Regional Morning Notes Summary
Date: Thursday, 08 September 2016
Core Content Overview
This document provides a regional market update covering Thailand, China, Indonesia, and Malaysia, with a focus on automobile and infrastructure sectors. It also includes stock updates, key indices, top picks, and corporate events.
Key Stories by Region
Thailand
- Banking Sector: Earnings are on the path to recovery, with signs of improvement in asset quality. Upgrade to OVERWEIGHT.
China
- Automobile Sector: 2H16 sees diverging earnings momentum among OEMs. Geely is preferred over GAC and GWM due to its strong product pipeline and better performance.
- Infrastructure Sector: The ramp-up of PPP (Public-Private Partnership) progress is a key catalyst. Maintain MARKET WEIGHT, with CRCC as the top pick.
Indonesia
- Holcim Indonesia (SMCB IJ): Deteriorating earnings outlook and unjustified premium valuation. Downgrade to SELL, with a target price of Rp900.
Malaysia
- Rubber Gloves Sector: 2Q16 aggregate sector earnings dropped 27% qoq due to the 5% qoq depreciation of the US dollar against the ringgit and a rebound in raw material input costs.
Key Indices
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18526.1 |
-0.1 |
0.4 |
-0.1 |
6.3 |
| S&P 500 |
2186.2 |
-0.0 |
0.5 |
0.2 |
7.0 |
| FTSE 100 |
6846.6 |
0.3 |
1.0 |
0.8 |
9.7 |
| AS30 |
5521.1 |
0.2 |
-0.1 |
-1.9 |
3.3 |
| CSI 300 |
3340.8 |
-0.1 |
0.4 |
3.3 |
-10.5 |
| FSSTI |
2893.7 |
-0.1 |
2.6 |
0.8 |
0.4 |
| HSCEI |
9970.2 |
0.3 |
4.5 |
7.5 |
3.2 |
| HSI |
23741.8 |
-0.2 |
3.3 |
5.5 |
8.3 |
| JCI |
5381.4 |
0.2 |
-0.1 |
-1.4 |
17.2 |
| KLCI |
1689.6 |
-0.0 |
0.7 |
1.0 |
-0.2 |
| KOSPI |
2061.9 |
-0.2 |
1.3 |
1.5 |
5.1 |
| Nikkei 225 |
17012.4 |
-0.4 |
0.7 |
2.2 |
-10.6 |
| SET |
1487.2 |
-0.6 |
-4.0 |
-3.6 |
15.5 |
| TWSE |
9259.1 |
0.8 |
2.1 |
1.2 |
11.0 |
| BDI |
773 |
3.8 |
8.7 |
21.5 |
61.7 |
| CPO (RM/ml) |
2893 |
-0.0 |
2.5 |
16.3 |
31.5 |
| Brent Crude |
48 |
1.5 |
2.0 |
8.4 |
28.7 |
Top Picks and Sell Recommendations
Buy Recommendations
- Geely (175 HK): Target price HK$8.00, based on 10x 2017F PE. Strong SUV pipeline and market share gain.
- CRCC (1186 HK): Target price HK$12.50, based on 7.5x 2017F PE. Robust new order growth and relatively low net gearing.
Sell Recommendations
- GWM (2333 HK): Target price HK$5.80, based on 7x 2017F PE. Vulnerable to increasing competition in SUV segment.
- GAC (2238 HK): Target price HK$9.50, based on 9x 2017F PE. Also vulnerable to competition in SUV segment.
- Holcim Indonesia (SMCB IJ): Downgraded to SELL, target price Rp900. Poor earnings performance and deteriorating balance sheet.
