20160222-大华继显-Regional_Morning_Notes_27页_1mb

Regional Morning Notes Summary - 22 February 2016

Core Content

The document provides an overview of market insights and investment recommendations for the property and energy sectors in China, Indonesia, and Malaysia, as well as key financial indices and upcoming corporate events.

Main Points

China: City Gas Distribution

• Coal-Gas Conversion is identified as a new growth engine for natural gas (NG) consumption, aimed at improving air quality and reducing reliance on coal.
• The initiative is expected to boost NG demand by 3-5ppt from industrial users, with potential for 120% of total city gas sales by 2020.
• NG price cuts in late 2015 and early 2016 are expected to further stimulate NG consumption and improve the market outlook.
• City gas distributors are likely to see an 8-15% organic sales volume growth in 2016, with CR Gas and ENN Energy highlighted as top picks.
• The sector is currently trading at an attractive 9.4x 2016F PE, below the historical average of 16x.

China: Property Sector

• Property sales in 2016 are expected to be strong, especially in core tier-2 cities, with 5-10% growth in both ASP and volume.
• Despite improved sales, earnings growth remains weak due to contracting gross margins from higher land prices and lower ASPs.
• The sector is still undervalued but not cheap enough to justify a bullish stance, with a 6.4x 2016F PE.
• Valuation recovery is expected to be supported by currency stability, policy easing, and strong local demand.
• Top picks include China Resources Land, Poly Real Estate, and COLI, with CRL and Poly Real Estate upgraded to BUY.

Indonesia

• Banking sector is expected to be impacted by potential NIM cap and other measures, but the impact may be lower than market expectations.
• Kalbe Farma is maintained at HOLD due to mediocre growth expected in 2016.

Malaysia

• IOI Corporation is downgraded to SELL due to a 27.2% qoq decline in core net profit for 2QFY16.
• Malakoff Corporation is upgraded to BUY with a RM1.59 price and a RM2.00 target, as results are in line with expectations.
• SKP Resources is maintained at HOLD, with RM1.32 price and a RM1.50 target, and is expected to benefit from contract wins.

Key Information

Market Indices

Top Picks

Corporate Events

Analysts

• Yan Shi: 008621 54047225 (804), yan.shi@uobkayhian.com
• Daniel Yang: 00852 22366706, daniel.yang@uobkayhian.com.hk

Key Assumptions

Sector Update

City Gas Distribution

• Coal-gas conversion is expected to drive NG demand, especially from industrial users.
• The NG price cut in late 2015 and the potential for another in early 2016 are seen as catalysts.
• CR Gas and ENN Energy are highlighted as top picks with BUY ratings.

Property

• Sales are expected to be strong in 2016, especially in core tier-2 cities.
• Earnings growth remains weak due to contracting margins and economic pressures.
• Valuation recovery is anticipated if currency stabilisation and policy easing continue.
• CRL and Poly Real Estate are recommended as BUY.

Summary

• China's coal-gas conversion is a significant driver for NG consumption.
• Property sales are expected to grow in 2016, but earnings remain under pressure.
• City gas distributors are forecast to see 8-15% organic sales growth in 2016.
• CR Gas and ENN Energy are top picks in the gas sector.
• CRL and Poly Real Estate are top picks in the property sector.
• Malaysia's IOI Corporation is downgraded to SELL.
• Indonesia's banking sector may see lower-than-expected impact from NIM cap and other measures.
• Corporate events are scheduled in various regions, with a focus on analyst presentations and roadshows.
• The property sector is still undervalued but not yet at a level to justify a bullish stance.