Daily Brief Equity Bottom-Up: Hua Hong Semiconductor: AI and more

For our next Corporate Webinar, we are glad to welcome Hua Hong Seminconductor’s Chief Financial Officer, Daniel Yu-Cheng Wang. 

In the upcoming webinar, Daniel will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Eric Wen. The Corporate Webinar will include a live Q&A session.

The Corporate Webinar will be hosted on Tuesday, 12 March 2024, 16:00 SGT.

About Hua Hong Semiconductor

Hua Hong Semiconductor Limited, an investment holding company, manufactures and sells semiconductor products. The company provides embedded non-volatile memory, standard logic and mixed-signal, radio frequency, power management integrated circuits, power discrete, and automotive solutions. It also offers foundry services; and design services comprising standard and customized IP development, full-custom layout design, and customer-specific integrated solutions, as well as design support and tape out services. In addition, the company provides multi-project wafer services; mask making services; and backend services, such as in-house testing, backside processing and dicing, and backend turnkey services, as well as assembly and testing services. 

Further, it engages in real estate development. Its products are used in consumer electronics, communications, computing, industrial, and automotive markets in the People’s Republic of China, North America, Europe, Japan, and other Asian countries. The company was founded in 1997 and is headquartered in Shanghai, the People’s Republic of China. Hua Hong Semiconductor Limited is a subsidiary of Shanghai Alliance Investment Ltd.

• India’s Credit Landscape has changed and is facing structural and regulatory challenges.
• The Indian regulator (RBI), particularly in its oversight of underwriting practices and the behavior of Non-Banking Financial Companies (NBFCs), is commendably proactive, positioning it ahead of the curve.
• We expect more such steps in other parts of the credit funnel. The recent crack down along with the stock underperformance is here to stay and possibility intensify. 

• Sakura Internet, a Japanese cloud provider, has seen a significant surge in stock price and market capitalization due to entry into AI cloud services.
• The company plans to invest in NVIDIA H100 GPUs for AI servers, expecting substantial demand but with uncertain revenue and profitability projections.
• Risks include concentrated ownership, lack of analyst coverage, potential shareholder pressure, and competition from larger cloud providers like AWS with advanced AI computing capabilities.

• We refresh estimates for ANA and JAL, and highlight we think the strength of FY24 makes it difficult for ANA to avoid an earnings decline in FY25.
• However, ANA’s superior recovery to JAL poses bigger questions for JAL as it revisits its medium term plan on 21 March
• Our deep dive on margin management at each carrier suggests a revenue problem rather than a cost problem at JAL; but without revenue improvements, it will have to cut costs

• China Power International (2380 HK)‘s Jan power sales showed a sharp 41.2% YoY growth. More importantly, this marks sustaining a solid MoM trend in the last few months. 
• Recovery of the hydropower generation is encouraging as this was a drag last year. Meanwhile, higher coal-fired generation will capture the better profitability of this segment.
• CPI’s strongest earnings CAGR in the sector has made its earnings multiples increasingly cheap over the next two years. After +15.7% YTD in its share price, there is further upside.

• UMP Healthcare (722 HK) delivered a slow start to FY24, with revenues up 2.3% YoY and profits down 63% YoY, due to sluggish demand in Hong Kong. 
• The company cut dividend for H1 FY24 by 25% to 1.3 HKD cents/share. Net cash on the balance sheet remained healthy at 265 mn HKD representing 64% of market capitalization.
• The company is implementing stringent cost control and we believe that a slow turnaround and a 9-10% dividend yield is very probable at these levels. 

• A highly unpopular acquisition driving investors and sell-side analysts up the wall. Forward Air is OVERSOLD on almost all technical indicators and valuations are the lowest in its history  
• Our analysis suggests it is not all that bad, the business will still be profitable and generate positive free cash flow 
• Our fair value of USD59.50 (+97% UPSIDE) is derived by 2x current Book Value. A potential double-bagger, will be rewarding for the patient investors     

• First a new holding, Nameson Holdings (HKG:1982). A vertically integrated knitwear and fabrics manufacturer with most of its production base in Vietnam and some of it still in China.
• They expanded to Myanmar, which did not work out so well, so they had to take significant write-downs and restructuring costs recently of 243 million HK$.
• This somewhat obscures their true earnings power.

• The sales in January 2024 were the lowest during the period of 2022-2024, indicating a likely downtrend for the first quarter of 2024.
• Demand is expected to be flat or slightly increase in 2Q24F for GlobalWafers, which is encouraging.
• The market for 12″ raw wafers is expected to have a more stable demand-supply balance, while raw wafers of 8” and smaller sizes could experience reduced demand in 1H24F.

• Redbubble was a bubble. On the wings of pandemic mania, the stock price increased 13 times from March 2020 to January 2021.
• Reaching a 1.9B market cap. Today, the situation looks quite different.
• The stock is down 93% from its highs of 7 AUD and currently sits at 0.