7 Aug 2024 CMB International Global Markets | Equity Research | Company Update Yum China (YUMC US) The best-in-class costs management in 2Q24 Sales growth was indeed a miss in 2Q24, but the net profit was a significant beat. For 2H24E, we are still very cautious about the demand and so as the level of competition. However, thanks to various efforts like Project Fresh Eye, Project Red Eye, rationalizing number of SKUs, more direct sourcing, and rampup of more profitable store formats (e.g. K-coffee and Pizza ...

Investment Rating - The report reiterates a BUY rating for Innolight with a new target price of RMB150.76, up from the previous target price of RMB130.71, indicating an upside potential of 31.7% from the current price of RMB114.48 [2]. Core Insights - Despite recent market volatility, the fundamentals of Innolight remain strong, benefiting from the ongoing heavy investments by major cloud service providers (CSPs) to meet rising AI compute demand [1]. - The report highlights a significant increase in capital expenditures (capex) by the Big Four CSPs, which totaled US$52.9 billion in Q2 2024, representing a 57.1% increase year-over-year [1]. - Innolight's valuation is considered attractive at 22.8x/15.3x P/E for 2024/25E, especially following a market pullback of over 35% since July [1]. - Revenue forecasts for Innolight have been revised upwards by 6% and 11% for 2024 and 2025, respectively, due to a stronger capex outlook from cloud companies [1]. Financial Summary - Innolight's revenue is projected to grow from RMB10,718 million in FY23 to RMB23,877 million in FY24, reflecting a year-over-year growth of 122.8% [4]. - Net profit is expected to increase significantly from RMB2,173.5 million in FY23 to RMB5,462.1 million in FY24, representing a growth of 151.3% [4]. - The gross margin is forecasted to remain stable around 33.2% in FY24, slightly improving from 33.0% in FY23 [4]. - The earnings per share (EPS) is projected to rise from RMB2.00 in FY23 to RMB5.03 in FY24, indicating strong profitability growth [4]. Market Context - The report notes that concerns regarding market turmoil in the tech sector are primarily driven by mixed earnings results, fears of a US recession, and uncertainties surrounding the upcoming US presidential election [1]. - Despite these concerns, the long-term investment theme in AI remains positive, with major CSPs expected to continue their investments in AI infrastructure, which is projected to grow by 39% and 13% in capex for 2024 and 2025, respectively [1].

2024 年 8 月 7 日 招银国际环球市场 | 策略报告 | 市场策略 策略观点 市场期待政策转向促消费 | --- | --- | --- | |-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|----------------| | | | | | | 宏观：中国经济走弱，房地产价跌量升，消费者和企业家信心依然较弱，通 | 叶丙南 , Ph.D | | | 缩压力仍存。三中全会确认政策优先项是支持科技行业和高端制造业发展， | 刘泽晖 | | | 近期政治局会议提出经济政策重点转向提振消费，但仍缺乏具体政策细节， 下半年宏观政策或延续温和放松。美国经济、通胀与就业延续放缓，我们认 | 伍力恒 | | | 为美联储或在 9 月开始降息，年内降息幅度约 50 个基点。 | 李汉卿 | | | 科技：乐观，近期全球科技板块有所回调，主 ...

