Chinese corporate bond defaults have been trending up at a record pace in 2021, crossing the Rmb100b mark for the fourth consecutive year, as authorities ramp up efforts to wean the economy off heavy credit. Notable contributing sectors include aviation and property, and property developers continue to drive 2021 delinquencies. Our analysis suggests that a contagion is unlikely and selected developers are trading at attractive valuations. BUY Powerlong (1238 HK) and CIFI (884 HK).
GREATER CHINA Economics Money Supply: New bank loans fall to a nine-month low; further policy easing expected. Strategy Strategy: While corporate bond defaults have hit a record high, our analysis shows that a market contagion is unlikely. Selected developers are trading at attractive valuations. Results Cathay Pacific Airways (293 HK/SELL/HK$6.42/Target: HK$5.83): 1H21: Losses narrow but recovery likely to be slow. INDONESIA Update Gudang Garam (GGRM IJ/BUY/Rp32,575/Target: Rp36,200): GGRM’s p...
KEY HIGHLIGHTS Economics Money Supply New bank loans fall to a nine-month low; further policy easing expected. Strategy While corporate bond defaults have hit a record high, our analysis shows that a market contagion is unlikely. Selected developers are trading at attractive valuations. Results Cathay Pacific Airways (293 HK/SELL/HK$6.42/Target: HK$5.83) 1H21: Losses narrow but recovery likely to be slow. TRADERS’ CORNER China Construction Bank (939 HK): Trading Buy Range: HK$5.66-5.67 Kunlu...
GREATER CHINA Strategy Economic Activity: Further policy easing in 2H21 likely. Sector Automobile: Weekly: Automobile demand recovered by 37% mom for 12-18 July. Maintain MARKET WEIGHT. Top picks: Zhongsheng, Yongda, Meidong and CATL. Update Weimob (2013 HK/BUY/HK$11.54/Target: HK$15.00): Recent correction presents an attractive entry point. INDONESIA Results Bank Central Asia (BBCA IJ/HOLD/Rp30,775/Target: Rp32,500): 2Q21: Net profit up 5.3% qoq; aware of potential pressure in 3Q21. MALAYSIA ...
Following the softer economic data, the PBOC announced on 9 July a cut to the required reserve ratio (RRR) by 0.5ppt, effective 15 July. The cut is expected to release an additional Rmb1t in fresh liquidity to support the country's economic recovery. Though the PBOC reiterated its latest move does not represent a change in its policy, we believe further cuts would be necessary. Infrastructure, commodities and renewables will be the key beneficiaries.
KEY HIGHLIGHTS Strategy Economic Activity Further policy easing in 2H21 likely. Sector Automobile Weekly: Automobile demand recovered by 37% mom for 12-18 July. Maintain MARKET WEIGHT. Top picks: Zhongsheng, Yongda, Meidong and CATL. Update Weimob (2013 HK/BUY/HK$11.54/Target: HK$15.00) Recent correction presents an attractive entry point. TRADERS’ CORNER CLP Holdings (2 HK): Trading Buy Range: HK$78.90-78.95 Weichai Power (2338 HK): Trading Buy Range: HK$19.00-19.02
As sector valuation is at a historical bottom with a 27% discount to a 5-year average, we think all the negatives have been priced in. Premium recovery would be the re-rating catalyst in 2H21. Foreign life insurers are the beneficiaries as China now allows them to set up WOFEs instead of JVs. Among domestic players, Ping An Insurance Group is still the leader in both the life and P&C segments. We upgrade the sector to OVERWEIGHT. It is our top pick with a target price of HK$102.00.
KEY HIGHLIGHTS Sector Healthcare CDE clinical guidelines benefit leading drug innovators. Insurance Expected premium recovery to lead to a re-rating in 2H21. Internet Data security review. Metals Strong demand momentum to support lithium and cobalt performance In 2H21. TRADERS’ CORNER BABA-SW (9988 HK): Trading Buy Range: HK$209.50-209.60 CK Asset Holdings (1113 HK): Trading Buy Range: HK$54.95-55.00
GREATER CHINA Sector Healthcare: CDE clinical guidelines benefit leading drug innovators. Insurance: Expected premium recovery to lead to a re-rating in 2H21. Internet: Data security review. Metals: Strong demand momentum to support lithium and cobalt performance In 2H21. INDONESIA Update PP London Sumatra (LSIP IJ/HOLD/Rp1,095 /Target: Rp1,180): 2Q21 earnings growth may not be as strong as in 1Q21, partly muted by higher export levy. Although there may be a higher production recovery in 4Q21, ...
