20161102-大华继显-Regional_Morning_Notes_34页_1mb

Regional Morning Notes Summary

Core Content

This document provides an overview of economic and market performance across several Asian regions, including China, Hong Kong, Indonesia, Malaysia, Singapore, and Thailand, with a focus on the property sector in China and company results in various markets.

Main Points

China

• PMI Indices:

  • The official manufacturing PMI, non-manufacturing PMI, and Caixin manufacturing PMI all improved in October 2016, exceeding market expectations.
  • This indicates a continuous improvement in demand, driven by fiscal expenditure and re-inflation of raw material prices.
  • The momentum is expected to continue in 4Q16 but may slow in early 2017 due to tightening property market regulations.

• Property Sector:

  • Policy impact is evident, with a higher wait-and-see sentiment and reduced transaction volumes in cities with tighter regulations.
  • Sell-through rates are divergent, with developers of high-quality and well-known brands achieving better results.
  • The spillover effect from HPR cities to non-HPR cities is observed, but is considered a short-term phenomenon.
  • Supply in core cities remains tight, offering a cushion to average selling prices (ASP).
  • Price caps and restrictions on pre-sale permits are expected to affect high-ASP projects.
  • The sector is trading at 7.5x 2017F PE, or 40.8% discount to RNAV.

• Company Picks:

  • BUY: Longfor (960 HK), China Resources Land (1109 HK), Genting Bhd (GENT MK), Citiv Dev (CIT SP), OCBC (OCBC SP), Ciputra Property (CTRP IJ), and others.
  • SELL: Sunac (1918 HK), Poly Property (119 HK), and others due to high gearing and aggressive landbanking.

Hong Kong

• SJM Holdings (880 HK):
  • Results in line with expectations.
  • The Grand Lisboa Palace is expected to open in early 2018.
  • A BUY recommendation due to cheap valuation and resilient grind mass business.

Indonesia

• Gudang Garam (GGRM IJ):
  • 3Q16 results were below expectations.
  • A BUY upgrade for 2017 due to a more bullish outlook.
• Malindo Feedmill (MAIN IJ):
  • Lower sales volume after Lebaran, but still manageable.
• Wijaya Karya (WIKA IJ):
  • 9M16 results were below expectations due to delayed HSR contract award.

Malaysia

• OCK Group (OCK MK):
  • Positive growth prospects for 2017-18 due to improved earnings quality and rental income from Myanmar and Vietnam.

Singapore

• SIA Engineering (SIE SP):
  • 2QFY17 results hit by higher costs and lower JV contribution.
  • Interim dividend cut and SELL recommendation.
• Wilmar International (WIL SP):
  • 3Q16 results expected to show core net profit of US$350m-400m.
  • Oilseeds and grains divisions are expected to be profitable, while tropical oils and sugar divisions may see higher pre-tax profits.

Key Indices

Key Assumptions

Corporate Events

• Ekovest Bhd Corporate Roadshow: Singapore, 3 Nov
• Valuetronics Tea Session: Singapore, 7 Nov
• Cityneon Roadshow: Hong Kong, 9 Nov
• Xstep International Holdings Roadshow: Kuala Lumpur, 15 Nov
• Ministry of Finance Indonesia: Taipei, 21-22 Nov
• Indo Strategy Analyst Marketing: Taipei, 23 Nov
• Metro Pacific Investments Roadshow: Canada, 24-25 Nov

Analysts

• Chaoping Zhu: +8621 5404 7225 ext. 822, chaoping@uobkayhian.com
• Ye Xu: +8621 5404 7225 ext. 820, xuye@uobkayhian.com

Valuation/Recommendation

• The property sector is trading at 7.5x 2017F PE, or at 40.8% discount to RNAV.
• The sector has declined by 3.1% in the past month, underperforming the HSCEI's 1.3% growth.
• A cautious view is maintained, with a recommendation to accumulate quality names with visible earnings and healthy gearing.
• Top picks include Longfor (960 HK, -16.1% in 1M) and CRL (1109 HK, -10.3% in 1M).
• SELL recommendations for developers with high gearing and aggressive landbanking, such as Sunac (1918 HK, 2016F gearing: 116.2%, land premium/sales: 112.2%).

Sector Weighted Average

Essentials

• Strict Measures:
  • Tightening measures are being implemented to cool the overheated property market.
  • Developers are required to provide the source of funds for land purchases, and bond issuance has slowed.
  • Mortgage discounts for first-home buyers remain at 10-15%, while approval periods may slow in 4Q.
• Policy Headwinds:
  • Transaction volume is expected to decline by 15-20% yoy in 2017.
  • ASP growth in 15 major cities is slowing due to price caps.
  • A 5% drop in nationwide ASP is expected due to changes in product mix.
  • Further tightening may be introduced if ASP and land prices remain high.
• Inventory Levels:
  • Inventory levels in ten major cities are high in some cities, which may affect supply and demand dynamics.

Summary of Key Data

Transaction Volume Change in HPR Cities

Inventory Level in Ten Major Cities

• Inventory levels vary significantly, with some cities showing high levels and others showing lower.

Domestic Bond Issuance of Major Listcom

• Domestic bond issuance has slowed, prompting developers to seek alternative funding sources such as offshore syndicate loans and onshore development loans.

Summary of Ground Checks

• Beijing: Limited new land sales and price caps on high-end projects.
• Shanghai: Home sales stable, but new supply is still tight.
• Nanjing: Suburban new launches slow, strict HPR and high down payment impact volume.
• Hangzhou: Mild tightening rules, transaction volume stable, price cap on ASP.
• Chongqing: No new policy yet, local supply/demand healthy.
• Ningbo: No new policy yet, but likely to follow if ASP increases.

Conclusion

The document highlights the improving economic demand in China, supported by PMI indices, and the impact of tightening property market regulations. It also covers company results, sector updates, and key indices across various regions, with recommendations for investment based on valuations and performance.