Investment Rating - Maintains a **Buy** rating with a target price of **HKD 294.91**, based on a **15x FY25E P/E** [1] - The stock is currently trading at **13x FY25E P/E**, indicating it is not overvalued [1] Core Views - Despite weak sales growth in Q2 2024, net profit saw a significant increase, driven by cost management initiatives [1] - The report remains cautious about revenue growth in 2H24E due to high base effects and a weak macroeconomic environment [1] - Confidence in a turnaround in 4Q24E is supported by initiatives like **Project Fresh Eye**, **Project Red Eye**, and the introduction of more profitable store formats such as **K-Coffee** and **Pizza Hut's WOW model** [1] - The report expects **Q3 and Q4 sales/OP/NP growth** to be around **2%/8%/7%** and **+1%/30%/13%**, respectively [1] Sales and Profitability - Q2 2024 sales grew by **1% YoY** to **USD 2.68 billion**, below expectations, but net profit increased by **8% YoY** to **USD 212 million**, exceeding estimates [5] - **KFC's SSSG** declined by **3%** in Q2 2024, while **Pizza Hut's SSSG** fell by **8%**, though Pizza Hut's profitability outperformed KFC [5] - **Delivery sales** grew by **11%**, while **dine-in sales** declined by **3%** in Q2 2024 [5] - **FY24E net store opening target** remains at **1,500 to 1,700**, with a capital expenditure target of **USD 700-850 million** [5] Cost Management and Efficiency - **Project Red Eye** aims to improve supply chain efficiency by simplifying SKUs and reducing unnecessary items [1] - **Project Fresh Eye** focuses on reducing operational complexity, allowing store managers to focus on other tasks [1] - Increased use of **AI and automation**, with over **80% of Pizza Hut stores** equipped with automated rice cookers and **50% with robotic servers** [1] - **Labor costs** are expected to remain low, around **LSD levels** in FY24E, and **G&A expenses** are targeted at **5% of sales**, down from **5.8% in FY23** [1] Store Expansion and Formats - **K-Coffee** targets **500-600 stores** by FY24E, with **300 stores** already opened by July 2024 [1] - **Pizza Hut's WOW model** aims for **200 stores** by FY24E, with **100+ stores** opened by July 2024 [1][9] - The **WOW model** features simpler operations, targeting solo diners and value-conscious consumers, with promising initial results [10] Financial Performance and Forecasts - **FY24E revenue** is expected to grow by **1.4% YoY** to **USD 11.13 billion**, with **net profit** increasing by **5.1% YoY** to **USD 869 million** [12] - **FY25E revenue** is forecasted to grow by **9.1% YoY** to **USD 12.14 billion**, with **net profit** rising by **8.5% YoY** to **USD 943 million** [12] - **FY26E revenue** is projected to grow by **8.7% YoY** to **USD 13.19 billion**, with **net profit** increasing by **14.4% YoY** to **USD 1.08 billion** [12] Valuation and Peer Comparison - The stock is trading at a **15.4x FY24E P/E**, compared to the industry average of **28.8x** [13] - **ROE** is expected to remain stable at **11.6%** in FY24E and FY25E, increasing slightly to **11.9%** in FY26E [12] - **Dividend yield** is forecasted to increase from **1.8% in FY24E** to **2.8% in FY26E** [12] Key Initiatives and Innovations - **Pizza Hut's entry-level priced pizzas** saw double-digit growth in Q2 2024, driven by expanded price ranges and innovative new products [1] - **Single-person meals** and new store formats like **K-Coffee** and **Pizza Hut's WOW model** are expected to drive incremental sales and profit [1][9]

Group 1: Economic Indicators - The July Services PMI rebounded significantly from 48.8 to 51.4, indicating a return to expansion, surpassing market expectations of 51[3] - The Services sector, which accounts for nearly half of the US GDP, shows signs of resilience, with business activity, new orders, and employment indices all returning to expansion territory[2] - The Manufacturing PMI fell sharply from 48.5 to 46.8, marking the largest contraction in nearly a year, with significant declines in key indices[3] Group 2: Future Projections - US GDP growth is projected to decline from 2.5% last year to 2.2% this year and further to 1.8% next year[2] - The Federal Reserve is expected to begin cutting interest rates in September, with a total reduction of 50 basis points this year and an additional 100 basis points next year[2] - Long-term US Treasury yields are anticipated to decrease to 4% by the end of this year and 3.9% by the end of next year[2] Group 3: Inflation and Employment - Inflation is expected to cool as it declines faster than nominal interest rates, leading to higher real interest rates and further tightening of policies[2] - The unemployment rate is rising primarily due to an influx of immigrants increasing the labor force, raising concerns about potential acceleration in job losses[2] - The Services PMI's return to expansion is crucial for maintaining overall economic resilience amid manufacturing sector weaknesses[3]

