In today’s briefing:
- Tencent (700 HK) Earnings Preview: To See Recovery in 1Q23
- KOSPI Size Indices – Potential Changes in September
- Naver (2023 High Conviction Update): Poshmark & Gen Z – Key Drivers of Higher Sales in North America
- [KE Holdings Inc. (BEKE US) Target Price Change]: Government Clears the Commission Uncertainties
- Novatek: Volume Production of VR Driving Strongest Segment; AR/VR Finally Going Mass Market in 2023?
- Meta Platforms Inc.: Riding The New AI Wave? – Market Dominance & Other Drivers
- ASML Holding N.V.: Does It Have A Strong Enough Moat? – Key Drivers
Tencent (700 HK) Earnings Preview: To See Recovery in 1Q23
- We believe total revenue will grow by 6% in 1Q23, compared to four stagnant quarters in 2022.
- We also believe operating margin will improve by 2 percentage points YoY in 1Q23 due to the layoff in 1Q22.
- We believe the stock has an upside of 48%, but we reduce our price target from HK$563 to HK$505.
KOSPI Size Indices – Potential Changes in September
- The review period for the September rebalance of the KOSPI Size Indices will run from 1 June to 31 August. The changes will be implemented at the close 7 September.
- We see 6 migrations from MidCap to LargeCap, 56 migrations from LargeCap to MidCap, 2 new adds to MidCap, and 11 migrations from SmallCap to MidCap.
- Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.
Naver (2023 High Conviction Update): Poshmark & Gen Z – Key Drivers of Higher Sales in North America
- In this insight, we provide an update of Naver Corp which is our 2023 high conviction stock. Naver’s shares are up 19% YTD, outperforming KOSPI which is up 12% YTD.
- The total transaction amount of Naver Commerce was 11.6 trillion won (up 19.7% YoY) in 1Q 2023. Poshmark also generated positive EBITDA in 1Q 2023.
- Naver plans to cancel about 1.6 million treasury shares per year (1% of outstanding shares) in the next three years (for a combined 3% of outstanding shares).
[KE Holdings Inc. (BEKE US) Target Price Change]: Government Clears the Commission Uncertainties
- China government guided no commission capping on real estate brokerage business, but the ladder-pricing system may lead to moderate commission rate reduction for Beike.
- We estimate that 0.1% of Lianjia commission rate cut can imply to 1.2% of revenue reduction for Beike in 2023.
- Therefore, we lowered revenue by (2.8%) and net income by (5.3%) to factor in the potential changes. We maintain BUY rating but cut the TP by US$2 to US$21.
Novatek: Volume Production of VR Driving Strongest Segment; AR/VR Finally Going Mass Market in 2023?
- Novatek reported earnings ahead of expectations where margins rose thanks to recovery in pricing for its products in inventory. Inventory metrics improved as well.
- Key industry readthrough — Novatek seeing strongest demand for DDICs (display driver chips) coming from the small/medium form factor and highlighted mass production of VR as a cause.
- Apple could be quietly preparing for mass production of AR/VR headset ahead of announcement at June’s WWDC. Combined with Novatek’s comments, could AR/VR will be going mass market this year?
Meta Platforms Inc.: Riding The New AI Wave? – Market Dominance & Other Drivers
- Meta Platforms had a decent quarter and surpassed Wall Street expectations in terms of revenues as well as earnings.
- The company is progressing in improving its distributed work model, delivering AI tools to improve productivity, and removing unnecessary processes.
- AI recommendations now operate more than 20% of users’ Facebook and Instagram Feeds and over 40% of content on Instagram.
ASML Holding N.V.: Does It Have A Strong Enough Moat? – Key Drivers
- ASML Holding had a mixed first quarter with below par revenues but performing better than expected on the revenues front.
- Net sales increased significantly due to higher-than-anticipated EUV and deep UV revenue from quicker system installation and earlier acceptance in the quarter.
- The company also shipped 9 EUV systems with significant revenue from 17 systems.
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