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7 Feb, 2024 (Wednesday)

            
KUAISHOU(1024)
Analysis:
Kuaishou (1024) continues to foster the growth of its healthy and sustainable operations, expanding the universe of its users, content creators, marketing customers and merchants. By integrating more commercial scenarios across its ecosystem and optimizing its operating efficiency, each of its business lines expands significantly and experiences impressive financial growth. In the third quarter of 2023, average DAUs and MAUs on the Kuaishou App continued their record-breaking growth momentum during the third quarter of 2023, reaching 386.6 million and 684.7 million, respectively, representing year-over-year increases of 6.4% and 9.4%, respectively. Average daily time spent per DAU on the Kuaishou App was 129.9 minutes and total user time spent grew 6.9% year-over-year. It has increasingly prioritized the efficiency and quality of its user growth, achieving consistent ROI improvement, which resulted in a further decrease in average user acquisition costs in the third quarter of 2023, both on a quarter-over-quarter and year-over-year basis. More specifically, it intensified its efforts in promoting and distributing high-quality original content, including short plays, which led to robust user retention. With respect to its search business, in the third quarter of 2023, its average monthly users for searching exceeded 470 million, and the number of average daily searches on its platform reached over 600 million and the number of daily search enquiries peaked at more than 700 million. It is accelerating the commercialization of search service, and search marketing revenue grew by over 120% year-over-year in the third quarter of 2023. With respect to online marketing services, in the third quarter of 2023, its revenue from online marketing services reached 14.7 billion, growing by 26.7% year-over-year, and accounting for 52.6% of our total revenue. The number of active marketing customers increased by more than 140% year-over-year. With respect to E-commerce, in the third quarter of 2023, its GMV growth has significantly outpaced the industry, increasing by approximately 30% year-over-year. (I do not hold the above stock)
Strategy:
Buy-in Price: $42.80, Target Price: $47.00, Cut Loss Price: $40.00


TONGCHENGTRAVEL(780)
Analysis:
China's travel industry in the third quarter of 2023 sustained its strong recovery momentum from the previous quarters and marked a significant revival. The travel market continued to thrive with increased activity and consumption, as diverse demands were further unleashed during the summer season. As a prominent OTA in the industry, and fueled by the booming travel demand, Tongcheng Travel (00780) total revenue increased by 61.1% year-to-year to RMB3299 million. Adjusted EBITDA increased by 88.2% year-to-year to RMB870 million, while adjusted EBITDA margin increased to 26.4% in the third quarter of 2023 from 22.6% in the third quarter of 2022. Adjusted net profit increased by 146.5% year-to-year to RMB621 million, while adjusted net margin increased from 12.3% in the third quarter of 2022 to 18.8% in the third quarter of 2023. During the period under review, MAUs and MPUs once again registered record highs, mainly attributable to our effective strategies of user acquisition and retention, as well as exceptional operational capabilities. For the three months ended September 30, 2023, average MPUs increased by 20.1% year-to-year to 44.2 million. APUs for the twelve months ended September 30, 2023 reached a record high of 224.7 million. Total GMV increased by 75.1% year-to-year to RMB71.1 billion, thanks to the surging business volume during the quarter. The demand for outbound travel is set to unfold steadily in the coming year, in addition, the rising demand for short-haul travel and staycations will also create new opportunities for the industry, which will also present additional growth for the sector.
Strategy:
Buy-in Price: $16.56, Target Price: $17.94, Cut Loss Price: $15.36



Sinotruk (3808.HK) - Positive Profit Alert Beating, With a New High Share

Company Profile

As one of the leading heavy truck manufacturers in China, Sinotruk specializes in the heavy trucks, light trucks, buses and related major powertrains and parts. With heavy trucks as the main products, the Company serves a wide range of customers in the infrastructure, construction, container service, logistics, mining, steel and chemical industries.

Investment Thesis

Expects NP to Grow by Max. 2.4x in 2023, Beating the Consensus

Recently, Sinotruk has released an announcement on positive profit alert, according to which, the Companys expect its NP will grow by 200-240% from RMB1.67 billion in 2022 to approximately RMB5.01 billion - RMB5,678 million in 2023, exceeding the market expectation. This growth was mainly attributed by the management to demand recovery in the heavy duty truck industry along with considerable momentum of exports. Meanwhile, by seizing opportunities on the market, and continuously adjusting the product and business structures, the Company achieved a massive growth in product sales, with the proportion of high-end products continuously growing and the profitability significantly enhanced. Our analysis shows that the massive growth in sales drove an increase in the capacity utilization rate, and the growth in net profit was tremendously higher than the growth in sales.

