In today’s briefing:
- Sea Ltd: A Detour Back to the Land of Losses
- Singapore Airlines: Supply Dislocations Will Underpin Strong Profits for Much Longer
- Grab Holdings (GRAB US) – Steering and Batching Towards Profitability
- Livzon Reloads Diagnostic Spin-Off
- Haier Smart Home (6690 HK): Stays Smart
- Taiwan Tech Weekly: AI Names Rally But Nvidia Long/Short Still Working; Hon Hai & Asustek Take-Aways
- Takashimaya: At Last a Revival in Department Store Profits
- Hon Hai (2317.TT): If the Market Is Unchanged, and It Will Be Slightly Upside in 2024 Market.
- How Asustek Plans to Take the Lead Globally in AI PCs; Gaming PCs First Key Battleground
- Hon Hai’s Margin Expansion Story Finally Starting to Be Realized? Results Imply Yes
Sea Ltd: A Detour Back to the Land of Losses
- Looks like Sea (SE US) decided to take a detour back to the land of losses this quarter.
- But it’s not a massive issue. They’ve maintained close to 7% QoQ revenue growth, so things should be okay.
- Investors likely won’t delve into the details further to uncover the substantial costs hidden behind that apparent growth.
Singapore Airlines: Supply Dislocations Will Underpin Strong Profits for Much Longer
- Dearth of international flights from Chinese and Russian carriers — 2nd & 3rd biggest global aviation market, will distort supply, underpins strong yields and profitability.
- SIA’s cost management is superior thanks to high asset utilisation, stable SGD vs. the USD, and access to attractive financing. SIA’s competitors severely lack these attributes.
- We forecast FY24 net profit of SGD2.4b (+13.1% YoY) and peg it to 10x PE to derive a TP of SGD8.07, +30% UPSIDE potential.
Grab Holdings (GRAB US) – Steering and Batching Towards Profitability
- Grab‘s 3Q2023 results demonstrate a high degree of success in achieving a delicate balance between growth and profitability, with significant progress across all verticals, and a broadening of product offerings.
- The company turned adjusted EBITDA breakeven for the first time in 3Q2023, through lower incentives, cost efficiencies, and lower regional corporate costs, with further progress towards FCF breakeven in 4Q2023.
- Grab remains confident about the outlook with guidance revised upwards, with the company looking at some potentially interesting M&A, which should be earnings accretive and beneficial to the ecosystem.
Livzon Reloads Diagnostic Spin-Off
- Back in late 2020, Livzon Pharmaceutical Group (1513 HK) proposed spinning off 39.4%-held Livzon Diagnostics on Chinext. After numerous filings with the regulators … crickets.
- Livzon has now proposed listing Livzon Diagnostics on the National Equities Exchange and Quotations with an intention of transitioning listed shares to the Beijing Stock Exchange (BSE).
- The CSRC recently introduced a raft of initiatives to spur investor interest in the BSE. After all-but-abandoning the prior listing, Livzon looks to be cashing in on this recent excitement.
Haier Smart Home (6690 HK): Stays Smart
- Haier Smart Home (6690 HK) is less exposed to China’s real estate market than one would have thought. Despite poor property industry, HSH still generated 12.9% earnings growth in 3Q23.
- We are delighted to see further margin pick-up in 2Q23-3Q23, thanks to digitalisation and better efficiency. We believe such a trend can be sustained over the next 12-18 months.
- More innovative products will drive market share, and better margin can support a 13% 3-year earnings CAGR. ROE is high at 17-8% despite net cash (8.8% of share price).
Taiwan Tech Weekly: AI Names Rally But Nvidia Long/Short Still Working; Hon Hai & Asustek Take-Aways
- Earnings season wrapping up — Hon Hai & Asustek recently reported… Some AI names rallied hard but our Nvidia L/S trade still working
- Hon Hai’s margin expansion story is finally starting to be realized. Stock’s perceived political risk could be an opportunity.
- How Asustek plans to take the lead globally in AI PCs; Gaming PCs will be the first key battleground. MSI could be an interesting play on Asustek’s recent strong performance.
Takashimaya: At Last a Revival in Department Store Profits
- Takashimaya saw a strong increase in sales in 1H2023, helping profit rise to record levels with much of the growth coming from clothing and expects similar for the full year.
- Unlike many rivals, the department store is not at all sanguine about the prospects for continued growth in luxury sales and the inbound tourist market – calling it a bubble.
- It is instead emphasising profit growth over higher sales by targeting locals through store upgrades and better cost performance clothing – while also closing stores that are no longer viable.
Hon Hai (2317.TT): If the Market Is Unchanged, and It Will Be Slightly Upside in 2024 Market.
- The 4Q23F results will be higher than 3Q23, but lower than 4Q22.
- If the market is unchanged, and it will be slightly upside in 2024F market.
- For the target of GM 10% is still unchanged in 2025F.
How Asustek Plans to Take the Lead Globally in AI PCs; Gaming PCs First Key Battleground
- Asustek reported results on November 13th that beat analyst expectations thanks to a major margin rebound. The stock soared post results.
- Asus plans to be the first company globally to release an AI PC, leveraging extensive AI R&D across different devices as well as its leading market share in gaming PCs.
- However, gaming PC competitor MSI is already moving fast; Shows how gaming PCs are likely to be the first AI PC battleground. Long Asustek, remains preferred over Acer.
Hon Hai’s Margin Expansion Story Finally Starting to Be Realized? Results Imply Yes
- Hon Hai beat expectations yesterday when it reported thanks to higher than expected margins. Gross margin rose to its highest level since 2018, hitting 6.7%.
- The company has maintained its 2025E 10% gross margin target and implied that 2024 will see significant margin improvement as new higher margin businesses ramp up revenue contribution.
- Two key market concerns: News of Chinese government investigation and political risk given Mr. Gou running for president. Company said operations continue as normal. Hon Hai remains a Structural Long.
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