In today’s briefing:
- Sea Ltd: Share Price Approaching Its Rightful Destination
- [Sea Limited (SE US, SELL, TP US$35) Target Price Change]: Long-Term Headwinds Amid Upsides in 3Q
- VinFast: Inexplicable Valuation
- RECL – Near Insatiable Power Credit Demand, Great NPL Trend, New Maharatna Status, 3x Avg Div Yield
- Alibaba’s DingTalk to Split From Cloud Division and Seek Own IPO, Source Says
- Tencent (700 HK): 2Q23, Ad and FinTech Recovering, Margin Higher, Buy
- GoTo Gojek Tokopedia (GOTO IJ) – Striking a New Balance
- Tencent: Earnings Miss, Cost Controls Help Margins; Slowdown in Domestic Gaming Is Concerning
- Intel Terminates Tower Semi Deal
- Omron (6645) | Long-Term View Unchanged but Bumpy Ride
Sea Ltd: Share Price Approaching Its Rightful Destination
- While our outlook for Sea (SE US)‘s 2Q23 was bearish, we didn’t anticipate such a substantial price reaction post-earnings, considering the existing low consensus.
- However, the market appears to have given more importance to the revenue miss and the deterioration of fundamentals in e-commerce, as indicated by the post-earnings price reaction of -28.7%.
- Shopee’s modest profitability, restrained growth fail to warrant an EV surpassing $7.0bn. The Gaming business is best valued around $3.0bn, while the Fintech arm should be valued at around $5.0bn.
[Sea Limited (SE US, SELL, TP US$35) Target Price Change]: Long-Term Headwinds Amid Upsides in 3Q
- Sea reported CY2Q23 top-line that missed consensus by 3.4%, while non-GAAP net income beat by 16%. Sea guided for the net margin to turn negative again in future quarters.
- We see deterioration of Sea’s competitive landscape as a long-term trend, hence we cut TP to US$35. The next swing factor is Temu’s ASEAN launch.
- Yet, we need to remind investors that Sea’s 3Q earning might have some upside, including user growth of Shopee, as well as stabilization of gaming metrics.
VinFast: Inexplicable Valuation
- VinFast (1905332D VN), a Vietnamese EV (electric vehicle) manufacturer and a majority-owned affiliate of Vingroup Jsc (VIC VN), completed its merger with Black Spade.
- The shares closed 3.7x up on the first day with a market cap of US$86bn. The pop is partly due to low float resulting from the controlling shareholder’s 99.0% stake.
- VinFast faces headwinds of poor reviews, declining customer traction, ongoing losses and cash burn. VinFast is trading at a material premium to peers on growth-adjusted multiples.
RECL – Near Insatiable Power Credit Demand, Great NPL Trend, New Maharatna Status, 3x Avg Div Yield
- Recently awarded “Maharatna” status, only 12 companies, FY24 is first full year for this
- Growth is steady, with good returns, and major improvement in credit metrics
- Its 4.77% dividend yield is incredibly high and about 3x higher than peers
Alibaba’s DingTalk to Split From Cloud Division and Seek Own IPO, Source Says
- Alibaba Group Holding Ltd.’s workplace collaboration platform DingTalk will split from the company’s cloud division and pursue its own IPO, a source familiar with the matter told Caixin, as the tech giant ramps up efforts to unlock growth following its major restructuring.
- DingTalk’s separation is expected to be completed before the Alibaba cloud unit’s own IPO, the source close to the e-commerce firm said.
- Alibaba announced in May that it would spin off its Cloud Intelligence Group via a stock dividend distribution to its shareholders over the next year with an eventual listing.
Tencent (700 HK): 2Q23, Ad and FinTech Recovering, Margin Higher, Buy
- In 2Q23, online advertising and FinTech revenues continued to grow rapidly.
- Game revenue was slow, but two existing games were still at the top of the game market.
- The operating margin improve significantly, benefiting from the layoff last year.
GoTo Gojek Tokopedia (GOTO IJ) – Striking a New Balance
- GoTo Gojek Tokopedia (GOTO IJ) released results for 2Q2023, which reflected a slower growth environment exacerbated by lower incentive spend but some significant progress towards its profitability goals for 2023.
- The company continues to focus on maintaining high-quality users but with an increasing focus on more affordable offerings to expand its demographic reach with the potential to double its users.
- GoTo is undergoing a full assessment across all divisions, with a focus on improving synergies, with new strategies for growth to be revealed next quarter.
Tencent: Earnings Miss, Cost Controls Help Margins; Slowdown in Domestic Gaming Is Concerning
- Tencent (700 HK) reported 2Q2023 results today. Revenue grew 11.3% YoY to RMB149.2bn (vs consensus RMB151.1bn) while reported OP increased 34% YoY to RMB40.3bn (vs consensus RMB44.6bn).
- Rapid growth in ad business, video account monetisation and cost controls have contributed to Tencent’s 2Q2023 earnings despite domestic gaming business has slowed down.
- Though Tencent’s 2Q2023 results show a recovery in earnings, we would interpret the company’s earnings with caution given the slowdown in domestic gaming and social networks businesses.
Intel Terminates Tower Semi Deal
- Tower to collect a cool $353 million termination fee from Intel
- Intel claims its foundry ambition to become the global #2 by end of the decade remains unchanged
- The key thing Intel needed from Tower was access to its broad, diverse portfolio of specialty process technologies. These will take Intel years to develop on their own.
Omron (6645) | Long-Term View Unchanged but Bumpy Ride
- Omron’s stock price has collapsed 20% after missing Q1 earnings estimates.
- The recovery in demand has been pushed back – the company may cut its full year guidance at the interim stage
- On near-term earnings, the stock is around fair value. There is +20% upside for longer-term investors based on our DCF
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