In today’s briefing:
- Alibaba Potential IPOs – Part 3 – An Early Look at Cloud, Easy US$10bn+
- Alibaba (9988 HK): 4Q23, Physical Store Revenue Decreased for First Time, Downgrade to Hold
- Sing Tao (1105 HK) Makes Its Own News
- Alibaba 4QFY23: Concerns Surrounding Taobao and Tmall, Disappointing IPO-Bound Cloud & Cainiao
- [Tencent (700 HK, BUY, TP HK$433) Earnings Review]: Ads Growth Will Accelerate, Maintain BUY
- Tencent: Domestic Gaming Returns to Growth
- [ZTO Express (ZTO US, BUY, TP US$38) TP Change]: Margin Improves While Capex Intensity Nears Peak
- [iQIYI, Lnc. (IQ US, SELL, TP US$5) Target Price Change]: Content Pipeline Weakens After
- Full-Year Results for Alibaba’s CaiNiao: Reduced Losses, Slower Growth, and A (Likely) 2024 IPO
- Dmall Pre-IPO – The Negatives – Path to Profitability Remains Murky and Related Party Sales an Issue
Alibaba Potential IPOs – Part 3 – An Early Look at Cloud, Easy US$10bn+
- On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
- Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
- In our previous note, we highlighted which division could list. In this note, we will look at the Cloud segement.
Alibaba (9988 HK): 4Q23, Physical Store Revenue Decreased for First Time, Downgrade to Hold
- Alibaba’s revenue from physical stores decreased year over year for the first time.
- The operating margin declined despite that Alibaba cut losses in minor businesses.
- We conclude an upside of 15% and a price target at HK$101. Downgrade to Hold.
Sing Tao (1105 HK) Makes Its Own News
- Sing Tao News Corp (1105 HK), which owns Hong Kong’s oldest and third-largest Chinese language newspaper, is suspended pursuant to the Hong Kong Code on Takeovers and Mergers.
- A takeover of Sing Tao was mooted in 2019-2021 when Charles Ho, the former chairman, sought to exit his 48.98% stake; but that transaction fizzled out.
- At a market cap of just US$50mn, this (likely) Offer hardly rates a mention. Yet a takeover of a Hong Kong newspaper is still newsworthy.
Alibaba 4QFY23: Concerns Surrounding Taobao and Tmall, Disappointing IPO-Bound Cloud & Cainiao
- Alibaba (ADR) (BABA US)‘s 4QFY23 OP beat consensus by around RMB 2.5bn (20% beat) through cost cutting, but YoY revenue growth remained sluggish at 2.0%.
- Consensus expectations of Alibaba achieving an OP of RMB 150bn by FY25 may be overly optimistic due to declining dominance of Taobao and Tmall, and lack of profitable alternative businesses.
- Alibaba Group (9988 HK) would need to excel to reach RMB100bn OP, resulting in a high FY+2 EV/OP of 14.0x. This seems steep for a company with minimal earnings growth.
[Tencent (700 HK, BUY, TP HK$433) Earnings Review]: Ads Growth Will Accelerate, Maintain BUY
- Tencent’s latest financial results are in line with expectations, with revenue and non-IFRS profit of 2.5%/(2.1%) vs cons. While we anticipate weak growth in the gaming sector,
- We suggest that advertising presents several catalysts for Tencent, including the recovery of Ecommerce and gaming, WeChat Video Account’s growth, and inter-connections with Baba and Mihoyo.
- We maintain a BUY rating with an unchanged target price of HK$433, implying 34X PE in 2023.
Tencent: Domestic Gaming Returns to Growth
- Tencent (700 HK) reported 1Q2023 results. Revenue grew 10.7% YoY and beat consensus estimate by 2.3% while reported operating profit was 2.25 below consensus estimates.
- Key highlight was the YoY growth in domestic game revenue (+6%) which was mainly driven by strong performance of newly launched titles.
- There has been strong recovery across all business segments during the quarter and current valuations are still at a discount to historical trading multiples and offer a good entry point.
[ZTO Express (ZTO US, BUY, TP US$38) TP Change]: Margin Improves While Capex Intensity Nears Peak
- ZTO reported C1Q23 top-line, IFRS EBIT, and non-IFRS net income (3.1%), 30%, and 30% vs. our est. ZTO raised volume est. to 20-24% YoY;
- Margin beat as parcel cost was (8%) vs. our est., but we suggest also due to (1) parcel mix improvements, (2) output-based pay, and (3) lower % of KA customers;
- Maintain BUY and raise TP to US$ 38 due improving gross profit per parcel and an end in-sight for CAPEX spending. Our TP implies 24x P/2023E.
[iQIYI, Lnc. (IQ US, SELL, TP US$5) Target Price Change]: Content Pipeline Weakens After
- IQIYI’s 1Q23 top line beat our est. by 8.5%, while its non-GAAP net income beat our est./cons by 95%/82%, largely due to its blockbuster <Knockout>.
- However, we expect its content pipeline is weaker compared with other key competitors in Q2.
- Our top and bottom lines in 2Q23 are (3.4%)/(7.4%) vs cons, due to the fierce competition. Maintain SELL and cut TP to US$ 5.0, implying 16.7X PE in 2023.
Full-Year Results for Alibaba’s CaiNiao: Reduced Losses, Slower Growth, and A (Likely) 2024 IPO
- Cainiao Smart Logistics (1437124D HK) ‘s March 2023 quarterly and full-year results can be found within Alibaba’s full-year earnings report, which was released on Thursday May 18
- In both the March quarter and its fiscal year, CaiNiao showed improved Adjusted EBITDA results, though in both periods the tech-centric logistics network still reported losses
- Revenue growth slowed to 18% Y/Y in the March quarter, and parent Alibaba (ADR) (BABA US) indicated CaiNiao will target an IPO in 2024, a bit later than some expected
Dmall Pre-IPO – The Negatives – Path to Profitability Remains Murky and Related Party Sales an Issue
- Dmall Inc (1751691D CH) is looking to raise around US$200m in its upcoming Hong Kong IPO.
- Dmall provides cloud-based, end-to-end SaaS platform purpose-built for the Chinese retail industry.
- In this note, we will talk about the not so positive aspects of the deal.
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