Regional Morning Notes: Comprehensive Analysis of Key Companies in Asia

Broker: UOB Kay Hian

Date: Tuesday, 12 November 2024

Greater China: Property Sector

Channel Checks and Observations of Shanghai Primary Market

In late September, Shanghai relaxed its purchase restrictions, leading to a significant uptick in October transactions for both new and second-hand homes. Our investigation of six buildings in the outer ring revealed considerable variation in sales performance. Key factors influencing buyers’ decisions include transportation, supporting facilities, and pricing sensitivity. The new-home pricing remains under government guidance, making the implementation of destocking policy crucial for sustainable sales recovery.

During our visit to six projects outside Shanghai’s outer ring, we observed a decent rebound in property transactions. Primary home transaction volume surged by 32% YoY, while secondary home transactions totaled 24,376 units, up 66% YoY. While pricing remains the primary consideration for home buyers, projects situated near industrial parks with lower prices than surrounding secondary homes showed better sales performance.

For instance, Dahua’s project sold out in a week without price discounts and a high subscription rate of 300%. Conversely, Poly/CSC projects still face destocking difficulties despite a 5% price discount. Projects with higher prices, even those near metro stations with comprehensive supporting facilities, struggled with sales.

Our analysis indicates that the sustainability of new-home sales recovery hinges on effective destocking policies. We maintain a MARKET WEIGHT on China’s property sector, with CR Land and Longfor as our top picks.

Indonesia: Astra International (ASII)

Should Be Able to Cope with Intense Competition

Astra International (ASII) has demonstrated resilience in facing intense competition in the China EV industry. With economies of scale, mass market penetration, good resale value products, and a wide distribution network, ASII is well-positioned to fend off competitors. The company believes that hybrids will be the growth driver, particularly outside of Java.

Despite a 10% YoY decline in 4W retail unit sales in 9M24, ASII’s consumer financing rose by 9%, driven by a 5% growth in used car financing. In the 2W segment, retail volume expanded by 2% YoY, with a 10% jump in new 2W financing. Heavy equipment financing saw an 18% YoY rise, despite an overall 24% YoY decline in Komatsu unit sales in 9M24.

ASII recently invested Rp4.2 trillion in healthcare, acquiring 95.8% of Heartology Cardiovascular Hospital for Rp643 billion at an attractive 1.6x PBV. The hospital’s traffic is rising well, currently at 30-35% of optimal levels. ASII plans to leverage its HaloDoc investment with 20,000 doctors and pharmacy unit orders from Heartology.

ASII reported a 3Q24 core NPAT of Rp9,332 billion, up 5.2% YoY and 1.4% QoQ. However, the auto division’s NPAT fell by 14.7% YoY due to a decline in automobile unit sales. With Bank Indonesia starting to cut rates, ASII’s future outlook appears positive. Maintain BUY with a higher target price of Rp6,000.

Malaysia: Plantation Sector

Oct 24: Slow Inventory Rebuild Due To Higher Export and Declining Production

MPOB’s Oct 24 data reflected a slow inventory rebuild due to higher exports and declining production. CPO spot prices surged to RM5,060.5/tonne, driven by supply tightness concerns. Our 2024 CPO price assumption remains at RM4,200/tonne, aligning with the forward curve and spot prices.

Production in Oct 24 was slightly above market expectations, with a 1.80 million tonnes output, down 1.3% MoM and 7.2% YoY. Exports exceeded expectations, reaching 1.73 million tonnes, up 11.1% MoM and 17% YoY, driven by increased demand from India and China. Inventory came in below expectations at 1.88 million tonnes, down 6.3% MoM and 23% YoY.

We maintain MARKET WEIGHT on the sector, with Hap Seng Plantations as our only BUY call. The company’s upstream exposure, favorable production trend, and high dividend yields make it attractive. Our 2024 CPO price forecast remains unchanged for now.

Singapore: UMS Integration (UMSH)

3Q24: Earnings Still Below Expectations Due To Slow Ramp-up of New Customer

UMS Integration (UMSH) reported 3Q24 earnings of S\$10 million, down 32% YoY but up 12% QoQ, missing expectations. The slow ramp-up of a new customer and weaker global chip demand contributed to the results. Interim dividend was lowered by 20% YoY to 1.0 S cents.

