Daily Brief Equity Bottom-Up: Alibaba (BABA US): Strategy at Work and more

• Mixed June quarter results at first glance suggest corporate overhaul strategy is working, with clear evidence Taobao/Tmall is stabilizing in terms of market share and profitability.
• Better platform monetization and clear timetable for achieving break-even by non-e-commerce business segments mean double-digit earnings CAGR by FY26 in our view.
• We expect Alibaba’s upswing business cycle and moderating headwind of housing market slump are paving the way for the stock’s re-rating in the next 12-24 months. 

• Profitability of the business surprised on the upside, as the net profit margin of JD.com increased from 3% in 2Q23 to 5% in 2Q24.
• Share buyback accelerated in 2Q24, as the company bought USD2.1bn worth of stock in the quarter, up from USD1.2bn in 1Q24. 
• The stock is trading at 7x 2024 PE, with a yield of >10% through dividend and buyback.

• Ola Electric (OLAELEC IN)  launched its highly anticipated electric motorcycles, offering models from mass market to super premium.
• With entry-level e-bikes priced to compete directly with Hero Motocorp (HMCL IN)’s popular models, Ola could disrupt India’s high-volume, competitive motorcycle market.
• Ola’s ebike volumes could ramp up quickly if its performance meets expectations of the value conscious customer base in the mass-end of the market.

• Screen has rebounded from its recent low, but strong 1H results, the recent weakening of the Yen and reasonable valuation point to further short-term upside. 
• However, management is guiding for slightly lower operating profit in 2H, and Intel’s capex cuts also support a cautious outlook. 
• Screen expects slower growth in 2025 wafer fab equipment demand than SEMI, and neither appear to have factored in concern over insufficient return on investment in AI. 

• Prataap Snacks Ltd (DIAMOND IN)‘s acquisition of Avadh Snacks and recent manufacturing expansions, including new facilities in Kolkata, Jammu, and Rajkot, align with its growth strategy.
• PSL reported an 8.7% revenue increase in Q1 FY25, despite facing raw material cost inflation and rising overheads. The company has streamlined distribution and cost management to sustain margins.
• PSL’s focus on expanding high-margin segments and leveraging cost efficiencies positions it as a resilient and cheapest player in the snack industry.

• Alibaba logistics arm CaiNiao’s revenue growth slowed in the June quarter
• Our main takeaway is that Chinese X-border eComm continues to slow
• We believe all of the large X-border eComm platforms may be affected

• Caterpillar Inc.’s Second Quarter of 2024 earnings showcased a mixed set of results reflective of both the robust execution of the company’s strategic initiatives and some market-induced challenges.
• Jim Umpleby, Chairman and CEO, emphasized resilience through the diversified market presence and the sound execution of long-term growth strategies.
• Despite facing a slight decline in sales and revenues, which fell by 4% from the previous year, Caterpillar recorded an increase in its adjusted operating profit and a noteworthy improvement in operating profit margins.

• Coupang’s recent quarter highlights a strong performance driven by strategic initiatives and operational improvements, alongside a promising outlook tempered by certain challenges that need to be addressed for sustained growth.
• The company’s revenue grew by 30% year-over-year in constant currency, showcasing impressive sales momentum.
• This growth was partly fueled by the acquisition of Farfetch, which played a key role in the company’s multifaceted growth strategy.

• Nike Inc has long been a dominant player in the global sportswear industry, renowned for its innovation and strong brand presence.
• However, recent challenges, including macroeconomic headwinds and market dynamics, have led to a downslide in its stock performance.
• Enter Pershing Square Capital Management, led by billionaire investor Bill Ackman, which recently disclosed a $229 million stake in Nike.

Dentsu’s H124 figures show sequential quarterly improvements, with the group posting organic growth of 0.2% in Q2. Encouragingly, this is in part ascribed to improved pitch win rates in all four reporting regions, underpinning growth projections through H224 and into FY25, despite the persistent difficult macroeconomic backdrop. The One dentsu initiative is driving collaborative efforts across group capabilities and geographies and we expect this to be at the heart of the new medium-term strategy, to be unveiled in H2. In the meantime, the Business transformation (BX) offering is proving effective in Japan and is now to be rolled out more widely. The shares continue to be valued well below peers and we would expect this discount to narrow with improving operational performance.