*SINOPEC CHAIRMAN: LOOKING TO ADD HIGH-QUALITY OVERSEAS ASSETS
Japan Pension Fund GPIF: Q1 results (end Jun): Return 1.9% (lowest in a year due to losses on domestic bonds)
- Have 13% assets in foreign bonds and 22% in foreign stocks
- Cuts Japanese bond holdings to 38% of assets
- Raises Japanese equity portion to 23%- Asset at ¥141.1T (record level)
Semis - Starting to price in bear cases
* Chances are the Semis sell-off is in its last innings…
Semis have corrected with little differentiation in performance ytd, which is typical for mid-cycle inventory and share price corrections such as in 2004, 2006, late 2007/early 2008 (ex GFC), 2010, 2011 and 2012. The magnitude of EPS downward revisions could be approaching a bottom – in the past, the current level of revisions has often coincided with pending troughs for share prices. The sector’s peak to trough decline since May is now 25%, close to the historic average since 2004 (28%), although it has happened a lot quicker compared to previous corrections (88 days vs average 184). While BAML’s Semis team has highlighted the risk of further estimate cuts for 4Q, stocks may be approaching a floor assuming this remains a modest de-stocking cycle and does not turn into a global macro shock. At the least, we would expect the relative underperformance of Semis vs markets (which have been ‘catching down’ in the last few days) beginning to subside. We highlight ASML & ARM as quality compounders in European Semis that long-term investors should consider buying.
* ASML (Buy): Reflecting EUV bear case
At ~EUR78, we believe the stock is discounting a scenario of 16x our 2019 EUV bear case EPS of EUR6 (EUR96/share discounted at 7% WACC). ASML could return all FCF generated between now and then via dividends & buybacks, which we estimate have a cumulative yield of ~40% at the current share price. Buying and holding the stock now
and ASML only delivering along our EUV bear case scenario would still imply a 4-year TSR of 65%. In a more likely EUV base case scenario (EUR9 in 2019 EPS at 16x), the 4- year TSR would rise to 128%. Based on recent meetings with TSMC, the risk of shortterm order cuts from foundries seems low, while we highlighted last week that rising
capex announced by #2 & 3 memory players Hynix and Micron improves visibility of a ‘longer-for-stronger’ memory capex cycle. Net net, we view the risk-reward as attractive for long-term investors wanting to buy a likely monopoly franchise in Tech.
* ARM (Buy): Discounting 2% 2016-20 PD royalty growth
As we highlight in our accompanying note, investor concerns about a growth slowdown in mobile have driven a de-rating to the stock’s 10-year trough P/E (ex GFC). We believe ARM’s share price is now discounting a pessimistic ~2% 2016-20E PD royalty revenue CAGR, implying an unlikely industry revenue decline of >10% p.a for the next few years.
* Wait & see with the ‘super-cyclicals’ IFX & STM
For Infineon & STMicro (both Neutral), risks to industrial automation and more late– cycle Auto demand plus the now weakening $ could prolong the impact of a cyclical downtrend. For Infineon, we view the risk-reward as neutral with the stock 10% below our base case scenario and ~20% above our bear case. For STMicro, we believe its current share price at FY16e EV/sales of 0.8x is discounting c.6% operating margins, broadly inline with our estimate of 6.8%. While the dividend yield at 5.7% is attractive, we consider 1) Lack of clarity on DPG demand/restructuring, 2) Downside concerns in China autos (where STM has #1 market share), and 3) FX now turning into a headwind at $/EUR 1.15.
Reversal of currency tailwinds to put European earnings at risk; cut estimates and TPs
* European earnings at risk – maintain negative view.
We maintain our negative sector view, as recent RmB devaluation not only cuts margins on China exposure, but also on Europe. Deterioration (normalisation) in Europe's trade balance (major trade currencies depreciated versus the euro) is set to put pressure European earnings due to lower utilisation and overall a more challenging pricing environment. In our view, the market still fails to discount this risk. Estimates cut >10% for the sector, which puts us c.15% below the street. FCA (OP) remains our most preferred name in the sector.
