UOB Kay Hian Report – October 30, 2024
Greater China: Regional Insights and Key Company Performances
VSTECS Holdings: Riding the AI Wave with Strategic Expansion
As one of the largest IT distributors in Southeast Asia and the second-largest in China, VSTECS Holdings has positioned itself as a pivotal player in the burgeoning AI and cloud services sectors. The company’s expansive presence across the Asia-Pacific (APAC) region, serving over 50,000 partners, highlights its value in supporting global technology leaders. Forecasts indicate a three-year net profit compound annual growth rate (CAGR) of 9.2% from 2024 to 2026, driven by increasing AI adoption, a steady refresh cycle in consumer electronics, and expanding cloud service offerings. VSTECS is expected to see its AI product sales rise from 6% in 2023 to 20% by 2025, fueled by the adoption of AI-powered personal computers (AI-PCs) and the anticipated surge in generative AI smartphone sales.
VSTECS’ collaboration with Starlink is a strategic addition, with distribution of Starlink kits across Malaysia, Indonesia, the Philippines, and Thailand. The company’s first-mover advantage in Starlink distribution positions it favorably for growth in connectivity services across SEA. Additionally, its cloud computing division, which has expanded to include multi-cloud management and AI oversight, is forecasted to grow at a 14% CAGR between 2024 and 2026. Targeted revenue contributions from Southeast Asia could reach 35% by 2025, driven by an accelerated demand for digital infrastructure across the region. VSTECS currently holds a “BUY” rating with a target price of HK$5.47, reflecting a valuation at 7.3x 2025F PE, offering solid dividend yields projected at 4.4% and 5.1% over the next two years.
Haier Smart Home: Efficiency-Driven Growth with Resilient Overseas Demand
Haier Smart Home reported strong earnings growth in 3Q24, propelled by operational efficiency and an increase in overseas demand. Domestic revenue saw a slight decline, but retail sales experienced a positive sequential momentum due to targeted trade-in policies. Overseas markets, particularly in Europe, South Asia, and Southeast Asia, demonstrated robust revenue expansion, collectively up by 4% year-over-year (YoY). Notably, management anticipates the potential US tariff hike to have minimal impact, given that 98% of Haier’s products sold in the US are manufactured locally.
In 9M24, Haier’s revenue reached RMB 202,971 million, with a gross profit margin increase to 30.8%. EBIT totaled RMB 18,538 million, reflecting a 15% YoY increase, while core net profit surged 15% YoY to RMB 14,685 million. The company’s strategic move to consolidate Ririshun Logistics is expected to enhance logistics and inventory management, translating to further operational efficiencies. For the year, Haier maintains a “BUY” rating, with a target price of HK$42.00, implying a forward P/E ratio of 20.4x.
Joyson Electronics: Strength in Automotive Safety and Smart Driving
Joyson Electronics, a global leader in automotive parts manufacturing, saw a steady performance in 3Q24, with earnings aligning with expectations. Joyson’s focus on automotive safety systems, power management, and Internet of Vehicles technologies underpinned its 0.5% YoY increase in net profit to RMB 305 million for the quarter. Despite revenue remaining stable at RMB 14,056 million, Joyson’s gross margin grew to 15.7%, with notable contributions from its automotive safety segment.
The company’s revenue forecasts for 2024-26 are robust, with expected growth driven by a surge in new orders, particularly in electric vehicle (EV) components, which accounted for over 53% of total new orders. The company’s strategic investments in research and development for intelligent EV technologies, such as advanced driver assistance systems and vehicle connectivity, position it for continued success. Maintaining a “BUY” recommendation, Joyson is projected to benefit from a 15.8% gross margin in 2024, with a target price of RMB 26.00 based on a 10-year discounted cash flow (DCF) model.
Shenzhen Inovance: Stabilizing Through Product Mix Optimization
Shenzhen Inovance’s 3Q24 performance aligned with its preliminary results, marked by strong growth in the electric vehicle (EV) powertrain segment, which experienced a 90% YoY increase. Despite a challenging landscape in the general automation sector, Inovance’s revenue rose by 20.1% YoY to RMB 9,214 million, though the automation business encountered mix-related margin pressures. Management highlights that achieving full-year targets will be challenging, yet Inovance anticipates a pickup in 2025 driven by government-backed capex recovery in the Li-ion sector and demand in the automation market.
Inovance’s strategic efforts to offset domestic challenges include exploring overseas opportunities, specifically in high-growth sectors like EV powertrains. The company maintains a “HOLD” rating, with a fair valuation pegged at a target price of RMB 56.00, reflecting a 26.6x 2025F P/E, approximately 0.5 standard deviations below its five-year average.
Tsingtao Brewery: Navigating Product Mix Improvements Amid Declining Volume
Tsingtao Brewery reported a 12% sequential drop in volume for 3Q24, yet the company saw improvements in product mix, achieving stability year-over-year. Tsingtao’s emphasis on premium product offerings helped offset volume declines, though the company expects future growth to be incremental. Positioned as one of China’s leading breweries, Tsingtao continues to refine its product strategy to retain market competitiveness. Currently rated as a “BUY,” the company’s target price stands at HK$70.80, with a view towards long-term profitability through strategic product adjustments.
WuXi AppTec: Balancing Earnings with Biosecurity Concerns
WuXi AppTec’s performance in 9M24 reflected consistent earnings, though biosecurity challenges persist. As a leading provider of contract research and manufacturing services, WuXi reported in-line results with a cautious outlook due to ongoing biosecurity issues affecting the sector. While holding a “SELL” rating, WuXi’s target price is set at HK$40.00, as the company navigates heightened regulatory oversight and invests in robust biosecurity frameworks.
End of Report
