In today’s briefing:
- Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again
- Unpacking First Mover OpenAI. Can It Avoid the Fate of Netscape and MySpace?
- [Tencent(700 HK,BUY,TP HK$425)Target Price Change]: International Game and Advertising Drove Results
- Key Takeaways from OpenAI DevDay
- Eclat Textile (1476 TT): Start Of Upcycle
- SMIC (981.HK): Probably A Double U-Shape Correction for Around 2 Years Until the End of 2024F.
- HHGrace. Yikes! Things Just Got Really Ugly
- Softbank (9984 JP): WeWork Hangover and Other Challenges
- How Foxconn Triumphed on the Chinese Mainland
- [KE Holdings (BEKE US,BUY,TP US$24.5)TP Change]:Steady Recovery with Catalysts for Market Share Gain
Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again
- INCJ made a lot of money on Renesas Electronics (6723 JP) over the years and arguably did a great job helping the firm change direction. Now they are out.
- Last night they launched a block sale through JPM and Bof A for 130.2317mm shares. They priced the heavily-oversubscribed deal at a discount of 8% or ¥2143/share.
- That’s a big discount (so bad broking) for such oversubscription on a clearly-flagged deal but now they are out.
Unpacking First Mover OpenAI. Can It Avoid the Fate of Netscape and MySpace?
- First mover advantage is half-truth. For every academic study proving that first-mover advantages exist, there is a study proving they do not.
- Engineers at OpenAI, scaled up a special machine learning method using large data sets to create GPT or “Generative Pre-trained Transformer.”
- Launch of ChatGPT has put OpenAI revenues on steroids with reports suggesting USD 1.3B this year (versus USD 28 million before ChatGPT was rolled out).
[Tencent(700 HK,BUY,TP HK$425)Target Price Change]: International Game and Advertising Drove Results
- We expect that Tencent’s C3Q23’s revenue/non-IFRS operating profit/IFRS net income to be 2.3%/3.3%/4.2% above consensus.
- We raised estimates of Tencent’s international game growth to 12% YoY to reflect the success. We also expect Tencent’s advertising business to benefit from e-commerce advertisers’ competition.
- We raised the Target Price to HK$425, which implies 22.4X PE in 2024.
Key Takeaways from OpenAI DevDay
- OpenAI held its first developer conference on November 6th. The event announced the launch of OpenAI’s latest model and feature upgrades.
- The latest OpenAI model, GPT-4 Turbo offers drastically lower costs, updated knowledge cutoff, better vision and voice support, and improved API.
- Event unveiled custom chatbots called GPTs for specific applications, showcasing expanded domain knowledge. They’ll be sold in a digital store, adding a new revenue stream for OpenAI.
Eclat Textile (1476 TT): Start Of Upcycle
- Eclat Textile Company (1476 TT) is a vertically integrated textile company, with around 20% net profit margin, similar to Shenzhou Intl Group Holdings (2313 HK).
- The company just reported 3Q23 results, with sales down 26% yoy and net profit down 28% yoy. Starting the next quarter 4Q23, the company is expected to return to growth.
- The company now trades at 23x 2024E earnings. I believe the valuation is reasonable as growth returns, and there are potential upside catalysts.
SMIC (981.HK): Probably A Double U-Shape Correction for Around 2 Years Until the End of 2024F.
- Based on the some judgments, SMIC consider it will be relatively flat demand in 2024F.
- SMIC took into consideration geopolitical instability and allowed equipment vendors to submit orders in advance.
- Currently, only a few manufacturers are stockpiling smartphones in response to this wave. The overall industry remains relatively stable.
HHGrace. Yikes! Things Just Got Really Ugly
- Revenues of US$568.5 million, down 10% sequentially and down 9.7% YoY, at the bottom of the previously guided range.
- Net loss of $25.8 million compared to a profit of $7.8 million in the previous quarter and $65.5 million in the year ago period.
- With current quarter gross margins in the 2-5% range, HHGrace has flipped from best in class in H123 to the worst in class now.
Softbank (9984 JP): WeWork Hangover and Other Challenges
- Softbank’s exposure to WeWork continues to haunt it beyond the close of 2QFY23, due to its credit support agreements
- Aside from WeWork, we continue to see risks to valuations supporting the NAV; in particular, Arm Holdings and SVF2 which accounted for 45% of group equity value
- Softbank shares trade at a 45% discount to the stated NAV yet there is downside risk to Arm’s valuation along with questions over private company valuations at SVF1 and SVF2
How Foxconn Triumphed on the Chinese Mainland
- Foxconn is facing one of its biggest compliance challenges on the Chinese mainland, where the key iPhone assembler has been caught in the crosshairs of government investigators.
- Multiple Foxconn-affiliated entities are being investigated by Chinese authorities as part of probes into the company’s mainland facilities, Caixin confirmed Monday with Foxconn Industrial Internet Co. Ltd., the Taiwanese contract manufacturer’s Shanghai-listed arm.
- State-owned newspaper Global Times first reported Sunday that Foxconn, also known as Hon Hai Precision Industry Co. Ltd., was facing tax and land-use probes into its mainland facilities.
[KE Holdings (BEKE US,BUY,TP US$24.5)TP Change]:Steady Recovery with Catalysts for Market Share Gain
- KE Holdings’ (Beike) C3Q23 revenue was 7.7%/11.6% higher than our est./cons., non-GAAP net income beat our est./cons. by 35%/119%. Existing home sales and non-transaction biz drove the bottom line beat.
- We expect Beike C4Q23 to grow 20% YoY, 33% in existing home and 5% in new home, supported by gradual recovery of home transaction and Beike’s market share gain;
- We reiterate BUY rating and raised TP by US$0.5 to US$24.5/ADS, also taking into account of progress in home renovation and rental management.
💡 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
