20160624-大华银行-Regional_Morning_Notes_18页_1mb

报告摘要

Regional Morning Notes Summary

Core Content Overview

This document provides a comprehensive analysis of regional market dynamics and investment recommendations, focusing on China, Indonesia, Malaysia, Singapore, and Thailand, along with key indices and company updates. The emphasis is on the Basic Materials sector, particularly the cement and coal industries, and the impact of supply-side reforms on these sectors.

Main Points

China

Basic Materials Sector: The government's supply-side reforms are aimed at improving the demand-supply balance by curbing overcapacity and upgrading standards.
Cement Sector:
- The suspension of new capacity approvals and the upgrade of cement standards (from 32.5 to 42.5) are expected to reduce supply and increase clinker demand.
- The 1Q16 retail sales decline of RGM was wider than expected, indicating potential challenges in the sector.
- Companies like Anhui Conch and CR Cement are highlighted as key beneficiaries of the reforms due to their strategic positions and pricing power.
- China Coal Energy (1898 HK) is recommended as a BUY, with a target price of HK$5.00, due to its high earnings sensitivity to coal price movements and exposure to the seaborne market.

Indonesia

Japfa Comfeed Indonesia (JPFA IJ) is recommended as a BUY, with a target price of Rp1,360. The valuation is considered attractive, and average selling price (ASP) is expected to recover further.

Malaysia

REITs sector is under review, with RGM's 1Q16 retail sales decline being wider than forecast. The market remains cautious about the sector's performance.

Singapore

First Resources (FR SP) is a BUY with a target price of S$2.20. Despite underperforming the FTSTI and peers, the company is expected to recover in 2Q16 with better ASP and sales volume.

Thailand

The Construction Services sector is expected to see earnings growth as early as this year, despite the contribution from mega projects being more visible in 2017. The sector is maintained as OVERWEIGHT.

Key Indices

DJIA, S&P 500, FTSE 100, AS30, CSI 300, FSSTI, HSI, KLCI, JCI, KOSPI, Nikkei 225, SET, TWSE, BDI, CPO, Brent Crude are listed with their previous close, 1-day, 1-week, 1-month, and year-to-date performance. The CSI 300 has a negative YTD performance, while the Brent Crude has shown a positive trend.

Top Picks

Company	Ticker	Rating	Current Price	Target Price	Potential Upside (%)
Air China	753 HK	BUY	HK$3.89	HK$5.00	28.5
Ping An Insurance	2318 HK	BUY	HK$3.89	HK$5.00	28.5
Bank BJB	BJBR IJ	BUY	Rp1,100	Rp1,360	23.6
Genting Bhd	GENT MK	BUY	HK$3.89	HK$5.00	28.5
City Developments	CIT SP	BUY	HK$3.89	HK$5.00	28.5
DBS	DBS SP	BUY	HK$3.89	HK$5.00	28.5
Bangkok Dusit	BDMS TB	BUY	HK$3.89	HK$5.00	28.5
Siam Cement	SCC TB	BUY	HK$3.89	HK$5.00	28.5

Key Assumptions

Country/Region	GDP (yoy) 2015	GDP (yoy) 2016F	GDP (yoy) 2017F
US	2.4	2.5	2.7
Euro Zone	1.6	1.5	1.6
Japan	0.5	0.6	0.8
Singapore	2.0	2.7	3.0
Malaysia	5.0	4.2	5.0
Thailand	2.8	3.2	3.6
Indonesia	4.8	5.0	5.5
Hong Kong	2.4	2.1	1.8
China	6.9	6.5	6.2

Commodity	Price (2015)	Price (2016F)	Price (2017F)
Brent Crude	53.60	42	54
CPO	2,168	2,500	2,600

Corporate Events

UOB Roadshow: 20 Jun – 24 Jun (US/Canada)
Kingboard Laminates Holdings Ltd: 29 Jun (Hong Kong)
Modern Dental Group Luncheon: 6 Jul (Hong Kong)

Market Weight

Maintain MARKET WEIGHT on the Basic Materials sector.
Prefer the cement sector, as it is expected to benefit from the supply-side reforms and improved demand-supply dynamics.

Company Update – China Coal Energy (1898 HK)

Earnings Sensitivity: High to coal price changes, with 70% of revenue coming from coal sales.
Coal Price Forecast: Expected to rebound due to supply-side reforms and low prices, with a target of Rmb420/tonne in winter and Rmb440/tonne in 2017.
Cost Control: Effective cost management has helped reduce losses, with unit cost of sales dropping significantly in 2015 and 2016.
Production Cuts: Targeted to reduce total output to 80m tonnes in 2016, a 16% decrease from 2015, due to the shutdown of low-efficiency coal mines.
Valuation: Currently trading at 0.5x 2017F P/B, which is seen as undervalued based on the expected earnings recovery.

Analysts

Johnson Hu, CFA: +86 21 5404 7225 ext 809, johnsonhu@uobkayhian.com
Cynthia Wang: +86 21 5404 7225 ext 858, cynthiawang@uobkayhian.com
Yan Shi: +862154047225ext.804, yan.shi@uobkayhian.com

Sector Update – Basic Materials

Supply Curb Impact: The government's policies to reduce supply and increase production standards are expected to improve the sector's demand-supply landscape.
Industrial Consolidation: Expected to accelerate, with leading companies like Anhui Conch, CR Cement, and Baosteel likely to benefit.
Steel Sector: A significant capacity cut (up to 21%) is expected to balance demand and supply, but this process will take time.
Coal Sector: The government's subsidies and supply-side reforms are expected to drive coal prices higher, with China Coal Energy being the top beneficiary.

Financial Highlights – China Coal Energy (1898 HK)

Metric	2014 (Rmbm)	2015 (Rmbm)	2016F (Rmbm)	2017F (Rmbm)	2018F (Rmbm)
Net Turnover	70,664	59,271	63,625	72,015	77,439
EBITDA	8,521	6,597	8,153	12,727	14,722
Net Profit (adj.)	171	(3,267)	(712)	2,153	2,969

Valuation Metrics – China Coal Energy (1898 HK)

P/B Ratio: Current 0.5x, below historical average (0.9–1.9x).
Target Price: HK$5.00 (based on DCF analysis).
Upside Potential: +28.5% from current price.

Conclusion

The report highlights the potential for cement and coal sectors in China to benefit from supply-side reforms, leading to improved demand-supply dynamics and higher prices. China Coal Energy is a key player in the coal industry with strong potential for recovery. Other companies across the region are also recommended for investment, with Indonesia and Singapore showing promising valuations and performance expectations. The cement sector is emphasized as a preferred investment due to its strategic exposure, cost control, and potential for profit recovery.