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Regional Morning Notes Summary - 05 May 2017

Core Content Overview

This summary provides a detailed analysis of economic trends, sector performance, and key stock updates across various regions, including China, Hong Kong, Indonesia, Malaysia, and Singapore, as well as updates on key indices and corporate events.

China Economic Trends

• Quarterly Review:
  • 1Q17 economic data was strong, driven by a low-base effect and fiscal stimulus. However, the trend may reverse due to ongoing structural issues in downstream industrial sectors and tightening monetary policy.
  • China's GDP growth rose to 6.9% yoy in 1Q17, up from 6.8% in 4Q16.
  • Fixed asset investment (FAI) and industrial production (IP) increased by 9.2% yoy and 7.6% yoy respectively in 1Q17.
  • PPI inflation in China declined to 7.6% yoy in March 2017, indicating easing pressure on industrial prices.
  • The reflation and restocking cycle may reverse in the coming months, leading to weaker investment activity.

China Auto Sector Update

• Premium Car Dealerships (Shanghai):
  • Sales momentum, pricing, and inventory levels are healthier in premium brands compared to mass-market ones.
  • Brilliance Auto (1114 HK):
    • 1Q17 profit increased by 70% yoy, in line with expectations.
    • Target price: HK$15.50.
  • Audi:
    • Losing market share to Mercedes-Benz and BMW due to weak new model sales and dealer disputes.
    • Inventory levels remain low, around one month.
    • New models for 2017 include all-new A3 and A5, with major launches planned for 2018.
  • Mercedes-Benz (Beijing Benz):
    • Sales growth is expected to slow from 42% in 2017 to 10–11% annually in 2018–19.
    • Strong product cycle in 2016–2017 with new models like E-class L and GLC.
  • BMW Brilliance:
    • Positive sales growth due to existing models and new launches like the all-new 5-series and X3.
    • Target price: HK$15.50.
  • BAIC (1958 HK):
    • SELL rating due to declining sales and earnings from its self-owned brand and Beijing Hyundai.
    • Target price: HK$7.00, based on 9x 2017F PE.
  • Great Wall Motor (2333 HK):
    • SELL rating due to margin squeeze in the SUV market.
    • Target price: HK$6.00, based on 7x 2017F PE.

China Banking Sector Update

• 1Q17 Results:
  • NIM (Net Interest Margin) showed a slight increase, with asset quality stabilising.
  • Fee income declined due to regulatory pressure and reduced WMP (Wealth Management Products) balances.
  • NPL (Non-Performing Loan) growth was minimal for most banks, with BoCom and Minsheng experiencing higher NPL growth.
• Top Picks:
  • CCB (939 HK) and ICBC (1398 HK) are rated BUY, with strong NIM and NPL management.
  • CMB (3968 HK) is also rated BUY with notable earnings growth and loan loss coverage improvements.
  • ABC (1288 HK) and BoCom (3328 HK) are rated HOLD or SELL due to weaker performance in NIM and fee income.

Other Regions

• Indonesia:

  • Mitra Adiperkasa (MAPI IJ):
    • 282% yoy net profit growth, with further upside to margins.
    • Target price: Rp7,750.

• Malaysia:

  • MISC (MISC MK):
    • SELL rating due to weak expectations for 2Q17 tanker earnings and LNG rates.
    • Target price: RM6.30.
  • MRCB-Quill REIT (MQREIT MK):
    • In line with expectations, with strong earnings from Menara Shell.
    • Target price: RM1.38.

• Singapore:

  • Singapore Airlines (SIA SP):
    • HOLD rating, with core net profit expected to rise by 25% yoy in 4QFY17.
    • Target price: S$10.40.
  • Wilmar International (WIL SP):
    • HOLD rating, with core net profit expected to be US$230m–270m for 1Q17.
    • Target price: S$3.50.

• Thailand:

  • Bumrungrad Hospital (BH TB):
    • BUY rating, with earnings growth expected despite declining patient volumes.
    • Target price: Bt206.00.

Key Indices Performance (1Q17)

Top Picks

BUY

• Alibaba (BABA US): Target: US$130.00, Potential Upside: 12.2%
• Beijing Ent. Water (371 HK): Target: HK$7.60, Potential Upside: 28.6%
• Indosat (ISAT IJ): Target: Rp7,900, Potential Upside: 10.1%
• Tiga Pilar (AISA IJ): Target: Rp2,550, Potential Upside: 10.9%
• V.S. Industry (VSI MK): Target: RM2.20, Potential Upside: 10.6%
• OCBC (OCBC SP): Target: S$10.75, Potential Upside: 5.8%
• SingTel (ST SP): Target: S$4.48, Potential Upside: 20.1%
• Bangkok Dusit (BDMS TB): Target: Bt27.00, Potential Upside: 31.7%
• Siam Cement (SCC TB): Target: Bt600.00, Potential Upside: 13.2%

SELL

• Great Wall Motor (2333 HK): Target: HK$6.00, Potential Downside: -26.0%
• MGM China (2282 HK): Target: HK$15.00, Potential Downside: -14.5%
• Hartalega (HART MK): Target: RM4.07, Potential Downside: -17.6%

Key Assumptions

• GDP Growth (yoy):

  • US: 2.7% (2017F), 2.5% (2018F)
  • Euro Zone: 1.6% (2017F), 1.5% (2018F)
  • Japan: 0.9% (2017F), 1.2% (2018F)
  • Singapore: 2.4% (2017F), 2.8% (2018F)
  • Malaysia: 4.5% (2017F), 4.7% (2018F)
  • Thailand: 3.3% (2017F), 3.1% (2018F)
  • Indonesia: 5.2% (2017F), 5.5% (2018F)
  • Hong Kong: 2.0% (2017F), 2.0% (2018F)
  • China: 6.3% (2017F), 6.3% (2018F)

• Brent Crude (US$/bbl): 45 (2016), 55 (2017F), 60 (2018F)

• CPO (RM/mt): 2,653 (2016), 2,600 (2017F), 2,500 (2018F)

Corporate Events

• Roadshow with Meidong Auto Holdings: 4–5 May, UK
• Tea Session with Health Mgm Int'l: 12 May, Singapore
• Roadshow with Q Technology Group: 12 May, Hong Kong
• Analyst Presentation on Malaysia Outlook and Strategy and Regional Gaming: 17 May, Hong Kong
• Roadshow with IGG Inc: 18 May, Taipei
• Roadshow with Petronas Dagangan Bhd: 23 May, Hong Kong
• Analyst Marketing on Internet Sector: 24 May, Singapore; 25–26 May, Kuala Lumpur
• Roadshow with Singtel: 26 May, Canada
• Roadshow with PT Siloam Int'l Hospital: 5–16 Jun, Canada
• Luncheon with United Overseas Bank: 3 Jul, Singapore
• Roadshow with Top Glove Corporation: 5–12 Sep, US/Canada

Analysts

• Zhu Chaoping (Auto Sector):

  • Contact: +8621 5404 7225 ext. 822, chaoping@uobkayhian.com

• Jonathan Koh, CFA (Banking Sector):

  • Contact: +65 6590 6620, jonathankoh@uobkayhian.com

• Jasmine Duan:

  • Contact: +852 2826 1351, jasmine.duan@uobkayhian.com.hk

• Ken Lee:

  • Contact: +852 2236 6760, ken.lee@uobkayhian.com.hk

• Sophie Yu:

  • Contact: +852 2236 6392, sophie.yu@uobkayhian.com.hk