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TS Lombard: US China – Chip war: growing cracks (October 3)
The Biden administration is expected to introduce tougher final rules for chip exports this fall, following the debut of Huawei’s new 5G chip, says Grace Fan at TS Lombard. However, she says plans for a Biden-Xi meeting next month may delay their release. China’s dominance in mature chip nodes remains a vulnerability that could impact sector fundamentals and margins, according to Fan. The risk China poses to the global semiconductor industry is growing, as it continues to invest heavily in its domestic sector and if US and allied export controls remain porous, she says. Without coordinated multilateral action and fiscal policy support, the US-led chip alliance could face long-term negative effects on Big Tech leadership and the AI revolution, says Fan. Huawei’s new 5G chip, manufactured by SMIC on a 7nm node, puts China roughly one generation behind Intel and 2-2.5 generations behind TSMC, she adds. Click here for the full report. Click here if you would like to speak to the analyst.
CFRA: China solar PV components – price headwinds and survival tests ahead (September 25)
An oversupply in the solar photovoltaic (PV) supply chains have put pressure on prices, particularly for polysilicon (the main raw material for solar PV module manufacturing), where the average price dropped by 35% year-over-year (Y/Y) in H1 2023, versus 12%, 15%, and 19% Y/Y declines in average prices of wafers, cells, and modules, respectively, according to Jian Xiong Lim at CFRA. He expects a ramp-up in new installations of solar PV capacity globally to gradually relieve the oversupply situations in the solar PV supply chains, benefiting China’s solar PV component manufacturers, which accounted for more than 80% of all the manufacturing stages of solar PV modules in 2022. In the event of a deterioration in the oversupply situation, solar PV companies will likely enter a shakeout phase, in Lim’s view. Therefore, he prefers companies with stronger financial and market positions and higher exposure to the downstream solar PV value chains (as they will also benefit from lower raw material costs), such as JA Solar Technology Co. (JA Solar), LONGi Green Energy Technology Co. (LONGi), and TCL Zhonghuan Renewable Energy Technology Co. (TCL Zhonghuan). While Lim says Tongwei Co.’s (Tongwei) upstream polysilicon operation will be hit by weaker prices, its diversified businesses will enable it to weather the price headwinds, in his opinion. Click here for the full report. Click here if you would like to speak to the analyst.
Smartkarma: Pinduoduo – growth cadence matters (October 2)
Pinduoduo (PDD) is being underestimated by the market in terms of its growth potential for the second half of 2023 (2H23), according to a report by Eric Chen at Smartkarma. The report highlights that PDD’s stronger-than-expected revenue growth in Q2 was aided by higher take-rates for its domestic marketplace and Duoduo Grocery businesses, as well as faster-than-expected growth of TEMU. These drivers are expected to continue benefiting PDD in 2H23, particularly in Q4 due to a low base effect. The report predicts that PDD’s revenue will double in Q4 to RMB80 billion, and for FY23, revenue is expected to reach RMB230 billion. However, the report also anticipates a slowdown in PDD’s growth in 2024, as the company exhausts the momentum from increased take-rates and user purchase frequency. The report lowers the target P/E from 18x to 15x on PDD’s FY24 earnings to reflect the anticipated slowdown, but maintains the target price of US$120. Click here for the full report. Click here if you would like to speak to the analyst.
Clocktower Group: EM investing; The risks of normative investing (ESG investors beware) (October 2023)
This report by Clocktower Group examines the relationship between government type and stock market performance. The report challenges the commonly held belief that investing in democracies leads to better returns than investing in autocratic regimes. It finds that there is no clear evidence that democracies significantly outperform autocracies over the long term. In fact, depending on the time period and classification, countries that lack human or economic freedoms can outperform their democratic peers. The report suggests that autocratic countries benefit from commodity bull markets and can offer attractive valuations for investors. It highlights Saudi Arabia and Vietnam as non-democratic regimes that may present long-term investment opportunities. The report also discusses the impact of the ESG revolution on investment decisions and the potential risks of normative investing. Click here for the full report. Click here if you would like to speak to the analyst.
JCapital Research: Disappearing billionaires (October 3)
The report fom JCapital Research discusses the recent trend of Chinese billionaires being detained, fined, or jailed by the government, highlighting the weakness of Chinese governance. It mentions several high-profile cases, including Hui Ka Yan of Evergrande Group, Bao Fan of China Renaissance, Guo Guangchang of Fosun, and Sun Dawu of China’s largest private agricultural company. The report suggests that these actions are part of a broader anti-corruption campaign, which is often used to eliminate rivals for power and control large corporations. It also highlights the lack of institutional power and regulatory challenges in China, which have allowed big companies to evade regulations. The report concludes that restoring confidence in the economy would require significant economic and political reforms, which seem unlikely without a change in political leadership. Click here for the full report. Click here if you would like to speak to the analyst.
SmartKarma: China e-comm logistics; CaNiao smart logistics (October 3)
Prior to it IPO, Smartkarma presents a report on CaiNiao Smart Logistics, a logistics company that operates in China’s e-commerce space. The firm assesses CaiNiao’s business model, and how it gets paid, by whom, and for what. Smartkarma says CaiNiao’s key relationships include its parent company Alibaba, which is its largest shareholder and customer. It also has relationships with listed Chinese express companies, some of which hold equity stakes in CaiNiao. CaiNiao differentiates itself through its unique relationship with Alibaba, says the firm, its significant international exposure, its focus on properties rather than transportation assets, its ability to offer a wide range of fulfilment services, its positioning for the shift to premium services, and its faster growth compared to other players in the industry. Click here for the full report. Click here if you would like to speak to the analyst.
SmartKarma: Baidu – back in the mix (September 29)
After a decline in ownership between 2016 and 2020, active Asia Ex-Japan managers are now re-engaging with Baidu Inc, according to Steven Holden from Copley Fund Research writing on the Smartkarma platform. He says ownership levels are at a four-year high, with Baidu being one of the key beneficiaries of manager rotation this year. Baidu is the third-largest holding in the Communication Services sector, but there are still funds on the sidelines, according to Holden. The percentage of funds invested in Baidu has increased from a low of 7.9% in April 2020 to 31.1% currently, with 29.1% positioned overweight, he says. Baidu has seen the highest increase in funds invested and the percentage of funds positioned overweight, according to Holden. This active rotation has helped maintain Baidu as a key player in the Asia Ex-Japan stock universe, and there is potential for ownership to increase further, he says. Click here for the full report. Click here if you would like to speak to the analyst.
SmartKarma: EC Healthcare – surging revenue; poised for profitability improvement; future looks bright (September 29)
EC Healthcare, Hong Kong’s largest non-hospital medical services provider in terms of revenue is seeing continued business recovery, according to Tina Banerjee at SmartKarma. She says the firm reported record high revenue of HK$3.9B in FY23 and started FY24 on a strong note, with Q1FY24 revenue increasing 23% YoY, driven by medical services segment. Cost pressure is negatively impacting the bottom line, warns Banerjee, and the company is reporting decelerating EBITDA and net profit margins since FY20, with ROE deteriorating to 4.5% in FY23 from 33% in FY19. However, she says the company is well-positioned to see turnaround in profitability with the resumption of mainland China visitors in Hong Kong providing impetus to high-margin earning aesthetic business. Click here for the full report. Click here if you would like to speak to the analyst.