In today’s briefing:
- Grab: Strong Earnings Beat Fails to Impress Market as Growth Rates Decelerating
- [KE Holdings (BEKE US) Target Price Change]: Operating Leverage Starts to Kick In, Maintain BUY
- Applied Materials ICAPS Grows Strongly But Leading Logic Ruins The Party
- Krafton Inc (259960 KS)： PUBG’s Re-Approval in India Could Bring 5% Revenue/Profit Upside
- Zydus Lifesciences (ZYDUSLIF IN): Strong Q4 Result Driven by US Business; Forward Growth to Moderate
- US Regional Banks – Credit Spread Silver Linings to Mitigate Loan Quality and Volume Headwinds
- [Alibaba (BABA US, BUY, TP US$109) Earnings Review]: Taobao Growth to Return on Douyin Slow-Down
- HWKN: One-Time Gain Hides Miss
- [Atour Lifestyle (ATAT US) Target Price Change]: Strong Sales Growth Support Expansion, Maintain BUY
- [Tencent Music (TME US) Target Price Change]: Cut TP as Offline Music Activities Begin to Thrive
Grab: Strong Earnings Beat Fails to Impress Market as Growth Rates Decelerating
- Grab Holdings (GRAB US) ’s share price dropped by about 15% despite reported revenue and adjusted EBITDA losses beating consensus estimates.
- Deliveries’ growth has started falling as more people preferring to dine-out. Grab’s incentive optimisation also has contributed to the fall in growth rates.
- Grab’s aggressive ambitions to turn around profitability is a significant downside risk as it will impact growth going forward and force the company to invest back on growth.
[KE Holdings (BEKE US) Target Price Change]: Operating Leverage Starts to Kick In, Maintain BUY
- BEKE (Beike) reported 1Q23 revenue 10.4%/12.2% vs our est./cons. non-GAAP net income 65.6%/60.9% higher than our est./cons.
- Although Beike has stated no intention to lower existing home (EH) commission rate, we still expect EH commission rate to slightly trend down in 2023.
- We maintain BUY rating and raise the TP by US$1 to US$22 to reflect 1) steady recovery of property sales in China; 2) better outlook on profitability.
Applied Materials ICAPS Grows Strongly But Leading Logic Ruins The Party
- Q1’23 revenues of $6.63 billion, up 6 % YoY, down 2% QoQ
- Q2’23 revenues of $6.15 billion at the midpoint, down 7.2% QoQ.
- Tool push outs and cancellations are spreading to leading logic customers. That’s not a good sign
Krafton Inc (259960 KS)： PUBG’s Re-Approval in India Could Bring 5% Revenue/Profit Upside
- We estimate that the re-approval of PUBG Mobile in the India will contribute to a 5% increase in Krafton’s annual revenue/profit.
- Despite being banned in India for several times, PUBG Mobile is expected to receive a warm welcome from local players due to its high quality gameplay and good device compatibility.
- We upgraded our rating to “Buy” in Feb.2023, citing reasons such as PUBG Mobile stabilizing in key markets and Bluehole’s new product schedule. Currently, we remain optimistic view about Krafton
Zydus Lifesciences (ZYDUSLIF IN): Strong Q4 Result Driven by US Business; Forward Growth to Moderate
- Zydus Lifesciences Ltd (ZYDUSLIF IN) recorded 32% growth in revenue to INR50B in Q4FY23, driven by 58% YoY growth in US formulation business. India business revenue grew 11% YoY.
- US business growth was driven by volume expansion in existing products and new launches. The company has launched eight new products in the US during the quarter.
- Going ahead, growth is expected to moderate, due to high base effect. The company expects single-digit growth in the US business in FY24, slower than 28% growth recorded in FY23.
US Regional Banks – Credit Spread Silver Linings to Mitigate Loan Quality and Volume Headwinds
- US banks tightening standards for loans, as well as the downturn in loan demand, provides a silver lining for banks by reducing funding pressures as well as the increasing spreads
- Among the regional banks, Western Alliance is seeing deposit inflows in 2Q23; more generally, the usage of the Fed’s BTFP and issuance by the FHLB seem well controlled
- We stick with our picks M&T Bank and Western Alliance, adding First Horizon to the buy list, where valuations stand out along with solid capital ratios and above average returns
[Alibaba (BABA US, BUY, TP US$109) Earnings Review]: Taobao Growth to Return on Douyin Slow-Down
- BABA reported 1Q23 revenue/non-GAAP net income in-line/17.7% vs. cons. International commerce and local services revenues beat our est., while Cloud missed.
- We expect there is still room for margin improvement in FY24. Although Taobao/Tmall will increase spending, the cost savings of other business groups will lead to an overall improvement;
- We maintain BUY and US$ 109 TP as (1) Douyin’s impact is becoming less significant; (2) International business is growing quickly; and (3) Positive on the effect of separate listing.
HWKN: One-Time Gain Hides Miss
- HWKN reported Q4 (April 2) results at first read suggesting beating estimates. However, demand has been declining and EPS beat our forecast due to one-time gain on an asset sale
- The competitive environment has intensified in recent quarters where imports are being offered at lower prices while HWKN faces higher costs
- We have changed our fiscal 2024 estimates to incorporate reduced sales from the asset sale, longer timeline in gross margin improvement, and the industrial segment facing competition
[Atour Lifestyle (ATAT US) Target Price Change]: Strong Sales Growth Support Expansion, Maintain BUY
- Atour reported its 1Q23 revenue 2.8%/4.3% higher than our est./cons., and non-GAAP NI 22.7%/38.8% higher than our est./cons. The bottom-line beat is driven by strong sales growth from Occ.
- We expect 2Q23/2023 rev. to grow 75%/65% YoY, implying 115%/112% of RevPAR recovery rate vs. 2019 and 85/291 net new hotels.
- We maintain the BUY rating, and raise TP by US$1 to US$35 to factor in the higher gross margin expectation at 40% in 2023.
[Tencent Music (TME US) Target Price Change]: Cut TP as Offline Music Activities Begin to Thrive
- TME reported 1Q23 results with topline beat our est. by 5.0% and bottom line beat our est. by 25.2%, due to cost-saving measures.
- As more offline entertainment activities resume after reopening, it would adversely impact both its online music and social entertainment segments.
- Maintain SELL and cut TP to US$ 6.0 to reflect concert impact and limited catalysts, which implies 12.5X PE in 2023.
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