Regional Morning Notes Summary - 29 June 2015
Core Content Overview
This summary provides an analysis of the regional financial markets and key sectors, including Gaming, Banking, and others, with a focus on China, Indonesia, Malaysia, and Singapore. It includes updates on economic conditions, policy changes, corporate events, and valuation insights.
Main Points
Regional Gaming Sector
- Overall Status: The gaming sector lacks catalysts, with valuations at the low end.
- Market Outlook: The decline in Macau's Gross Gaming Revenue (GGR) is expected to bottom out in 3Q15, but a meaningful recovery is unlikely without easing of China's anti-graft campaigns.
- Top Picks: Genting, MGM China, SJM (upgraded to BUY), and Genting Singapore are recommended due to their better risk-return profiles and potential for recovery.
- Valuation Adjustments: EV/EBITDA benchmarks have been lowered, with the expectation of a 30% yoy GGR contraction in 2015 and a slow ramp-up of 10% in 2016.
- Key Players:
- MGM China is more defensive with a reduced reliance on VIP market.
- SJM Holdings has the best risk-reward ratio and is upgraded to BUY.
China: Economics and Policy
- PBOC Actions: Aggressive rate cuts (25bp symmetric) and RRR reductions (50bp targeted) were implemented to stabilize the market after a stock market slump.
- Liquidity Measures: The PBOC removed the 75% loan-to-deposit ratio (LDR) cap, and the benchmark rates for deposits and loans were lowered to historical lows.
- Market Conditions:
- Short-term interest rates remained on an uptrend, but the PBOC's actions have helped stabilize the market.
- The PBOC is expected to continue its targeted easing to support economic restructuring and reduce the cost of funding (COF).
China: Banking Sector
- Policy Impact: The PBOC's rate cuts and RRR reductions are aimed at providing liquidity support and managing the banking sector's Net Interest Margin (NIM).
- Market Weight: Maintained for the banking sector due to the environment of abundant liquidity.
- Key Banks:
- ICBC and CCB are top picks with potential price increases.
- ABC, BOC, and BoCom are held with modest price targets.
Indonesia and Malaysia
- Indonesia:
- UMWH Holdings is a sell recommendation due to its weak performance and valuation.
- Malaysia:
- MMHE is a sell due to orderbook replenishment risk and a disconnect between earnings and orderbook.
- British American Tobacco (ROTH MK) is a hold with a price target of RM64.00 due to a RM0.30 per pack price increase.
Singapore
- Offshore & Marine: Insights from a luncheon presentation by M3 Marine.
- British American Tobacco (DBS SP) is a hold with a price target of RM64.00.
Thailand
- Banking:
- SSI loans turning into NPLs could affect earnings but not P/B.
- Downside looks limited.
Key Indices Performance
| Index |
Prev Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
17946.7 |
0.3 |
-0.4 |
-0.4 |
0.7 |
| S&P 500 |
2101.5 |
0.0 |
-0.4 |
-0.3 |
2.1 |
| FTSE 100 |
6753.7 |
-0.8 |
0.6 |
-3.3 |
2.9 |
| AS30 |
5536.1 |
-1.5 |
-1.0 |
-4.1 |
2.7 |
| CSI 300 |
4336.2 |
-7.9 |
-12.1 |
-10.4 |
22.7 |
| FSSTI |
3320.9 |
-0.9 |
0.6 |
-2.1 |
-1.3 |
| HSI |
26663.9 |
-1.8 |
-0.4 |
-2.8 |
13.0 |
| KLCI |
1710.5 |
-0.4 |
-0.7 |
-2.1 |
-2.9 |
| KOSPI |
2090.3 |
0.2 |
2.1 |
-1.2 |
9.1 |
| Nikkei 225 |
20706.2 |
-0.3 |
2.6 |
0.7 |
18.7 |
| SET |
1518.0 |
-0.1 |
1.8 |
1.5 |
1.4 |
| TWSE |
9902.9 |
4.7 |
6.0 |
2.1 |
6.4 |
| BDI |
823 |
-0.7 |
5.6 |
39.7 |
5.2 |
| CPO (RM/mt) |
2258 |
0.7 |
0.4 |
5.9 |
-1.7 |
| Nymex Crude |
59 |
-1.3 |
-1.3 |
-2.4 |
10.5 |
Key Assumptions
| Region |
GDP (yoy) 2013 |
GDP (yoy) 2014 |
GDP (yoy) 2015F |
| US |
2.2 |
2.4 |
2.9 |
| Euro Zone |
-0.5 |
0.9 |
1.3 |
| Japan |
1.6 |
-0.1 |
1.0 |
| Singapore |
4.4 |
2.9 |
2.9 |
| Malaysia |
4.7 |
6.0 |
5.0 |
| Thailand |
2.8 |
0.9 |
2.7 |
| Indonesia |
5.6 |
5.0 |
5.0 |
| Hong Kong |
2.9 |
3.5 |
3.7 |
| China |
7.7 |
7.2 |
7.0 |
| Benchmark |
2014 |
2015F |
2016F |
| Brent |
99.45 |
65 |
70 |
| CPO (US$/mt) |
722 |
765 |
788 |
| BDI |
1,101 |
1,300 |
1,400 |
Corporate Events
- QL Resources Berhad Roadshow: Singapore, 30 Jun.
