In today’s briefing:
- EDU/TAL: China Tutoring – Here Comes The Policy Tailwind
- Alibaba (BABA US): Upzised Share Repurchase to Support Share Price
- SMIC (981.HK): The GM Reaches a New Low of 9-11% in 1Q24F, Despite Revenue Growing by 2% QoQ.
- [Meituan (3690 HK, SELL, TP HK$57) Rating Change]: No Quick Skip to the Near-Term Pressures
- The Paytm Saga: A Tale of Non-Compliance and Controversy
- Indian Banks Screener: Bank of Baroda Remains the Value Pick, HDFC Bank Is the Quality Name
- Qantas – 1H24 to Provide Evidence of Margin Control
- Teradyne Inc.: Diversification into AI and Robotics Could Catalyze Growth! – Major Drivers
- The Reality of Mixed Reality
- Disney Q1 Earnings: Finally Ready to Take Share from Netflix
EDU/TAL: China Tutoring – Here Comes The Policy Tailwind
- Today, after Hong Kong market close, the Ministry of Education issued a new draft regulation on K12 tutoring.
- I have written before on New Oriental Education & Techn (EDU US) and China Beststudy that there is now a equilibrium reached between all parties on tutoring in China.
- The new draft regulation basically puts it into concrete policy, which should alleviate investor concern on the sector.
Alibaba (BABA US): Upzised Share Repurchase to Support Share Price
- Alibaba reported a largely in-line December quarter as lower take rate and widened loss from international commerce businesses resulted in pressured bottom line.
- The results also suggest a persisting pattern of China consumers trading down, which – along with the company’s ongoing internal overhaul – will continue to be headwind in 1H24.
- That said, we see increase of US$25 billion share repurchase program and dividend policy to well support share price at current valuation.
SMIC (981.HK): The GM Reaches a New Low of 9-11% in 1Q24F, Despite Revenue Growing by 2% QoQ.
- The 1Q24F outlook is still showing a decline, with a slightly increase in revenue of 2% QoQ. However, the GM is expected to decrease to 9-11% from 16.4% in 4Q23.
- Management predicts that there will be a double U-shaped recovery in 2024F. Revenue in 2024F is expected to grow annually by mid-single-digit.
- The main areas of growth for SMIC in 2024F will be in mobile phones, smart homes, IoT, and computing.
[Meituan (3690 HK, SELL, TP HK$57) Rating Change]: No Quick Skip to the Near-Term Pressures
- We expect Meituan continue under pressure in the medium term due to the intensified competition with Douyin, and Meituan’s low price defending strategy in both food delivery and IHT businesses.
- Our non-IFRS net profit is roughly in-line with consensus in 4Q23 but 20%/25% lower than consensus in 2024/25.
- We downgrade the stock to SELL rating and cut TP to HK$57/share.
The Paytm Saga: A Tale of Non-Compliance and Controversy
- Paytm Payments Bank faces regulatory scrutiny and compliance challenges, impacting its trajectory and profitability amid ongoing supervisory action by the RBI.
- With significant restrictions on operations and revenue streams, Paytm navigates a complex financial landscape, highlighting resilience amidst regulatory uncertainties and governance concerns.
- Despite proactive measures, including partnership diversification and service continuity, Paytm’s future hinges on addressing compliance lapses and fostering transparent governance to regain trust in the fintech sector.
Indian Banks Screener: Bank of Baroda Remains the Value Pick, HDFC Bank Is the Quality Name
- We retain Bank of Baroda as the value Indian bank, despite its strong share performance, for its modest valuations, healthy ROE and further improvements in delinquency metrics
- HDFC Bank remains out of favour with the market but we retain it as a buy, with its potential for medium term gains post-merger and its strong balance sheet
- Axis bank remains on our watchlist; we remain negative on State Bank of India for its delinquency risks, low core capital ratio and limited progress on returns
Qantas – 1H24 to Provide Evidence of Margin Control
- For 1H24 we model EBITDAR of A$2,396m, ahead of Visible Alpha consensus of A$2,273m, which represents an EBITDAR/ASK 35% higher than 1H19.
- 1H24 will be important to help us better understand “normalised” unit cost levels, with inflation high to date, in part due to a 17% capacity deficit in 2H23.
- Qantas has seen comparable inflation to the US majors but considerably higher profitability. This should enable it to invest in product, operational and customer service improvements while protecting margins.
Teradyne Inc.: Diversification into AI and Robotics Could Catalyze Growth! – Major Drivers
- In the fourth quarter of 2023, Teradyne, a provider of computer-controlled configurations, and collaborative robots, reported financial results in line with its guidance.
- The company highlighted strong performance in the Memory Test sector, which saw the double year-over-year revenue from DRAM testers due to HBM demand, and in the Industrial Automation marketplace.
- Additionally, Teradyne experienced robust growth sequentially in sales from its Robotics team, as it elevated shipments to meet the record backlog of its UR20 Cobot at Universal Robots.
The Reality of Mixed Reality
- The world does not need another opinion on the Vision Pro, the Apple mixed reality device whose launch coincided with Meta earnings, but I will share mine so I can understand my thought process in the future.
- I have the right to be wrong. The revenue share of Meta’s FRL is so small it might seem redundant to give it so much limelight.
- But, directionally, it’s an important category for the company. With a launch of this scale, the hyperbole and sensationalism rhyme with things we’ve seen in decades past.
Disney Q1 Earnings: Finally Ready to Take Share from Netflix
- Imagine a racetrack with 10 horses. The first two horses (NFLX and DIS) are peeling away from everyone else; with NFLX still having a sizeable lead over DIS.
- But the stage is set for DIS to start accelerating faster than NFLX.
- This is how I would describe the US Media sector today, and Disney’s Q1 results released yesterday only serves to bolster that narrative.
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