Key Assumptions
| Country |
GDP (yoy) 2015 |
GDP (yoy) 2016F |
GDP (yoy) 2017F |
| US |
2.4 |
2.5 |
2.7 |
| Euro Zone |
1.6 |
1.5 |
1.6 |
| Japan |
0.5 |
0.6 |
0.8 |
| Singapore |
2.0 |
2.2 |
3.2 |
| Malaysia |
5.0 |
4.2 |
5.0 |
| Thailand |
2.8 |
3.2 |
3.6 |
| Indonesia |
4.8 |
5.0 |
5.5 |
| Hong Kong |
2.4 |
2.1 |
1.8 |
| China |
6.9 |
6.5 |
6.2 |
- Brent Crude (Average): 2015 = 53.60 US$/bbl, 2016F = 42 US$/bbl, 2017F = 54 US$/bbl
- CPO (RM/mt): 2015 = 2,168, 2016F = 2,500, 2017F = 2,600
Corporate Events
| Event |
Venue |
Dates |
| O-Net Technologies Luncheon |
Hong Kong |
8 Sep |
| Sihuan Pharmaceutical Holdings Group Corporate Roadshow |
Taipei |
8 Sep - 9 Sep |
| China Resources Gas Roadshow |
Canada |
12 Sep - 13 Sep |
| Ann Joo Resources |
Singapore |
15 Sep |
| Skyworth Digital Hldgs Group Meeting |
Hong Kong |
21 Sep |
| Sembcorp Industries Corp Roadshow |
Canada |
26 Sep - 27 Sep |
| Regional Financial and Telco Sector Analyst Presentation |
UK/Europe |
26 Sep - 30 Sep |
| Cityneon Corporate Roadshow |
Taipei |
29 Sep - 30 Sep |
| Xstep International Holdings Roadshow |
Taipei |
7 Oct |
| Metro Pacific Investments Corporate Roadshow |
Canada |
26 Oct - 28 Oct |
| Xstep Roadshow |
Kuala Lumpur |
15 Nov |
Automobile Sector: China
Key Points
- 1H16 Results: China automakers beat expectations due to higher-than-expected margins.
- Geely Outperform: Strong product pipeline, especially SUV models, and expected to outperform peers in profit growth.
- GWM and GAC: Vulnerable to increasing competition, especially in the SUV segment. Their earnings momentum is expected to weaken in 2H16-2017.
- Margin Pressure: Expected to increase due to price wars and escalating competition.
- 2H16 Outlook: Yoy sales growth peaked in July 2016, with a rising comparison base and slowdown in industry growth after the expiry of tax concessions.
- Earnings Surprise: Geely is expected to maintain strong performance, while GWM and GAC are likely to see weaker results.
1H16 Net Profit vs Consensus
| Company |
1H16 Actual (Rmbm) |
YoY Chg |
1H16 Our Est |
1H16 Consensus |
2016 Our Est |
YoY Chg |
2017 Our Est |
YoY Chg |
| Brilliance |
1,802 |
-6% |
1,600 |
1,700 |
3,230 |
-8% |
3,709 |
15% |
| BYD |
2,451 |
1507% |
2,450 |
2,350 |
4,658 |
240% |
4,845 |
4% |
| DFM |
7,021 |
10% |
6,800 |
6,750 |
11,972 |
8% |
12,350 |
3% |
| GAC |
3,981 |
128% |
3,300 |
4,175 |
7,004 |
68% |
6,024 |
-14% |
| Geely |
1,763 |
28% |
1,500 |
1,600 |
4,360 |
63% |
6,480 |
49% |
| GWM |
4,926 |
4% |
4,926 |
4,926 |
7,760 |
-4% |
6,279 |
-19% |
Infrastructure Sector: China
Key Points
- PPP Progress: Acceleration in contract signing, with 619 projects signed by end-Jun 16, up from 369 by end-Mar 16.
- PPP as a Catalyst: Expected to drive infrastructure investment and new order growth for major contractors.
- Project Breakdown: Municipal and transportation projects are the main contributors to PPP investment, with road projects as the largest portion in transportation.
- New Order Growth: CRCC and CRG are expected to see low-teen growth, while CCC is projected for high-single digit to 10% order growth in 2016.
PPP Project Stages (End-Jun 16)
| Stage |
Project Count |
% of Total |
| Initial/Prep |
8,172 |
88% |
| Under Construction |
1,013 |
12% |
PPP Investment Value (End-Jun 16)
| Industry |
% of Total Investment |
| Transportation |
72% |
| Municipal |
47.5% |
| Urban Pipes |
14% |
| Urban Roads |
37% |
| Sponge City |
2% |
Analysts
Action Summary
- Buy Geely (175 HK): Strong SUV pipeline and market share gain.
- Sell GWM (2333 HK) and GAC (2238 HK): Vulnerable to competition in SUV segment.
- Sell Holcim Indonesia (SMCB IJ): Poor earnings and deteriorating balance sheet.
Risks
- Macro Risks: Slowdown in the Chinese economy and capital market volatility could hurt automobile and infrastructure performance.
Conclusion
The report highlights the recovery in the Thai banking sector, diverging fortunes in the Chinese automobile sector, and the acceleration of PPP projects in China's infrastructure. Geely is recommended as a top pick in the automobile sector due to its strong product mix and margin management, while GWM, GAC, and Holcim Indonesia are downgraded due to intensifying competition and poor financial performance. The infrastructure sector remains fundamentally strong, with CRCC and CRG as key players.
