Greater China Market Insights: November 2024

Broker: UOB Kay Hian

Date: Wednesday, 06 November 2024

Key Highlights

In this comprehensive analysis, we delve into the latest market movements, strategies, and performance forecasts for notable companies in the Greater China region. From Crystal International to VSTECS Holdings, our detailed examination offers valuable insights for investors.

Crystal International (2232 HK)

Crystal International has shown remarkable progress, achieving its target of adding 4,000 workers in 3Q24. This increase in workforce is driven by stronger-than-expected order growth from key customers such as Uniqlo and Lululemon. Crystal, a strategic partner of Lululemon, plans to establish a new factory in Vietnam to cater to the solid order growth momentum anticipated in the next two years.

Crystal International aims to record its highest revenue in 2024, surpassing the US\$2,491 million achieved in 2022. The company is optimistic about its 2025 outlook, driven by solid order growth across five categories and increased demand for its cross-category product offerings. To mitigate potential risks from US tariffs on products made in Vietnam, Crystal is accelerating the transfer of production to other Asian plants, including Sri Lanka, Bangladesh, and Cambodia. The company has witnessed order growth from all production plants and is confident in navigating potential risks from the upcoming US election.

Maintaining a BUY recommendation, we raise the target price to HK\$5.12, reflecting a stronger order growth momentum. Our 2024-26 revenue forecasts increase by 1% annually, with net profit forecasts up by 2% annually due to improved operating efficiency. Despite a 30% share price rally in the past two months, Crystal is still trading at attractive valuations of 6.8x one-year forward PE and offers dividend yields of 7.8% and 8.8% for 2024-25, respectively. Crystal remains our conviction BUY call.

Financial Forecasts and Valuation

Capacity by Region

China: 15% | Vietnam: 60% | Cambodia: 10% | Bangladesh: 10% | Sri Lanka: 5%

VSTECS Holdings (856 HK)

VSTECS Holdings, the largest IT distributor in Southeast Asia (SEA) and the second-largest in China, serves over 50,000 partners in the Asia-Pacific region. The company is poised to benefit from the accelerating AI deployment, supported by increasing sales of GPU servers, AI-PC adoption, and the rollout of GenAI smartphones.

VSTECS is Starlink’s preferred partner in Asia, distributing Starlink’s standard kits in Malaysia and Indonesia since early 2024. The company has received positive feedback on its market entry in the Philippines and Thailand and is well-positioned to capitalize on Starlink’s uptake in other SEA countries.

VSTECS’ cloud computing revenue grew at a three-year CAGR of 22.4% from 2021-23, driven by extending its services to multi-cloud management platforms, computing power scheduling, and AI management. We forecast a three-year CAGR of 14.0% for the cloud computing segment from 2024-26, as AI advancements continue to drive demand for computing power and cloud services.

We initiate coverage with a BUY rating and a target price of HK\$5.47, based on 7.3x 2025F PE, pegged to its historical mean from 2019-24. The company is currently trading at 6.1x one-year forward PE, which is 0.5SD below its historical mean.

Texwinca (321 HK)

Texwinca, a manufacturer of yarns, knitted fabrics, and garments, also operates the casual wear retail brand Baleno. During our visit to Texwinca’s factory in Dongguan and its apparel showroom, we noted the company’s production plants in Vietnam and China account for 25% and 75% of total capacity, respectively. The utilisation rate for its textile production in both locations remains high at 80-90% in 2024. Texwinca plans to increase its capacity in Vietnam by 47% to 220,000 lbs/day in FY25, representing an 11% total capacity increase to 720,000 lbs/day compared to FY24.

For its retail business, Baleno closed 381 non-performing direct operating stores in FY24. As of the end of FY24, Baleno had 674 stores in Mainland China, Hong Kong, and Indonesia. Management aims to achieve breakeven (HK\$114 million operating loss in FY24) by continuing to close offline stores in China and strengthening its online sales channel.

Texwinca is likely to maintain a high level of dividend payout ratio (FY24: 73%) due to its healthy operating cash flow and lower finance costs. Its trailing 12-month dividend yield was 7.7%. The company’s ability to achieve faster-than-expected breakeven for its retail business could serve as a key catalyst, although potential risks include lower margins due to US import tariffs.

Traders’ Corner

China International Capital Corporation Limited (3908 HK)

Trading buy range: HK\$15.25-15.70 | Last price: HK\$15.90 | Target price: HK\$16.80/HK\$18.00 | Protective stop: Breaks below HK\$14.20

China International Capital Corporation Limited reported 9M24 revenue of RMB13.45 billion and a net profit of RMB3.08 billion. The stock recently broke through its consolidation phase and rose above its 20-day moving average, indicating potential short-term strength. The 14-day RSI is above the midline of 50, suggesting improving momentum. If the fast line of the MACD breaks through the slow line, it will send a further positive signal. The average timeframe for this trade is around two weeks.

China Mengniu Dairy Company Limited (2319 HK)

Trading buy range: HK\$18.06-18.36 | Last price: HK\$18.44 | Target price: HK\$19.30/HK\$20.75 | Protective stop: Breaks below HK\$17.20

China Mengniu Dairy Company Limited reported 1H24 revenue of RMB44.67 billion and a net profit of RMB2.53 billion. The stock has been gradually rebounding since bottoming out around HK\$15.40 on 17 October and is currently forming an uptrend. The 14-day RSI is above the midline of 50, indicating improving momentum. The MACD fast line broke through the slow line, sending a positive double bullish signal. The average timeframe for this trade is around two weeks.