19 Aug 2024 CMB International Global Markets | Equity Research | Company Update China Hongqiao (1378 HK) Net profit 1H24 +2.7x YoY, beat expectations Hongqiao's net profit came in at RMB9.16bn (+2.7x YoY), which is better than the pre-announced profit growth of 2.2x in Jun. Excluding the fair value loss of convertible bonds (CB), the core net profit would be even higher at RMB10.5bn (+3.3x YoY). The strong profit growth was driven by higher-than-expected unit gross margin expansion for both aluminum (Al) (+ ...

Investment Rating - The report maintains a BUY rating for Kingdee with a target price lowered to HK$10.80 per share from HK$15.50, indicating an upside potential of 84.9% from the current price of HK$5.84 [3]. Core Insights - Kingdee's revenue for 1H24 increased by 11.9% YoY to RMB2.87 billion, slightly below Bloomberg consensus estimates, attributed to a lengthened deal cycle and macroeconomic challenges affecting small and micro enterprises [2]. - The net loss for 1H24 was RMB218 million, representing a 23% YoY reduction and 20% narrower than consensus estimates, showcasing Kingdee's focus on improving operational efficiency [2]. - The company's core SaaS product, Galaxy, demonstrated healthy growth with a 24% YoY increase in subscription ARR in 1H24, although the dollar retention rate slightly decreased to 95% [2]. - Kingdee's cloud revenue grew by 17.2% YoY to RMB2.4 billion, accounting for 83.2% of total revenue, while license ERP revenue declined by 8.8% YoY [2]. Financial Performance Summary - Revenue projections for FY24E have been lowered by 4% to RMB6.475 billion, with expectations for 2H24 revenue growth to reaccelerate to 16% [2][6]. - The gross profit margin improved to 63.2% in 1H24, up 1.3 percentage points YoY, driven by increased cloud revenue contribution [2]. - Kingdee's operating loss is projected to narrow, with a forecasted net profit of RMB240.6 million in FY25E and RMB466.8 million in FY26E [5][9]. Customer and Market Dynamics - Kingdee signed 275 new customers for its Cosmic & Constellation (C&C) business in 1H24, with revenue growth of 38.9% YoY [2]. - The lifetime contract value (LTCV) for C&C customers has shown a solid expansion trajectory, indicating strong demand for localized software solutions [2]. - Management's guidance remains optimistic for operational cash flow (OCF) growth, targeting RMB900 million for 2024, despite a slower overall revenue growth pace [2].

2024 年 8 月 16 日 招银国际环球市场 | 宏观研究 | 宏观视角 美国经济 通胀延续放缓 美国 7 月 CPI 与核心 CPI 增速符合预期，显示通胀延续放缓。以同比增速衡量， 商品通胀持续为负，房租通胀和其他服务通胀放缓，但仍分别达到 4.9%和 4.6%，因房租和工资合同调价存在滞后期。展望未来，CPI 与核心 CPI 增速可能 延续温和放缓，驱动因素包括房租通胀补跌、工资增速下降和大宗商品价格回 调。随着通胀延续下降和就业市场降温，美联储降息时机不断临近。9月降息已无 悬念，分歧在于降息幅度是 25 个基点还是 50 个基点。由于房租环比涨幅反弹， 市场预期 9 月降息 25 个基点概率从 47%升至 62.5%，降息 50 个基点概率从 53% 降至 37.5%。美联储的注意力已从抗通胀转向双目标平衡，对就业市场更加关 注。目前美国经济放缓仍属温和，通胀下降但仍高于 2%目标。我们预计美联储将 在 9 月和 12 月两次降息合计 50 个基点，明年进一步降息 4 次共 100 个基点。 CPI增速略低于预期，商品通胀延续为负。7月 CPI季调后环比增长 0.15%， 接近市场预期的 0.2 ...

