Source: FactSet, Morgan Stanley Research Source: Company data, Morgan Stanley Research estimates October 17, 2024 01:19 AM GMT M Idea Healthcare REITs 3Q24 Earnings Preview | North America Bull Is the New Base: Expect Continued Outperformance in 25e, Raise PT for WELL to $135, VTR to $65 & AHR to $27 Expect solid 3Q results with upside risk to estimates driven by strong fundamentals and investment activity; expect healthcare to continue outperformance in '25e supported supply-demand tailwind. We mark to mar ...

Investment Rating - The report indicates a cautious outlook for the A-share market, advising a focus on dividend yield plays and earnings certainty due to expected high market volatility [2][9]. Core Insights - A-share investor sentiment has significantly decreased, with the Weighted MSASI dropping by 68 percentage points to 82% and the Simple MSASI down by 69 percentage points to 75% compared to the previous week [2][5]. - Recent macroeconomic data has shown broad-based slippage, with CPI growth at 0.4% year-on-year, missing expectations of 0.6%, and PPI remaining sluggish at -0.6% month-on-month [4][9]. - Southbound net inflows continued for the 32nd consecutive week, totaling US$3.8 billion during October 10-16, with year-to-date net inflows reaching US$68.4 billion [3]. Summary by Sections Market Sentiment - The average daily turnover for ChiNext, A-shares, Equity Futures, and Northbound decreased by 19%, 28%, 35%, and 23% respectively during the period of October 10-16 compared to the previous cycle [2][4]. - The RSI-30D decreased by 9 percentage points compared to the prior cut-off date [2]. Macroeconomic Indicators - Credit growth has slowed, with M1 year-on-year growth hitting a record low of -7.4%, indicating weak credit demand from the corporate sector [4]. - Export growth has unexpectedly declined due to supply disruptions and weakening global demand, as reflected in the downtrend of the global manufacturing PMI [4]. Policy and Market Outlook - The report suggests that the current policy framework indicates a gradual approach to fiscal measures, with a lack of commitment to scale and consumption stimulus raising concerns [8][9]. - The report recommends focusing on stock selection and downside protection, as existing market valuations have incorporated substantial optimism regarding reflationary measures [9][10].

Investment Rating - The report assigns an "Overweight" rating to Microsoft, indicating a positive outlook for the stock [4]. Core Insights - Investor sentiment has turned negative due to concerns over gross margins, capital expenditures, GenAI monetization, and the relationship with OpenAI. However, these concerns are viewed as transitory, presenting an attractive entry point for investors [1][2]. - Microsoft is expected to achieve Azure growth of 33-34% in constant currency for the first quarter, aligning with updated guidance, and is anticipated to accelerate to mid- to high-30% growth in the second half of the fiscal year [3][9]. - The report highlights that Microsoft's strong positioning in the GenAI space and disciplined operating expenses could lead to a durable double-digit EPS growth, with a projected 16% CAGR through CY26 [7][8]. Summary by Sections Azure Growth Expectations - Investor expectations for Azure growth in F1Q are set at 33-34% cc, which is achievable and should instill confidence for a flat F2Q guide, leading to mid- to high-30% growth in F2H [3][9]. - The report notes that traditional workload growth appears more de-risked, and AI demand is building ahead of the F2H capacity unlock [2][7]. Microsoft 365 Copilot - Expectations for Microsoft 365 Copilot have been reset, with 68% of CIOs planning to deploy it within 12 months, and an average penetration of 21% expected in the next year [16][19]. - The report anticipates that increased visibility on ARPU expansion and adoption milestones will drive better sentiment on M365 Copilot, potentially leading to positive revisions in future estimates [18][22]. Capital Expenditures - The report discusses expectations for total capex of approximately $20 billion in F1Q and F2Q, with a total of $78 to $85 billion projected for FY25 [24][25]. - It highlights that the capex-implied Azure AI revenue opportunity is estimated to ramp from $8.0 to $18.6 billion in FY25, increasing to $25.8 to $60.2 billion by FY27 [8][25]. Gross Margins and EPS - Concerns regarding rising AI investments are expected to pressure gross margins, with projections indicating a compression of approximately 200-250bps in FY25 [31][34]. - The report suggests that operating expense discipline could help moderate overall operating margin compression, while OpenAI losses may become a growing concern [34][32].

