20140711-大华继显-Regional_Morning_Notes_24页_1mb

Regional Morning Notes Summary - 11 July 2014

Core Content Overview

This document provides a comprehensive analysis of regional market conditions, focusing on China, Malaysia, Indonesia, and other key markets. It includes insights on sector performance, corporate updates, macroeconomic assumptions, and investment recommendations.

Main Points

China Market Outlook

• Re-balancing Strategy: 3Q14 is anticipated to be the best period for Chinese equities due to progressively positive macroeconomic data and continued policy loosening. The focus is on basic materials, mid-sized banks, and real-estate developers.
• Macro Policy Shift: The government has shifted towards growth-supportive policies, including RRR cuts and fiscal stimulus, to stabilize economic growth.
• Sector Recommendations:
  • BUY: Anhui Conch, CSR, Xinyi Glass, Wasion Group, China Galaxy Securities, ENN Energy, HKEX, Mengniu Dairy, Sihuan Pharmaceutical, Nine Dragons Paper, Shimao Property.
  • SELL: Anton Oilfield, China Shineway Pharmaceutical, Dongfang Electric, Greatwall Motors.
• Economic Outlook: Forecasted real GDP growth for 2015 is 7.0%, with corporate earnings expected to be affected by weaker economic growth.
• Valuation Metrics: Market now trades at 9.3x forward PE and 1.3x forward P/B.
• Catalysts: The expected launch of the Shanghai-Hong Kong Stock Connect in 4Q14 is anticipated to boost market activity.

Malaysia & Indonesia – Plantation Sector

• CPO Production: Malaysia's June 2014 CPO production dropped by 5.3% mom and 10.8% yoy due to dry weather, leading to a 1-year low in palm oil inventory.
• Export Trends: Exports to China and the US showed growth in June 2014, with China's exports up 26.2% mom and the US up 28.3% mom. However, exports remain weak overall.
• Inventory Levels: Palm oil inventory in Malaysia reached 1.66m tonnes, down 10% mom, due to lower production and strong domestic demand.
• Price Dynamics: The price gap between CPO and crude oil is supporting biodiesel demand, while weak CPO production in 2H14 is expected to provide support to prices.
• Regional Outlook: The drop in CPO production is likely to be repeated in July 2014, and the inventory is unlikely to rise significantly in 2H14 due to weak production.
• Top Picks: Bumitama Agri (BAL SP/BUY/Target: S$1.40), Wilmar International (WIL SP/BUY/Target: S$4.00), Astra Agro Lestari (AALI IJ/BUY/Target: Rp33,800), BW Plantation (BWPT IJ/BUY/Target: Rp1,575).

Regional Indices & Commodities

• Key Indices: The DJIA, S&P 500, FTSE 100, AS30, CSI 300, FSSTI, HSCEI, HSI, JCI, KLCI, KOSPI, Nikkei 225, SET, TWSE.
• Commodities:
  • CPO (Crude Palm Oil): Prices are expected to remain stable or rise in 2H14 due to weak supply.
  • BDI (Baltic Dry Index): Down 3.1% mom, with a 16.7% yoy decline.
  • Crude Oil (Nymex): At US$103 per barrel, down 0.1% mom, up 1.5% yoy.
• GDP Forecasts: China (7.1%), Malaysia (5.6%), Indonesia (5.5%), Singapore (4.2%), Thailand (1.5%).

Corporate Events

• Roadshows: SKP Resources, Nam Cheong, Kingdee International, Lung Cheong International Luncheon, Singapore 2H14 Strategy & Mid-Cap Outlook.
• Mergers: CIMB, RHB Capital, and MBSB have received approval to begin merger negotiations.

Key Information

CPO Production and Inventory

• June 2014 CPO Production: Down 5.3% mom and 10.8% yoy, with Sabah and Sarawak showing the sharpest declines.
• Inventory: Dropped to 1.66m tonnes, a 1-year low and the first decline after four consecutive months of increase.
• Export Performance: Exports to China increased by 26.2% mom, while exports to the US increased by 28.3% mom.
• Supply and Demand: Demand is picking up due to the festive season, and the low CPO supply relative to crude oil and soyoil is supporting prices.

Investment Recommendations

• OVERWEIGHT: Bumitama Agri, Wilmar International, Astra Agro Lestari, BW Plantation.
• HOLD: Sarawak Oil Palm, Sime Darby, IOI Corporation, KL Kepong, Indofood Agri, Kencana Agri, Mewah.
• SELL: UJM Plantations, Genting Plantations.

Macro Policy Impact

• China: Continued monetary easing and fiscal support are expected to stabilize the market.
• Global: Positive GDP forecasts for the US and Japan, while the Euro Zone and Thailand show weaker growth.

Risks and Assumptions

Risks

• Declining Crude Oil Price: Could impact CPO price competitiveness.
• Weak Exports: Continued weakness in export markets may limit demand.
• Soybean Production Growth: Could cap CPO price upside despite tight supply.

Assumptions

• CPO Price Forecast: RM2,950/tonne for 2014 and 2015.
• Earnings Estimates: Trimmed to 2.3% yoy for 2014, down from 8.3% at the end of 2013.
• Fiscal and Monetary Policy: Expected to continue supporting growth, with more fiscal projects in clean energy and environmental protection.

Sector Catalysts

• Weather Impact: Dry weather has negatively affected CPO production, leading to lower supply and supporting prices.
• Demand Recovery: Strong domestic demand and export growth to China and the US are positive for the sector.

Conclusion

The document highlights a mixed outlook across regional markets, with a positive bias towards Chinese equities and plantation sectors in Malaysia and Indonesia. It suggests that the 3Q14 could be a turning point for Chinese equities due to supportive macro policies and improved economic data. In the plantation sector, weak production and strong domestic demand are expected to support CPO prices, with specific companies recommended for investment. The report also outlines key risks, including declining crude oil prices and continued export weakness, and emphasizes the importance of monitoring weather and policy developments.