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Morning Bulletin Summary

Core Content

The Morning Bulletin provides an analysis of several Hong Kong and mainland Chinese stocks, focusing on their recent performance, outlook, and valuation. It includes key financial metrics, earnings forecasts, and strategic insights for each company. The report is issued by Maybank Investment Bank and is intended for informational purposes only, not as investment advice.

Key Companies and Analysis

ASM Pacific Technology (522 HK)

• Sector: Technology
• Rating: Upgrade to BUY from HOLD
• Target Price (TP): HKD92.00
• Consensus Target: HKD82.59
• Key Points:
  • 3Q14 results exceeded forecasts, driven by expanded TAM, strong cycle, and operating leverage.
  • GM/OPM of 35.8% / 18.6% (highest since 2Q11) indicate strong cost-cutting initiatives.
  • Net profit of HKD782m (EPS: HKD1.95) showed a significant YoY and QoQ increase (186% and 88% respectively).
  • Forecasted 15–20% earnings CAGR for FY14–16F with a sustainable ROE of ±25%.
  • Revised TP based on 15x FY16F PER.

Agricultural Bank of China (1288 HK)

• Sector: Banks
• Rating: HOLD
• Target Price (TP): HKD3.70
• Consensus Target: HKD4.16
• Key Points:
  • 3Q14 earnings missed, with lower NIM and net fees, and higher credit costs.
  • NIM narrowed to 2.86% in 3Q14, below consensus forecast.
  • Provision-to-loan ratio increased to 4.33% in Sep 2014.
  • CET1 CAR is expected to remain below 10% by end-2016.
  • Long-term ROE assumption lowered to 15.5% from previous estimates.

Bank of China (3988 HK)

• Sector: Banks
• Rating: BUY
• Target Price (TP): HKD4.60
• Consensus Target: HKD4.27
• Key Points:
  • 3Q14 earnings missed due to lower non-interest income.
  • NIM slightly narrowed to 2.24% for 9M14.
  • Cost-income ratio declined to 28.3% for 9M14.
  • CET1 CAR rose to 10.5% in Sep 2014 and is expected to exceed 12.5% by end-2016.
  • Maintained BUY rating with unchanged TP of HKD4.60.

BOC Hong Kong (2388 HK)

• Sector: Banks
• Rating: BUY
• Target Price (TP): HKD28.75
• Consensus Target: HKD28.48
• Key Points:
  • 3Q14 results were driven by non-interest income and lower cost-income ratio.
  • PPOP growth in 3Q14 was strong, with a 14.4% YoY increase.
  • SHSC (Stock Connect) is expected to boost net fees and FX income by HKD150–400m.
  • TP based on 0.9x FY15F P/BV and 16.25% long-term ROE assumption.

China Minsheng Bank (1988 HK)

• Sector: Banks
• Rating: SELL
• Target Price (TP): HKD6.35
• Consensus Target: HKD7.87
• Key Points:
  • 3Q14 earnings missed due to lower NIM and higher credit costs.
  • Deposit constraint and loan growth pressure are significant.
  • Provision-to-loan ratio increased slightly to 2.07%.
  • Dividend payout may be cut to 10% to improve CET1 CAR.
  • TP based on 0.63x FY15F P/BV and 14.5% long-term ROE assumption.

Datang International Power (991 HK)

• Sector: Utilities
• Rating: HOLD
• Target Price (TP): HKD3.90
• Consensus Target: HKD4.77
• Key Points:
  • 3Q14 net profit declined YoY due to lower on-grid tariffs and sluggish generation.
  • Positive outlook on asset restructuring and potential for improved performance.
  • TP revised down to reflect weaker wind generation and poor asset quality.

China Datang Corp Renewable Power (1798 HK)

• Sector: Energy
• Rating: HOLD
• Target Price (TP): HKD1.00
• Consensus Target: HKD1.10
• Key Points:
  • 9M14 results were weak due to a 10% YoY drop in wind generation.
  • High exposure to curtailment regions like Inner Mongolia affects asset quality.
  • TP reduced to reflect weaker performance and poor balance sheet.

China Shipping Container Lines (2866 HK)

• Sector: Transport
• Rating: BUY
• Target Price (TP): HKD2.65
• Consensus Target: HKD2.18
• Key Points:
  • 3Q14 profit improved significantly, up 177.8% YoY.
  • Strong cost management and potential for higher freight rates in FY15.
  • TP based on 0.8x FY15F P/BV and 6.3ppt ROE expansion.

Summary of Key Metrics

Main Risks and Opportunities

• ASM Pacific Technology: Cyclical slowdown may impact performance, but strong restructuring and M&A efforts are expected to drive long-term growth.
• Agricultural Bank of China: Lower NIM and net fees, along with weaker capital positions, may limit upside potential.
• Bank of China: Strong operating efficiency and capital position, but some NIM pressure and credit costs remain.
• China Minsheng Bank: Heavy capital constraints and declining asset quality may lead to dividend cuts.
• Datang International Power: Asset restructuring offers upside, but current performance is weak.
• China Datang Corp Renewable Power: Poor asset quality and weak balance sheet are key concerns.
• China Shipping Container Lines: Positive outlook for FY15 with potential for improved freight rates and cost efficiency.

Research Team and Contacts

• Howard WONG – Head of Research, Oil & Gas
• Alexander LATZER – Metals & Mining
• Elliott KING – Gaming
• Jacqueline KO – Consumer Staples & Durables
• Ka Leong LO – Consumer Discretionary & Auto
• Karen KWAN – Property & REITs
• Osbert TANG – Transport & Industrials
• Ricky WK NG – Utilities & Renewable Energy
• Steven ST CHAN – Banking & Financials
• Warren LAU – Technology

Disclaimer

• This report is for general information only and not intended as investment advice.
• Forward-looking statements are subject to risks and uncertainties.
• MKE and its representatives are not liable for any losses arising from reliance on this report.
• The report is not a recommendation to buy or sell any securities and does not consider individual investment objectives or financial situations.