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United States

News Feed

1. Stock market today: Nasdaq closes at record high, meme stocks surge again ahead of inflation data

2. US makers of masks and gloves get lifeline: higher tariffs on Chinese-made products

3. US producer prices increase more than expected in April

4. US to raise tariffs on US$18 billion of China imports including chips

5. US dollar slips after unexpected rise in US producer prices

Hong Kong

News Feed

1. China megabanks kick off 60 billion yuan loss-absorbing bond sales

2. Interest rates and RRR may see cuts

3. China’s property ‘whitelist’ lifeline stutters amid sector gloom

4. China speeds up digital transformation of manufacturing sector

5. Officials urge more trade cooperation and partnerships

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Frencken Group Ltd. (FRKN SP): Growth is expected

• BUY Entry – 1.42 Target– 1.50 Stop Loss – 1.38
• Frencken Group Limited (“Frencken”) is a Global Integrated Technology Solutions Company that is listed on the Main Board of the Singapore Exchange. They provide comprehensive Original Design, Original Equipment and Diversified Integrated Manufacturing solutions for world-class multinational companies in the analytical & life sciences, automotive, healthcare, industrial and semiconductor industries.
• Strong AI Demand. Taiwan Semiconductor Manufacturing Company (TSMC) saw April sales jump 60% to NT$236bn (S$9.9bn) as sustained artificial intelligence (AI) demand was helped by the beginnings of a recovery in consumer electronics. The global smartphone industry also returned to growth over the first three months of the year, including in the highly competitive Chinese market, which may drive orders for TSMC’s traditional mainstay of mobile chips. Furthermore, as Nvidia’s sole manufacturer for the most advanced training chips, TSMC remains in an enviable position to benefit from the rise of AI technology. Apple’s recent announcement of a new lineup of iPads would also translate to a higher demand for TSMC’s semiconductors. This positive trajectory is expected to extend to Frencken’s semiconductor segment, which represented approximately 40% of its FY revenue.
• Continued demand for AI Chips. The recent earnings releases from tech giants Microsoft, Amazon, Alphabet, and Meta underscore the continuous increase in AI spending through 2024, driven by companies seeking AI-related revenue gains. These firms are allocating significant investments, totalling tens of billions, toward AI infrastructure, demonstrating optimism about generative AI’s potential for growth and its value to end customers. Collectively, these tech giants are witnessing significant YoY improvements in operating margins, indicating the effectiveness of AI growth and efficiency gains. Management teams across the board expressed optimism about AI’s capacity to drive new growth avenues, highlighting its role in enhancing advertiser ROI, infrastructure revenue, and customer-facing applications. As these companies ramp up capital expenditures, with Big Tech likely committing over US$200bn to AI infrastructure in 2024, the broader AI industry stands to benefit, particularly in areas such as semiconductor manufacturing, data center expansion, and hardware procurement. This surge in AI-related spending is expected to drive growth opportunities not only for established players like Nvidia but also for various other sectors within the AI ecosystem, offering potential benefits to investors and industry stakeholders alike, such as Frencken.
• FY23 results review. FY23 revenue declined by 5.5% to $742.9mn, compared to $786.1mn in FY22. Net profit plunged 38.1% YoY to $32.0mn due to challenging business conditions for the technology sector, compared to $51.6mn in FY22. Gross profit margin contracted to 13.2% in FY23 from 15.1% in FY22, attributing it to lower revenue, inflationary cost pressures as well as increased depreciation expenses.
• Market Consensus

(Source: Bloomberg)

ComfortDelGro (CD SP): Improving locally

• RE-ITERATE BUY Entry – 1.42 Target– 1.50 Stop Loss – 1.38
• ComfortDelGro Corporation Limited provides land transportation services. The Company offers bus, taxi, rail, car rental and leasing, automotive engineering services, inspection and testing services, driving center, insurance broking services, and outdoor advertising.
• Tourism support. Chinese tourists flocked back to Singapore during China’s recent May Day holiday, with a significant increase in flight and hotel bookings reported by travel agencies. The removal of visa requirements and ongoing mutual visa exemption between Singapore and China have contributed to Singapore’s attractiveness as a tourist destination. Despite the recovery in visitor arrivals from China, first-quarter figures still lag behind pre-pandemic levels. Efforts by the Singapore Tourism Board (STB) to attract Chinese tourists include collaborations with celebrities and influencers, along with promotional events such as live-stream countdowns to concerts. Travel operators in Singapore noted a surge in bookings from Chinese tourists during the Labour Day holiday, with preferences for small-group travel and customized itineraries. These efforts to support tourism demand would, in turn, benefit the transportation sector in Singapore.
• Enhancing reliability and expanding its customer base. Gojek and ComfortDelGro Taxi began their partnership on 23 April, allowing rides not taken by drivers on one platform to be dispatched to the other’s platform. This collaboration aims to improve reliability by leveraging a larger combined driver pool. In the first phase which began on 29 April, Gojek rides not accepted by drivers will be transferred to ComfortDelGro’s platform, benefiting both drivers and commuters. The second phase, where Gojek receives untaken rides from ComfortDelGro, has no specific timeline yet. The partnership also involves exploring collaboration in areas like electric vehicles, insurance, driver training, and vehicle maintenance. As a result of this collaboration, drivers in ComfortDelGro’s two-shift taxi system will have access to a larger customer base in the initial phase and ComfortDelGro will be able to improve its reliability by leveraging a larger pool of drivers in the second phase.
• Green loan for decarbonisation. On 22 April, it was announced that ComfortDelGro secured a S$100mn green loan from DBS to purchase 135 electric buses for its UK subsidiary, Metroline. The buses, comprising double-deck and single-deck models, will replace internal combustion engine-powered ones, aiming to save 9,900 tonnes of CO2 emissions annually. This initiative aligns with CDG’s goal to transition 50% of its global bus fleet to cleaner energy vehicles by 2030 and 100% by 2050, displaying the company’s commitment to sustainability.
• FY23 results review. Revenue rose 2.6% YoY to S$3.88bn from S$3.78bn; normalised PATMI increased 26.6% YoY to S$180.5mn in FY23 from S$142.6mn in FY22. FY23 earnings per share was S$0.0833, up 4.3% YoY from S$0.0799. FY23 total dividend amounted to 6.66 sing cents per share.
• Market Consensus