Investment Rating - The report maintains a "Buy" rating for Tencent with a target price of HKD 480, reflecting a potential upside of 28.4% from the current price of HKD 373.80 [3][17]. Core Insights - Tencent reported a total revenue of RMB 161.1 billion for Q2 2024, representing an 8% year-on-year growth, which aligns closely with market expectations [3]. - Non-IFRS net income increased by 53% to RMB 57.3 billion, exceeding both the report's and market consensus forecasts by 17% and 18%, respectively, primarily due to a significant increase in share of profits from associates [3]. - The gaming segment showed a robust recovery with a 9% year-on-year revenue growth, driven by successful game launches and the revival of flagship titles [3]. - Online advertising revenue grew by 19% year-on-year, supported by strong performance in video accounts and long-form video advertising [3]. - Financial technology and business services revenue saw a modest 4% growth, indicating pressure from consumer spending and stricter risk management [3]. Financial Summary - For FY24E, total revenue is projected at RMB 658.2 billion, with adjusted net profit expected to reach RMB 214.6 billion, reflecting a 7.9% increase from previous estimates [8]. - The gross profit margin is anticipated to be 53.3%, with an operating profit margin of 31.5% for FY24E [8]. - The report forecasts a compound annual growth rate (CAGR) of 18% for non-IFRS net profit from 2024 to 2026, supported by high-quality growth strategies [3][34]. Valuation Metrics - The report estimates the value of Tencent's online gaming business at HKD 190.6 based on a projected P/E ratio of 18x for FY24E, which is in line with global gaming peers [10]. - The fintech business is valued at HKD 79.7, reflecting a premium over the industry average due to Tencent's strong position in China's digital payment market [11]. - The report applies a 30% holding company discount to the fair value of Tencent's strategic investments, estimating their contribution to be HKD 67.3 per share [23].

Investment Rating - The report maintains a BUY rating for Tencent with a target price of HK$480.0, derived from a sum-of-the-parts (SOTP) valuation approach [1][22]. Core Insights - Tencent's total revenue for 2Q24 grew by 8% YoY to RMB161.1 billion, aligning with estimates, while non-IFRS net income surged by 53% YoY to RMB57.3 billion, exceeding expectations [1]. - The gaming segment showed a solid recovery, with revenue increasing by 9% YoY to RMB48.5 billion, driven by successful game launches and recovery of flagship titles [1][17]. - Online advertising revenue grew by 19% YoY to RMB29.9 billion, supported by strong performance in Video Accounts and long-form video [1]. - The fintech and business services segment experienced slower growth, with revenue up by 4% YoY to RMB50.4 billion, reflecting challenges in consumer loan revenue [1][11]. - Gross profit margin (GPM) improved by 5.8 percentage points YoY to 53.5%, driven by high-margin revenue streams [1]. Revenue and Profit Forecasts - Revenue is projected to reach RMB658.2 billion in FY24E, with adjusted net profit expected at RMB214.6 billion, reflecting a CAGR of 18% from FY24 to FY26 [18][20]. - The adjusted EPS for FY24E is forecasted at RMB22.16, with a P/E ratio of 19.7x [18][20]. Business Segment Valuation - The valuation for the online games segment is estimated at HK$190.6 per share, while the social network services (SNS) business is valued at HK$30.0 per share [5][7]. - The fintech business is valued at HK$79.7 per share, reflecting Tencent's strong position in China's digital payment market [6][7]. - The advertising business is valued at HK$83.5 per share, based on a premium P/E ratio due to resilient ad revenue growth [22]. Financial Summary - Tencent's total assets are projected to grow from RMB1,635.9 billion in 2024E to RMB2,085.6 billion by 2026E, indicating strong financial health [13][30]. - The company is expected to maintain a robust cash position, with cash and equivalents projected at RMB152.4 billion in 2024E [13].

Investment Rating - The report maintains a BUY rating for China Lilang, primarily due to its attractive yield of 9% and valuation of 9x FY24E P/E, despite a cautious outlook for 2H24E [2][4]. Core Views - The company has revised down its FY24E retail sales growth target to 10% from 15%, reflecting macroeconomic uncertainties and company-specific challenges such as DTC transformation and increased operating expenses [2][6]. - Despite a robust new retail sales growth of 37% in 1H24E, the overall sales growth is expected to slow down due to a high base from the previous year and unclear momentum in retail sales [2][6]. - The partnership with Descente to develop the Munsingwear brand in China is seen as a positive move that could enhance growth in the golf wear segment [2][6]. Financial Summary - Revenue is projected to grow from RMB 3,544 million in FY23A to RMB 3,845 million in FY24E, representing an 8.5% year-on-year growth [3][10]. - Net profit is expected to decrease slightly from RMB 530.4 million in FY23A to RMB 528.1 million in FY24E, indicating a 0.4% decline [3][10]. - The company’s operating profit is forecasted to increase from RMB 610.6 million in FY23A to RMB 634 million in FY24E, reflecting a 3.9% growth [3][10]. Earnings Revision - FY24E net profit estimates have been revised down by 16% to RMB 528 million, primarily due to slower-than-expected sales growth and increased operating expenses [7][8]. - The gross profit margin is expected to decline to 46.7% in FY24E from 48.2% in FY23A, reflecting the impact of DTC transformation and a shift in sales mix [7][8]. Market Performance - The current market capitalization of China Lilang is approximately HK$ 4,897.7 million, with a target price of HK$ 4.85, indicating an upside potential of 18.6% from the current price of HK$ 4.09 [4][12]. - The stock has experienced a decline of 13.9% over the past three months, reflecting broader market challenges [4][12]. Strategic Initiatives - The company plans to open its first store in Malaysia as part of its overseas expansion strategy, leveraging its leadership in menswear and value-for-money products [6][12]. - The multi-brand strategy has been launched, with a focus on enhancing product and brand upgrades, which is expected to support long-term growth [2][6].

