In today’s briefing:
- Alibaba Cloud: Faces Nationalization Threat, IPO Prospects Remain Dim
- Yili: 4Q22 and 1Q23 Results – Buy
- M3: Guidance Points to Further Slowdown in Growth
- Dongfang Electric (1072 HK): Profit Surged, Record New Orders Signed
- Hygeia Healthcare (6078.HK) – Profits Fell Short of Expectations, but the Outlook Remains Positive
- [SMIC (981 HK, BUY, TP HK$24) Target Price Change]: Still Waiting for Downstream Inventory Digestion
- REIT Watch – Hospitality S-Reits among April’s top performers, averaging 6% gains
- SHEN: One-Time Benefits Offset Loss
Alibaba Cloud: Faces Nationalization Threat, IPO Prospects Remain Dim
- Alibaba (ADR) (BABA US) Cloud will cut prices for its elastic computing services using Arm and Intel-based chips by 15-20% and Nvidia’s V100 and T4 graphics processing units by 41-47%.
- It seems like the company is trying to combat increasing competition in the only way it knows how, by further subsidizing its already-subsidized cloud services.
- Price may not be the main reason for companies to avoid using Alibaba Group (9988 HK)‘s Cloud services. Government initiatives to nationalize the cloud-computing market could be a bigger factor.
Yili: 4Q22 and 1Q23 Results – Buy
- 4Q22 result beat and 1Q23 result was roughly in line
- Revenue growth to accelerate and margin to improve in 2023
- Long-Term targets remain unchanged and the valuation becomes attractive now
M3: Guidance Points to Further Slowdown in Growth
- M3 Inc (2413 JP) reported 4QFY03/2023 results on Friday. Both revenue and OP increased 3.1% and 52.0% YoY to ¥55.7bn (vs consensus ¥60.8bn) and ¥16.0bn (vs consensus ¥17.8bn) respectively.
- We previously raised concerns over slowdown in medical platform earnings, and it seems that m3 has not been able to generate meaningful growth from its overseas businesses.
- The company expects FY03/2024E revenue growth to further drop to about 8.3% marking the slowest annual increase in revenue over the last two decades.
Dongfang Electric (1072 HK): Profit Surged, Record New Orders Signed
- The market should be happy with the 43.9% YoY growth in recurring earnings at Dongfang Electric (1072 HK) in 1Q23. Gross margin of 18.7% is the highest since 2Q21.
- New orders surged 26.1% YoY and 92.4% QoQ to a record Rmb22.6bn in 1Q23. We estimate backlog equals to 1.42x FY23F consensus revenue, meaning a very secured pipeline.
- While EPS dilution is a concern, this has already been reflected in share price. The acquisitions of subsidiaries will enhance FY23 earnings. Its 8x PER and 0.8x P/B are inexpensive.
Hygeia Healthcare (6078.HK) – Profits Fell Short of Expectations, but the Outlook Remains Positive
- In 2022, Hygeia maintained stable revenue growth but with lower-than-expected profit performance. We think Hygeia’s profitability would improve gradually in the future as more and more new hospitals become break-even.
- Different from Aier/Topchoice, Hygeia’s acquired hospitals would be directly incorporated into the listed company, which means all aspects of consideration would be prudent. This is clearly more beneficial for investors/shareholders.
- Hygeia’s business model has proven to be replicable.The implementation of DRG policy has no significant impact on profitability. Hygeia is expected to have higher valuation than Aier/Topchoice in the future.
[SMIC (981 HK, BUY, TP HK$24) Target Price Change]: Still Waiting for Downstream Inventory Digestion
- We expect SMIC to report C1Q23 top-line, IFRS operating income, and non-IFRS net income (2.6%), (31%), and (29%) vs. consensus, respectively.
- Our sample of 1Q23 earnings for A-listed fabless firms found that (1) inventory days grew 18% QoQ to 191 days, and (2) revenues declined 9% QoQ.
- Despite potential earnings miss, SMIC’s BUY case is strengthened positive externalities. We maintain BUY and raise TP to HK$24.
REIT Watch – Hospitality S-Reits among April’s top performers, averaging 6% gains
- Hospitality S-Reits among April’s top performers, averaging 6% gains However, by sub-segments within the index, hospitality S-Reits were the best performing segment with average total returns of 6.1 per cent followed by data centre S-Reits at 1.7 per cent.
- The top five performing trusts and their respective total returns were: CapitaLand Ascott Trust (8.5 per cent), Frasers Hospitality Trust (6.7 per cent), Mapletree Logistics Trust (5.6 per cent), Far East Hospitality Trust (5.1 per cent) and CDL Hospitality Trusts (4.2 per cent).
SHEN: One-Time Benefits Offset Loss
- SHEN reported first quarter results benefiting from non-recurring termination revenue and tax refunds. SHEN’s revenue and profitability were aided in the quarter with $1.7 million in termination fee
- Net income benefited from a one-time refund on sales tax and interest earned on tax refunds more than offsetting SHEN’s interest expense
- SHEN ended the first quarter with 28,793 Glo Fiber subscribers, up 4,507 from the fourth quarter 2022
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