Investment Rating - The report maintains a "BUY" rating for Yum China with a target price of HK$294.91, reflecting a 16.7% upside from the current price of HK$252.80 [2][3][17]. Core Insights - Despite a sales growth miss in 2Q24, Yum China achieved a significant net profit beat, driven by effective cost management and operational efficiency initiatives. The company is expected to see a turnaround in 4Q24E [2][7]. - The report expresses caution regarding topline growth in 2H24E due to a high base and weak macroeconomic conditions, projecting same-store sales growth (SSSG) for KFC and Pizza Hut at -3% and -6% in 3Q24E, respectively, and a modest recovery in 4Q24E [2][7]. - Bottom-line growth is expected to be more stable, with operating profit margins anticipated to remain at least stable in FY24E due to various cost-saving initiatives [2][7]. Financial Summary - Revenue for FY24E is projected at US$11,129 million, with a year-over-year growth of 1.4%. Net profit is expected to reach US$869.2 million, reflecting a 7% increase [3][8]. - The earnings per share (EPS) for FY24E is estimated at US$2.11, with a projected P/E ratio of 15.4x [3][8]. - The report highlights a significant increase in net profit for 2Q24, which rose by 8% to US$212 million, exceeding estimates due to resilient gross profit margins and stable operating expenses [7][8]. Operational Initiatives - Yum China is implementing several projects aimed at improving operational efficiency, including Project Fresh Eye and Project Red Eye, which focus on simplifying operations and enhancing supply chain efficiency [2][9]. - The company plans to open 1,500 to 1,700 new stores in FY24E, maintaining its capital expenditure target of US$700 million to US$850 million [7][8]. - The introduction of new store formats, such as K-coffee and Pizza Hut's WOW model, is expected to drive incremental sales and profitability [2][9][12]. Market Position - Yum China's market capitalization is approximately HK$97.8 billion, with a shareholding structure that includes significant stakes from JPMorgan Chase & Co. and Invesco Advisers, Inc. [4][17]. - The company is positioned favorably within the China Consumer Discretionary sector, with a competitive edge in cost management and operational efficiency [2][3][17].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 5.90, indicating a potential upside of 64.8% from the current price of HKD 3.58 [3][12]. Core Insights - The company's net profit for the first half of 2024 decreased by 27% year-on-year to RMB 314 million, which was 14% lower than expectations due to lower gross margins and a loss from the expiration of the North Ring Road concession [2][7]. - The company expects improved performance in the second half of 2024, maintaining a dividend payout ratio target of 50-60% [2][12]. - The report highlights that the North Ring Road project transfer is ongoing, with a reported loss of RMB 20 million due to the expiration of its concession [2][10]. Financial Performance Summary - Revenue for the first half of 2024 was RMB 1.83 billion, down 5.6% year-on-year, with a gross margin contraction of 6.5 percentage points to 50.1% [7][11]. - The company's financial expenses decreased by 14% year-on-year to RMB 232 million, with an effective interest cost reduction to 2.93% [2][7]. - The net debt-to-equity ratio remained stable at 98.6% as of June 2024 [2][7]. Future Projections - The company projects a revenue of RMB 3.74 billion for the fiscal year 2024, with an expected adjusted net profit of RMB 808 million, reflecting a 6.6% decrease year-on-year [3][15]. - The report anticipates a gradual recovery in traffic volumes and toll revenues, particularly with the opening of the Shenzhen-Zhongshan Bridge [2][10]. Capital Expenditure Guidance - The company has guided for total capital expenditures of RMB 2 billion for the second half of 2024, including RMB 1.2 billion for the GNSR highway development project [2][10]. Shareholder Structure - The major shareholders include Guangzhou Yuexiu Holdings (44.2%) and China Merchants Highway (12.1%) [4]. Market Performance - The stock has shown a decline of 12.3% over the past month and 17.1% over the past six months, underperforming the market [4]. Valuation Metrics - The report indicates a price-to-earnings ratio of 6.8x for 2024E, which is slightly above the historical average of 6.0x [3][12].

