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SATS Ltd (SATS SP): Service improvement amidst air travel recovery

• BUY Entry – 3.08 Target– 3.40 Stop Loss – 2.94
• SATS Ltd. provides gateway services and food solutions. The Company specializes in airfreight, ramp and baggage handling; passenger services; aviation security services; aircraft cleaning; and cruise centre management. It also provides airline catering; institutional catering; aviation laundry; and food distribution and logistics. SATS has presence across Asia and the Middle East.
• Air passenger traffic not slowing. According to the International Air Transport Association, in 2024, the airline industry has recovered from the COVID-19 crisis, with total traffic surpassing 2019 levels in February. Domestic travel returned to pre-COVID levels in spring 2023, while international routes have also recently recovered. Most regions are expected to exceed 2019 levels in 2024, with Asia Pacific leading growth at 17.2% YoY. Over the next 20 years, global passenger journeys are expected to increase by an average of 3.8% annually, resulting in over 4 billion additional journeys by 2043 compared to 2023. This yearly rise in global travel will contribute to SATS revenue growth in the coming years.
• Business restructuring. SATS recently announced the division of its airport ground handling services into separate units for Singapore and the Asia-Pacific region to stimulate company growth. The restructuring of its Gateway Services business resulted in the creation of two new units: the Singapore Hub and Gateway Services Asia-Pacific. The Singapore Hub will focus on enhancing aviation hub competitiveness in Singapore, while Gateway Services Asia-Pacific will aim to expand the group’s market share by managing operations in overseas airports.
• Lounge improvements. SATS unveiled its upgraded Premier Lounge at Changi Airport Terminal 3 recently, featuring Singaporean dishes like laksa, chicken rice, and prawn noodles, along with interior designs by local artists and students. The lounge includes a new Executive space with private pods, dining service, and travel-friendly amenities. SATS plans to extend similar refurbishments to its other lounges in Terminals 1 and 2 over the next few years. The lounge also offers pasta made by robot chefs, products from SATS Gourmet Solutions, and collaborations with six renowned local food and beverage brands. SATS CEO highlighted the aim to enrich travellers’ experiences with a blend of food, culture, and hospitality. Refurbishments to the lounges in different terminals will offer more comfort and incentive for travellers at Singapore Changi Airport to visit the lounges.
• FY24 results review. Total revenue rose by 192.9% YoY to S$5.15bn in FY24, compared to S$1.76bn in FY23. Core PATMI rose by 331.3% to S$78.5mn in FY24, compared to S$18.2mn in FY23. Basic EPS was 3.8 Scents in FY24, compared to -2.2 Scents in FY23.
• Market Consensus.

(Source: Bloomberg)

Valuetronics Holdings Ltd (VALUE SP): Venture into AI

• RE-ITERATE BUY Entry – 0.66 Target– 0.72 Stop Loss – 0.63
• Valuetronics Holdings Ltd. offers original equipment manufacturing and original design manufacturing services. The Company serves customers in the telecommunications, industrial, commercial electronic products, and consumer electronic products industries.
• New Joint-Venture (JV) Partnership. Valuetronics recently announced a new joint venture partnership agreement with Sinnet Cloud HK Ltd. Through its wholly-owned subsidiary, Value Match Company Limited (VML), Valuetronics will invest HK$7.7mn (approximately US$986,000) in cash for a 55% stake in the JV, named Trio AI Limited, which will provide graphics processing units (GPU) and AI-related cloud services in Hong Kong. This JV offers Valuetronics potential access to manufacturing opportunities for AI-related hardware within the Group’s existing manufacturing capabilities, and also allows Valuetronics to benefit from favourable market demand supported by continuous advancements in AI and increasing needs for AI infrastructure services. This partnership marks Valuetronics’ first strategic initiative into the AI industry.
• FY24 results review. Total revenue fell by 17.1% YoY to HK$1.670bn in FY24, compared to HK$2.01bn in FY23. Net profit rose by 29.8% to HK$159.6mn in FY24, compared to HK$123.0mn in FY23. Basic EPS rose to 38.7 HK cents in FY24, compared to 29.1 HK cents in FY23.
• Market Consensus.

