Sectors:

Air & Automobiles (Zhang Jing),

TMT, Semiconductors, Consumer & Healthcare （Eric Li）

Automobile & Air (ZhangJing)

This month I released updated reports of GAC（2238.HK）and Spring Airlines (601021.CH).

GAC's total sales volume reached 2,433.8 thousand units in 2022, up 13.5% yoy, above the industry growth rate of 9.5%, with a target completion rate of 100%. Specifically, the cumulative sale volume of new energy vehicles reached 309.5 thousand units, up 116.7% yoy.

On a closer look at brands, mainly benefiting from the excellent performance of the pure electric vehicle brand GAC Aion (up 125.7% yoy), self-owned brands displayed strong performance, with the sale volume growing by 42.6% yoy to 634 thousand units, of which new energy vehicles accounted for 43%, providing strong support for the Company's new-energy development strategy. Among the joint venture brands, GAC Toyota's sales volume rose sharply to 1,005 thousand units, up 21% yoy, exceeding 1,000 thousand units for the first time; GAC Honda, which was largely affected by the chip shortage, performed poorly, with the sales volume dropping slightly by 4.9% yoy to 742 thousand units; due to aging models, GAC Mitsubishi's sales volume was under pressure, falling substantially by 49% yoy to 33.6 thousand units for the whole year. The management has given conservative guidance for sales target for 2023, aiming for a 10% yoy increase in sales volume to approximately 2,677 thousand units, continuing to grow faster than the industry average.

Looking ahead, after the supply chain restoration, the joint venture brands GAC Honda and GAC Toyota are accelerating the electrification layout, and the profitability is expected to improve; amid the trend of continuous increase in the penetration rate of new energy vehicles in China, self-owned brands are expected to benefit from the scale effects and continue to open up the space for growth.

GAC Aion plans to launch a new B-level sedan based on the AEP3.0 platform in H1 and H2 of 2023. Its high-end brand Hyper released the second model, HyperGT, which is expected to drive the brand to develop the market for sedans sold at RMB300 thousand.

The pandemic's influence on the civil aviation industry in 2022 exceeded expectations in both depth and continuity. Shanghai, where the main base of Spring Airlines is located, suffered from a long-term lockdown in Q2, severely impacting the Company's main business of air transport. Both daily flights and the daily utilisation rate of aircraft registered made a record low since its establishment. The Company's main business indicators fell significantly throughout 2022. Specifically, the daily utilisation rate of aircraft declined by approximately 34% yoy. The passenger traffic turnover down 34% yoy. The P L/F was 74.65%, which down 8.22ppts yoy and down 16.2ppts from 2019. The domestic and international P L/Fs were 74.8% and 57.6%, respectively. Furthermore, increased oil prices (the import price of jet fuel up 73% in the year) and the depreciated RMB (the RMB at the end of 2022 depreciated by 9.2% from the end of 2021) also ramped up the Company's cost pressure and loss of the main business. The Company has disclosed its result forecast for 2022: It is expected that its net loss attributable to the parent company throughout the year will stand at RMB2.35 billion to RMB2.6 billion. In contrast, it achieved the marginal profit of RMB40 million in 2021. Thanks to the opening up at the end of 2022, the overstocked aviation market in China has been tapped well. Meanwhile, international market demand is slowly recovering along with the lift of strict entry and exit control. The recent international oil prices and RMB exchange rates are favourable for aviation enterprises. The resilience of performance recovery of aviation companies is worth expecting. The Company boasts prominent competitiveness in sight-seeing travel and low-cost business trip, and will outperform its peers in profitability recovery.

TMT, Semiconductors, Consumer, Healthcare (Eric Li)

This month I released reports of Vinda International (03331.HK).

Vinda is a leading hygiene company in Asia, with core business segments including tissue, incontinence care, feminine care, baby care and professional hygiene solution under key brands Vinda, Tempo, Tork, TENA, Dr. P, Libresse, Libero and Drypers.

FY2022, total revenue increased by 4.0% (growth at constant exchange rates: 8.1%) to HK$19,418 million. Net profit declined by 56.9% to HK$706 million while the net profit margin dipped by 5.2ppts from the previous year to 3.6%. Basic earnings per share was 58.7 HK cents (FY2021: 136.5 HK cents), with a final dividend of 30 HK cents per share. Together with the interim dividend, the total dividend per share for the Year will be 40 HK cents (FY2021: 50HK cents).

In 4Q2022, the quarterly revenue was HK$5,364 million, a decrease of 2.2% YoY (growth at constant exchange rates: 6.4%); the net profit was HK$19 million, a decrease of 95.2% YoY, mainly affected by Covid-19 and continuous rise of material costs.

The company's profit margin was negatively impacted by continuous rise of material costs and currency fluctuation. FY2022, gross profit was down by 16.9% to HK$5,483 million, while gross profit margin down by 7.1 ppts to 28.2%. EBITDA was down by 36.1% to HK$2,104 million and the EBITDA margin declined by 6.8 ppts to 10.8%, due to lower gross margin in the year. Total foreign exchange loss amounted to HK$65.2 million (FY2021: HK$27.5 million gain). However, total sales & administrative costs as a percentage of revenue edged down by 0.4 ppt to 24.5%.

In terms of capacity planning, the annualized designed capacity of the tissue manufacturing facilities was 1,390,000 tons at the end of the Year, including the capacity expansion of tissue production in South and East China which was to fulfil the growing market demand. In addition, Zhejiang's new plant has been put into operation in the second half of 2022, and will further improve the papermaking capacity in 2023. In terms of personal care equipment, the new headquarters of Southeast Asia in Malaysia, equipped with production facilities, warehousing and distribution equipment and modern R & D centers, it has been operated according to the plan (the first phase was put into operation in December 2022). The remaining domestic personal care facilities are located in East China, Central China and Taiwan.

The macroeconomic fluctuations last year led to an unprecedented increase in the cost of raw materials. Observing the recent changes in the market, after the Spring Festival holiday, the price of wood pulp has begun to be reduced. However, in terms of supply, the import volume of piles of piles in 2022 decreased yoy. This has made the domestic supply tightening still exists, resulting the price of wood pulp may support in the high level.

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