7 Aug 2024 CMB International Global Markets | Equity Research | Company Update Yuexiu Transport (1052 HK) 1H24 earnings down 27% YoY below our expectation; expect a better 2H24E Yuexiu Transport's net profit in 1H24 dropped 27% YoY to RMB314mn, 14% below our estimate. The miss was due to (1) lower-than-expected gross margin and (2) share of loss insured (RMB20mn) due to the expiration of concession right of Northern Ring Road starting from Mar 2024. Yuexiu Transport proposed interim dividend of HK$0.12/shar ...

Investment Rating - The report maintains a "BUY" rating for Tongda with a new target price (TP) of HK$0.13, reflecting a potential upside of 73.6% from the current price of HK$0.08 [3][8][9]. Core Insights - The anticipated recovery in Android smartphone demand and growth in smart technology segments are expected to drive earnings recovery in 1H24. The report estimates 1H24 revenue and net profit at HK$2.6 billion and HK$35 million, respectively, indicating a 10% decline in revenue but an 82% increase in net profit year-on-year [1][4]. - The report highlights a positive outlook for 2H24 and FY25, driven by stable average selling prices (ASP) in handsets, order wins in household and sports goods, and the ramp-up of the Malaysian plant to meet non-handset customer demand [1][4][8]. Summary by Sections Earnings Summary - For 1H24, revenue is projected at HK$2,550 million, with a year-on-year decline of 10%. The consumer electronics segment is expected to generate HK$1,998 million, primarily impacted by the disposal of the Apple business [1][6]. - The report forecasts a significant recovery in net profit for FY24, with an expected increase of 82% year-on-year, attributed to the recovery in the Android business and improved operating efficiencies [1][7]. Financial Projections - The revised estimates for FY24E and FY25E show a decrease in EPS by 23-32% due to the impact of the Apple business disposal and increased competition in the Android market. The new EPS estimates are HK$0.016 for FY24E and HK$0.022 for FY25E [4][5]. - Revenue projections for FY24E and FY25E are HK$5,603 million and HK$5,819 million, respectively, reflecting a year-on-year growth of 3.9% in FY25E [4][5]. Valuation Metrics - The stock is currently trading at a P/E ratio of 4.8x for FY24E and 3.5x for FY25E, which is considered attractive compared to historical averages [3][8][9]. - The report emphasizes that the new target price of HK$0.13 is based on a rolled-over P/E of 6.0x for FY25E, indicating a favorable valuation for potential investors [3][8].

2024 年 8 月 6 日 CMB 国际全球市场 | 股票研究 | 公司更新 通达 （ 698 香港 ） 1H24E 预览 ： 关注 Android 恢复和智能技术增长 目标价 0.13 港元 （ 先前 TP 为 0.14 港元 ） 涨 / 跌 73.6% 现价 0.08 港元中国科技 亚历克斯 NG (852) 3900 0881 李汉青 通达将于 8 月 28 日公布 1H24 业绩我们估计 2016 年上半年的收入 / 净利润为 26 亿港元 / 3500 万 港元 （ 同比 - 10% / + 82% ），主要受 Adroid 智能手机复苏、海外家用和体育用品客户的库存恢 复、网络通信路由器对 Wifi - 7 升级的需求回升以及每个细分市场的 GPM 稳定的推动。展望 2H24 / FY25E，我们预计手机复苏，ASP 稳定，家用和体育用品订单获胜。我们对马来西亚工厂的扩建 也持积极态度，以满足非手机客户的需求。我们将 FY24 - 25E 每股收益下调了 23 - 32%，以反映 苹果业务处置和 Adroid 市场竞争。维持买入，新 TP 为 0.13 港元，基于 2012 财年的 6.0 倍市 ...