* Europe's trade balance set to deteriorate:
We see material risk to European production and utilisation rates as currency tailwinds on exports are set to reverse/normalise (euro appreciated by c. 8.5% since April lows already). Lower net exports should offset any domestic demand improvement in 2016E, which leaves overall industry utilisation rates at best flat YoY. Worsening supply/demand balance within Europe likely creates more price pressure, which in turn means lower margins.
* Germany to struggle the most.
Supportive currency development combined with strong dynamics in export markets like the UK/US (one-third of total) provided meaningful tailwinds for German OEMs. We see 2015 as a turning point for the German industry, and we expect production in 2016E to decline by 3% YoY driven by lower export volumes, which are unlikely to be
compensated by accelerating domestic demand. Thus, we expect the industry utilisation rate to decline to 82%, which is the lowest since 2009.
* Peaking profit cycle – cutting estimates >10%.
We cut our earnings on average by >10% for the period 2015-2018E to reflect lower assumptions for China and Europe. Our biggest cuts are at PSA/Renault, as both have the highest leverage to the European cycle. Our 2016E estimates put us 15% below the street on average. In our view, the market is overly optimistic on European earnings recovery and underestimates the negative implications from reduced net exports/pricing.
>>> EuroStoxx Inidcated Higher this morning - we should fill the Gap left open on the last few days - Watch the 3247.26 point (where it's trading now)...US rallied on Carry Trade set up noise, Europe should underperform US on the next few days...There is a Resistance on Dax 2% higher...I will use today's move to start hedge portfolio again...Jackson Hole Symposium today...Shanghai still flattish after trading much higher today
Dow+3.95% S&P+3.90% Nasdaq+4.24% Russell+2.54% VIX 30.32 ( -15.82%)
US Market closed sharply higher after 6days of losses. Market stayed in a slow mode on the first few hours of trading, even don't really react do Dudley comments. Market started to rally at the same time that the USD began rallying against Euro & JPY, suggesting the return of Carrt flows, US 10y traded up to 2.19%, spike in yield kept utilities behing the borad market. Tech Sector was leading the move, with Mega Cap spiking AAPL +5.74% FB +5.05% GOOGL +7.72% (GS Upgrade). Energy traded higher too even if Crude settle lower @ $38.68 (-1.6%), higher this morning @$39.45 (+2.20%)...Volume were again above 1bil shares @ 1.25bil...well above average...US AFter Hours NQ +63.4%, EDAP +11.6%, PVH +5.0%, WDAY -7.2%, VNET -5.9%, WSM -5.6%, GES -4.3% following earnings/guidance...In Asia, the positive developments also emerged from China, with PBOC injecting another CNY150B in 7-day reverse repos and doing so at a lower yield of 2.35% v 2.50% prior - the first time that yield was lowered since Jun 29th. Separately, earlier today, Chinese pres citing State Information Center researcher Zhu Baoliang noting GDP can grow around 7% in the future and fundamentals are sound. BOJ's Kuroda reiterated the view that inflation target can be met despite the oil price decline, signalling that while the central bank is prepared to adjust QQE, the current pace of QQE will meet price objective. BOJ also stated there is no plan for further easing at this time despite the recent speculation that the easing may be boosted due to low oil prices.
Nikkei +1.23% Hang Seng +2.21% Shanghai -0.5% ( after gaining 3%)
Eur$ 1.1347 CNY 6.4067 JPY 119.92 GBP 1.5493 EURCHF 1.0813 RUB$ 68.52 WTI 39.51 (+2.36%)
S&P Flat EuroStoxx +1.48% Dax +1.62% SMI +1.71%
Macro :
- China’s Ability to Stem Rout Hindered by Interest-Rate Flaw
- Tsipras’s Election Gamble Risks Backfiring as Greeks Get Jaded
Keep an eye on :
- ADS GY : Adidas CEO Says Not Feeling Any Impact From China Crisis: FAZ
- ALO FP : GE’s Alstom Purchase Could Lead to Loss of 10,000 Jobs: Figaro
- BALN SW : Baloise 1H Net Income CHF249m, Est. CHF247m; Sees 8%-12% FY ROE
- BAS GY : BASF, SKC in Talks for S. Korea Hydrogen Peroxide Plant: Yonhap
- EN FP : Bouygues Raises FY Telecom Outlook, Confirms for Construction
- CRH LN :CRH to Buy C.R. Laurence for Total Consideration of $1.3b
- BC IM : Cucinelli 1H Ebitda In Line With Ests.
