Daily Brief Equity Bottom-Up: China Telcos: Send In The Clouds and more

• The rapid adoption of cloud computing has led to China boasting the world’s second-largest cloud computing market.
• This migration to the cloud is in lock-step with global customer needs: scale, greater efficiency, and availability; together with a reduction in capex and infrastructure complexity.
• The big three PRC telcos are firmly in the mix, with each announcing 100%+ growth in revenue for their cloud businesses in 1H22. Expect that trend to continue.

• We expect that Kuaishou’s 4Q22 top line and bottom line would be 0.2%/3.7% vs cons, as major business lines are recovering with stimuli of CNY promotion campaigns. 
• However, we estimate that its 2023 top line/bottom line would miss cons. by (0.9%)/(14.2%) due to our concerns of increasing competition and internal restructuring.
• Maintain SELL rating but raise TP to HK$ 56 to reflect on-track recovering trend as the macro improves. 

• Naver plans to launch its own Korean version of ChatGPT in 1H 2023.
• We believe that this will act as an important catalyst that is likely to further fuel Naver’s share price higher. 
• Naver has been our high conviction call in 2023 and we continue to have a Positive view of Naver. 

• Fancl Corp (4921 JP) delivered 3QFY23 results yesterday, which saw revenue and operating profit decrease by 2.5% and 5.0% YoY respectively to ¥28.3bn (consensus ¥29.8bn) and ¥3.1bn (consensus ¥3.4bn).
• Cosmetics growth being the main reason for Fancl’s FY+2 EV/OP of 22.4x, recent trends look scary with cosmetics revenue and OP down 24% and 27% respectively from the pre-COVID level.
• Therefore, we would look to short Fancl expecting shares to fall around 25-30% in the short term.

• Bank Of Ayudhya (BAY TB), now branded as Krungsri, is a unique Thai bank with high-quality retail exposure, a low-risk corporate loan book, and a growing SME book. 
• The bank is growing its digital exposure through its KMB app, its GO app for auto customers plus its UChoose lifestyle app and it collaborates with Grab and Shopee.
• Krungsri’s move to acquire Nomura Thailand’s broking business and its acquisition of Home Credit in Indonesia and the Philippines provide an additional edge and ASEAN exposure. Valuations are inexpensive.

• Syngene International Ltd (SYNG IN) provides integrated services from early discovery to commercial supply across all major therapeutic areas and modalities. The company has 400+ active clients.
• To capitalize on the secular industry tailwind, the company has been investing to enhance capacity and capability, which has led to extension of existing client relations and engaging new clients.
• For FY23, the company expects high-teens revenue growth and EBITDA margin of ~30%. Operating leverage is expected to improve from next year onwards, and that should improve the overall profitability.

• FUJIFILM Holdings (4901 JP) delivered 3QFY03/2023 results today. Revenue and OP increased 13.5% and 4.1% YoY respectively to JPY744.4bn (consensus JPY717.1bn) and JPY81.8bn (consensus JPY80.0bn).
• Covid-19 related projects running its course had a slight impact on  healthcare segment but we would not be too worried as new product launches and markets will offset that decline.
• Market continues to value Fujifilm as an image company and not a healthcare stock and there is more than 30% upside to the current share price.

• IIJ delivered double-digit revenue growth for a third consecutive quarter as corporate demand for digitization remains robust
• In addition the expected expansion of cloud (+15%) and security service (+21%) sales, mobile sales grew 9% as IIJ moved clearly past the impact of industrywide rate reductions
• Quarterly EBITDA reached a record high even with modest margin contraction YoY

We have raised our near-term lithium price expectations to reflect the current supply/demand cycle and upgraded our long-run (post 2031) price forecasts (from US$17,000/t to US$22,500/t LCE) to reflect lithium’s high demand growth and highly concentrated supply fundamentals. On the back of this, our valuation of Lithium Power International (LPI) has increased from A$1.24/share to A$1.42/share assuming the full project equity dilution. We have also updated our model to reflect 100% consolidation of the Maricunga project as well as LPI’s (now somewhat more dilutive) lower share price.

• ATEN reported better than expected fourth quarter results, but it was the lack of quantitative revenue guidance that garnering all the attention
• We had highlighted increased macro risks in our January update leading to 2023 becoming dependent on the second half of the year.
• The first quarter is seasonally the slowest period of the year for ATEN, which could be the reason for management taking a conservative approach with 2023 guidance.