In today’s briefing:
- Short Note: China Prop FY22 Results, Physical Market Uneven Recovery and Sunac’s Trading Resumption
- Consolidation Begets Pricing Power – Is This Illusory?
- [Gaming Sector Update]: AIGC: Short-Term Catalyst, Long-Term Challenge
Short Note: China Prop FY22 Results, Physical Market Uneven Recovery and Sunac’s Trading Resumption
- Full year 2022 annual results indicate that SOEs CRL and COLI are holding up, while smaller developers are still under liquidity pressure
- In terms of the physical market, contract sales rebound strongly in Q1, with SOEs to gain market share over POEs
- Sunac announced resume trading today (down 53%), but sector risk is still here. Part of the risk is priced in at current valuation for sector, but SOEs are not cheap
Consolidation Begets Pricing Power – Is This Illusory?
- Oligopolistic structures, market dominance doesn’t necessarily translate into pricing power.
- As some consumer focusing firms aren’t price takers and their business inherently cyclical – sustaining premium valuations are at risk.
- A dominant co., in a mega trend or amidst underlying structural change could be a formidable play to sustain both – pricing power and premium valuations.
[Gaming Sector Update]: AIGC: Short-Term Catalyst, Long-Term Challenge
- We suggest that AIGC will be a short-term driver for the major companies in the online gaming industry. It could assist the rise of small-to-mid-size companies in the long run.
- In the next 1-2 years, we expect that Tencent and NetEase’s EPS may improve by 13%/24% because of AIGC.
- By adding more AIGC functions, Unity may also increase customers’ retentions in the near term. Maintain BUY to Tencent, NetEase, and Unity.
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