In today’s briefing:
- SK Hynix. DRAM To The Rescue
- JD.Com: Losing Its Appeal?
- Kuaishou/KS (1024 HK) Earnings Preview: Unnecessary Concerns About Chairman Change and 3Q23 Results
- APAC Luxury Industry Series: Update
- GoTo: In Pursuit of Profits…
- Fanuc (6954) | Not Out of the Woods Yet
- AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum
- Alfresa Holdings (2784 JP): Better-Than-Expected H1FY24 Performance; FY24 Guidance Raised
- Midea Group (000333 CH): Not That Correlated To China Property
- Arbuthnot Banking Group (ARBB) Trading update: taking ABG to the next level
SK Hynix. DRAM To The Rescue
- SK Hynix reported Q323 revenues of 9.066 trillion won, up 24% QoQ but still down 17% YoY
- Net income was -2.185 trillion won, a 27% improvement on the losses in the prior quarter.
- While DRAM has turned profitable, NAND remains stubbornly loss making and is likely to remain so for the foreseeable future
JD.Com: Losing Its Appeal?
- After a spike higher in fund ownership in 2021, active Asia Ex-Japan funds are beginning to close out positions.
- Funds including T.Rowe Price, LO Funds and Nikko AM have closed out exposure this year.
- JD.com remains a very well owned stock among institutional investors, at a time when performance is anything but stellar so far this year.
Kuaishou/KS (1024 HK) Earnings Preview: Unnecessary Concerns About Chairman Change and 3Q23 Results
- We believe Mr. Su’s resignation as chairman is not a concern, because Mr. Cheng, the CEO, has been operating the company for two years.
- We believe the 3Q23 YoY growth will be lower, as 2Q23 had a lower comparison base.
- We believe the operating margin can be negative in 3Q23 as Q3 is always a weak season, but operating profit will break even for 2023.
APAC Luxury Industry Series: Update
- This update builds upon our initial report on the APAC Luxury Industry, in which we expressed our belief that potential opportunities lie within the small niches of the luxury sector.
- While the share price performance hasn’t met our expectations, the broader trend we highlighted, Luxury Travel and Tourism, has shown robust growth.
- Even though travel flows have returned to pre-pandemic levels, Shiseido has not yet regained its pre-pandemic performance, however the two hotels are already operating at levels close to 2019 levels.
GoTo: In Pursuit of Profits…
- GoTo reported 3Q2023 results on Monday. Gross revenues increased 1.4% YoY to IDR5.98trn while adj. EBITDA losses further narrowed down to IDR1.84trn vs IDR3.71trn in 3Q2022.
- GoTo Gojek Tokopedia Tbk PT (GOTO IJ) continues to see huge reduction in losses but growth rates have fallen further with cutdown on incentives and promotional spending.
- It seems that GoTo has stopped exploring growth opportunities in pursuit of profits, however, this may not be sustainable in the long-term with falling growth rates.
Fanuc (6954) | Not Out of the Woods Yet
- Q2 2023 results for FANUC Group showed a 3.7% decrease in consolidated net sales, a 24.5% drop in consolidated operating income, and mixed performance in its divisions.
- Some positives: operating profit exceeding analyst expectations and an operating margin increase to 17.2%. However, declining robot orders, challenges in the US region, and high inventory remain concerns
- We believe that the stock is currently trading around fair value (20x EV/EBIT). However, we still see risks to the downside given macro concerns
AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum
- The A-share subsidiaries of AviChina Industry & Technology (2357 HK) have mostly posted solid 3Q23 results – aggregate earnings growth has accelerated to 50.2%, from 26.8% in 1Q23.
- Their 9M23 result reached 64% of FY23 consensus forecast earnings for AviChina, vs. just 61% a year ago. This indicates the market is too conservative and suggests room for upgrade.
- Valuations are cheap at 8.7x and 7.0x PERs for FY23 and FY24. Its market capitalisation equals just 46% of the total attributable market capitalisation of these subsidiaries.
Alfresa Holdings (2784 JP): Better-Than-Expected H1FY24 Performance; FY24 Guidance Raised
- Alfresa Holdings (2784 JP)‘s H1FY24 revenue, operating profit, and net profit are expected to exceed the previous expectations due to greater-than-expected growth in the ethical pharmaceuticals business.
- Encouraged by the growth in the pharmaceutical market and better-than-expected H1FY24 performance, the company has raised FY24 revenue, operating profit, and net profit guidance by 4%, 30%, and 36%, respectively.
- New FY24 guidance implies, H2FY24 revenue run-rate will be similar to H1F24, while H2FY24 operating profit will accelerate to ¥20.1 billion from ¥15.9 billion in H1FY24.
Midea Group (000333 CH): Not That Correlated To China Property
- Midea Group Co Ltd A (000333 CH) has officially filed for Hong Kong listing last week.
- A common pushback against owning the stock is the perception of strong correlation to China property, which is not true in terms of business fundamentals.
- The stock is currently trading at 10x 2024E PE compared to an average of 13x over the last 10 years.
Arbuthnot Banking Group (ARBB) Trading update: taking ABG to the next level
- In our view, the key takeaway from the recent 3Q trading statement is how ABG is progressing strategically towards its “Future State 2” plan.
- In particular, we note specialist SME finance divisions generating the ambitious balance sheet growth in the plan, optimising the core relationship banking franchise, which, in this period, saw 7% deposit growth ‒ given the level of base rates, this is a profitable product for a relationship bank, and continued investment, which, at times, requires a step change in cost rather than a gentle evolution.
- To meet expected multi-year demand, ABG is increasing its central London HQ office space by 45% at an annual increase in cost of ca.£5m (with further dual running costs until October 2024 as it is refitted).
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