Regional Daily, Maybank KE (2015-03-19)

Daily 19 March 2015 TOP VIEWS The Strategist China Oil & Gas | NEUTRAL Geely Automobile (175 HK) | Rating Change Venture Corporation (VMS SP) | Company visit The Strategist Asset-class anomalies & unconvincing policy moves Strategy Negative on equities. As we enter 2Q15, we continue to expect greater volatility. We are now in an odd environment where implied volatility in forex, oil and bond markets has gone up, but implied equity volatility has not. In the context of a FED that is in tightening mode, we would be negative equities. Long H-shrs, short A-shrs. In the region, we see more easing and weaker exchange rates. This includes China. One of our concerns is Chinese policy makers are falling further behind the curve. There is arguably too much spare capacity hence �targeted easing� is unlikely to be successful. With A-share premiums to H-shares rising again to nearly 30%, we would sell A-shares and buy H-shares. Begin buying China consumer staples relative to Discretionary. Valuations have also moved and consumer discretionary is starting to look less interesting than consumer staples. Talking to our analysts, they would BUY Hengan and Want Want China, and SELL GAC Group and BAIC Motor. USD risk, again. The USD strength could create further stresses. Our cover chart shows China and India�s Real Effective Exchange Rates. In China�s case, the fall in competitiveness is likely to mean muted exports (see Figure 11 on page 7). Not out of the woods yet. This latter issue is potentially key; looking at non-oil imports in USD terms as a proxy for domestic demand, the US is the only place where there is positive growth. Both Europe and Japan are seeing negative import growth in USD terms. For a more positive outlook, we think we need to see stronger, more sustainable growth out of Europe and Japan so that growth differentials with the US narrow. That would potentially hold back the USD, supporting emerging-market and Asian assets. We are not convinced we are there yet. Click here for report » China Oil & Gas Results preview: Looking grim Sector update Expect the �Big oils� to post poor FY14 results in coming weeks; dragged by inventory losses from lower crude prices. Sadly, FY15 outlook is equally subdued, based on our new crude price assumption and potential impairment charges. Passive investors should remain market weight in the sector. Investors have looked beyond 2015, in our view, and longterm crude price assumption will be key performance driver. Click here for report » Geely Automobile (175 HK) Recovered from FX crisis; U/G BUY Share Price: HKD3.60 | Target Price: HKD4.20 (+17%) | MCap (USD): 4.1B | ADTV (USD): 16M Upgrade to BUY. We raise our earnings on higher unit sales/ASP forecast and better production & store efficiency. Geely will enter into a production upgrade cycle in 2016 with the CMA platform launch which will lead to product mix improvement. We raise our TP to HKD4.2, implying 10.8x 2015 PER (in line with its historical average). Potential write-back of FX loss in 2015 and better-than-expected GC9 sales (debut in Apr 2015) are potential catalysts. (Full report will be out soon) Venture Corporation (VMS SP) Pause, reflect, stay invested Share Price: SGD8.52 | Target Price: SGD10.25 (+20%) | MCap (USD): 1.7B | ADTV (USD): 3M Stock back to pre-transformation levels. What�s next and should you stay invested? On the cusp of new growth, backed by structural opportunities that should withstand macro weakness. Maintain BUY. TP raised to SGD10.25 on higher 18x PER from SGD9.11, at 15x. Follows additions to peer group. Click here for report » COMPANY NOTES Sino-Ocean Land (3377 HK) | Results Review China Merchants Bank (3968 HK) | Results Review China Power Int�l Development (2380 HK) | TP Revision Power Impulse Datang International Power (991 HK) | TP Revision Astra Agro Lestari (AALI IJ) | Rating Change Berjaya Sports Toto (BST MK) | Results Review Glomac (GLMC MK) | Results Review Hong Leong Financial Group (HLFG MK) | Results Review Top Glove (TOPG MK) | Results Review Vista Land & Lifescapes (VLL PM) | Results Review Singapore Land Transport | NEUTRAL L.P.N. Development (LPN TB) | Company Update Sino-Ocean Land (3377 HK) Focusing on tier-1 cities Share Price: HKD4.69 | Target Price: HKD5.90 (+26%) | MCap (USD): 4.5B | ADTV (USD): 4M A decent set of 2014 results with stable growth in 2015. Manageable gearing and lower costs of financing, thanks to its quasi-SOE status. The developers expect around 5% YoY growth in contract sales, which looks realistic to us and if tier-1 cities (41% of attributable GFA for newly acq. landbank) rebound more than expected, we see upside potential to 2015�s sales. Some discounts in tier-2 cities like Dalian to keep asset churn. Reiterate BUY with unchanged TP of HKD5.90, derived from 40% discount to NAV. Remains one of our Top Picks. Click here for report » China Merchants Bank (3968 HK) Accumulating excess provisions Share Price: HKD18.50 | Target Price: HKD17.45 | MCap (USD): 63.1B | ADTV (USD): 61M Strong net fees will continue to compensate NIM pressure. Excess loan loss provisions will lower 2015-16F credit costs. Expect decline in FX & bills spread income. Keep