Broker: UOB Kay Hian
Date: 30 October 2024
Greater China Market Insights
The Greater China region, pivotal in shaping Asia’s economic landscape, has showcased notable performances in the third quarter of 2024. This report offers a comprehensive examination of key companies within this market, reflecting on their recent financial results, strategic initiatives, and growth potential.
VSTECS Holdings: Riding the AI Wave as a Leading IT Distributor
VSTECS Holdings stands as the eighth-largest IT distributor globally, with a substantial presence across Southeast Asia (SEA) and China. Known for its extensive portfolio, VSTECS serves over 50,000 partners in the Asia-Pacific, offering essential products from leading global tech companies. The company is strategically positioned to benefit from surging AI demand, forecasted to drive a three-year net profit CAGR of 9.2% from 2024 to 2026.
Key Financial Insights:
- Dividend Yield: Expected dividend yields are 4.4% and 5.1% in 2024 and 2025, respectively, supported by solid cash flow.
- Revenue Growth: Aided by SEA’s accelerating AI adoption, VSTECS anticipates that its SEA revenue contribution will grow from 24% in 2023 to over 30% in 2024 and 35% by 2025.
Growth Catalysts:
- AI Integration: With AI increasingly adopted in SEA, VSTECS expects a rise in GPU server sales, AI-PC adoption (targeted to reach 40% of PCs by 2025), and generative AI smartphone sales, which could see a staggering 78% CAGR from 2024 to 2028.
- Starlink Partnership: VSTECS was chosen as Starlink’s partner for its Asian rollout. The company’s distribution in Malaysia and Indonesia has been positively received, and expansion into other SEA markets is projected.
- Cloud Services Expansion: With cloud revenue growing at a 22.4% CAGR from 2021 to 2023, VSTECS is leveraging multi-cloud management platforms to meet the increasing demand for computing power fueled by AI.
Haier Smart Home: Efficiency-Driven Growth Amid Domestic and Global Expansion
Haier Smart Home reported notable earnings growth in 3Q24, bolstered by enhanced operational efficiency. Haier remains confident about its expansion, particularly within Europe, South Asia, and SEA, while anticipating minimal impact from a potential US tariff hike due to its US-based production model.
Domestic Market Performance:
- Revenue: Despite a 3% YoY drop in domestic revenue, Haier witnessed an uptick in retail sales, credited to trade-in policies and robust performance by Casarte.
- Operational Improvements: The planned consolidation of Ririshun Logistics is expected to further enhance Haier’s cost-efficiency and inventory management capabilities.
Overseas Market Strategy:
- Revenue Growth by Region: Europe, South Asia, and SEA recorded YoY growth of 8%, 3%, and 8%, respectively. The company anticipates double-digit growth in Europe, around 40% growth in South Asia, and a 20% rise in SEA through 2024.
Joyson Electronics: Advancements in Automotive Technology and Cost Optimization
Joyson Electronics has demonstrated steady performance in 3Q24, leveraging its expertise in automotive safety and electronics. The company’s strategic push into intelligent EV technologies and new product launches is expected to support sustained revenue growth.
Performance Highlights:
- Revenue Growth: Revenue is projected to grow at a 9% CAGR from 2024 to 2026, driven by robust order intake in the EV and automotive safety segments.
- Product Expansion: Joyson’s recent initiatives in intelligent EV systems, ADAS, and vehicle connectivity are gaining traction. Notably, new orders reached RMB 70.4 billion in lifecycle value, with EV-related orders contributing over 53%.
Efficiency Measures:
- Gross Margin Improvement: Projected gross margins for 2024 to 2026 are expected to benefit from ongoing cost-cutting efforts, including relocation of production, optimized workforce structures, and enhanced supply chain management.
Shenzhen Inovance: Navigating Challenges in a Bottoming Cycle
Shenzhen Inovance reported mixed results for 3Q24, reflecting the challenges in China’s property sector, which has adversely impacted its elevator segment. However, its EV powertrain business, particularly within the plug-in hybrid segment, continues to grow with expected YoY growth of 40-50%.
Strategic Focus:
- Cost Efficiency: The company has effectively managed operating costs, resulting in improved net margins, although gross margins remain lower than 20%.
- Global Expansion: Inovance’s expansion into international markets aims to mitigate domestic market weakness, particularly by pursuing opportunities in aftersales and integrated solutions for the elevator business.
Tsingtao Brewery: Sustained Market Position with a Focus on Premiumisation
Tsingtao Brewery experienced a 12% QoQ drop in sales volume during 3Q24, attributed to adverse weather conditions affecting consumption. Despite these challenges, the brewery maintained a stable product mix, underscoring its strong brand positioning and strategic focus on premiumisation.
Financial Highlights:
- ASP and Margins: A sequential increase in ASP by 1.7% contributed to gross margin improvements. However, the ASP declined slightly by 0.2% YoY due to competitive pressures.
- Investment Appeal: With a target price adjustment to HK$70.80, Tsingtao’s long-term growth potential remains compelling, supported by steady improvements in product mix and strategic alignment toward premium segments.
