Daily Brief Equity Bottom-Up: [JD.com (JD US) Target Price Change]: JD May Face 5bn Profit Reduction for Subsidy Campaign and more

• JD launched “10bn subsidy” campaign on March 5th. Smartphone and electronics is the main product category and the prices for comparable products are relatively the same as PDD. 
• We estimate that total GMV generated from subsidized products may reach to about 1.5% in 2023, and the incremental cost will be about RMB5bn in 2023.
• We cut our forecast of JD’s non-GAAP net income to RMB21bn in 2023, which is 34% below cons. Maintain SELL with an updated TP of US$42, which implies 22x P/2023E.

• Advantest is a market leader in semiconductor testing and will be a major beneficiary of a multi-year AI tailwind
• Catalyst: News flow around new AI applications, increased investment dollars flowing into the space and visible acceleration in Nvidia’s data centre GPU growth
• Market concern over near-term correction in semiconductor market is giving investors an opportunity to buy Advantest at a 15% discount to its intrinsic value

• After failing to take Calbee Inc (2229 JP) forward for 4+ years, CEO Mr. Shuji Ito is retiring at the end of the next quarter.
• He is being replaced by the current COO and the former EVP of Calbee’s Overseas business Mr. Makoto Ehara.
• From what he has done since he was appointed the COO and in the Overseas business, we are hopeful that he will turn Calbee’s fortunes around in the medium term.

• GrafTech International Ltd (EAF US) results for Q4 2022 were worse than expected, and guidance for volumes down 50% in H1 2023e was shocking.
• In summary, our intrinsic value was too aggressive, and there was a low margin of safety on the investment. Constant execution issues in a favorable environment didn’t help our cause.
• The stock isn’t as cheap when trading at 11.1x/9.5x FY23e/FY24e. The deleveraging story now gets pushed out to the end of FY25. The investment is dead money for two years.

• Prodia (PRDA IJ) has released a new app called U by Prodia. Initially, U by Prodia users will be able to access laboratory examination, health supplement purchasing, and home services.
• Given its expected miniscule contribution of 15–17% to total revenue, digital platform even if being on a higher growth trajectory, cannot be a significant revenue driver.
• Declining COVID testing revenue are negatively impacting diagnostic players globally. During 9M2022, Prodia reported revenue of IDR1,580B, representing 21% decline, while net profit plunged 46% to IDR275B.

• We expect NIO to see a share loss in 2023 due to 1) late delivery of its key models; 2) conservative channel expansion plan; 3) uncompetitive pricing. 
• We see headwinds for NIO’s 2023 GPM, including 1) ~10% discount on its legacy models in Q1; 2) weaker product mix toward low-price ET5 into Q3.
• 3) limited expansion of scale economy due to diminished momentum. ● DG to SELL for weak momentum and ongoing margin pressure into 3Q22.

• PT Nippon Indosari Corpindo (ROTI IJ) booked results well above market expectations despite pressure from wheat flour and packaging costs, with greater efficiencies and cost savings boosting operating margins.
• Modern trade continues to be the growth driver but general trade continues to grow plus the company’s new Sari Kue cake products showed a strong performance at the margin. 
• PT Nippon Indosari Corpindo (ROTI IJ) should see further positive growth in 2023, with the potential for improving margins as input costs subside. Valuations are significantly below historical levels.

MGI – Media and Games Invest (MGI) is increasingly focused on its vertically integrated multichannel advertising platform, retaining a core of games that serve to generate first-party data and provide an efficient sandpit for developing new services. FY22 results were at the top end of guidance (as revised upwards at Q322), despite the headwind of lower market advertising rates. This scenario has continued in Q123, and we have taken a cautionary approach to our revised FY23 forecasts, which will be reviewed when management issues guidance for the year at the Q1 update. Medium-term guidance remains for a revenue CAGR of 25–30%. The shares are valued well below peers and the level indicated by a discounted cash flow (DCF).

• Despite the fact that 2022 was a challenging year for Xerox Holdings, the company managed an all-around beat in the last result.
• Supply chain challenges, surging inflation, currency disruption, the Ukraine war, higher interest rate, and an uncertain macroeconomic environment impacted revenue and profitability overall.
• Equipment revenue grew significantly in Print and Managed Print Services due to improved product supply.

• JD’s “10bn subsidy” program mainly subsidizes uncleared stale (avg. 339 days since launch) Xiaomi smartphone inventory for JD’s 1P/3P distributors but is not conductive for incremental Xiaomi unit demand. 
• Although JD subsidies help clear stale inventory, Xiaomi itself doesn’t benefit as these devices were sold last year and were already considered a sale.
• JD’s program is not conductive of unit volume sell-through for new Xiaomi phone sales given its shallow breadth of stale SKU.  Re-iterate our SELL rating and HK$7.3 TP.