- FGR FP : Eiffage 1H Rev. EU6.6b vs EU6.5b Y/y
- FIE GY : Fielmann Sees 2015 Unit Sales, Rev., Profit Rising
- GTO NA : Gemalto 1H Adj. Net EU105.7m vs Est. EU143m
- GKP LN : Gulf Keystone Unbooked Revenue $117m to End-1H
- IBAB BB : Ion Beam 1H Net EU14.5m vs EU7.44m; Raises 2015 Rev. Forecast
- MS IM : Mediaset Offering Appealing Entry Level, Upgraded at Mediobanca
- RI FP : Pernod FY Organic Sales Growth Misses, Has EU404m Absolut Charge
- SU FP : Schneider CEO Says No Need to Cut Forecasts on China Stock Mkt
- SYNN VX : Syngenta Confident in Prospects, Says Monsanto Undervalued It
Dow+3.95% S&P+3.90% Nasdaq+4.24% Russell+2.54% VIX 30.32 ( -15.82%)
US Market closed sharply higher after 6days of losses. Market stayed in a slow mode on the first few hours of trading, even don't really react do Dudley comments. Market started to rally at the same time that the USD began rallying against Euro & JPY, suggesting the return of Carrt flows, US 10y traded up to 2.19%, spike in yield kept utilities behing the borad market. Tech Sector was leading the move, with Mega Cap spiking AAPL +5.74% FB +5.05% GOOGL +7.72% (GS Upgrade). Energy traded higher too even if Crude settle lower @ $38.68 (-1.6%), higher this morning @$39.45 (+2.20%)...Volume were again above 1bil shares @ 1.25bil...well above average...US AFter Hours NQ +63.4%, EDAP +11.6%, PVH +5.0%, WDAY -7.2%, VNET -5.9%, WSM -5.6%, GES -4.3% following earnings/guidance...In Asia, the positive developments also emerged from China, with PBOC injecting another CNY150B in 7-day reverse repos and doing so at a lower yield of 2.35% v 2.50% prior - the first time that yield was lowered since Jun 29th. Separately, earlier today, Chinese pres citing State Information Center researcher Zhu Baoliang noting GDP can grow around 7% in the future and fundamentals are sound. BOJ's Kuroda reiterated the view that inflation target can be met despite the oil price decline, signalling that while the central bank is prepared to adjust QQE, the current pace of QQE will meet price objective. BOJ also stated there is no plan for further easing at this time despite the recent speculation that the easing may be boosted due to low oil prices.
Nikkei +1.23% Hang Seng +2.21% Shanghai -0.5% ( after gaining 3%)
Eur$ 1.1347 CNY 6.4067 JPY 119.92 GBP 1.5493 EURCHF 1.0813 RUB$ 68.52 WTI 39.51 (+2.36%)
S&P Flat EuroStoxx +1.48% Dax +1.62% SMI +1.71%
Macro :
- China’s Ability to Stem Rout Hindered by Interest-Rate Flaw
- Tsipras’s Election Gamble Risks Backfiring as Greeks Get Jaded
Keep an eye on :
- ADS GY : Adidas CEO Says Not Feeling Any Impact From China Crisis: FAZ
- ALO FP : GE’s Alstom Purchase Could Lead to Loss of 10,000 Jobs: Figaro
- BALN SW : Baloise 1H Net Income CHF249m, Est. CHF247m; Sees 8%-12% FY ROE
- BAS GY : BASF, SKC in Talks for S. Korea Hydrogen Peroxide Plant: Yonhap
- EN FP : Bouygues Raises FY Telecom Outlook, Confirms for Construction
- CRH LN :
- BC IM : Cucinelli 1H Ebitda In Line With Ests.
