In today’s briefing:
- Alibaba (9988 HK): 3Q23, Growth Flat, But Margin Up, Buy
- Perfect Medical: Calm Start to the Year, Correction Provides Good Entry Point
- Baidu: Undervalued Cyclical Revenue Growth Acceleration and Margin Expansion Story
- Taiwan Semiconductors Mid-Earnings Season Review: Margins, Inventories Appear Worse Than Expected
- Aeon Retail: Profits Again After 4 Years
- Automaker GAC Seeks China-Made Chips to Ease Dependence on Foreign Suppliers
- AI Leaders Monitor: Nvidia, TSMC, ASML Trading Monitor – Nvidia Results Key Take-Aways
- Kubota (6326) | Signs of Stability
- Apollo Hospitals Enterprise (APHS IN): Q3 Profit Drops; Hospital Business Remains the Brightest Spot
- New U.S. CHIPS Act Speech: Commerce Secretary Emphasizes National Security Game Changer; Conclusions
Alibaba (9988 HK): 3Q23, Growth Flat, But Margin Up, Buy
- Revenue grew by 2% YoY in 3Q22, as the decrease of online sales offset the increase of physical stores.
- The operating margin began to improve, as the company cut sales and marketing expenses in minor businesses.
- We believe the stock has an upside of 78% for March 2024 and the price target will be HK$170.
Perfect Medical: Calm Start to the Year, Correction Provides Good Entry Point
- A correction in Perfect Medical Health’s (1830 HK) share price recently has led to it trading at a decent multiple of 15.2x/11.6x FY23e/24e PE(x) with a 6.9%/9.1% FY23e/24e dividend yield.
- We estimate the lockdowns in China from Oct-Dec last year will impact the H2 FY23 result, leading to softer revenue growth of 4.8% for FY23 (profit 11% YoY).
- We are optimistic about China re-opening and cross-border travel and believe that >20% revenue growth can materialize in FY24, led by a recovery in China/HK revenue.
Baidu: Undervalued Cyclical Revenue Growth Acceleration and Margin Expansion Story
- Following several years of sustained revenue share loss, Search’s digital advertising revenue market share has stabilised, having seemingly retained its core advertising customers.
- With China’s economic growth recovery, Baidu is perfectly positioned to accelerate its core marketing revenue growth, which is also a high-margin operation.
- Baidu is set up for significant group margin expansion as the higher-margin core marketing business returns to positive annualised growth and it continues to expand AI Cloud margins.
Taiwan Semiconductors Mid-Earnings Season Review: Margins, Inventories Appear Worse Than Expected
- We’re now two-thirds through the Taiwan Semiconductor earnings season and about one-third through the Taiwan Hardware earnings season.
- Semiconductor gross margins declines have been relatively large, and we believe are tracking to be worse than what consensus expected going into the earnings season.
- There have been few examples of inventory situations improving for semicondcutor companies; results data released so far indicates a potentially deeper trough than previously expected.
Aeon Retail: Profits Again After 4 Years
- Aeon’s main GMS arm, Aeon Retail, is on track to post a net profit in FY2023 after a 4-fold increase in OP in 1H2022.
- This is largely thanks to stronger sales and footfall and the success of efficiency measures introduced over the past few years.
- The improvements look sustainable and should lead to improved results for Aeon longer-term adding to the already good results from the drugstore, real estate and overseas businesses.
Automaker GAC Seeks China-Made Chips to Ease Dependence on Foreign Suppliers
- Guangzhou Automobile Group Co. Ltd. (GAC) (601238.SH -0.51%) is working to get more domestically produced microchips into its vehicles.
- It relies on overseas suppliers for about 90% of its automotive chips.
- GAC Capital Co. Ltd. sees plenty of opportunity to increase the share of domestic chips in the automaker’s cars.
AI Leaders Monitor: Nvidia, TSMC, ASML Trading Monitor – Nvidia Results Key Take-Aways
- The three companies Nvidia, TSMC, and ASML are all key global leaders in the AI industry chain.
- Nvidia’s latest results indicate that the company could be returning to a period of multi-year growth and an inflection point for AI demand.
- One can consider going Long a basket of Nvidia, ASML, and TSMC based on a structural growth thesis for AI demand.
Kubota (6326) | Signs of Stability
- We turn bullish on Kubota. Macro indicators point to stabilization
- Management guidance for 2023 surprised the market, but we think it is realistic
- We think that quarterly results will be a catalyst to convince investors that profitability is improving
Apollo Hospitals Enterprise (APHS IN): Q3 Profit Drops; Hospital Business Remains the Brightest Spot
- Apollo Hospitals Enterprise (APHS IN) recorded 19% revenue growth in Q3. The largest segment, healthcare services, which contributed 51% of total revenue, grew 10%. However, net profit dropped 33%.
- The company’s bottom line bled mainly due to high operating cost of the digital healthcare services platform, Apollo 24/7. Excluding operating cost of Apollo 24/7 EBITDA would have grown 10%.
- The company believes that it is at the peak burn rate for Apollo 24/7 operating cost this quarter and expects losses to moderate from here on.
New U.S. CHIPS Act Speech: Commerce Secretary Emphasizes National Security Game Changer; Conclusions
- U.S. Commerce Secretary gave a new speech providing additional public detail about the U.S. CHIPS Act aimed at re-shoring the manufacture of semiconductors in the U.S.
- Emphasis on national security means that financial cost is now secondary for the U.S. and we should not expect any loosening of chip restrictions for China.
- Taiwan companies are straddling a “sweet spot” given they are not restricted, can invest in the U.S. expansion, maintain local non-U.S. advantages, and have had their China-based competition weakened.
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