Date: 3 October 2024
Broker Name: UOB Kay Hian
Alpha Picks: October Conviction Calls
The HSI and MSCI China surged 17.5% and 23.1% month-on-month (mom) respectively in September, buoyed by the People’s Bank of China’s (PBOC) policy easing and supportive statements from the Politburo meeting. Looking ahead, we are keeping beneficiaries of an improved domestic consumption outlook in our stock picks and adding CATL, Geely, and Plover Bay to our BUY list.
Review of September Performance
In September, the HSI and MSCI China made notable gains, with the HSI up 17.5% and the MSCI China up 23.1% mom. This surge was largely driven by the PBOC’s easing measures on 24 September, which raised hopes of ending deflationary pressures and weak growth in China. Additionally, the Politburo meeting on 26 September emphasized support for the economy, an unusual but positive shift for this time of year.
Adding CATL to Our Buy List
CATL (300750 CH) has been added to the BUY list due to its strong growth in electric vehicle (EV) battery shipments and the drop in lithium carbonate prices. These factors are expected to lead to improved earnings for the company in 3Q24. The stock is currently trading at a favorable valuation of 19 times its 2025 forward price-to-earnings (PE) ratio, which is lower than its three-year historic mean forward PE of 27 times. With a new target price of RMB 350.00 (raised from RMB 250.00), the stock is expected to see strong growth. This target price is based on a 10-year discounted cash flow (DCF) model using a weighted average cost of capital (WACC) of 11% and a terminal growth rate of 4%.
Key Catalysts:
- Growth in monthly EV battery shipments
- Falling lithium carbonate prices
- Anticipated strong 3Q24 results
Timeline: Expected by October-November 2024
Adding Geely to Our Buy List
Geely (175 HK) has been added to the BUY list due to its strong product line-up and buoyant export growth. Recently launched EV models, including the Galaxy E5, Xingyuan, and Zeekr 7X, have received strong orders. In the future, Geely plans to launch more mass-market EV models, especially plug-in hybrid electric vehicles (PHEVs), which are expected to take market share from established competitors. The stock is currently trading at 15.4 times its 2024 forward PE, which is lower than its three-year historic mean forward PE of 20 times. The target price has been raised to HK$21.50 from HK$13.00.
Key Catalysts:
- Strong monthly sales figures
- Anticipated 3Q24 earnings results
Timeline: Expected by October-November 2024
Adding Plover Bay to Our Buy List
Plover Bay (1523 HK) is also added to the BUY list, with continued growth momentum into the first eight months of 2024. The company experienced a 28% year-on-year (yoy) revenue growth in the first half of 2024, and growth further accelerated in July and August, driven by strong demand in the US and Australia. Management remains confident in achieving a 25% yoy revenue growth for the full year of 2024, despite the high base from 2H23. Gross margins are expected to improve in the second half of 2024 due to stable raw material costs and a favorable product mix. The stock is trading at 12.1 times its 2025 forward PE, lower than its historical mean of 12.6 times.
Key Catalysts:
- Strong demand from the US and Australia
- Potential collaborations with Starlink
- Improvement in gross margins
Timeline: Expected in the second half of 2024
- AIA Group (AIA) – BUY, Target Price: HK$96.00 (Upside: 33%)
- AIA delivered a strong value of new business (VONB) growth of 25% in 1H24. Management continues to see resilient insurance sales in China and Hong Kong. AIA is expected to benefit from lower interest rates and strong performance in stock markets. Valuation remains attractive at 1.4x 2024F P/EV.
- Catalyst: Strong VONB growth in 2H24.
- CATL (Contemporary Amperex Technology Co., Ltd) – BUY, Target Price: Rmb350.00 (Upside: 38.9%)
- Driven by global EV sales growth and declining lithium carbonate prices. Earnings are expected to grow due to new battery products and strong EV sales. Valuation is below its historical PE average.
- Catalyst: Strong growth in EV battery shipments and results for 3Q24.
- Crystal International – BUY, Target Price: HK$4.92 (Upside: 33.7%)
- Management targets double-digit sales growth for 2024 and a 20% gross margin through enhanced automation. Net profit is expected to grow 22% in 2024.
- Catalyst: Strong orderbook growth for 2024-25.
- Galaxy Entertainment Group – BUY, Target Price: HK$48.00 (Upside: 15.7%)
- Galaxy is expected to continue gaining market share due to its cost control initiatives and potential for higher dividend payouts.
- Catalyst: Performance during National Day holidays.
- Geely Automobile – BUY, Target Price: HK$21.50 (Upside: 64.6%)
- Geely’s new EV models and export growth are driving earnings growth. More mass-market EV models are expected in the future.
- Catalyst: Strong monthly sales and 3Q24 results.
- Meituan – BUY, Target Price: HK$235.00 (Upside: 19.8%)
- Meituan is expected to benefit from easing competition, which should stabilize its core local commerce business. EBIT for food delivery is expected to grow significantly in 2024.
- Catalyst: Market share expansion in food delivery and synergies with new initiatives.
- Ping An Insurance – BUY, Target Price: HK$64.00 (Upside: 13.1%)
- Strong growth in new business value (NBV) is expected, supported by strong bancassurance sales. Ping An will benefit from improving market sentiment.
- Catalyst: Strong NBV growth and improved investment returns.
- Plover Bay Technologies – BUY, Target Price: HK$6.10 (Upside: 53.3%)
- Strong revenue growth driven by demand from the US and Australia. The company expects higher gross margins in 2H24.
- Catalyst: Collaborations with Starlink.
- Sunny Optical – BUY, Target Price: HK$63.00 (Upside: 6.4%)
- The specs upgrade trend for smartphones is expected to boost margins, and ASP for camera modules will improve.
- Catalyst: China’s stimulus measures.
- Tencent – BUY, Target Price: HK$570.00 (Upside: 21.5%)
- Tencent’s earnings growth is supported by the rebound in online games and strong advertising revenue. The company is repurchasing shares, boosting shareholder returns.
- Catalyst: Improving online advertising from WeChat and new game licenses.
- The United Lab (TUL) – BUY, Target Price: HK$13.00 (Upside: 23.1%)
- Strong revenue growth driven by increasing demand for its products, including potential blockbuster drugs in diabetes treatment.
- Catalyst: Launch of Liraglutide and R&D progress.
- Trip.com – BUY, Target Price: HK$630.00 (Upside: 23.4%)
- Strong international travel demand is expected to boost revenue, with robust growth in accommodation and transportation bookings.
- Catalyst: Continued travel demand post-Mid-Autumn Festival and capacity expansion for outbound flights.
Conclusion
These three companies—CATL, Geely, and Plover Bay—are positioned well for growth in their respective sectors. Each of these stocks presents a strong investment opportunity, driven by favorable market conditions, product innovations, and strong earnings potential.
