Regional Morning Notes Summary - 21 April 2016
Core Content Overview
This document provides a summary of market insights and investment recommendations for key markets in Asia, including China, Indonesia, Malaysia, Singapore, and Thailand. It includes updates on specific companies, sector analysis, and key financial metrics.
Main Points by Region
China
- Sector: City Gas Distribution
- The NG price adjustment in Zhejiang is unlikely to have a major impact on city gas earnings due to diversified portfolios and a more liberalised downstream market.
- The price cut is expected to narrow dollar margins by 20%.
- City gas companies are unlikely to follow Zhejiang's example due to its unique circumstances.
- Air China is highlighted with a BUY rating and a target price of HK$10.20.
- 1Q16 net profit is expected to rise by 21-41% YoY to Rmb2.0b-2.4b, driven by strong international passenger traffic and lower fuel costs.
- The sector is trading at 10x 2017P/E, which is considered attractive.
- Maintain OVERWEIGHT on the sector due to expected sales rebound.
Indonesia
- Strategy: Sumber Alfaria Trijaya (AMRT IJ)
- Recovery in SSS growth; store expansion is expected to drive 15-20% sales growth in 2016.
- The company is not rated, but it's expected to benefit from the recovery in Indonesia's GDP.
Malaysia
- Sector: Telecommunications
- Heightened competition in the postpaid segment; Maxis is most vulnerable to prolonged price wars.
- Maintain UNDERWEIGHT due to earnings headwinds from weak consumer confidence.
- Results: Public Bank (PBK MK)
- 1Q16 earnings above expectations, supported by lower credit costs.
- Update: CIMB Group (CIMB MK)
- Expect a more challenging revenue growth environment in 2016, partially offset by cost rationalisation measures.
Singapore
- Results: CapitaLand (CAPL SP)
- 1Q16 results show that China momentum helped cushion the slowdown in Singapore.
Thailand
- Results: Bangkok Bank (BBL TB)
- 1Q16 net profit declined by 12% YoY due to higher opex and provisions.
- Results: Kasikorn Bank (KBANK TB)
- Strong operating performance offset by significantly higher provisions.
Key Indices Performance
| Index |
Previous Close |
1D % |
1W % |
1M % |
YTD % |
| DJIA |
18096.3 |
0.2 |
1.0 |
2.8 |
3.9 |
| S&P 500 |
2102.4 |
0.1 |
1.0 |
2.6 |
2.9 |
| FTSE 100 |
6410.3 |
0.1 |
0.7 |
3.6 |
2.7 |
| AS30 |
5281.2 |
0.5 |
3.0 |
0.8 |
-1.2 |
| CSI 300 |
3181.0 |
-1.8 |
-2.5 |
-2.1 |
-14.7 |
| FSSTI |
2950.0 |
-0.1 |
2.1 |
2.4 |
2.3 |
| HSCEI |
9134.4 |
-1.2 |
-0.6 |
2.3 |
-5.5 |
| HSI |
21236.3 |
-0.9 |
0.4 |
2.7 |
-3.1 |
| JCI |
4876.6 |
-0.1 |
0.5 |
-0.2 |
6.2 |
| KLCI |
1708.9 |
-0.1 |
-0.8 |
-0.5 |
1.0 |
| KOSPI |
2005.8 |
-0.3 |
1.2 |
0.8 |
2.3 |
| Nikkei 225 |
16906.5 |
-0.2 |
-3.2 |
-1.1 |
-11.2 |
| SET |
1415.0 |
-0.1 |
3.3 |
1.5 |
9.9 |
| TWSE |
8514.5 |
-1.4 |
-1.6 |
-3.4 |
2.1 |
| BDI |
669 |
-0.3 |
18.0 |
69.4 |
40.0 |
| CPO (RM/ml) |
2639 |
0.7 |
1.0 |
1.9 |
19.9 |
| Brent Crude (US$/bbl) |
46 |
4.0 |
3.7 |
11.2 |
22.9 |
Top Picks
| Company |
Ticker |
Current Price |
Target Price |
Potential Upside (%) |
| Air China |
753 HK |
HK$6.17 |
HK$10.20 |
+65.3 |
| Ping An |
2318 HK |
HK$37.40 |
HK$45.00 |
+20.3 |
| Bank BJB |
BJBR J |
JPY930.00 |
JPY1,140.00 |
+22.6 |
| Gamuda |
GAM MK |
RM4.90 |
RM5.55 |
+13.3 |
| WCT Holdings |
WCTHG MK |
RM1.67 |
RM2.05 |
+22.8 |
| City |
CIT SP |
S$8.94 |
S$10.86 |
+21.5 |
| DBS |
DBS SP |
S$15.91 |
S$19.25 |
+21.0 |
| Siam Cement |
SCC TB |
Bt26.50 |
Bt30.00 |
+13.2 |
| Kasikorn Bank |
KBANK TB |
Bt161.00 |
Bt192.00 |
+29.1 |
Key Assumptions
| Country |
GDP (YoY) 2014 |
GDP (YoY) 2015F |
GDP (YoY) 2016F |
| US |
2.4 |
2.4 |
2.5 |
| Euro Zone |
0.9 |
1.6 |
1.7 |
| Japan |
0.0 |
0.5 |
1.0 |
| Singapore |
3.3 |
2.0 |
2.7 |
| Malaysia |
6.0 |
5.0 |
4.2 |
| Thailand |
0.8 |
2.8 |
3.2 |
| Indonesia |
5.0 |
4.8 |
5.0 |
| Hong Kong |
2.5 |
1.8 |
1.5 |
| China |
7.3 |
6.5 |
6.7 |
Commodity Prices
| Commodity |
2015 (Average) |
2016F (Average) |
2017F (Average) |
| Brent (US$/bbl) |
53.60 |
42 |
54 |
| CPO (RM/mt) |
2,168 |
2,500 |
2,600 |
Corporate Events
| Event |
Venue |
Date |
| Thailand Contractor and Property Sector Analyst Presentation |
Singapore |
21 Apr |
| CDL Hospitality Trust Luncheon |
Singapore |
3 May |
Air China Analysis
- 1Q16 Earnings Estimate: Net profit expected to rise 21-41% YoY to Rmb2.0b-2.4b.
- Key Drivers: Robust international passenger traffic, stable yields, and lower fuel costs.
- Pax Traffic Growth: 11% YoY, with international traffic up 18.7% and domestic traffic down 2.9%.
- Pax Load Factor: 79.8% in 1Q16, remaining flat YoY.
- Cargo Traffic: 4.2% YoY growth.
- Earnings Surprise Potential: Could come from higher-than-expected yields or lower-than-expected unit costs.
- Valuation: Maintain BUY with a target price of HK$10.20.
- Price Target: HK$10.20, with an upside of +65.3%.
Analysts
Conclusion
- The OVERWEIGHT rating is maintained for the city gas sector in China due to the expected rebound in NG sales volume and attractive valuations.
- Air China is highlighted as a BUY due to strong earnings outlook and positive valuation.
- The telecommunications sector in Malaysia faces challenges due to heightened competition and weak consumer confidence.
- Indonesia's Sumber Alfaria Trijaya is expected to benefit from store expansion and GDP recovery.
- Thailand's banking sector faces pressure from increased provisions and operational costs.
- The overall market sentiment is cautiously optimistic, with a focus on earnings growth and cost management.