- FGR FP : Eiffage 1H Rev. EU6.6b vs EU6.5b Y/y
- FIE GY : Fielmann Sees 2015 Unit Sales, Rev., Profit Rising
- GTO NA : Gemalto 1H Adj. Net EU105.7m vs Est. EU143m
- IBAB BB : Ion Beam 1H Net EU14.5m vs EU7.44m; Raises 2015 Rev. Forecast
- MS IM : Mediaset Offering Appealing Entry Level, Upgraded at Mediobanca
- RI FP : Pernod FY Organic Sales Growth Misses, Has EU404m Absolut Charge
- SU FP : Schneider CEO Says No Need to Cut Forecasts on China Stock Mkt
- SYNN VX : Syngenta Confident in Prospects, Says Monsanto Undervalued It
>>> Up
*CERVED RAISED TO BUY VS HOLD AT HSBC
*CONWERT RAISED TO BUY VS HOLD AT KEPLER CHEUVREUX
*EDENRED RAISED TO BUY VS NEUTRAL AT ODDO
*FONCIERE DES REGIONS RAISED TO EQUALWEIGHT AT MORGAN STANLEY
*GRIEG SEAFOOD ASA RAISED TO BUY AT NORDEA
*ING GROEP RAISED TO BUY AT DEUTSCHE BANK
*LONDONMETRIC RAISED TO EQUALWEIGHT AT MORGAN STANLEY
*MEDIASET RAISED TO OUTPERFORM VS NEUTRAL AT MEDIOBANCA
*MERCK KGAA RAISED TO BUY VS HOLD AT BERENBERG
*METRO RAISED TO BUY VS SELL AT BANKHAUS LAMPE
*PETROFAC RAISED TO BUY VS HOLD AT SOCGEN
*PHILIPS RAISED TO BUY VS NEUTRAL AT NOMURA
*PREMIER FARNELL RAISED TO BUY VS HOLD AT HSBC
*RELX RAISED TO BUY VS HOLD AT BERENBERG
*SKF RAISED TO BUY VS NEUTRAL AT UBS
*TATE & LYLE RAISED TO BUY AT JEFFERIES
*THYSSENKRUPP RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT BARCLAYS
*WPP RAISED TO HOLD VS SELL AT BERENBERG
>>> Down
*CAPITAL & COUNTIES CUT TO EQUALWEIGHT AT MORGAN STANLEY
*HAMMERSON CUT TO EQUALWEIGHT AT MORGAN STANLEY
>>> PT Change
*ARCELORMITTAL PT CUT TO €10.50 FROM €11 AT BARCAP (Note attached)
*VOESTALPINE PT CUT TO €43 from €45 AT BARCAP
>>> initiation
*ARCELORMITTAL RATED NEW NEUTRAL AT JPMORGAN, PT EU7.50
*SALZGITTER RATED NEW EQUALWEIGHT AT BARCLAYS, PT EU30 (Note attached)
*SHAFTESBURY RESUMED REDUCE AT HSBC, PT 856P
*THYSSENKRUPP RATED NEW OVERWEIGHT AT JPMORGAN, PT EU23.60
>>> call
>> Stock
*LAFARGEHOLCIM MOVED TO SECTOR TOP PICK AT MORGAN STANLEY
After Hours Summary: NQ +63.4%, EDAP +11.6%, PVH +5.0%, WDAY -7.2%, VNET -5.9%, WSM -5.6%, GES -4.3% following earnings/guidance
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings: NQ +63.4%, EDAP +11.6%, PVH +5.0%, PRCP +3.9%, AVGO +3.1%, PSEC +3.0%
Companies trading higher in after hours in reaction to news: NQ +60.1% (entered into agreement to sell Nation Sky for $80 mln and FL Mobile for no less than ~$626 mln; co also reported earnings), ACAS +1.7% (closed on the sale of $510 mln of collateralized loan obligation bonds), SIRI +0.8% (announced Board authorization for the addition of a further $2 billion to its stock repurchase program)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings: WDAY -7.2%, VNET -5.9%, WSM -5.6%, GES -4.3%, TLYS -4.1%, PSG -0.7%
Companies trading lower in after hours in reaction to news: VNET -5.9% (announced management changes: CFO Terry Wang has resigned as a director of the Board, Sean Shao appointed as an independent director, effective on August 24; co also reported earnings), ANAD -5.8% (filed registration statement for up to $50 mln offering of a combination of debt and equity securities; disclosed entry into an At-The-Market Issuance Sales Agreement with MLV & Co to sell common stock), RUN -4.0% (to issue Q2 earnings report after the market closes on Thursday, September 10, 2015), IMNP -0.8% (filed for 14 mln share common stock offering by selling shareholders)