In today’s briefing:
- Meituan (3690 HK): Out of the Woods and Light a Fire
- Alibaba: Our Take on 4QFY24
- Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – May 2024
- Alibaba (BABA US): Taobao/Tmall Is Back
- Tech Supply Chain Tracker (16-May-2024): Impact of US tariff hike on China’s clean energy.
- Cigniti Technologies – A Special Situation Bet
- What’s Wrong with UPL?
- Vipshop: Net Cash at 40% of Market Cap, Now Paying Dividends and Buying Back Shares
- Recruit: As We Said… Weakening Earnings
- Silergy (6415.TT): Rebounding from the Bottom in 1Q24, It Will Witness Normal Orders Since 2Q24.
Meituan (3690 HK): Out of the Woods and Light a Fire
- We notice a pickup in consumer acceptance of instrashopping, as result of COVID-cultivated behavior. We notice similar business model worked outside of China (Coupang) for densely populated urban upper-middle-class customers;
- Meituan’s launch of membership is a wise step towards strengthening user stickiness and emphasizing transaction soundness over impulsive buying. Meituan’s portfolio in food, dining, hotel & travel offer unparalleled value;
- We see Meituan’s success in Hong Kong honed a replicable business model targeting single and low priced segment. Consolation on a global scale now seems a possibility.
Alibaba: Our Take on 4QFY24
- Alibaba Group Holding (BABA US)‘s FQ4 announcement portrays a resilient comeback to growth, suggesting the past four years’ challenges barely impacted its dominance in Chinese e-commerce.
- However, a closer look beyond the surface of Alibaba Group Holding (9988 HK)‘s FQ4 results announcement reveals that little has actually changed in recent months.
- Taobao and Tmall face challenges in a tough, stagnant market; AIDC’s growth largely covers for other Alibaba units’ failings, while AliExpress’s expansion cuts into margins.
Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – May 2024
- We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
- Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and Ginebra San Miguel (GSMI PM).
- After a massive recent correction for HK stocks, we are more constructive on the names, and yields there look very attractive.
Alibaba (BABA US): Taobao/Tmall Is Back
- Alibaba reported in-line revenue but disappointed adjusted net income for 4QFY24.
- Yet a closer look shows strong core Taobao/Tmall performance was offset by higher-than-expected losses incurred by peripheral businesses.
- We remain convinced BABA is on track to turn around and an earnings upgrade cycle is one or two quarters away. We are buyer at this price.
Tech Supply Chain Tracker (16-May-2024): Impact of US tariff hike on China’s clean energy.
- US tariff hike on Chinese electric vehicles, solar cells, and semiconductors could raise costs for clean energy industry in China, affecting competitiveness and growth.
- AT&S to sell medtech PCB factory in South Korea, indicating potential changes in the global supply chain.
- AI rush leading to staffing shortages at companies like Amazon and Google, while India sees surge in AI spending by 2027.
Cigniti Technologies – A Special Situation Bet
- The Cigniti-Coforge acquisition presents a unique investment opportunity in the IT services sector, with potential for significant returns.
- Coforge plans to acquire a 54% stake in Cigniti Technologies, expanding its presence in digital assurance and AI services.
- The deal is expected to be completed by Q2 of FY25, with an open offer price potentially higher than the current market value of Cigniti shares.
What’s Wrong with UPL?
- UPL Ltd (UPLL IN)‘s Q4 FY23 results show a significant improvement in margins to 13% after a drastic fall to 1% in December 2023, despite a 15% YoY revenue decline.
- Revenue drops were driven by lower prices and high-cost inventory liquidation, yet margin recovery signals operational improvements and potential future stability.
- Planning to reduce the debt by raising capital via right issue as well as IPO of Advanta.
Vipshop: Net Cash at 40% of Market Cap, Now Paying Dividends and Buying Back Shares
- The slowdown in Chinese retail sales of apparel seems to have been factored into Vipshop Holdings (VIPS US) 1Q 2024 revenue growth expectations whilst bottom-line is supported by margin expansion.
- With net cash at ~40% of its market cap, the share price should be supported by the ongoing share repurchase program and its inaugural annual dividend policy.
- Its 6.6x NTM PE ratio (~4x ex-cash) seems extremely attractive for a highly cash-generative business set to (conservatively) grow earnings at high-single-digits whilst buying back shares and paying dividends.
Recruit: As We Said… Weakening Earnings
- Recruit Holdings (6098 JP) reported 4Q and full-year FY03/2024 results today. Earnings beat own guidance as well as consensus estimates.
- Weakening labour markets have negatively impacted all business segments and new pricing model for Indeed has not really been successful.
- Recruit expects a recovery in 2HFY03/2025, but at the rate at which job openings are going down, we remain cautious.
Silergy (6415.TT): Rebounding from the Bottom in 1Q24, It Will Witness Normal Orders Since 2Q24.
- Inventory levels were at 90 days by the end of 1Q24, returning to a normal level.
- It is expected to see consecutive QoQ growth throughout 2024, with normal orders observed since 2Q24.
- Although Chinese mature technology is advancing, current analog capacity still falls short of local demand in China.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
