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Regional Morning Notes Summary

Core Content Overview

This document provides a detailed market analysis and update for the week of 11 May 2016, focusing on economic indicators, sector performance, company results, and investment recommendations across China, Indonesia, Malaysia, and Singapore. It also includes key financial data and assumptions for various markets and commodities.

Main Points by Region

China

• Economic Outlook:
  • CPI inflation remained flat at 2.3% yoy in April 16, with pork prices being the main contributor, up 33.5% yoy.
  • Core CPI also remained flat at 1.5% yoy, but non-food inflation rose slightly.
  • PPI deflation eased from -4.3% yoy in March to -3.4% yoy in April, driven by rebounding commodity prices.
  • Steel prices showed a significant correction, with rebar and hot-rolled steel futures prices falling ~21% from their peak in April.
  • Cement prices rebounded, with some companies like Anhui Conch and CR Cement raising prices by Rmb50/tonne and Rmb30/tonne, respectively.
  • The steel sector is expected to recover in the second half of 2016 due to improved downstream demand, particularly in construction and auto.
  • The PBOC may not cut interest rates in 2016 due to rising inflation, but RRR cuts and other easing measures are still expected.

Indonesia

• Indofood CBP:
  • 1Q16 net profit increased 18.6% yoy, but dairy volume growth of 32% yoy may not be sustainable.
• Indofood Sukses Makmur:
  • 1Q16 core net income declined 3.1% yoy, but is expected to recover with rising CPO prices.
• Semen Indonesia:
  • 1Q16 net profit dropped 13.2% yoy, below expectations. Downgraded to HOLD.

Malaysia

• Plantation Sector:
  • April 16 inventory dropped to a 14-month low of 1.80m tonnes (-4.5% mom), driven by higher domestic consumption and lower imports.

Singapore

• SIA Engineering:
  • 4QFY16 guidance was cautious, and valuations were relatively high.
  • Downgraded to SELL.
• Singapore Post:
  • FY16 results were in line with expectations. No major surprises.
  • Maintained BUY rating.
• Wilmar International:
  • 1Q16 core net profit was US$222m, below expectations due to one-off impairments and weaker soybean crushing margins.
  • Maintained BUY rating.

Key Investment Recommendations

Key Assumptions

Commodity Price Assumptions

Corporate Events

Summary of Key Financials

Sector Pick Highlights

• Cement Sector: Anhui Conch (914 HK) and CR Cement (1313 HK) are recommended with BUY ratings.
• Gold: Expected to outperform in the nonferrous metals sector.
• Copper: More cautious view due to high inventory levels.
• Steel: Expected to recover in the second half of 2016 with improved demand and price consolidation.

Analysts

• Chaoping Zhu: +8621 5404 7225 ext. 822, chaoping@uobkayhian.com
• Ye Xu: +8621 5404 7225 ext. 858, xuye@uobkayhian.com
• Johnson Hu: +86 21 5404 7225 ext 809, johnsonhu@uobkayhian.com
• Cynthia Wang: +86 21 5404 7225 ext 858, cynthiawang@uobkayhian.com

Summary of Key Trends

• Inflation in China is expected to rise in the second half of 2016, with pork prices as the main driver.
• PPI deflation eased due to rising commodity prices.
• Cement is seen as a more stable investment than steel.
• Gold is expected to perform well in 2016 due to low global interest rates and possible delay in Fed rate hikes.
• Steel may face short-term pressure but is expected to recover as demand picks up.
• Commodity prices generally retreated in April, but cement and gold prices remained resilient.
• Brilliance Auto saw a slight sales miss in April, but the company is expected to recover in the third quarter with new model launches.