Investment Rating - The report maintains a "Buy" rating for TME with a target price of $16.00, representing a potential upside of 21.9% from the current price of $13.13 [4][11]. Core Insights - TME's Q2 2024 total revenue decreased by 2% year-on-year to RMB 7.16 billion, aligning with consensus estimates. However, non-IFRS net income grew by 22% year-on-year to RMB 1.87 billion, exceeding expectations [2][3]. - The management emphasizes a balanced growth strategy focusing on music subscribers and ARPPU (Average Revenue Per User), with long-term goals of reaching 150 million music users and a monthly ARPPU of RMB 15 [2][3]. - The online music segment showed robust growth, with revenue increasing by 28% year-on-year to RMB 5.42 billion, accounting for 76% of total revenue. Paid users rose by 18% year-on-year to 117 million [2][3]. - The report forecasts an 8% year-on-year revenue growth in Q3 2024, driven by a 24% increase in online music revenue, despite a 29% decline in social entertainment revenue [2][3]. Financial Summary - For FY24E, total revenue is projected at RMB 28.415 billion, with a gross profit margin (GPM) of 42.2% and an adjusted net profit of RMB 7.501 billion [3][8]. - The GPM is expected to expand to 42.8% in Q3 2024, supported by improved online music margins and increased self-produced content [2][3]. - The report indicates a compound annual growth rate (CAGR) of 21% for TME's revenue from FY24 to FY26, driven by core music revenue growth and GPM expansion [2][3]. Valuation Metrics - The report provides a DCF valuation with a target price of $16.00, based on a WACC of 11.6% and a terminal growth rate of 2.5% [11][12]. - TME's current P/E ratio is 21 times FY24E earnings, which is considered fair by the report [2][3]. Market Performance - TME's stock has seen a 1-month decline of 13.2% and a 3-month decline of 11.3%, while it has increased by 36.3% over the past 6 months [5]. - The company has a market capitalization of approximately $20.23 billion and an average turnover of $32.1 million over the past three months [5]. Future Outlook - The management's focus on leveraging AI technology to enhance user experience and drive music streaming growth is highlighted as a key strategy moving forward [2][3]. - The report anticipates continued growth in the number of music users, with a net increase of 1.5 to 2 million users per quarter in the second half of 2024 [2][3].

Investment Rating - The report maintains a "Buy" rating for FIT Hon Teng with a new target price of HK$4.25, reflecting an attractive risk-reward profile based on a 13x FY25E P/E ratio [11][12]. Core Insights - FIT Hon Teng reported strong Q2 2024 results, with revenue of US$1.102 billion, a year-on-year increase of 20%, and a net profit of US$22.3 million, significantly up from US$0.35 million in Q2 2023 [1][6]. - The company is optimistic about its AI server product line, with new power bus and liquid cooling CDU products passing customer certification, expected to contribute 1-3% to FY24E sales [1][11]. - The network business revenue is projected to grow at a high double-digit rate year-on-year, driven by robust demand in AI applications [1][11]. Financial Performance Summary - Revenue for FY24E is estimated at US$4.677 billion, with a year-on-year growth of 11.5%, and net profit is projected at US$183 million, reflecting a 41.8% increase [9][10]. - Gross profit margin (GPM) is expected to stabilize around 21% for FY24E and FY25E, with operating profit margin (OPM) targeted at 7% for FY24E [8][10]. - The company anticipates a rebound in revenue and net profit for FY24E, with expected growth rates of 12% and 42%, respectively [1][11]. Segment Performance - The automotive segment saw a remarkable year-on-year growth of 231%, primarily due to the integration of Voltaira [1][6]. - The network segment experienced a 29% increase in demand, attributed to the growth in AI applications [1][6]. - The smartphone segment's performance was better than expected, aided by improved shipping strategies with major clients [1][6]. Earnings Revisions - FY25E earnings per share (EPS) estimates have been revised upwards by 13-23%, reflecting stronger performance expectations [2][9]. - The report highlights a significant increase in EPS for FY24E to 2.58 cents and for FY25E to 4.20 cents, indicating a positive outlook for profitability [9][10].