Investment Rating - The report does not explicitly state an investment rating for the industry Core Insights - The report discusses a modest quarter-on-quarter growth improvement for 2024/25, but sustainable reflation remains distant, indicating a long and drawn-out battle ahead [3] - A policy pivot has been triggered by various factors, including low job market confidence and the need for debt restructuring to facilitate economic recovery [5][6] - The report emphasizes the importance of a consumption-focused fiscal stimulus to drive economic rebalancing towards consumption [14] Section 1: Cyclical Outlook - The economic outlook for 2024/25 suggests a base case of quarter-on-quarter acceleration in Q4 2024 to Q1 2025 [3] - The report highlights lessons from Japan, noting the profound negative impact on wage growth amid persistent deflation, particularly affecting lower-income earners [6] - A significant one-time debt swap is estimated to resolve implicit local debt, with a size of approximately RMB 6 trillion over multiple years [9] - The "5R" growth strategy includes restructuring, rebalancing, reflation, reform, and rekindling, with expected progress by the end of 2025 [10] Section 2: Structural Outlook - The report indicates that China is better positioned than Japan after the bubble burst, with lower asset price inflation and room for further catch-up growth [24] - China's urbanization ratio is expected to continue rising, supported by upgrade demand and ongoing urbanization [22] - The report notes that China's inbound tourism revenue is projected to grow at an 11% CAGR from 2019 to 2033, indicating meaningful upside potential [35] Section 3: Regulatory Reset - The report outlines a shift from a "growth first" approach to balancing growth and sustainability, with new policy priorities focusing on social equality, data security, and tech self-sufficiency [40] - It highlights the need for a smarter, greener, and more market-oriented urbanization strategy, emphasizing the importance of infrastructure and labor mobility [48] Section 4: Global Emerging Trends - The report discusses the early innings of AI diffusion, predicting that 2024 will be a significant year for adopters of AI technology [53] - It highlights the potential for decarbonization, estimating that the energy transition to low carbon fuels will drive over USD 500 billion in cumulative cost savings through 2030 [65]

October 17, 2024 10:57 AM GMT M Update | --- | --- | --- | --- | --- | --- | --- | --- | --- | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|----------------- ...

M Update Largan Precision | Asia Pacific October 17, 2024 03:53 PM GMT 3Q24 Results In Line, but 4Q24 Outlook Lackluster with Order Cut Reaction to earnings In-line Financial results versus consensus Strengthens our investment thesis Impact to our investment thesis Source: Company data, Morgan Stanley Research | --- | --- | --- | |-------|-------------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | Largely unchanged | | | | | | | | Impact to next 12-month | | | | | | | | | | Althou ...

Investment Rating - TSMC is rated **Overweight** with a price target of NT$1,280, representing a 24% upside from the current price of NT$1,035 [5] - The industry view for Greater China Technology Semiconductors is **In-Line** [5] Core Investment Thesis - TSMC's 3Q24 EPS was NT$12.54, 10% above the forecast, with a gross margin of 57.8%, significantly higher than the consensus estimate of 55% [2] - TSMC guided 4Q24 revenue to grow 13% Q/Q, exceeding the consensus estimate of 9% Q/Q, and expects full-year revenue growth of close to 30% Y/Y in USD terms [2] - The company plans to more than double its CoWoS capacity in 2025 to meet AI semiconductor demand, although it may still face challenges in fully meeting customer demand [3] - TSMC's gross margin is expected to sustain at 57-59% in 4Q24 due to high fab utilization, but 2025 margins may face headwinds from overseas fab dilution and rising electricity costs [3] Financial Performance - 3Q24 revenue was NT$759.7 billion, up 12.8% Q/Q and 39.0% Y/Y, beating both Morgan Stanley and consensus estimates [4] - Operating expenses (Opex) were NT$79.1 billion, representing 10.4% of revenue, lower than the consensus estimate of 10.8% [4] - Operating profit margin (OPM) reached 47.5%, up 494bps Q/Q and 577bps Y/Y, significantly above consensus estimates [4] AI Semiconductor Demand - TSMC believes AI demand is sustainable, citing internal adoption and strong customer interest [3] - The company's AI-related semiconductor business is expected to drive growth, with NVIDIA being a key customer contributing to higher margins [3] Valuation and Growth Outlook - TSMC's EPS is projected to grow from NT$42.19 in 2024 to NT$70.65 in 2026, with a P/E ratio expected to decline from 24.5x in 2024 to 14.7x in 2026 [5] - The company's ModelWare net income is forecasted to increase from NT$1,094 billion in 2024 to NT$1,832 billion in 2026 [5] Industry Coverage - The Greater China Technology Semiconductors sector includes key players such as TSMC, UMC, MediaTek, and SMIC, with varying ratings and price targets [16][17]

