Investor Notes - Phillip Securities (HK) Ltd
Past Investor Notes  
Phillip Home Send to Friends Free Subscription Give Comments 中文版
5 Mar, 2024 (Tuesday)

            
LENOVO GROUP(992)
Analysis:
Thanks to its diversified service growth engine and the effective execution of its Transformation strategy, Lenovo's (992) operating performance continued to expand amidst a changing market landscape. Its core businesses have not only returned to a healthy growth trajectory, but also achieved resilient profitability. Its revenue advanced for the third consecutive quarter by 9 percent quarter-on-quarter to US$15.7 billion, while profit attributable to equity holders increased by 35 percent sequentially. At the CES 2024, the Group showcased a full lineup of more than 40 new AI-powered devices and solutions, furthering its vision of AI for All. It is committed to accelerating AI innovations around its devices to create differentiation, extending beyond hardware to components and software including Lenovo's AI Core Chip, Yoga Creator Zone and AI Now solution. Its Infrastructure Solutions Group (ISG) is poised to benefit from one of the most important trends in the infrastructure sector - Hybrid AI. Its diversified and balanced exposure to public and private cloud made ISG uniquely positioned to deliver the vision of “AI for All”. Its Solutions & Services Group (SSG) will launch new AI native services and AI-embedded functions in the areas of digital workplace, hybrid cloud, and sustainability solutions, with an aim to accommodate enterprise customers` growing demand for AI technologies. Concurrently, its SSG will focus on safeguarding its core business with high value-added support services across both PC and infrastructure segments. (I do not hold the above stock)
Strategy:
Buy Price : HK$9.6; Target Price : HK$10.7; Stop Loss : HK$9.1


Vitasoy International (345)
Analysis:
During the interim period of the financial year 2023/2024, despite continuing high raw material costs, Vitasoy International (00345) revenues falling by 7%, but gross profit margin increased from 47.7% to 50.5%. Profit attributable to equity shareholders of the company increased by 15%. On a constant currency basis, revenue dropped 3% from a relatively high base last year due to Mainland China customers placing advanced orders in September 2022 ahead of an anticipated price increase in October 2022. Profit from operations and profit attributable to equity shareholders of the company, net of currency impact and excluding COVID-19 related government subsidies received in the previous interim period, increased by 15% and 99% respectively. Mainland China was the main profit driver, with profit from operations recording a growth of 44% in local currency, equal to an operating margin of 10%. This was the result of organisational redesign as well as more efficient spending and the containment of operating costs during the interim period. In the second half of the financial year, company expects to continue to focus on improving our sales execution and restoring revenue growth, while simultaneously containing costs and achieving greater efficiencies throughout its operations. For the medium- to long-term, the company are confident in the growing potential of sustainable plant-based food and beverages as well as our ability to expand our core products and strategically accelerate growth, and it is expected to continue striving for structural target profitability across all operations and gradually scaling up the business.
Strategy:
Buy-in Price: $7.18, Target Price: $7.86, Cut Loss Price: $6.80



Cathay Pacific(293.HK) - Favorable Business Indicators and Constant Financial Improve

Investment Summary

Performance Rebounds Strongly in the First Half of 2023 with Second Highest Net Profit of HK$4.3 Billion

Acoording to Cathay Pacific Airways Limited ("Cathay Pacific" or the "Company") FY2023H result: the Company recorded revenue of HK$43,593 million, up by 135% yoy, which recovered to 81.4% of that in the same period of 2019 (specifically, passenger revenue and cargo revenue recovered to 73.6% and 108% of those in the same period of 2019, respectively). Operating costs stood at HK$36,957 million, accounting for 72.4% of that in the first half of 2019. The attributable profit amounted to HK$4,268 million, which significantly made good a deficit (the loss in the same period of 2022 was HK$4,999 million), and was substantially greater than the figure of HK$1,347 million in the first half of 2019. The corresponding basic earnings per share were approximately HK61.5 cents.

Specifically, a portion of the attributable profit came from a one-off non-cash gain of HK$1.9 billion recognized in the current period: Air China completed A-share seasoned equity offering in January 2023, thus diluting the shareholding of Cathay Pacific in Air China (down from 18.13% to 16.26%), which was regarded as a sale of some shares in Air China..

