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Regional Morning Notes Summary - 18 March 2016

Core Content Overview

This document provides a detailed analysis of stock performance and company results across China, Malaysia, Singapore, and Thailand, with a focus on the aviation and energy sectors in China, and specific stock recommendations. It also includes key indices, corporate events, and valuation metrics.

Key Regions and Sectors

China

• Aviation Sector:

  • Strong passenger traffic growth in 2M16 despite economic uncertainty.
  • Air China, China Eastern Airlines (CEA), and China Southern Airlines (CSA) all recorded strong growth in tax traffic.
  • Air China and CEA showed better international traffic growth, with Air China recording over 30% yoy growth.
  • CSA had weak domestic traffic growth (1% yoy), which is a concern, especially given its large domestic capacity.
  • Overall load factors improved, and the trio is expected to be profitable in 2M16.
  • Stock Picks:
    • Air China (753 HK): BUY, Target Price: HK$10.20
    • CEA (670 HK): BUY, Target Price: HK$7.60
    • CSA (1055 HK): BUY, Target Price: HK$6.75

• China Overseas Grand Oceans (81 HK):

  • 2015 results showed a core net profit below expectations due to margin squeeze.
  • Revenue increased by 18.8% yoy, but gross margin dropped significantly.
  • Recommendation: HOLD, Target Price: HK$2.89
  • Key Catalysts: Loosening credit environment and supportive policies for low-tier cities.

• Huaneng Renewables Corporation (958 HK):

  • 2015 net profit rose by 65.9% yoy, exceeding expectations.
  • Strong performance attributed to increased generation volume, finance cost savings, and one-off penalty income.
  • Recommendation: BUY, Target Price: HK$3.30

Malaysia

• Bumi Armada (BAB MK):

  • BUY recommendation, Target Price: RM0.99
  • Investors advised to cautiously accumulate shares due to uncertainty on other FPSO risks, but Enquest is confident in FPSO Kraken.

• Gamuda (GAM MK):

  • BUY recommendation, Target Price: RM5.55
  • Secured the largest MRT Line 2 package worth RM14b-15b, a 40% increase from earlier expectations.

Singapore

• ST Engineering (STE SP):
  • BUY recommendation, Target Price: S$3.60
  • The "Rise of the Terrex" is highlighted as a key update.

Thailand

• Energy & Petrochemical Sector:
  • Positive feedback from roadshows due to a positive outlook in 1H16.
  • IRPC, PTTGC, and SCC are highlighted as top picks.

Key Indices

Top Picks (BUY)

Key Assumptions

Corporate Events

Risks

• Further depreciation of the renminbi.
• Geopolitical risks between China and the US.

Valuation Highlights

• PE (2016F): Air China (4.3), CEA (3.3), CSA (3.3)
• P/B (2016F): Air China (0.8), CEA (0.7), CSA (0.8)
• EV/EBITDA (2016F): Air China (5.3), CEA (5.1), CSA (4.9)
• Dividend Yield (2016F): Air China (1.1), CEA (1.4), CSA (3.5)

Financial Highlights (COGO)

• 2015 Revenue: HK$16,614m, up 18.8% yoy
• 2015 Gross Profit: HK$2,600m, down 22.7% yoy
• 2015 Net Profit: HK$851m, down 32.8% yoy
• 2016F Net Profit: HK$1,299m, up 52.6% yoy
• 2016F Core Net Profit: HK$1,299m, up 67.4% yoy
• 2016F EBITDA: HK$2,347m, up 41.7% yoy
• 2016F Net Margin: 6.5%, up 1.4ppt yoy
• 2016F ROE: 11.0%, up 4.4ppt yoy
• 2016F Net Debt/(Cash) to Equity: 58.7%, up 8.0ppt yoy

Key Financial Metrics

Stock Performance Catalysts

• COGO: Loosening credit environment, supportive policies, and potential ASP recovery in low-tier cities.
• HNR: Capacity expansion and finance cost savings.
• Aviation Sector: Strong traffic growth, improved load factors, and potential for higher profits.

Summary

• The aviation sector in China showed strong passenger traffic growth in 2M16, with Air China and CEA outperforming CSA.
• COGO's performance in 2015 was below expectations due to margin pressure, but contracted sales rebounded, and the company is expected to recover.
• HNR's strong net profit growth in 2015 was attributed to generation volume, cost savings, and one-off gains.
• Malaysia and Singapore also had positive developments, with Gamuda and ST Engineering being top picks.
• Valuations for Chinese airlines are low, and there is potential for improvement with supportive policies.
• Risks include currency depreciation and geopolitical tensions.