In today’s briefing:
- Tencent (700 HK): 4Q23, Slower Growth, But Higher Margin, 37% Upside
- NEC (6701 JP): Generative AI (Part 2)
- Xtep International (1368 HK): Valuation Too Cheap For A >10% Growth Stock
- The First Semi-Micron to Guide 2Q24; All Good News Except MOI
- PDD (PDD): 4Q23, Time for Low Price Goods, Revenue up by 123% YoY
- Maruti Suzuki India (MSIL IN): Market Leadership Position in UV Segment Bodes Well
- GoTo 4Q2023: Improved Profitability and a Plan to Buyback Shares to Rescue Falling Share Price
- Quick Ideas #9
- Axis Bank Incubates a New Entrepreneur — Its Head of Retail Branches
- CPMC Holdings (906 HK): All Eyes on the Bids, but Underlying Still Solid
Tencent (700 HK): 4Q23, Slower Growth, But Higher Margin, 37% Upside
- In 4Q23, Tencent experienced a one-digit growth, but its margin improved significantly.
- We believe Tencent’s social networks will stop shrinking after the company sold movie assets to China Literature.
- We believe the stock will have an upside of 37.5% and a price target of HK$397 for year end 2024. Buy.
NEC (6701 JP): Generative AI (Part 2)
- CEO Jensen Huang’s keynote address at Nvidia’s GTC event on March 18 was a reminder that generative AI is about building secure and reliable systems, not chatting up the future.
- NEC has spent three years developing its own AI supercomputer, creating the best performing Japanese-language large language model (LLM), and testing new AI products in-house before delivering them to clients.
- The introduction of generative AI and LLMs into business- and industry-specific solutions should provide meaningful additions to NEC’s telecom services, social infrastructure, aerospace and national security related businesses.
Xtep International (1368 HK): Valuation Too Cheap For A >10% Growth Stock
- Xtep International (1368 HK) announced in-line 2023 results, with net profit up 12% yoy and sales up 11% yoy. 2024 outlook was also satisfactory.
- The company paid out 50% of its earnings in dividend, which amounted to a 5% dividend yield at current share price of HKD5.04.
- The company is currently trading at 10x 2024 PE (assuming a conservative 10% net profit growth in 2024).
The First Semi-Micron to Guide 2Q24; All Good News Except MOI
- Earlier expectation on Micron will have rooms to raise becoming a reality, largely driven by over 30% q/q NAND bit price jump for storage business in 1Q24.
- 10ppts stronger 2Q24 sales guidance and 3-6ppts higher gross margin guidance are driving free cash flow improvement.
- AI server, PC, and smartphone driving DRAM bit demand and HBM3e/HBM4 and 1-gamma EUV DRAM slowing bit supply growth both are positive except MOI remains 15% above 5 years average.
PDD (PDD): 4Q23, Time for Low Price Goods, Revenue up by 123% YoY
- Both advertising revenue and commission revenue grew dramatically in 4Q23.
- Chinese consumers are seeking low price goods, after the economy went weak.
- PDD’s overseas brand, TEMU, is expanding rapidly in the U.S.
Maruti Suzuki India (MSIL IN): Market Leadership Position in UV Segment Bodes Well
- In Q3FY24, Maruti Suzuki India (MSIL IN) reported revenue of INR 335Bn, a growth of 14.6% YoY on the back of higher realization and volume.
- EBITDA margin expanded 210bps YoY to 12.3% as higher volume, favorable commodity price played a role in tandem.
- The company is planning 2x increase in its annual production capacity to about 4Mn by 2030-31. Capacity expansion plans augur well for the company in medium to long term.
GoTo 4Q2023: Improved Profitability and a Plan to Buyback Shares to Rescue Falling Share Price
- GoTo Gojek Tokopedia Tbk PT (GOTO IJ) reported 4Q2023 results yesterday which shows that the company’s profitability has significantly improved.
- The improvement in profitability has come at the cost of growth which has continued to decline suggesting profits may not be sustained.
- GoTo announced that it has completed the Tokopedia partnership deal with TikTok and also a plan to buyback shares, subject to regulatory/shareholder approval.
Quick Ideas #9
- Another quick trade idea. A continuation of the China theme (see my last post for more info). Lufax holdings (LU). Again courtesy of JohnTill on Stocktwits.
- A Chinese lending company, lending out directly and providing a peer to peer lending platform for the Chinese market.
- With Ping An being a ~41% shareholder.
Axis Bank Incubates a New Entrepreneur — Its Head of Retail Branches
- Sudden resignation of Ravi Narayanan Group-Head in charge of retail branches, retail liabilities and third party products as he wishes to pursue entrepreneurship.
- Possible explanation is that the bank like other banks is finding it difficult to raise retail deposits and pressure is building up on senior management
- Bank has a high LDR and reportedly the banking regulator is demanding the bank to lower its LDR. This will have consequences on future loan growth or on NIM
CPMC Holdings (906 HK): All Eyes on the Bids, but Underlying Still Solid
- We are convinced that both bids for CPMC Holdings (906 HK) will go ahead, as they are progressing well. The downside risk is minimal, in our view.
- The strong underlying result justifies a high price for the stock. Excluding distortions from non-recurring items in FY22, earnings have increased by 32.7% in FY23 and 26.8% in 2H23.
- The stock now trades on 13.8x and 12.8x PERs for FY24 and FY25, in line with sector average; but below that for Shanghai Baosteel Packaging-A (601968 CH).
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