(Source: Bloomberg)

Baidu, Inc. (9888 HK): Robotaxi era coming

• BUY Entry – 95 Target 105 Stop Loss – 90
• Baidu Inc is a Chinese language Internet search provider. The Company offers a Chinese language search platform on its Baidu.com Website that enables users to find information online, including Webpages, news, images, documents and multimedia files, through links provided on its Website. The Company operates through two segments, Baidu Core segment and iQIYI segment. Baidu Core mainly provides search-based, feed-based, and other online marketing services, as well as products and services from the Company’s new artificial intelligence (AI) initiatives. Within Baidu Core, the Company’s product and services offerings are categorized as Mobile Ecosystem, Baidu AI Cloud and Intelligent Driving & Other Growth Initiatives. iQIYI is an online entertainment service provider that offers original, professionally produced and partner-generated content on its platform.
• Robotaxi era. Baidu’s autonomous ride-hailing platform, Apollo Go Robotaxi, has been gaining public attention as it expands its business in Wuhan, Central China’s Hubei Province. Both Beijing and Shanghai have recently announced their support for introducing robotaxis into ride-hailing and car rental fleets as advanced driver assistance systems become more prevalent in China. Additionally, with robotaxis being significantly cheaper than traditional taxis, they are likely to attract more consumers. Apollo Go Robotaxi also remains on track to achieve profitability with its advanced autonomous ride-hailing model.
• Improvement to Ernie AI Model. Baidu recently launched its latest iteration of its large language model, Ernie 4.0 Turbo, for its enterprise clients. The company also announced that they will cut the pricing of their earlier Ernie models by as much as 83%. These moves by the company are likely to further attract more clients to adopt the use of Baidu’s large language model, Ernie bot. Baidu also already noted that Ernie’s average daily usage went up 150% sequentially in 2Q24.
• Partnership with Tesla. Earlier this year, Baidu reached an agreement with Tesla to integrate its mapping and navigation technologies in China. This deal clears the final regulatory hurdle for Tesla’s Full Self-Driving (FSD) system to be offered in the Chinese market. Baidu also indicated that it sees potential in incorporating Tesla’s robotaxi technology into its product offerings for domestic consumers.
• 1Q24 earnings. Revenue rose by 1.2% YoY to RMB31.5bn in 1Q24, compared to RMB31.1bn in 1Q23. Net profit rose by 22.4% YoY to RMB7.01bn in 1Q24, compared to RMB5.73bn in 1Q23. Diluted EPADS rose 23.6% YoY to RMB0.1991in 1Q24, compared to RMB 0.161 in 1Q23.
• Market consensus.

(Source: Bloomberg)

Uni-President China Holdings Ltd. (220 HK): Turning towards cheaper alternatives

• RE-ITERATE BUY Entry – 7.10 Target 7.80 Stop Loss – 6.75
• Uni-President China Holdings Ltd. is a Hong Kong-based investment holding company principally engaged in the manufacture and sales of beverages and instant noodles. It operates through three segments, including Beverages segment, Instant Noodles segment and Others segment. The Company’s beverage products include juice drinks, ready-to-drink tea, milk tea, coffee and bottled water, among others. Its instant noodles products include bowl noodles, packet noodles and snack noodles. The Company is also involved in the wholesales of forage and fertilizer, as well as the provision of catering services through its subsidiaries.
• To benefit from rising food prices. As food prices increase in China, many are opting for affordable choices like instant ramen. Yet, even instant ramen is becoming pricier as major manufacturers hike their retail prices, according to various media reports. Additionally, the costs of beverages, street food, fruits, and vegetables are rising due to increasing raw material expenses. This overall escalation in food prices is pushing consumers toward cheaper alternatives instead of dining at more expensive establishments such as restaurants. Reports also indicate that demand for premium food in China is waning due to economic uncertainty and escalating geopolitical tensions. As a result, Uni-President China is likely to benefit from both the rising food prices and the higher sales volume of instant products.
• China’s FMCG market growth. A recent report indicates that in 1Q24, China’s FMCG sector experienced a value growth of approximately 2.0%, an increase of half a percentage point compared to 1Q23, driven by a 3.5% rise in volume. This growth was primarily led by the packaged food and beverage segment, which saw stable YoY value growth of 2.7% and 4.3%, respectively. The majority of categories within packaged food experienced volume growth, attributed to the recovery of social mobility and activities.
• Expanding presence. Earlier this year, Uni-President’s board authorized a share purchase to acquire full ownership of South Korea’s Woongjin Foods, increasing its stake from 79.32%. This acquisition aligns with Uni-President’s strategy to establish a large distribution platform in Asia and underscores its commitment to expanding into Northeast Asia.
• FY23 earnings. Revenue rose by 1.2% YoY to RMB28.6bn in FY23, compared to RMB28.3bn in FY22. Net profit rose 36.4% YoY to RMB1.67bn in FY23, compared to RMB1.22bn in FY22. Basic EPS rose 36.4% YoY to 38.6 RMB cents in FY23, compared to 28.3 RMB cents in FY22.
• Market consensus.

