Regional Morning Notes Summary - 07 January 2016
Core Content Overview
This document provides a summary of market insights and investment recommendations for various regions and sectors, focusing on China, Indonesia, Malaysia, and Singapore. It includes updates on specific companies, sector outlooks, key indices performance, and valuation data.
Main Points and Key Information
China
Automobile Sector
- 2016 Outlook: The worst is over for China's auto sector, with expected 8% YoY growth in passenger vehicle (PV) sales, up from 6% in 2015.
- Policy Impact: The half exemption on small car purchase tax (engine displacement ≤1.6L) from Oct 15 to Dec 16 is expected to boost small-car sales in 4Q15 and 2016.
- Segment Growth: SUV sales are expected to grow 30% in 2016, significantly outpacing overall PV growth. Small SUVs will see the fastest growth at 50% YoY.
- Company Performance:
- GWM: SELL recommendation due to weak product line-up, high net margin, and rising competition.
- Geely: Top BUY with a target price of HK$4.90. Strong product line-up and high exposure to small cars.
- DFM: BUY recommendation with a target price of HK$15.00. High exposure to small cars and fast-growing SUV segment.
- Brilliance: BUY recommendation with a target price of HK$14.00. Expected earnings recovery and re-rating.
Banking Sector
- Asset Quality: Remains a key share price driver. Mid-sized banks with weaker loan portfolios may face higher earnings pressure.
- NPL (Non-Performing Loans): Expected to increase in 2016, with the industry NPL ratio potentially reaching above 2%.
- Interest Rate Environment: NIM (Net Interest Margin) impact is manageable due to interest rate deregulation and liquidity injections.
- Top Picks:
- ICBC: BUY with a target price of HK$7.60.
- CCB: BUY with a target price of HK$8.70.
- Valuation: Banks are trading near trough levels (0.7x 2016F P/B), with CCB and ICBC being preferred due to their more defensive balance sheets.
Indonesia
- Japfa Comfeed (JPFAIJ): Upgraded to BUY from HOLD with a target price of Rp800. Improved supply-demand balance and stable broiler prices are key catalysts.
Malaysia
- Construction Sector: Expected to be a record year in 2016 with new job awards, led by the MRT2, LRT3, and Pan Borneo Highway projects.
Singapore
- Singapore Telecommunications (ST SP): BUY recommendation with a target price of S$4.42. Short-term pain for long-term gain.
Key Indices Performance (as of 6 Jan 2016)
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
16906.5 |
-1.5 |
-4.6 |
-5.3 |
-3.0 |
| S&P 500 |
1990.3 |
-1.3 |
-4.2 |
-4.8 |
-2.6 |
| FTSE 100 |
6073.4 |
-1.0 |
-3.8 |
-2.6 |
-2.7 |
| AS30 |
5178.0 |
-1.2 |
-2.6 |
-0.5 |
-3.1 |
| CSI 300 |
3539.8 |
+1.8 |
-5.9 |
-4.0 |
-5.1 |
| FSSTI |
2804.3 |
-1.1 |
-2.9 |
-3.3 |
-2.7 |
| HSCEI |
9137.8 |
-0.9 |
-6.7 |
-6.7 |
-5.4 |
| HSI |
20980.8 |
-1.0 |
-4.6 |
-5.5 |
-4.3 |
| JCI |
4609.0 |
+1.1 |
+1.1 |
+1.9 |
+0.3 |
| KLCI |
1668.0 |
+0.1 |
-1.0 |
-0.2 |
-1.4 |
| KOSPI |
1925.4 |
-0.3 |
-2.0 |
-1.9 |
-1.8 |
| Nikkei 225 |
18191.3 |
-1.0 |
-3.6 |
-7.6 |
-4.4 |
| SET |
1260.0 |
+0.5 |
-2.0 |
-5.5 |
-2.2 |
| TWSE |