Revenue in 3Q24 was S\$64.9 million, down 26% YoY but up 18% QoQ. The company expects market uncertainties to continue, with a slower-than-expected ramp-up of its new customer due to labor constraints and execution issues. However, UMS remains prudent in managing market risks and is investing prudently across key business segments.

We trim our 2024/25/26 earnings estimates by 3%/5%/7% respectively to account for the earnings miss and slower ramp-up. Upgrade to HOLD with a target price of S\$0.95.

Singapore: Singapore Airlines (SIA)

1HFY25: Earnings Miss Expectations On Slightly Higher-than-expected Cost

Singapore Airlines (SIA) reported 2QFY25 net profit of S\$290 million, down 59% YoY and 36% QoQ, below expectations. The miss was due to slightly higher-than-expected operating costs. Revenue rose 3.7% YoY to S\$9.50 billion, with pax flown revenue, cargo revenue, and engineering & other rising 1.6%, 4.0%, and 31.7% YoY, respectively.

Non-fuel cost per available-tonne-kilometre (ATK) rose 3.5% QoQ to 42.3 S cents, exceeding projections. Pax yield and cargo yield moderated 6.7% and 7.7% YoY, respectively, in 2QFY25, in line with expectations. An interim dividend of 10 S cents was declared for 1HFY25, unchanged YoY.

Management expects robust demand for air travel in 2HFY25 but notes a competitive landscape. We expect a decent 2HFY25 performance, with satisfactory operating results. Maintain SELL with a target price of S\$5.72.

Singapore: Seatrium (STM)

Keep On Keeping On

Seatrium (STM) continues to execute well on its projects, with a net orderbook of S\$24.4 billion as of end-3Q24. The company signed a US\$400 million LOI with Japan’s Penta-Ocean for early engineering work. Two legacy low-margin projects should be completed by end-24.

The repairs & upgrades segment performed well, completing 192 projects for 9M24. STM secured S\$100 million worth of projects, including a carbon capture & storage retrofit for Mitsui O.S.K. Lines. The company commenced a S\$100 million share buyback, spending S\$29 million so far.

We maintain our BUY recommendation with a target price of S\$2.80, based on a P/B multiple of 1.4x applied to its 2025 book value. The completion of the MAS/CAD investigation remains a key re-rating catalyst.

Thailand: Indorama Ventures (IVL)

3Q24: Beating Estimates With Positive Changes

Indorama Ventures (IVL) reported stronger earnings growth in 3Q24, with net profit of Bt1.5 billion and core profit of Bt3.0 billion, up 678% YoY and 145% QoQ. 9M24 core profit rose 44% YoY to Bt5.5 billion. Management remains optimistic about sustaining growth in 4Q24-2025.

The restructuring and asset optimization program could potentially turn IVL into a growth company again. We expect a solid 114% YoY growth in core profit for 2025, driven by US\$150 million in cost savings, a US\$20 million decline in depreciation costs, and lower interest rate expenses.

IVL plans to spin off and list its downstream IOD and packaging businesses by 2026, aiming to unlock shareholder value and strengthen financial ratios. We revise up our 2024 core profit forecast by 35% to Bt8.0 billion. Maintain BUY with a target price of Bt32.00.

Thailand: Major Cineplex (MAJOR)

3Q24: Better-than-expected Earnings; 2025 Earnings To Reach Pre-COVID-19 Levels

Major Cineplex (MAJOR) reported 3Q24 earnings of Bt50 million, down 52% YoY and 80% QoQ, but above estimates. Earnings dropped due to lower admission revenue caused by the low season and weaker Hollywood movie performance. Gross margin improved to 34.8%.

Revenue came in at Bt1,660 million, down 5% YoY and 18% QoQ. Admission revenue was Bt783 million, down 4% YoY and 26% QoQ. The top 5 movies in 3Q24 were Deadpool & Wolverine, The Paradise of Thorns, Out of The Nest, Despicable Me 4, and Alien: Romulus. Concession revenue came in at Bt399 million, down 11% YoY and 26% QoQ.

We expect moderate earnings growth in 4Q24, driven by higher admission revenue from Thai movies and distribution to overseas markets. MAJOR will benefit from movie content revenue from a cooperation between M-Studio and BEC. Several Hollywood and Thai movies will support earnings.

We anticipate significant earnings growth in 2025, thanks to higher admission revenue from blockbusters and positive momentum of Thai movies. Maintain BUY with a target price of Bt19.00.