HOLD & TP. Click here for report » China Power Int�l Development (2380 HK) Improving asset quality Share Price: HKD3.96 | Target Price: HKD4.60 (+16%) | MCap (USD): 3.3B | ADTV (USD): 12M Net profit CNY2.8b, up 21% YoY, in line with market estimates. Net profit was mainly driven by the strong hydropower generation growth and the lower unit fuel cost. Maintain BUY as we think asset quality is improving and exposure in hydropower could diversify the risk of potential tariff cut. Increasing TP to HKD4.60 from HKD4.10. Click here for report » Power Impulse Utilities & renewables weekly Sector update HK Utilities was the best performing sector (11 Mar � 17 Mar), down 0.6% WoW, while solar fell 5.4% WoW. Spot polysilicon price fell 2.74% WoW to USD17.74/kg. Spot wafer price dropped 0.1% to USD0.834/piece. The Qinhuangdao spot coal price (5,500 kcal/kg, Shanxi Premium Blended) declined 1% WoW to CNY473/tonne. (Full report will be out soon) Datang International Power (991 HK) A major drag from non-core Share Price: HKD3.76 | Target Price: HKD3.60 (-4%) | MCap (USD): 6.4B | ADTV (USD): 12M Datang announced the net profit of CNY1.8b, down 48% YoY, below our expectation and market estimates. The net profit decline was mainly due to the loss from chemical segment, both operating and impairment loss. Unless Datang could complete the disposal of the coal-tochemical business, we believe it will remain the laggard among peers. Maintain Hold and TP decrease to HKD3.60. (Full report will be out soon) Astra Agro Lestari (AALI IJ) Looming uncertainties; D/G HOLD Share Price: IDR26,250 | Target Price: IDR24,000 (-9%) | MCap (USD): 3.1B | ADTV (USD): 2M Downgrade to HOLD as risk of lower CPO price is rising. Lowering TP to IDR24,000 from IDR28,000. Lower FY15-16F earnings as we cut our CPO ASP assumption to IDR8,400/kg and IDR8,750/kg, from IDR9,500/kg. Recent biofuel mandate is good news, but it�s not good enough to ease our concerns. Click here for report » Berjaya Sports Toto (BST MK) Bracing for GST impact Share Price: MYR3.36 | Target Price: MYR3.18 (-5%) | MCap (USD): 1.2B | ADTV (USD): 0.8M Earnings and dividends within expectations. Outlook still challenging. PCSO contract at risk. Maintain HOLD call and MYR3.18 TP. Click here for report » Glomac (GLMC MK) Below expectations Share Price: MYR1.02 | Target Price: MYR1.03 (+1%) | MCap (USD): 201M | ADTV (USD): 0.0M 9MFY4/15 core net profit fell short. Management remains confident on achieving its MYR600m sales target for FY4/15. Lowering FY15 net profit forecast by 14%, TP largely intact at MYR1.03 (0.5x P/RNAV; MYR2.07 RNAV). HOLD. Click here for report » Hong Leong Financial Group (HLFG MK) HL Cap to be suspended Share Price: MYR16.76 | Target Price: MYR18.90 (+13%) | MCap (USD): 4.8B | ADTV (USD): 2M Trading of HL Cap shares to be suspended from Thursday 26 Mar 2015. Does not impact our valuations for HLFG where we have pegged on a P/BV of just 1.5x for HL Cap. Maintain BUY on HLFG, SOP-derived TP of MYR18.90. (Full report will be out soon) Top Glove (TOPG MK) Solid earnings recovery Share Price: MYR5.08 | Target Price: MYR5.95 (+17%) | MCap (USD): 856M | ADTV (USD): 1M Strong 2QFY8/15 net profit (+14% YoY) supports our BUY call. Subdued rubber prices and high USD/MYR favour the stock. Maintain forecasts, BUY call and TP of MYR5.95 (mean 15x 2016 PER). (Full report will be out soon) Vista Land & Lifescapes (VLL PM) FY14 profit outperforms forecast Share Price: PHP7.50 | Target Price: PHP8.40 (+12%) | MCap (USD): 1.4B | ADTV (USD): 2M Net income grew 12% to PHP5.7b, ahead of our PHP5.1b estimate. Outperformance was driven by faster revenue booking, higher interest income and capitalized interest expenses. As land prices continue to appreciate in Daang Hari, we raise our price assumption to PHP35k-40k/sqm bringing up our TP 15% to PHP8.40, maintain BUY. Click here for report » Singapore Land Transport Bus tenders: SMRT�s bid aggressive Sector SMRT submitted lowest bid of SGD93.7m pa for Bulim bus package or 28.4% below SGD130.8m average. Bid also 25.2% less than SBS Transit�s SGD125.2m. Unless SMRT can be much more efficient than everyone else, market expectations of its bus-earnings rebound are at risk. Remain NEUTRAL as sector lacks catalysts. Click here for report » L.P.N. Development (LPN TB) BUY this dip; Outlook still upbeat Share Price: THB17.50 | Target Price: THB24.50 (+40%) | MCap (USD): 785M | ADTV (USD): 5M Maintain BUY, cutting TP to THB24.5 (from THB27) based on 12x FY15F PER (+1SD over 7-yr mean); Positive outlook intact and earnings growth still highest in sector at 47%YoY. Market overly pessimistic on household debt. LPN achieved 70% take-up rate for its first project launched in FY15. FY16 backlog at THB4.6b a market concern, but this could increase to THB14.2b by end-FY15 as 8/11 projects launched in FY15 will be recognized in FY16. Click here for report » ECONOMICS US FOMC US FOMC Patience out, but no rush to hike Economics Target fed funds rate (FFR) maintained at 0%-0.25%. FOMC statement removes the key word �patient� but indicates no imminent � neither rush to � hike the FFR. Maintain our view of Sep 2015 hike at the earliest totalling 50-75bps by end-2015. Click here for report »