- Malaysia 2H15 Outlook & Strategy Analyst Presentation: Singapore (1 Jul), Kuala Lumpur (6-7 Jul).
- Indo Oil and Gas Sector Analyst Presentation: Singapore (6 Jul), Kuala Lumpur (7 Jul).
Top Picks
| Company |
Ticker |
CP (Icy) |
TP (Icy) |
Pot. +/- (%) |
| BUY |
|
|
|
|
| Beijing Capital |
694 HK |
9.24 |
12.30 |
33.1 |
| ICBC |
1398 HK |
6.60 |
7.80 |
18.2 |
| Bank BJB |
BJR J |
865.00 |
1,300.00 |
50.3 |
| Maybank |
MAY MK |
9.22 |
10.30 |
11.7 |
| DBS |
DBS SP |
20.52 |
25.08 |
22.2 |
| SATS Ltd |
SATS SP |
3.56 |
4.00 |
12.4 |
| Kasikornbank |
KBANK TB |
200.00 |
252.00 |
26.0 |
| SELL |
|
|
|
|
| UMWH Holdings |
UMWH MK |
10.28 |
9.00 |
-12.5 |
Analysts
Market Weight
- Gaming Sector: Maintained as a market weight.
- Banking Sector: Maintained as a market weight due to liquidity abundance and manageable NIM impact.
GGR Trends
- 1Q15 YOY Change:
- Macau: -36.6%
- Malaysia: 3%
- Singapore: -20%
- Philippines: 17%
- 2015 Forecast:
- Macau: -28% to -33%
- Malaysia: 3%
- Singapore: -5%
Valuation Table
| Company |
Ticker |
Rec. |
Price 26 Jun15 (HK$) |
Target Price (HK$) |
Market Cap (US$m) |
PE 2015F |
PE 2016F |
P/B 2015F |
P/B 2016F |
ROE 2015F |
ROE 2016F |
ROA 2015F |
ROA 2016F |
Yield 2015F |
Yield 2016F |
| ICBC |
1398 HK |
BUY |
6.60 |
7.80 |
290,129 |
6.4 |
6.2 |
1.0 |
17.7 |
16.4 |
16.4 |
4.7 |
4.8 |
4.7 |
4.8 |
| CCB |
939 HK |
BUY |
7.09 |
8.90 |
229,873 |
6.0 |
5.8 |
0.9 |
17.9 |
16.4 |
16.4 |
5.0 |
5.2 |
5.0 |
5.2 |
| ABC |
1288 HK |
HOLD |
4.14 |
4.50 |
183,591 |
5.7 |
5.5 |
0.9 |
17.3 |
16.0 |
16.0 |
5.2 |
5.4 |
5.2 |
5.4 |
| BOC |
3988 HK |
HOLD |
5.03 |
5.50 |
208,022 |
6.5 |
6.1 |
0.9 |
15.0 |
14.3 |
14.3 |
4.6 |
4.9 |
4.6 |
4.9 |
| BoCom |
3328 HK |
HOLD |
7.91 |
8.10 |
82,437 |
7.1 |
7.1 |
0.9 |
13.6 |
12.5 |
12.5 |
3.5 |
3.5 |
3.5 |
3.5 |
| CMB |
3968 HK |
HOLD |
22.20 |
25.50 |
70,955 |
7.4 |
6.9 |
1.3 |
18.0 |
17.2 |
17.2 |
4.0 |
4.4 |
4.0 |
4.4 |
| Minsheng |
1988 HK |
BUY |
10.18 |
13.30 |
52,320 |
6.0 |
5.7 |
1.0 |
19.0 |
17.0 |
17.0 |
2.2 |
2.2 |
2.2 |
2.2 |
Summary of Key Views
- Gaming Sector: Lacking catalysts, but some stocks (e.g., Genting, MGM China, SJM) are recommended due to their better risk-return profiles.
- Banking Sector: PBOC's rate cuts and RRR reductions aim to stabilize the market and support liquidity. Mid-sized banks are preferred.
- Market Volatility: Expected to increase due to continued regulatory scrutiny on lending and margin trading.
- Economic Outlook: China's anti-corruption campaign and economic slowdown are key factors affecting the gaming sector. The PBOC is likely to continue its monetary easing to support the economy.
Conclusion
The report highlights the ongoing challenges in the gaming sector, particularly in Macau, due to the decline in VIP player activity. It suggests selective investment in stocks with better fundamentals and lower exposure to the VIP market. The PBOC's aggressive rate cuts and RRR reductions are aimed at stabilizing the financial system and supporting economic growth. Overall, the market is expected to remain volatile, with a focus on liquidity management and regulatory oversight.