(Source: Bloomberg)

Advanced Micro Devices Inc (AMD US): Bolstering AI chip capabilities

• BUY STOP Entry – 190 Target – 210 Stop Loss – 180
• Advanced Micro Devices, Inc. (AMD) produces semiconductor products and devices. The Company offers products such as microprocessors, embedded microprocessors, chipsets, graphics, video and multimedia products and supplies it to third-party foundries, as well as provides assembling, testing, and packaging services. AMD serves customers worldwide.
• Acquisition to assist in AI race. AMD announced it will acquire Finnish AI startup Silo AI for approximately US$665mn in cash to enhance its AI chip capabilities and compete with Nvidia. The acquisition will bolster AMD’s ability to develop and deploy AI models using its chips and improve its software development capabilities. Although the deal will not immediately impact AMD’s financial performance, it is expected to unlock significant future business opportunities. Silo AI, known for its end-to-end AI solutions with clients like Philips, Rolls-Royce, and Unilever, will continue under the leadership of its CEO, Peter Sarlin, within AMD’s Artificial Intelligence Group. The acquisition is set to close in the second half of 2024 and follows AMD’s other investments in AI, including the acquisitions of Mipsology and Nod.ai, which will help to further advance the development of AMD’s next generation of AI and semiconductors.
• New launch. AMD’s upcoming Ryzen 9000 chips, set to release in July, have shown promising early benchmarks. The Ryzen 7 7900X and Ryzen 5 9600X both demonstrated higher performance than top previous-generation AMD and Intel chips in single-core tests. The results are rumoured to have come from pre-release testing and should be viewed cautiously as final hardware configurations may change. The Ryzen 7 9700X, with 8 cores and 16 threads, achieved 3370 in single-core and 16329 in multi-core tests, while the Ryzen 5 9600X, with 6 cores and 12 threads, scored 3284 and 14594 respectively. These chips outperform their predecessors despite lower clock speeds, likely due to AMD’s new Zen 5 architecture. This new release is highly anticipated as it will bring about new developments in the PC world.
• 1Q24 earnings review. Revenue rose by 2.2% YoY to US$5.47bn, exceeding estimates by US$20mn. Non-GAAP EPS was US$0.63, beating estimates by US$0.01. 2Q24 sales revenue is expected to be approximately US$5.7bn, plus or minus US$300mn vs. US$5.69bn consensus. Non-GAAP gross margin is expected to be approximately 53%.
• Market consensus.

(Source: Bloomberg)

Cheniere Energy Inc (LNG US): Natural gas consumption to rise

• RE-ITERATE BUY Entry – 173 Target –190 Stop Loss – 165
• Cheniere Energy, Inc. is an energy infrastructure company engaged in LNG-related businesses. The Company provides liquefied natural gas (LNG) to integrated energy, utilities, and energy trading companies. Cheniere Energy serves customers worldwide.
• Trump themed stocks. After the first round of the 2024 U.S. presidential television debate, Trump gained momentum and his support rate continued to rise based on his lead over Biden. The market began to trade in Trump-themed sectors, and the oil and gas industry was the first to bear the brunt because Trump and Republican Party policies tend to support the oil and gas industry.

Global LNG Supply Outlook

(Source: Bloomberg)

• The extension of the artificial intelligence wave. The 2024 International Energy Agency (IEA) Electricity Report shows that global electricity demand for data centres, cryptocurrencies and artificial intelligence is expected to nearly double by 2026, reaching 620 to 1,050 terawatt hours (TWh), with a base case of just over 800 TWh. watt hours, up from 460 terawatt hours in 2022. In 2023, natural gas power generation in the United States will account for 43.1%, so the natural gas industry will also benefit from the artificial intelligence wave. Cheniere’s business belongs to the midstream of the supply chain, and its business is highly sensitive to changes in natural gas consumption and low to price changes.
• 1Q24 earnings review. Revenue fell by 43.1% YoY to US$4.3bn, beating estimates by US$280mn. GAAP EPS was US$2.13, missing estimates by US$0.06. 2Q24 revenue is expected to be in the range of US$2.68bn to US$2.74bn vs market consensus of US$2.74bn. Reaffirmed FY24 consolidated adjusted EBITDA guidance of US$5.5bn to US$6.0bn and FY24 distributable cash flow guidance of US$2.9bn to US$3.4bn.
• Market consensus.

(Source: Bloomberg)

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Trading Dashboard Update: Stop loss on China Shenhua Energy Co Ltd (1088 HK) at HK$35.3.