20140825-大华银行-Regional_Morning_Notes_70页_3mb

Regional Morning Notes Summary - 25 August 2014

Core Content Overview

This document provides a detailed summary of company results, market updates, and sector analyses for China, Hong Kong, Indonesia, Malaysia, and Singapore. It highlights key financial performances, investment strategies, and market outlooks for various sectors, particularly focusing on the railway and energy industries in China.

Main Points by Region

China

• Railway Sector:

  • CRC (China Railway Corporation) launched its first MU (Multiple Unit) tender in 2014, purchasing 175 sets of 350km/h and 57 sets of 250km/h MUs. This is expected to be a share price catalyst for equipment makers.
  • The document forecasts another MU tender in 4Q14, with an estimated total of 451 sets needed in 2015. CSR and CNR are expected to equally share the orders, with CNR likely to win more 350km/h models.
  • CSR is highlighted as a top pick due to its strong performance and potential in overseas markets, especially with the Singapore-KL HSR project.
  • The sector is maintained as OVERWEIGHT due to its role in underpinning GDP growth and facilitating economic restructuring.

• Company Results:

  • China Petroleum & Chemical (386 HK): 1H14 net profit rose 7.3% yoy, driven by the refining segment. However, the company was downgraded to HOLD due to stretched valuation, with a target price of HK$8.50.
  • China Shenhua Energy (1088 HK): Results above expectations, maintaining BUY due to vertical integration and recovery.
  • China Resources Gas (1193 HK): Net profit up 17.3% yoy, but below expectations. BUY is maintained due to long-term growth potential.
  • ENN Energy Holdings (2688 HK): Core earnings up 19.9% yoy, leading to an upgrade to BUY.
  • Comba Telecom (2342 HK): Turnaround in results, with rising 4G coverage expected to support stronger earnings in 2015.
  • Great Wall Motor (2333 HK): 2Q14 earnings growth turned negative, leading to a SELL recommendation.
  • CSR Corporation (1766 HK): Strong earnings growth of 41.1% yoy as MU delivery resumed.
  • Kaisa Group (1638 HK): Updated with key takeaways from a post-results luncheon, maintaining BUY.

Hong Kong

• Petro-King Oilfield Services (2178 HK): Net profit down 80.3% yoy due to low job volumes, leading to a downgrade to HOLD.
• Daphne (210 HK): An extra dose of advertising is expected to boost near-term sales, maintaining BUY.

Indonesia

• Sector Update: Early signs of liquidity improvement are noted.
• Key Indices: Various indices show mixed performance, with some rising and others declining.

Malaysia

• AMMB Holdings (AMMK): Core earnings weak due to declining NIM and provisions, leading to a downgrade to SELL.
• Malaysian Resources Corp (MRC MK): Earnings recovery underway, maintaining BUY.
• WCT Holdings (WCTHG MK): Management remains bullish on 2H14 orderbook, maintaining HOLD.

Singapore

• Shipyard Sector: Different strategies and diverging fortunes among companies.

Thailand

• The Erawan Group (ERW TB): Results in line with expectations, maintaining BUY.
• Airports of Thailand (AOT TB): Downgraded to SELL due to monorail and new terminal plans.
• MK Restaurant Group (M TB): Waiting for an M&A deal, maintaining HOLD.

Key Financial Highlights

• Sinopec (386 HK):

  • 1H14 net profit: Rmb32.5b, up 7.3% yoy.
  • Refining segment EBIT increased significantly to Rmb9.8b.
  • Marketing segment profit rose 11.5% to Rmb18.8b.
  • Petrochemical segment losses expanded to Rmb3,968m.
  • Capex decreased by 24.6% yoy.
  • Downgraded to HOLD due to stretched valuation and a target price of HK$8.50.

• Valuation Metrics:

  • 2015F PE: 8.1x, offering only a 10% upside to the target price.
  • Dividend yield: 2.7% in 2014F.
  • Net debt to equity: 16.3% in 2014F.

Market Catalysts and Risks

Catalysts

• Completion of market segment restructuring.
• Oil price volatility.
• CRC's upcoming MU tender in 4Q14.
• Potential overseas orders for equipment makers and contractors.
• Pick-up in railway investment in 2H14.

Risks

• Policy changes in the railway industry.
• Weakened funding for CRC.

Top Picks and Recommendations

Key Assumptions and Forecasts

• GDP Growth:
  • China: 7.7% in 2013, 7.3% in 2014F, 7.3% in 2015F.
  • Hong Kong: 2.9% in 2013, 3.5% in 2014F, 3.7% in 2015F.
• Commodity Prices:
  • Brent Crude: 110 US$/bbl in 2013, 110 US$/bbl in 2014F, 110 US$/bbl in 2015F.
  • CPO: 736 US$/mt in 2013, 858 US$/mt in 2014F, 858 US$/mt in 2015F.
  • BDI: 1,219 in 2013, 1,500 in 2014F, 1,800 in 2015F.

Conclusion

The document outlines a mixed performance across the regions, with China's railway sector showing strong potential due to the CRC MU tender and continued investment. In the energy sector, Sinopec's performance is highlighted with a HOLD recommendation due to stretched valuation, while other companies like CSR and CNR are seen as top picks in the railway industry. In Hong Kong and Malaysia, some companies are downgraded due to weak performance or market conditions, while others are maintained or upgraded based on positive outlooks. Overall, the railway sector remains a key growth driver, with strong earnings and strategic opportunities for equipment makers and contractors.