In today’s briefing:
- Alibaba Cloud Slashes Prices to Spur Revenue Growth Before Possible IPO
- Alibaba (BABA US): How Will Generative AI Improve Its Efficiency?
- Nidec (6594 JP): Buy into Current Weakness
- AKR Corporindo (AKRA IJ) – A Winning Formula
- GoTo: Sacrificing Growth to Improve Profitability
- Air China (753 HK): Demonstrating Obvious Strengths
- Bank Negara Indonesia (BBNI IJ) – Quality Focus by Digital Means
- Tianneng Power (819): Value Trap?
- Samsung Biologics (207940 KS): Slow Start of 2023; Stronger Growth in H2; 2023 Guidance Raised
- Millennium Services Group Ltd – Contract Wins Now Evident in the Numbers
Alibaba Cloud Slashes Prices to Spur Revenue Growth Before Possible IPO
- Alibaba Group Holding Ltd. slashed prices for its core cloud services by as much as 50% and offered free trials of some cloud products for as long three months, fueling competition in an already crowded market.
- Through the price cut, Alibaba Cloud hopes to make the cost of its cloud services significantly lower than costs offered by other data centers
- The valuation of cloud companies is generally based on the price-to-sales ratio rather than the price-to-earnings ratio
Alibaba (BABA US): How Will Generative AI Improve Its Efficiency?
- Recent research conducted by industry players – most notably OpenAI – about the impact of generative AI on labor markets provides a framework for gauging its monetization potential.
- We take a small step forward to apply them to two specific occupations in China including translators and computer programmers, which combined represent RMB1,400 bn TAM.
- For China’s internet giants such as Alibaba, generative AI could result in cost savings of up to RMB20 bn, or 14% of its FY2023 net profit.
Nidec (6594 JP): Buy into Current Weakness
- FY Mar-23 results fell short of expectations and management is guiding for a weak 1H in the new fiscal year. This looks like a buying opportunity.
- The E-Axle business should reach break-even this year. Rising EV demand in China, Europe and elsewhere, plus general electrification, should take the overall Automotive operating margin to 10%.
- Projected valuations are attractive even if sales do not reach management’s ambitious target.
AKR Corporindo (AKRA IJ) – A Winning Formula
- AKR Corporindo1Q2023 results demonstrated its resilience with its petroleum and chemicals division continuing to grow in 1Q2023 with the added kicker of a large land sale at JIIPE.
- The company’s JIIPE Industrial Estate will become an increasingly important earnings contributor but chemical distribution will be driven by smelters and fuel by the BP retail JV at the margin,
- AKR Corporindo is an increasingly interesting proxy for the next stage of Indonesia’s economic growth through its exposure to smelters through its chemicals business and the overall economy through fuel.
GoTo: Sacrificing Growth to Improve Profitability
- GoTo (GOTO IJ) reported 1Q2023 results yesterday. Gross revenue increased 14.3% YoY to IDR5.98trn while adjusted EBITDA losses further declined to IDR3.52trn from IDR5.94trn in 1Q2022.
- However, all growth matrices point towards a slowdown compared to the previous quarter with gross revenues of all segments and On-demand take rate declining QoQ in 1Q2023.
- With GoTo prioritising profits over growth, we expect the company’s growth rates to further decline and wonder if the company could hold it for long?
Air China (753 HK): Demonstrating Obvious Strengths
- Air China Ltd (H) (753 HK)‘s 1Q23 result demonstrated a significant YoY and QoQ reduction in losses. At Rmb2.9bn, this is the smallest losses in last six quarters.
- We witnessed a solid spike in overall yield and sharp margin recovery in the quarter. There is also encouraging performance in operating cash flow which turned around YoY to positive.
- Its associate Cathay Pacific Airways (293 HK) has seen Mar capacity returned to 50% of pre-pandemic level with over 90% load. More resumption of international flights will drive 2H23.
Bank Negara Indonesia (BBNI IJ) – Quality Focus by Digital Means
- Bank Negara Indonesia achieved a strong set of 1Q2023 numbers despite moderate loan growth, where the headline masked some significant growth areas, whilst asset quality improvements led to lower provisions.
- The bank continues to stride ahead with its digital initiatives with a multi-touchpoint approach, which has led to increased transactions and a positive impact on CASA and hence funding costs.
- Bank Negara Indonesia remains an interesting proxy to the overall Indonesian economy through its high exposure to corporate and consumer lending. Valuations are attractive on 1.1x PBV for 15% ROE.
Tianneng Power (819): Value Trap?
- Tianneng Power International (819 HK) is a supplier of Chinese EV 2-wheelers and has enjoyed decent growth in the past few years.
- The correlation of top-line growth with its customers suddenly turned negative, a warning sign.
- Is it really cheap at 0.6x PBV? Maybe not, given the current status and the lead time before the recycling business is fully operational.
Samsung Biologics (207940 KS): Slow Start of 2023; Stronger Growth in H2; 2023 Guidance Raised
- Samsung Biologics (207940 KS) reported year-over-year improvement in sales and operating profit in 1Q23. However, net profit declined 4% YoY due to one-off factor stemming from an acquisition last year.
- The company expects stronger growth in H2 due to revenue contribution of Plant 4 and the launch of Humira biosimilar in the U.S.
- Based on the strength of CMO business, Samsung Biologics has raised 2023 revenue growth guidance to 15–20% YoY from 10–15% YoY announced in January.
Millennium Services Group Ltd – Contract Wins Now Evident in the Numbers
- Millennium Services Group Ltd (ASX:MIL) has announced an update on Q3 FY23 revenue and cash flow from operating activities.
- MIL achieved the first positive quarterly revenue growth since Q1 FY22 at +3.5%, while contract revenue growth was ~+12.6% on the pcp (excludes ad-hoc revenue).
- The COVID-related ad-hoc revenue has now all but cycled out of the quarterly numbers while new contract wins cycle in.
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