Favorable Business Indicators and Constant Financial Improve

The passenger load factor of Cathay Pacific in the Reporting Period jumped by 28 percentage points yoy to 87.2%, higher than the figure of 84.2% in the same period before the pandemic (i.e. the first half of 2019, the same below), as driven by the increase in transfer passengers after the resumption of normal traveler clearance between Hong Kong and the Chinese Mainland as well as the surge in demand of flights to Europe and America. Due to the growth of transport capacity, ticket rates fell from the historic high. Meanwhile, the passenger yield declined by 32% yoy to HK77.4 cents, which still greatly exceeded that of HK54.9 cents in the same period before the pandemic. However, the cargo load factor and the cargo yield decreased, as the boom in the pandemic period waned, by 12 percentage points and 51.7% yoy to 63.8% and HK$2.76, respectively, which were 0.4 percentage points and HK$0.88 higher than the pre-pandemic levels.

Fuel Costs Allow Rate Cuts, Burdens from Associates Will Decrease

With respect to costs, the Company's net fuel costs leaped by 304% yoy to HK$10,635 million, accounting for 72% of the pre-pandemic level, because of the growth in fuel consumption of HK$6.5 billion following the work resumption of many planes and the year-on-year decrease of fuel hedging gains of HK$1.51 billion. Nevertheless, unit costs were largely diluted due to the rising business volume. The cost per ton-kilometer (including fuel)fell from HK$5.88 to HK$3.35, which was HK$3.12 before the pandemic. Additionally, the cost per ton-kilometer less fuel decreased from HK$5.19 to HK$2.34, which was HK$2.23 before the pandemic. As of December 11, the trading price of Brent crude oil futures was approximately US$75.67 per barrel, dropping by more than 20% from the peak value of approximately US$97 per barrel in September. We expect fuel costs will continue to decrease.

Cathay Pacific has maintained positive operating cash flow since the beginning of 2023. Moreover, it has redeemed 50% of preference shares recently, and plans to redeem the rest 50% by the end of July 2024. Then, the Company will hopefully restore dividend distribution.

The Company recorded the attributable losses of associates of HK$2.62 billion in the first half of the year, mainly because of Air China's loss of RMB13.4 billion in the accounting period. Fortunately, the Company's burden from associates will significantly decrease, since Air China turned losses into profits of RMB3.72 billion in the second half of the year.

Investment thesis

As of the end of June 2023, the Company had 225 planes, including 35 cargo aircraft (including rented ones). Furthermore, Cathay Pacific has recently announced its plan to purchase 32 passenger aircraft and six cargo aircraft, which will be conducive to expanding outlets and strengthening efficiency. The Company has gotten back on track, after the three-year hardship of the pandemic, and, driven by both demand and supply, will further regain its profitability.

At present, the corresponding price-to-book ratio of the stock price is less than 0.8 times, which is the lowest point in the past 20 years.

Based on the revised financial forecast, we lift target price to HK$10 for the Company, equivalent to 2023/2024/2025E 0.98/0.92/0.84 x P/B, reaffirming the buy rating. (Closing price as at 23 February)

Risk

Surging oil price

RMB depreciation

Demand affected by economy

Transformation program failed

Financials

Click Here for PDF format...




Recommendation on 5-3-2024
RecommendationBuy
Price on Recommendation Date$ 8.150
Suggested purchase priceN/A
Target Price$ 10.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)
Email:
zhangjing@phillip.com.cn

Local Index
       Index    Change   Change%

World Index
       Index    Change   Change%
  

A-H spread
Stock Code H share
Price
A share
Price
H share
discount


Oversea Research Reports


Investment Service Centre



Enquiry : 2277 6666 OR investornotes@phillip.com.hk
If you cannot read this e-mail in the proper format, please click here to view the web version.

Information contained herein is based on sources that Phillip Securities (Hong Kong) Limited and/or its affiliates ( the “Group”) believe to be accurate. The Group does not bear responsibility for any loss occasioned by reliance placed upon the contents hereof. The Group (or its employees) may have interests in relevant investment products. For details of different products’ risks, please view the Risk Disclosures Statement on http://www.phillip.com.hk.

If you DO NOT wish to receive further marketing emails from us, please click HERE to opt-out.

版權所有, 翻印必究。

Copyright(C) 2024 Phillip Securities (HK) Ltd. All Rights Reserved.