The Sales and the Growth in Sales Were Industry-leading, with the Market Share Reaching a New High

The heavy duty truck market generally showed a slowly upward trend in 2023, as the sales began to rise slowly in the second quarter, and ten YoY positive increases were recorded in monthly sales from February on. According to CAAM's statistics, the total sales for China's heavy duty truck industry reported 910 thousand in 2023, representing an YoY increase of 36% or 239 thousand. Specifically, the cumulative sales of new energy heavy duty trucks grew by 31.5% to 33 thousand, the cumulative sales of exported heavy duty trucks grew by 60% to 275 thousand, and the cumulative sales of LNG heavy duty trucks grew by 310.8% to 152 thousand. Obviously, the market increase was mainly attributed to the export market and the booming sales of LNG heavy duty trucks. In this context, Sinotruk sold 234 thousand heavy duty trucks in 2023, a number that was better than the industry's average. Meanwhile, the YoY increase reached 47.5%, which was significantly higher than the industry's average (36%). Furthermore, Sinotruk's share in the domestic heavy duty truck market was 25.74%, up 2.2 ppts over the same period last year and remaining to rank first. Sinotruk also delivered an impressive performance in both the export market and the sub-market of LNG heavy duty trucks: On the one hand, relying on Sinotruk International's network layout, the Company's exported sales exceeded 130 thousand, accounting for more than half of the total sales; on the other hand, in the sub-market of LNG heavy duty trucks, the Company ranked second among industry peers in terms of sales and had a market share of 17.7%. As the ASP of LNG heavy duty trucks was RMB80 thousand - RMB100 thousand higher than that of normal heavy duty trucks, the Company's sale structure and profitability significantly improved. For 2024, we expect that continuous recovery will remain to be the main trend of the heavy duty truck market, and the total sales will reach one million - 1.1 million.

The Share Incentive Scheme with High Criteria Demonstrated Our Confidence in Growth

At the same time, the Company released its share incentive scheme, according to which, the Company intends to grant approximately 1% of the total share capital in the form of restricted shares to no more than 194 employees at the price of RMB6.896 per share. As for the granting criteria, 30%/30%/40% of the restricted shares will be granted for 2024/2025/2026, respectively, if the income is no less than RMB94.8 billion/RMB109.1 billion/RMB125.5 billion and the return on sales ratio is no less than 7.5%/8%/8.5% (namely, the profit from sales is no less than RMB7.11 billion/RMB8.73 billion/RMB106.7 billion), respectively. Sufficient incentives have further improved the Company's mechanism for income distribution, and conduce to the enthusiasm of key employees and the continuous growths in the Company's future business performance. Additionally, an average annual profit growth rate of approximately 20% also reflects the management's strong confidence in the future business development of the Company..

The Industry Is Likely to Bottom out

In February 2023, China ended a 21-month consecutive decline in heavy truck sales, with the growth rate turning positive from negative to a yoy increase of 15%.The sales in March and April increased significantly yoy by 49.6% and 83%, respectively.

Valuation & Investment Suggestion

In terms of the domestic economic situation, China needs to boost its economy after the pandemic. With the further implementation of the government's policies to stabilize the economy, infrastructure investment and logistics demand will maintain the momentum of rally, which will provide a foundation for the recovery of the heavy truck market. Secondly, since the implementation of the National VI emission standard in July 2021, the heavy truck industry has fallen into a downturn for one and a half year. While, the heavy trucks in the previous round of peak consumption have gradually entered the replacement period. In addition, the stricter emission regulations of the industry, the overload transportation governance, and the elimination of backward and old models will play a positive role in the recovery of the industry.

We expect the Company to continue to benefit from the recovery of the domestic heavy truck industry and the growth trend of the export market. In the medium to long term, there are opportunities for value enhancement in some segmentations of heavy trucks brought by innovation. We revised the Company's EPS in 2023/2024/2025 to be 1.92/2.22/2.58 yuan, respectively, and adjust the target price to HKD 24.1, corresponding to 10/8.6x P/E and 1.4/1.2x P/B in 2024/2025, a `BUY` rating. (Closing price as at 5 February)

Risk

The economic recovery was less than expected, resulting in lower than expected sales of heavy trucks

Overseas market risk, adverse exchange direction risk

Risk of significant increase in raw materials

Financials

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Recommendation on 7-2-2024
RecommendationBUY
Price on Recommendation Date$ 17.460
Suggested purchase priceN/A
Target Price$ 24.100
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)
Email:
zhangjing@phillip.com.cn

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