20131113-大和证券-Asia_Pacific_Daily_49页_1mb

Daiwa Investment Conference Summary - Hong Kong, 19-22 November 2013

Core Content Overview

The Daiwa Investment Conference in Hong Kong provided insights into macroeconomic trends, policy updates, and sector-specific analyses across Asia. Key themes included China's economic reform agenda, Indonesia's monetary policy adjustments, and the outlook for various industries such as cement, steel, and telecommunications.

Main Points and Key Information

China Economy & Policy Update

• Plenum Reforms: The 18th Central Committee's Third Plenum outlined broad reform directions, emphasizing the role of the market in resource allocation while maintaining the state's "main role" in public ownership. The leadership appears cautious, aiming to avoid significant capitalistic changes.
• Policy Focus: The reform agenda includes fiscal system changes, hukou system reforms, trade liberalization, cultural services, and healthcare. The establishment of a "central leading team" is expected to oversee these reforms.
• BI Rate Hike: Bank Indonesia raised its benchmark interest rate by 25bps to 7.50%, signaling a tightening monetary policy to address the current account deficit (CA deficit) and IDR weakness. This move was unexpected and aimed at maintaining macroeconomic stability.
• CA Deficit Outlook: The 3Q13 CA deficit is expected to be 3.7% of GDP, higher than the BI target range of 3.3-3.5%. This will likely lead to further rate hikes in 2014, targeting 8.00%.
• IDR and FX Reserves: The IDR is revised to 11,200/USD for 2013, weaker than previous estimates, but still higher than the current level. FX reserves are projected to remain stable at around USD94.5bn by year-end 2014.

Macro Forecasts

• GDP Growth: Revised 2014 GDP growth to 5.4% from 5.53%, with further cuts expected for 2015 to 5.72%.
• Inflation: UK CPI fell to 2.2% in October, a 12-month low, with core inflation at 1.7%. Germany's CPI also declined, while the Euro area's CPI is expected to remain stable.
• Market Movements: UK house prices continued to rise, with London leading the growth. The Help to Buy Scheme is expected to boost the housing market further.

Sector Analyses

• Cement and Steel: Demand and prices remain strong for the rest of 2013, with a seasonal rebound in hot-rolled coil and cement prices. Key players include China Resources Cement and Angang Steel.
• China Cement and Steel Weekly: Prices and demand are robust, with China Resources Cement and Angang Steel recommended as top picks.
• Country Garden (2007 HK):
  • Contracted sales for 2013 are expected to reach CNY97bn, up 30% from previous estimates.
  • 2014 contracted sales are forecast to reach CNY120bn, matching COLI's performance.
  • Earnings are expected to grow by 14% in 2014 and 34% in 2015, with a revised target price of HKD6.60.
  • The company is expanding into Malaysia, enhancing its long-term prospects.
  • Risks include potential increases in gearing.

Other Sectors and Companies

• Zhejiang Expressway (576 HK): Hold recommendation due to good earnings momentum but unappealing valuation.
• Amorepacific (090430 KS): Outperform recommendation based on strong retail sales performance in Q3 2013.
• ScinoPharm Taiwan (1789 TT): Outperform due to expansion in the formulation business.
• Reliance Power (RPWR IN): Underperform due to lack of visibility on profitable projects.
• Maxis Bhd (MAXIS MK): Sell recommendation due to transition pains.
• Philippines Telecoms Sector: Positive outlook despite the impact of Typhoon Haiyan.

Company Roadshows and Events

• A series of NDR (Non-Disclosed Research) events and Video Conferences were scheduled for various companies in the coming weeks, including China Zhengtong Auto, Kia Motors, SK Telecom, and others.

Regional Indices and Market Data

• Performance and economic indicators were provided for various markets, including TPX, HSCEI, HSI, KOSPI, TWSE, SENSEX, and others. These data highlight the macroeconomic trends and valuation levels across the region.

Key Recommendations

• Buy: Country Garden (2007 HK), China Resources Cement (1313 HK), Angang Steel (347 HK)
• Hold: Zhejiang Expressway (576 HK)
• Outperform: Amorepacific (090430 KS), ScinoPharm Taiwan (1789 TT)
• Underperform: Reliance Power (RPWR IN)
• Sell: Maxis Bhd (MAXIS MK)

Analysts and Contacts

• Kevin Lai (China Economy)
• Arga Samudro (BI Rate Update)
• Felix Lam (China Cement and Steel Weekly, Country Garden)
• Kelvin Lau (Zhejiang Expressway)
• Sang Hee Park (Amorepacific)
• Christine Wang (PCSC, UPEC)
• Saurabh Mehta (Reliance Power)
• Ramakrishna (Maxis Bhd, Philippines Telecoms)
• Eric Chen (Spreadtrum)

Conclusion

The conference highlighted the ongoing economic reforms in China, the tightening monetary policy in Indonesia, and the mixed performance across various sectors. While the cement and steel industries show strong momentum, the housing market and financial sector remain key areas of focus. Investors are advised to monitor macroeconomic developments and sector-specific risks closely.