20160112-大华继显-Regional_Morning_Notes_18页_769kb

Regional Morning Notes Summary - 12 January 2016

Core Content

The document provides an analysis of the financial and market conditions for various regions, with a focus on China and Malaysia, and includes stock recommendations, corporate events, and key financial metrics. It outlines the expected performance of wind power in China, the impact of Evergrande's financial strategies, and market indices across different countries.

Main Points

China Wind Power Sector

• Expectation: A better year is expected for the wind power sector in 2016 due to government policies aimed at reducing curtailment and improving renewable energy development.
• Tariff Cuts: The central government announced tariff cuts for new wind installations in 2016, with the most significant cuts in Category I-III regions.
• Curtailment Issues: In 2015, curtailment ratios were notably high, especially in northern regions like Gansu and Xinjiang, reaching up to 79% and 30% respectively.
• Geographic Optimization: New wind projects are increasingly being located in Category IV regions, which have lower curtailment and less tariff cuts.
• Efficiency Gains: Wind turbine efficiency has improved by 30% since 2010, reducing generation costs and potentially enabling tariff parity with coal-fired IPPs by 2025.
• Recommendation: Maintain OVERWEIGHT with Huaneng Renewables as the top pick due to its low curtailment, capacity expansion, and potential for finance cost savings.
• Sector Catalysts: Improved wind resources, UHV transmission line commencement, and higher 13th Five-Year Plan targets.
• Risks: Worse-than-expected curtailment, weaker wind resources, and slower UHV construction progress.

Evergrande (3333 HK)

• Downgrade: The stock was downgraded to HOLD due to leverage concerns and high finance costs from recent offshore issuances.
• Performance: The company ended 2015 with record sales and major acquisitions, but its leverage and debt levels increased significantly.
• Financial Metrics:
  • Net Profit (Adj.): Increased from 5,133 in 2015F to 11,959 in 2016F.
  • Dividend Yield: Rose from 8.8% in 2015 to 9.2% in 2016.
  • RNAV: Adjusted to HK$10.50/share, down from HK$11.16/share due to higher discount to RNAV and increased leverage.
• Recent Acquisitions: Major land acquisitions from Hong Kong tycoons, including New World Development and Chow Tai Fook, added pressure to its balance sheet.
• Share Buyback: Evergrande repurchased 1.813% of its shares between late December 2015 and early January 2016, increasing the largest shareholder's stake to 74.54%.

Market Indices

• Performance: Various indices showed mixed performance, with the CSI 300 and HSCEI having the highest YTD gains, while the FTSE 100 and S&P 500 saw declines.
• CPO and Brent Crude: CPO prices and Brent crude prices were also tracked, with CPO at RM2215/mt and Brent Crude at US$31/bbl.

Key Information

Top Picks

• BUY: Beijing Capital (694 HK), ICBC (1398 HK), Bank BJB (BJBR IJ), DIGI.Com (DIGI MK), Maybank (MAY MK), City Developments (CIT SP), DBS (DBS SP), Kasikornbank (KBANK TB), PTT (PTT TB).
• SELL: SIA Engineering (SIE SP), UMW Holdings (UMWH MK), Semcorp Marine (SMM SP).

Corporate Events

• A series of events and presentations were scheduled for January 2016, including wind power sector updates, company luncheons, and analyst briefings in multiple locations.

Key Assumptions

• GDP Growth: Expected to remain stable across regions, with China at 6.7% for 2016.
• Tariff Changes: Category I-III regions will see tariff cuts of 2-3 Rmb cents/kWh in 2016 and 2018, while Category IV regions will see a smaller cut.
• CPO Prices: Expected to rise due to lower production and high inventory levels in 2016.

Summary Table

Financial Highlights

• Evergrande: Net profit (adj.) rose from 5,133 in 2015F to 11,959 in 2016F.
• Huaneng Renewables: Maintained as top pick with a target price of HK$3.30.
• Evergrande's RNAV: Adjusted to HK$10.50/share, down from HK$11.16/share.
• Evergrande's Target Price: Revised to HK$6.30/share, reflecting higher discount to RNAV and increased leverage.

Risks and Opportunities

• Risks:
  • Worse-than-expected curtailment.
  • Slower UHV transmission progress.
  • Weaker wind resources.
• Opportunities:
  • Improved wind efficiency.
  • Policy support for renewable energy.
  • Increased focus on Category IV regions for wind projects.

Analysts

• Yan Shi: Contact details and recommendations.
• Edison Bian: Contact details and insights.
• Daniel Yang: Contact details and recommendations.
• David Yang: Contact details and insights.

Summary

The document highlights the potential for improvement in the Chinese wind power sector due to policy support and efficiency gains. It also notes the challenges facing Evergrande, including increased leverage and high finance costs, leading to a downgrade. In Malaysia, lower production is expected to support CPO price increases, while Singapore's market volatility encourages selective dividend plays. The analysis includes key financial metrics, corporate events, and strategic recommendations for various stocks and indices.