20170619-大华继显-REGIONAL_MORNING_NOTES_19页_1mb

Regional Morning Notes Summary - 19 June 2017

Core Content Overview

This document provides an analysis of stock performance and financial outlook for various regions including Hong Kong, Indonesia, Malaysia, and Singapore, with a focus on key companies such as Cathay Pacific, Bank Danamon, and Top Glove. It also includes updates on the broader market indices and upcoming corporate events.

Key Regions & Companies

Hong Kong

• Cathay Pacific (293 HK):
  • Recommendation: SELL
  • Current Price: HK$12.38
  • Target Price: HK$9.90
  • Upside: -20.0%
  • Operating Environment: Challenging, with declining passenger yields and ongoing competition.
  • Cost Savings: Not expected in 2017 due to severance costs and increased operating expenses.
  • Capacity Growth: Revised down to 3% for 2H17 due to intense competition.
  • Earnings: Net profit is expected to rise slightly in 2017, but not enough to offset declining passenger yields.
  • Valuation: P/B ratio of 0.8x, EV/EBITDA of 10.3x.
  • Dividend Yield: 0.3% (2017F), 0.6% (2018F).
  • Financial Metrics: EBITDA margin expected to rise to 10.4% in 2017, net margin to improve to 0.7%.
  • Debt-to-Equity: 126.7% (2017), declining to 119.8% by 2018.

Indonesia

• Bank Danamon (BDMN IJ):
  • Recommendation: HOLD
  • Current Price: Rp4,930
  • Target Price: Rp5,300
  • Upside: +7.5%
  • Outlook: Stable 2H17, with rolled-over valuation.
  • Loan Growth: Focused on SME, corporate, and retail segments; micro loans are no longer a growth driver.
  • NPL Ratio: Improved in the trading sector, with a 3.4% ratio in 1Q17.
  • Earnings Growth: Expected to remain strong due to lower tax and provisions.
  • Dividend Yield: 2.8% (2017F), 3.2% (2018F).
  • Valuation: P/B ratio of 1.2x, with potential for higher valuation in 2018.
  • CAR Tier-1: 20.43% (2017), targeting 18-20% optimal level.

Malaysia

• Top Glove (TOPG MK):

  • Recommendation: HOLD
  • Current Price: RM5.61
  • Target Price: RM5.48
  • Upside: -2.3%
  • 3QFY17 Results: Net profit declined 6% qoq due to higher glove ASPs leading to reduced customer demand.
  • Share Price: Downgraded to HOLD after a 22% rally since early-May.
  • Industry Outlook: Positive on the opening of GPO, which will increase retail contribution (4.2% of PBT in 2016).
  • 2Q17 Results: Expected to show better performance due to improved FFB production.

• Genting Plantations (GENP MK):

  • Recommendation: HOLD
  • Current Price: RM11.10
  • Target Price: RM10.55
  • Outlook: Positive on the opening of GPO, contributing to retail revenue.
  • FFB Production: Expected to improve in 2Q17 with better qoq and yoy performance.

Singapore

• Sector: Healthcare
• Medical Tourism: Singapore growth slowed, while Malaysia saw growth.

Thailand

• Sector: Telecommunications
• Industry Insight: DTAC's competitiveness shift will ease competition.

Key Indices Overview

Top Picks (BUY)

• Alibaba (BABA US): Target Price: HK$173.00, Potential Upside: +28.3%
• Beijing Ent. Water (371 HK): Target Price: HK$7.60, Potential Upside: +22.6%
• Telekomunikasi Indo (TLKM IJ): Target Price: IJ$5,000.00, Potential Upside: +14.4%
• V.S. Industry (VSI MK): Target Price: MK$2.40, Potential Upside: +15.4%
• OCBC (OCBC SP): Target Price: SP$11.70, Potential Upside: +10.0%
• Siam Cement (SCC TB): Target Price: TB$600.00, Potential Upside: +15.8%

Sell Recommendations

• Great Wall Motor (2333 HK): Target Price: HK$6.00, Potential Downside: -40.4%
• MGM China (2282 HK): Target Price: HK$15.00, Potential Downside: -11.3%
• Hartalega (HART MK): Target Price: MK$4.07, Potential Downside: -40.2%

Key Assumptions

Corporate Events

• Luncheon with Loob Holdings: Kuala Lumpur, 20 Jun
• Luncheon with Wisdom Education International Holdings Co. Ltd.: Hong Kong, 27 Jun
• Group meeting with IGG Inc: Shanghai, 29 Jun
• Luncheon with United Overseas Bank: Singapore, 3 Jul
• Site Visit to Sarawak Oil Palms Bhd: Sarawak, 3-5 Jul
• Analyst Marketing on Thai Strategy & Telco: Hong Kong (3-4 Jul), Singapore (5 Jul), Malaysia (6-7 Jul)
• New Economy Conference 2017: Kuala Lumpur, 11 Jul
• Roadshow with Citic Environtech Ltd: Taipei, 18-19 Jul
• Analyst Marketing on Singapore Strategy & Small & Mid Caps: Taipei, 20-21 Jul
• Visit to Sarawak Corridor of Renewable Energy: Sarawak, 1-3 Aug
• Roadshow with Top Glove Corporation: US/Canada, 5-12 Sep

Summary of Key Financials & Metrics

Cathay Pacific (293 HK)

• EPS (HK$): 17.9 (2017F), 35.1 (2018F)
• Net Profit (adj.): HK$703 (2017F), HK$1,380 (2018F)
• Dividend Yield: 0.3% (2017F), 0.6% (2018F)
• ROE: 1.2% (2017F), 2.3% (2018F)
• Net Debt/Equity: 94.2% (2017F), 92.1% (2018F)

Bank Danamon (BDMN IJ)

• EPS (Rp): 390.9 (2017F), 450.4 (2018F)
• Net Profit (adj.): Rp3,746 (2017F), Rp4,317 (2018F)
• Dividend Yield: 2.8% (2017F), 3.2% (2018F)
• P/B Ratio: 1.2x (2017F), 1.1x (2018F)
• CAR Tier-1: 20.43% (2017), targeting 18-20% by 2018

Conclusion

The report highlights the challenging operating environments for key players in the region, with Cathay Pacific facing continued pressure from high costs and weak yields, while Bank Danamon is expected to see improved financial performance and a more stable valuation. The broader market indices show mixed performance, with some showing positive growth and others experiencing declines. Overall, the report recommends maintaining a SELL stance for Cathay Pacific and a HOLD for Bank Danamon, with potential for upside in 2018 for the latter.