduce demand.

Analysts

• Regional Research Team: Contact +65 6535 6868, research@uobkayhian.com
• Ken Lee: +852 2236 6760, ken.lee@uobkayhian.com.hk

Conclusion

The plantation sector in Malaysia is poised for growth with the expected increase in biodiesel blending, which could help reduce inventory and support CPO prices. In contrast, the Chinese EV market is expected to slow down in 2016 due to subsidy cuts and government buying power exhaustion, but there is still strong potential for electric passenger cars. The report recommends maintaining an OVERWEIGHT stance for the plantation sector and a HOLD for BYD, while SELLING on Tianneng.