Investment Rating - The report maintains a "BUY" rating for the company with a target price of US$16.00, indicating a potential upside of 21.9% from the current price of US$13.13 [5][11]. Core Insights - The company reported inline 2Q24 results with total revenue declining by 2% YoY to RMB7.16 billion, while non-IFRS net income increased by 22% YoY to RMB1.87 billion, exceeding estimates [3][4]. - Management aims for balanced growth in music subscribers and ARPPU in 2H24E, with expectations of slower subscriber growth but continued ARPPU growth [3][4]. - The long-term target remains at 150 million music subscribers and RMB15 in monthly ARPPU, with a projected earnings CAGR of 21% over FY24-26E [3][4]. Revenue and Profitability - Online music revenue grew by 28% YoY to RMB5.42 billion in 2Q24, accounting for 76% of total revenue, with subscription and non-subscription revenues increasing by 29% and 24% YoY, respectively [3][4]. - The gross profit margin (GPM) expanded by 7.7 percentage points YoY to 42.0% in 2Q24, driven by margin improvements in the online music business and enhanced monetization strategies [3][4][10]. - For FY24E, non-IFRS net income is estimated to grow by 27% YoY to RMB7.50 billion, supported by GPM expansion and operational expense control [3][4]. Future Outlook - The company forecasts total revenue growth of 8% YoY to RMB7.06 billion in 3Q24E, primarily driven by a 24% YoY increase in online music revenue, despite a decline in social entertainment revenue [3][4]. - GPM is expected to further expand to 42.8% in 3Q24E, with continued focus on high-value programs and AI technology to enhance user experience [3][4][10]. - The company’s valuation remains fair at 21x FY24E PE, reflecting confidence in its growth trajectory [3][4].

Investment Rating - The report initiates coverage on the company with a "Buy" rating and sets a target price of HKD 49.80, indicating a potential upside of 97.6% from the current price of HKD 25.20 [3][11]. Core Insights - The company is recognized as a leading supplier of analog IC patterned wafers in China, with a unique full-stack design platform that integrates EDA, IP, and design processes. This positions the company favorably in the industrial-grade analog IC market, which is expected to support long-term profitability [7][20]. - The company is projected to achieve a robust revenue growth rate of 38.0% from 2023 to 2026, with stable profit margins expected to maintain at 54% gross margin and 23% net margin in 2024/25 [7][11]. - The valuation appears attractive, with a projected P/E ratio of 10.3x for 2024/25 compared to the industry average of 30.8x for Hong Kong-listed peers [7][11]. Financial Overview - Revenue is expected to grow from RMB 353 million in FY22 to RMB 1,220 million by FY26, reflecting a compound annual growth rate (CAGR) of 38% [2]. - Gross margin is projected to remain stable, with estimates of 53.8% in FY24 and 54.3% in FY25 [2]. - Net profit is forecasted to increase from RMB 95.3 million in FY22 to RMB 305.2 million by FY26, with a CAGR of 45% [2]. Market Position and Strategy - The company holds a 1.7% market share in the analog IC patterned wafer market, ranking first in revenue according to Frost & Sullivan [7][20]. - The industrial-grade analog IC market is characterized as a long-tail market with diverse downstream demand and lower competition compared to consumer-grade markets. The market is expected to grow at a CAGR of 9.5% from 2024 to 2027, reaching RMB 242 billion [9][29]. - The company has established strong partnerships with distributors, with 87% of its revenue in 2023 coming from distribution channels, indicating a strategic approach to leverage partner resources for growth [32]. Competitive Advantages - The company possesses three key differentiators: being a leading supplier of analog IC patterned wafers, focusing on the industrial-grade analog IC market, and having the only full-stack analog IC design platform in China [22][20]. - The full-stack design platform enhances efficiency in IC design and wafer delivery, reduces geopolitical risks, and provides cost advantages [10][20]. - The company has developed over 400 models of industrial-grade analog IC patterned wafers, with a projected CAGR of 23.4% in product variety from 2023 to 2026 [7][20].