20160808-大华继显-Regional_Morning_Notes_26页_1mb

Regional Morning Notes Summary - 08 August 2016

Core Content Overview

This document provides a summary of economic data and company results for several Asian markets, including China, Indonesia, Malaysia, Singapore, and Thailand, along with key indices, corporate events, and investment recommendations. It focuses on the performance of China Resources Cement Holdings (1313 HK) and Gudang Garam (GGRM IJ), and includes analyst insights and financial metrics.

Main Points

Economic Outlook (China)

• Economic Data Preview: Softer economic data is expected for July due to weather and seasonality.
• FAI Growth: Likely to slow further to 8.6% yoy from 9.0% in June 16.
• IP Growth: Expected to remain flat at 6.2% yoy, with coal consumption rising 5.8% yoy in July.
• Retail Sales: Stable at 10.6% yoy, supported by automobile sales.
• CPI Inflation: Expected to decline to 1.7% yoy, driven by lower pork prices.
• PPI Deflation: Likely to ease to -1.8% yoy from -2.6% in June 16, due to rising raw material prices.
• Foreign Trade: Exports and imports are expected to decline by 5.0% and 8.0% yoy, respectively, due to weak demand and a high base in July 2015.
• Money Supply: M2 growth is projected to decline to 11.3% yoy due to reduced loan issuance and open market operations.
• Bank Loans: Expected to slow to Rmb900b in July, down from Rmb1.38t in June.
• Total Social Financing: Forecasted to reach Rmb1.35t in July, up from Rmb1.629t in June.

Corporate Events

• Venture Corporation Luncheon: Singapore, 10 August.
• China Economics and Coal & Wind Supply Analyst Presentation: Taipei, 11–12 August.
• ST Engineering Luncheon: Singapore, 16 August.
• Q Technology Group Luncheon: Hong Kong, 26 August.
• Q Technology Group Roadshow: Shanghai, 2 September.
• China Resources Gas Roadshow: Canada, 12–16 September.
• China Aviation Oil Roadshow: UK/Europe, 13–16 September.
• Sembcorp Industries Corp Roadshow: Canada, 26 September.
• Regional Financial and Telco Sector Analyst Presentation: UK/Europe, 26–30 September.
• Metro Pacific Investments Corporate Roadshow: Canada, 26–28 October.

Company Results

China Resources Cement Holdings (1313 HK)

• 1H16 Performance: Weak results within expectations, with a 63% yoy decline in core net profit.
• Cement Price Hike: Prices rebounded in late July, and further hikes are expected in September–October, which could be a catalyst for earnings.
• Gross Profit/tonne: Improved qoq to HK$58/ton in 2Q16, up from HK$43/ton in 1Q16.
• Sales Volume: Continued to grow by 4% yoy, with stronger growth in the Guangdong/Guangxi region (7% yoy) than nationally.
• Net Profit: Declined 83% yoy to HK$257.5m, below estimates and consensus.
• Foreign Exchange: Recorded a HK$163m forex loss in 1H16, but foreign debt exposure decreased significantly.
• Valuation: Trading at 0.7x 2016F P/B, much lower than historical averages and compared to Conch.
• Target Price: Raised to HK$3.90, reflecting potential for price recovery and improved earnings.

Gudang Garam (GGRM IJ)

• 2Q16 Performance: Weak quarterly results with a 30.6% qoq decline in net income.
• EPS Growth: Faces a large hurdle for growth in 2H16 due to weak performance in 2H15.
• Target Price: Lowered to Rp74,000, as no price hikes were observed in July.
• Sales Growth: Slowed from 12.6% in 1Q16 to 5.4% in 2Q16.
• Trading Status: Currently trading at -0.5SD, with an entry price of Rp65,000.

Key Indices (as of 08 August 2016)

Top Picks

Buy Recommendations

• Air China (753 HK): CP: HK$5.90, TP: HK$9.00, Pot. +/-: +52.5%
• Ping An Insurance (2318 HK): CP: HK$36.70, TP: HK$45.00, Pot. +/-: +22.6%
• Bumi Serpong Damai (BSDE IJ): CP: 2,100.00, TP: 2,390.00, Pot. +/-: +13.8%
• Genting Bhd (GENT MK): CP: HK$8.27, TP: HK$10.40, Pot. +/-: +25.8%
• City Developments (CIT SP): CP: S$8.80, TP: S$10.36, Pot. +/-: +17.7%
• DBS (DBS SP): CP: S$14.83, TP: S$18.90, Pot. +/-: +27.4%
• Bangkok Dusit (BDMS TB): CP: Bt22.60, TP: Bt25.75, Pot. +/-: +13.9%
• Siam Cement (SCC TB): CP: Bt514.00, TP: Bt630.00, Pot. +/-: +22.6%

Sell Recommendation

• Hartalega (HART MK): CP: RM4.15, TP: RM3.10, Pot. +/-: -25.3%

Key Assumptions

Analysts

• Chaoping Zhu:
  Email: chaoping@uobkayhian.com
  Phone: +8621 5404 7225 ext. 822

• Ye Xu:
  Email: xuye@uobkayhian.com
  Phone: +862154047225 ext. 820

• Johnson Hu:
  Email: johnsonhu@uobkayhian.com
  Phone: +8621 5404 7225 ext 809

• Cynthia Wang:
  Email: cynthiwang@uobkayhian.com
  Phone: +8621 54047225 ext 828

Financial Highlights (China Resources Cement)

Valuation and Recommendation

• China Resources Cement:
  • Maintained BUY rating.
  • Target price raised to HK$3.90, based on 0.9x 2016F P/B.
  • Valuation at 0.7x P/B, which is below the historical average of 1.2x P/B.
  • Expected to narrow valuation gap due to its SOE background, healthy financials, and improved demand-supply dynamics in key markets.

Summary of Key Financials

• 1H16 Net Profit: HK$257.5m (down 83% yoy).
• Core Net Profit: HK$379.9m (down 63% yoy).
• Gross Margin: Declined to 23.8% in 1H16 from 25.0% in 1H15.
• EBITDA Margin: Improved to 17.7% in 2016F from 17.4% in 2015.
• EPS: Expected to rise to HK$22.4 in 2016F from HK$19.7 in 2015.
• Net Debt/(Cash) to Equity: Expected to decline to 47.5% in 2018F.
• Interest Cover: Expected to fall to 7.4 in 2016F from 9.5 in 2015.

Conclusion

The report highlights the expected moderation in Chinese economic data due to weather and seasonality, with a focus on cement price recovery as a key driver for China Resources Cement. Despite weak performance in the first half of 2016, the company is positioned for potential improvement in the second half, supported by anticipated price hikes and a reduction in foreign debt exposure. Meanwhile, Gudang Garam faces challenges in achieving EPS growth, with a lowered target price. The document also provides insights into other markets and key corporate events that could influence regional stock performance.