7990.4 |
-1.0 |
-3.7 |
-5.5 |
-4.2 |
| BDI |
467 |
-0.2 |
-1.5 |
-17.1 |
-2.3 |
| CPO (RM/mt) |
2221 |
+949.9 |
+1.5 |
+3.4 |
+0.9 |
| Brent Crude (US$/bbl) |
34 |
-5.4 |
-8.9 |
-19.9 |
-7.6 |
Key Assumptions
| Country |
GDP Growth (YoY) |
2014 |
2015F |
2016F |
| US |
2.4 |
2.4 |
2.5 |
2.5 |
| Euro Zone |
0.9 |
0.9 |
1.5 |
1.7 |
| Japan |
-0.1 |
-0.1 |
0.5 |
1.5 |
| Singapore |
2.9 |
2.9 |
2.5 |
2.9 |
| Malaysia |
6.0 |
6.0 |
4.8 |
4.8 |
| Thailand |
0.9 |
0.9 |
2.7 |
4.0 |
| Indonesia |
5.0 |
5.0 |
4.8 |
5.4 |
| China |
7.3 |
7.3 |
6.5 |
6.7 |
| Indicator |
2014 |
2015F |
2016F |
| Brent (Average) |
99.45 |
56 |
57 |
| CPO (US$/ml) |
722 |
550 |
660 |
Top Picks
| Company |
Ticker |
Rating |
Share Price (HK$) |
Target Price (HK$) |
Potential +/- (%) |
| Beijing Capital |
694 HK |
BUY |
7.88 |
11.40 |
44.7 |
| ICBC |
1398 HK |
BUY |
4.41 |
7.60 |
72.3 |
| Bank BJB |
BJBR IJ |
BUY |
770.00 |
1,140.00 |
48.1 |
| DiGi.Com |
DIGI MK |
BUY |
5.20 |
5.95 |
14.4 |
| Maybank |
MAY MK |
BUY |
8.33 |
10.00 |
20.0 |
| CapitaLand |
CAPL SP |
BUY |
3.26 |
4.08 |
25.2 |
| DBS |
DBS SP |
BUY |
16.10 |
22.34 |
38.8 |
| Kasikornbank |
KBANK TB |
BUY |
148.00 |
192.00 |
29.7 |
| PTT |
PTT TB |
BUY |
228.00 |
340.00 |
49.1 |
| SIA Engineering |
SIE SP |
SELL |
3.66 |
3.30 |
-9.8 |
| UMWH Holdings |
UMWH MK |
SELL |
7.58 |
7.00 |
-7.7 |
Corporate Events
| Event |
Venue |
Start Date |
End Date |
| WCT Holdings Luncheon |
Kuala Lumpur |
11 Jan |
11 Jan |
| UOB Luncheon |
Singapore |
12 Jan |
12 Jan |
| Keppel REIT Luncheon |
Singapore |
19 Jan |
19 Jan |
| Indonesian Strategy Analyst Presentation |
Singapore, Kuala Lumpur |
11 Mar |
11 Mar - 13 Mar |
Risks
- Macro Risks: Further slowdown in the Chinese economy and sharp depreciation of the renminbi could negatively impact auto sales and pricing, thereby affecting profitability.
Company Update - Japfa Comfeed (JPFA IJ)
- Upgrade to BUY: Target price set at Rp800, up from Rp400.
- Catalysts: Improved supply-demand balance, stable broiler prices, and earnings recovery.
- Performance:
- Net profit in 3Q15 reached Rp125b, up from a net loss of Rp50b in 2Q15.
- EBITDA and operating profit have shown signs of recovery.
- 2016 net profit forecast raised by 94% to Rp517b.
- Valuation: Currently at 12.6x 2016F PE, which is considered undemanding.
Stock Data - Japfa Comfeed (JPFA IJ)
| Parameter |
Value |
| GICS Sector |
Consumer staples |
| Bloomberg Ticker |
JPFA IJ |
| Shares Issued (m) |
10,660.5 |
| Market Cap (Rpb) |
6,502.9 |
| Market Cap (US$m) |
466.4 |
| 3-mth Avg Daily Turnover (US$m) |
0.2 |
Analysts
Conclusion
The document outlines a cautiously optimistic outlook for the Chinese auto sector, with a focus on recovery in PV sales and SUV growth. It also highlights the challenges in the banking sector, particularly around asset quality and NPLs, while recommending certain stocks for investment. In Indonesia, Japfa Comfeed is upgraded to BUY, and in Malaysia, the construction sector is expected to be a strong performer. Overall, the market is expected to remain range-bound in the short term, with valuation being a key driver for investment decisions.