Investment Rating - The report provides an "In-Line" investment rating for the Greater China Technology Hardware sector [4]. Core Insights - AI is identified as a key focus for 2025, with discussions on positioning within the AI hardware supply chain, including server ODMs versus components and GPU manufacturers like NVDA, AMD, and Intel [4]. - The report highlights the initial stage of liquid cooling adoption and the time required for immersion cooling to gain traction [4]. - Key stocks mentioned include Hon Hai, FII, AVC, Delta, Lenovo, Wistron, Wiwynn, Giga-Byte, Quanta, Lotes, GCE, Asustek, and Yageo [4]. - The demand cycle for iPhones is expected to continue, with a multi-year replacement cycle and upcoming upgrades for the iPhone 17 [4]. - The report questions whether the Android camp will differentiate itself based on AI features [4]. Summary by Sections AI Hardware Supply Chain - The report discusses strategies for positioning in the AI hardware supply chain for 2025, comparing server ODMs and components, and identifying tactical buy ideas versus long-term winners [4]. - It raises questions about the winners in GB200 and the sustainability of stock re-rating [4]. AI PCs - AI PCs are anticipated to drive the next phase of growth in the PC market, with discussions on their definition, necessity, and use cases [5]. - Key catalysts for the next 12 months are identified, along with potential winners and losers in the market [5]. Cloud & Edge AI - The report explores how Cloud & Edge AI will influence the total addressable market (TAM) for MLCC [5]. - Key stocks in this segment include Dell, HPQ, Lenovo, Asustek, SK Hynix, MediaTek, Delta, and Advantest [5]. Cyclical Components - A turnaround in cyclical components is suggested, with expectations of oversupply in ABF substrates lasting until 2025, leading to margin pressure [5]. - The report notes that MLCC inventory digestion is nearing completion, with an anticipated recovery in end-demand [5].

Investment Rating - The report maintains an "Overweight" rating for BHP and Vale, while downgrading South32 and Sandfire to "Neutral" [7][4]. Core Insights - Total visible copper inventories have decreased from approximately 700kt in August to 580kt in October, but this level is still about double compared to the same period in 2022/23 [4]. - China's refined copper demand fell to negative levels in Q2 2024, leading to a year-to-date demand growth of only 1% as of August [4]. - The copper price has rebounded by 12% to $9,650/t ($4.40/lb) from the August low, yet remains over 10% below the year-to-date high in May [4]. - J.P. Morgan forecasts a copper price of $11,050/t ($5/lb) for 2025, driven by stock unwinding and a supportive manufacturing environment due to falling interest rates [4]. Summary by Sections Copper Market Overview - Global copper demand has contracted by 2% year-to-date as of July, with demand from the rest of the world down 12% [4]. - Despite low treatment and refining charges (TC/RCs), refined copper production in China has increased by 6% year-to-date as of August [4]. Price Forecasts - The report anticipates a refined market surplus of approximately 200kt for 2024 and a deficit of around 90kt in 2025 [4]. - The upcoming U.S. elections are highlighted as a potential risk that could lead to increased tariffs and negatively impact base metal prices [4]. Company Ratings and Preferences - Preferred copper exposures include BHP in Australia, Lundin Mining in EMEA, and Teck in North America [4]. - The report has downgraded South32 and Sandfire to "Neutral" and remains underweight on Antofagasta and Boliden [4][7]. Substitution Analysis - A deep dive into copper substitution indicates that while substitution may accelerate in newer technologies, it is unlikely to fill the long-term physical market deficit, with a potential reduction of only ~3Mt in the 2030 deficit forecast [5].

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