As sector valuation is at a historical bottom with a 27% discount to 5-year average, we think all the negatives have been priced in. Premium recovery will be the re-rating catalyst in 2H21, with foreign life insurers as the beneficiaries because they are now allowed to set up WOFEs instead of JVs. Among domestic players, Ping An Insurance Group is still the leader in both the life and P&C segments. It is our top pick with a target price of HK$102.00. We upgrade the sector to OVERWEIGHT.
REGIONAL Sector Plantation: Policy and incentives are driving soybean oil use for biodiesel in the US. However, CPO price is not catching up with this uptrend as the market expects more CPO production. GREATER CHINA Sector Banking: Deposit rate reform: PSBC is the biggest beneficiary. INDONESIA Update Wijaya Karya (WIKA IJ/BUY/Rp1,055/Target: Rp1,400): Net income revision on lower burn rate; still providing earnings growth in 2021. Maintain BUY. MALAYSIA Results Scientex (SCI MK/BUY/RM4.26/Ta...
One key change brought about by the deposit rate reform will be the pricing mechanism. According to news reports, regulators require banks to price deposit rates by adding basis points (premium) to the benchmark instead of using a multiple, which is similar to the LPR reform. Regulators will place a cap on premiums to prevent excessive competition. PSBC is the biggest beneficiary of the reform. The cap on premium may lead to an outperforming NIM in 2H21. Upgrade the sector to OVERWEIGHT. Top pic...
Real estate loan growth slowed to an eight-year low at 10.5% yoy in Apr 21. CBIRC remains firm on its stance to restrict funds flowing into the real estate industry. Property sales growth of the TOP 100 developers in May 21 normalised to 17.8% yoy due to the less aggressive launching of projects. Market supply and transaction volume will see a steep rebound in Jun 21 due to developers’ final push before their interim closing. Maintain UNDERWEIGHT. Top pick: Powerlong (1238 HK).
GREATER CHINA Strategy Alpha Picks: Jun 21 Conviction Calls: Macro uncertainties drive shift to defensive bias. Sector Property: May 21 transactions dragged by slower market supply. INDONESIA Strategy Alpha Picks: Add ITMG and TLKM: We add ITMG and TLKM to our portfolio. Our picks: ITMG, TLKM, BMRI, KLBF, ASII, BSDE, UNTR, INTP and BEST. MALAYSIA Strategy Alpha Picks: Keeping Faith In Event Catalysts: May 21’s alpha picks portfolio underperformed the FBMKLCI, dragged by Scomnet; Jun 21 picks: ...
KEY HIGHLIGHTS Strategy Alpha Picks: Jun 21 Conviction Calls Macro uncertainties drive shift to defensive bias. Sector Property May 21 transactions dragged by slower market supply. TRADERS’ CORNER Kingboard Laminates (1888 HK): Trading Buy Range: HK$17.14-17.16 PetroChina (857 HK): Trading Buy Range: HK$3.40-3.41
Ping An’s write-off of CFLD has led to a devaluation on the sector, but we think market is overreacting to this. However, valuation recovery may not come soon because of weak premiums growth. Insurance companies realised part of their equity investment and shifted part of their equity position to fixed income investments. Bond yield has rebounded to a five-year average, and the low interest rate environment may not be a concern in this year. Maintain MARKET WEIGHT.
GREATER CHINA Economics Money Supply: Sharply lower new credit after PBOC guidance. Sector Catering: Key takeaways from conference call with catering expert. Insurance: A slowdown in premiums growth will cap insurers’ valuations. THAILAND Results CP ALL (CPALL TB/HOLD/Bt60.75/Target: Bt65.00): 1Q21: Disappointing results; downgrade to HOLD. Electricity Generating (EGCO TB/BUY/Bt175.00/Target: Bt242.00): 1Q21: Results in line; positive outlook. PTT Global Chemical (PTTGC TB/BUY/Bt67.25/Target: B...
KEY HIGHLIGHTS Economics Money Supply Sharply lower new credit after PBOC guidance. Sector Catering Key takeaways from conference call with catering expert. Insurance A slowdown in premiums growth will cap insurers’ valuations. TRADERS’ CORNER Wuxi AppTec (2359 HK): Trading Buy Range: HK$177.90-178.00 Kingsoft (3888 HK): Trading Buy Range: HK$57.85-57.90
GREATER CHINA Results Contemporary Amperex Technology (300750 CH/BUY/Rmb379.99/Target: Rmb520.00): 1Q21: Net profit grew 112% yoy and dropped 12% qoq, beating our estimate. Maintain BUY. Target price: Rmb520.00. Ganfeng Lithium - H (1772 HK/BUY/HK$103.08/Target: HK$140.00): 1Q21: Results in line; riding on lithium compound price rally in 2021. Guangzhou Automobile Group (2238 HK/BUY/HK$6.70/Target: HK$8.50): 1Q21: Net profit up 19x yoy and 145% qoq; in line with estimates. Maintain BUY. Target p...
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