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Morning Bulletin Summary

Core Content Overview

This document provides a summary of stock analysis and recommendations for various Chinese and Taiwanese companies, focusing on financial performance, market dynamics, and investment outlooks. The summaries include price targets, consensus views, and key factors influencing stock valuations. It also features a list of research teams and contact information.

Key Companies and Analysis

MediaTek (2454 TT)

• Sector: Technology
• Rating: BUY
• Target Price: TWD599.00
• Key Points:
  • Raised target price to street-high of NTD599 due to 3% upward earnings revision.
  • Earnings growth expected in FY14 and FY15 due to richer product mix, cost reduction, and rising 3G penetration in emerging markets.
  • 4G chipset shipments expected in 2Q14 for international (FDD-LTE) and China (TD-LTE) standards.
  • MTK is expected to gain significant market share in the global LTE market, currently dominated by QCOM.

Lonking (3339 HK)

• Sector: Industrials
• Rating: BUY
• Target Price: HKD2.00
• Key Points:
  • Reiterated BUY with a lower TP due to lower SOTP forecast.
  • FY14F earnings growth of 18.5% YoY.
  • Sales volume growth of 13.9% YoY, driven by wheel loaders and forklifts.
  • Receivable impairment expected to trend down due to declining excavator sales.
  • Management guidance indicates strong operational performance in FY14.

China COSCO (1919 HK)

• Sector: Transport
• Rating: SELL
• Target Price: HKD2.65
• Key Points:
  • Reiterated SELL with lower TP due to expected losses in FY14.
  • Heavy capital expenditure will negatively impact financial position over the next two years.
  • Gearing is expected to rise to 324% in FY14.
  • Book value erosion is expected, making its P/B multiple hard to justify.
  • Cheaper alternatives like CSCL and China Shipping Development are recommended.

Agile Property (3383 HK)

• Sector: Property
• Rating: BUY
• Target Price: HKD8.90
• Key Points:
  • Upgraded to BUY with TP of HKD8.90.
  • Valuation is at 65% discount to NAV and 3.5x 2014 PER.
  • Expected to benefit from policy loosening in weak property markets.
  • Current leadership better positioned to execute turnaround strategy.
  • Net debt/attributable equity ratio rose to 90.1%, but GPM expected to remain above 33%.

China Merchants Bank (3968 HK)

• Sector: Banking
• Rating: BUY
• Target Price: HKD15.90
• Key Points:
  • Upgrade to BUY with higher TP based on improved NIM and fee income.
  • NIM forecast raised from 2.63-2.66% to 2.77-2.80% for 2013-15.
  • Non-interest income is expected to grow at 11% CAGR.
  • Excess loan loss provisions of CNY143b, sufficient to cover 70% of SM loans.
  • Credit costs expected to be 0.7-0.8% for 2014-15.

Chongqing Rural Commercial Bank (3618 HK)

• Sector: Banking
• Rating: BUY
• Target Price: HKD4.60
• Key Points:
  • Maintained BUY rating with higher TP.
  • Strong capital position with CET1 CAR at 11.9% in Dec 2013.
  • NIM forecast raised to 3.4-3.42% for 2014-15.
  • Fee income expansion in county area banking.
  • Slight concerns over shadow bank exposure and higher credit costs.

China Minsheng Bank (1988 HK)

• Sector: Banking
• Rating: SELL
• Target Price: HKD6.05
• Key Points:
  • Maintained SELL rating with lower TP.
  • NIM improved but credit costs remain high.
  • Dividend payout ratio cut to 6.7% to restore capital strength.
  • Bonus shares dilute BVPS by 17%.
  • ROE expected to remain at 15.5% long-term, but credit costs higher than peers.

Bank of Communications (3328 HK)

• Sector: Banking
• Rating: SELL
• Target Price: HKD4.40
• Key Points:
  • Maintained SELL rating with further reduced TP.
  • Lower NIM and loan growth due to deposit constraints.
  • Cost-income ratio expected to rise above 40% during 2014-16.
  • Provision-to-loan ratio below statutory minimum, indicating weak credit coverage.

China Shenhua Energy (1088 HK)

• Sector: Materials
• Rating: BUY
• Target Price: HKD24.00
• Key Points:
  • EPS and target price cut by 12% and 14% due to lower coal prices and flat volume growth.
  • Dividend yield supported by strong cash flows, but absolute payout expected to decrease.
  • "Walmart" strategy to increase third-party coal purchases.
  • ROE expected to fall to 10-11% over the next few years.

Chalco (2600 HK)

• Sector: Materials
• Rating: BUY
• Target Price: HKD3.20
• Key Points:
  • Taking steps to reduce high cost capacity under pressure from lower prices and credit constraints.
  • Further global aluminium production cuts expected.
  • Cut DCF-based TP by 9% to HKD3.20.
  • Cost savings and rising alumina sales help offset lower aluminium prices.
  • Asset sales have stabilized balance sheet, but further capital adjustments likely.

Market Indicators

Summary of Key Themes

• Technology Sector: MediaTek is expected to gain significant traction in the 4G market, with a higher target price and BUY rating.
• Industrial Sector: Lonking shows recovery signs with BUY rating, while China COSCO faces continued losses and is SELL.
• Property Sector: Agile Property is undervalued with a BUY rating, indicating potential for turnaround.
• Banking Sector: China Merchants Bank and Chongqing Rural Commercial Bank show strong capital positions and growth potential, with BUY ratings. China Minsheng Bank and Bank of Communications face challenges with credit costs and capital structure, resulting in SELL ratings.
• Energy Sector: China Shenhua Energy is under pressure due to coal price declines but remains a BUY due to strong cash flows and strategic shifts.
• Materials Sector: Chalco is under pressure but shows signs of change with a BUY rating.

Research Team Contacts

• Howard WONG - Oil & Gas
• Alexander LATZER - Metals & Mining
• Jacqueline KO - Consumer
• Karen KWAN - Property & REITS
• Osbert TK TANG - Transport & Industrials
• Ricky WK NG - Utilities & Renewable Energy
• Simon QIAN - Telecom & Internet
• Steven ST CHAN - Banking & Financials
• Warren LAU - Technology
• William YANG - Technology

Summary of Key Recommendations

• BUY for MediaTek, Lonking, Agile Property, China Merchants Bank, Chongqing Rural Commercial Bank, and China Shenhua Energy.
• SELL for China Minsheng Bank and Bank of Communications.
• Emphasis on market dynamics, earnings revisions, and strategic shifts in each company's outlook.