20160303-大华继显-Regional_Morning_Notes_24页_2mb

Regional Morning Notes Summary - 03 March 2016

Core Content

This document provides a comprehensive overview of the financial performance and outlook for various sectors and companies in the Asia-Pacific region, with a focus on China, Indonesia, Malaysia, Singapore, and Thailand. It includes sector updates, stock picks, key assumptions, corporate events, and market analysis.

Main Points

China

• Aviation Sector:

  • Chinese airlines have shown strong cash generation and a solid start to 2016.
  • Air China, China Eastern (CEA), and China Southern (CSA) recorded strong passenger traffic growth in January 2016, with Air China and CEA outperforming in international traffic.
  • Air China's international traffic growth was the highest in over a decade.
  • Domestic traffic growth was slower due to capacity saturation at key airports.
  • Air China and CEA are increasing their international capacity and reducing domestic capacity.
  • Air China's pax load factor increased by 3ppt, while CEA's increased by 2.9ppt.
  • Air China and CEA are expected to improve their debt serviceability with new A-share issuances.
  • CSA's target price was reduced to HK$6.75 from HK$7.50, based on a lower fair value P/B ratio.

• Basic Materials Sector:

  • The sector is expected to see a moderate improvement in demand, driven by fiscal stimulus and supportive property policies.
  • The rating for the sector was upgraded from UNDERWEIGHT to MARKET WEIGHT.
  • Conch and BBMG were upgraded from HOLD to BUY.
  • Cement prices are expected to rebound mildly in March-April 2016.
  • Cement earnings estimates were raised by 9-22% for 2016 and 8-20% for 2017.
  • The sector is currently trading at undemanding valuations, with Conch at 1.1x P/B and BBMG at 0.5x P/B.
  • The sector's utilisation rate needs to improve to 85% to achieve favorable demand and supply dynamics.
  • Supply-side reforms are expected to cut steel and coal capacities, but these are long-term processes.

• Key Indices:

  • Major indices like DJIA, S&P 500, FTSE 100, and others showed mixed performance in the short term, with some showing positive growth and others experiencing declines.
  • The CSI 300 and HSI showed positive year-to-date performance, while the BDI and CPO showed declines.

• Top Picks:

  • Air China, CEA, and CSA are recommended as BUYs, with target prices raised.
  • Other top picks include City Developments, DBS, and Kasikornbank.
  • Sembcorp and Sapurakencana are recommended as SELLs.

Indonesia

• Japfa Comfeed Indonesia:
  • Net profit rose by 38% yoy in 2015.
  • The target price was raised to Rp1,160 from Rp800.

Malaysia

• Banking Sector:
  • 4Q15 operating profit growth remained stable at 5.8% yoy.
  • However, a sharp increase in provisions led to a -1.9% yoy net profit decline.
  • The rating was maintained at MARKET WEIGHT.

Singapore

• 4Q15 Report Card:
  • A lacklustre reporting season with 24% of companies missing expectations.
  • Earnings estimates for 2016 were slashed due to the uncertain external outlook.
  • The strategy is to stay selective.

Thailand

• Charoen Pokphand Foods (CPF):
  • 4Q15 earnings were below expectations.
  • The rating remains BUY with a target price of Bt30.00.

Corporate Events

• PTT Global Chemical: Corporate Roadshow in Singapore from 3 to 4 Mar 2016.
• Plantation Outlook Seminar 2016: In Kuala Lumpur on 7 Mar 2016.
• TRX City Sdn Bhd Luncheon: In Malaysia on 8 Mar 2016.
• China Economy and Financial Sector Analyst Presentation: In Singapore and Kuala Lumpur from 9 to 11 Mar 2016.
• ASEAN Conference: In Taiwan from 22 to 23 Mar 2016.

Key Information

Earnings and Performance

• Air China, CEA, and CSA all showed strong traffic growth in January 2016, with international traffic outpacing domestic.
• Air China and CEA are expected to benefit from A-share issuances to fund aircraft purchases.
• The basic materials sector is expected to improve due to fiscal stimulus and property development.
• Cement prices are expected to rebound in March-April 2016.
• Copper prices are expected to rise due to potential acceleration in construction and monetary easing.
• Gold prices have rebounded by 17% ytd.

Valuation and Targets

• The basic materials sector is undervalued, with some companies trading at low P/B ratios.
• Conch and BBMG are highlighted as top picks with increased target prices.
• CSA's target price was reduced due to increased US$ debt exposure.
• The document also includes peer comparisons and price charts for various sectors and companies.

Risks

• Further depreciation of the renminbi and geopolitical risks between China and the US are noted as potential risks.
• Supply-side reforms may lead to near-term pain due to potential rise in NPL, unemployment, and social instability.

Conclusion

The document highlights a cautiously optimistic outlook for the Chinese aviation and basic materials sectors, driven by strong traffic growth, fiscal stimulus, and supportive policies. It also provides updates on other countries and markets, along with key corporate events and analyst recommendations. The focus is on identifying investment opportunities amidst the uncertainties of the global economic environment.