(Source: Bloomberg)

China Resources Power Holdings Co. Ltd. (836 HK): High demand for electricity

• BUY Entry – 20.70 Target –22.70 Stop Loss – 19.70
• China Resources Power Holdings Company Limited is a Hong Kong-based investment holding company principally engaged in the investment, development and operation of power plants. The Company operates through three segments. Thermal Power segment is engaged in the investment, development, operation and management of coal-fired power plants and gas-fired power plants, as well as the sales of heat and electricity. Renewable Energy segment is engaged in wind power generation, hydroelectric power generation and photovoltaic power generation, as well as the sales of electricity. Coal Mining segment is engaged in the mining of coal mines, as well as the sales of coal. The Company mainly operates businesses in China.
• Increasing electricity demand and upcoming summer season. In 2024, China is projected to generate 9.96tn kilowatt hours (kWh) of power, as per the National Energy Administration, reflecting a growth rate of 5.3%. The International Energy Agency predicts a 5.1% rise in electricity demand, while the China Electricity Council anticipates a 6% increase, surpassing GDP forecasts. Additionally, the upcoming summer season is expected to further boost electricity demand as consumers turn to air conditioning to escape the rising temperatures.
• Long-Term green power purchase agreement with Merck. China Resources Power has revealed its intention to engage in a long-term power purchase agreement with Merck. Under this agreement, Merck China will substantially enhance its utilization of green electricity in production and operations, aiming to achieve a 60% usage and reduce Scope 2 carbon emissions by 185,000 tonnes. This initiative aligns with Merck’s broader objective of raising its global procurement of electricity from renewable sources to 80% by 2030 and achieving climate neutrality by 2040. The ten-year power purchase agreement with Merck guarantees the life-cycle traceability of a total of 300 GWh of green power.
• Bottoming Coal Prices. The decline in global coal prices is expected to have significant benefits for the company’s coal-fired power plants and gas-fired power plants. With prices at a year low around of RMB830 per tonne, lower fuel costs for coal-fired power plants translate into improved profitability and a competitive advantage in the market. With increasing demand for electricity within China, the company would be required to buy coal from other suppliers to further supplement its energy production, as shown in a rise in China’s coal imports for the month of April. China imported 45.25mn metric tons of coal in April, up 11% from 40.68mn a year earlier fuelled by lower domestic production and greater buying by power generators to swell stockpiles ahead of the peak summer demand season. This cost advantage from cheaper coal prices is likely to translate into improved financial performance for the company.

China Qinhuangdao Port Thermal Coal 5500 GAR

(Source: Bloomberg)

• 1H23 earnings. Revenue rose 2.13% YoY to HK$51.5bn in 1H23, compared with HK$50.4bn in 1H22. Net profit rose 61.8% to HK$7,08bn in 1H23, compared to HK$4.37bn in 1H22. Basic earnings per share was HK$1.40 in 1H23, compared to HK$0.91 in 1H22.
• Market consensus.

(Source: Bloomberg)

Lenovo Inc. (992 HK): High expectations for AI PC

• RE-ITERATE BUY Entry – 9.80 Target –10.60 Stop Loss – 9.40
• Lenovo Group Limited is an investment holding company principally engaged in personal computers and related businesses. The Company’s main products include Think-branded commercial personal computers and Idea-branded consumer personal computers, as well as servers, workstations and a family of mobile Internet devices, including tablets and smart phones. The Company operates its business through four geographical segments, including China, Asia Pacific (AP), Europe, the Middle East and Africa (EMEA) and Americas (AG). The Company also provides cloud service and other related services. The Company distributes its products in domestic market and to overseas markets.
• Launch of ThinkPad P1 Gen 7 and other AI PCs. Lenovo has recently unveiled a lineup of AI-powered laptops, highlighted by the ThinkPad P1 Gen 7, which boasts a unique blend of workstation expertise, high AI performance, and exceptional portability. These advanced AI technologies embedded in the laptops promise to revolutionize professionals’ interaction with AI workflows. Featuring the latest CPUs, NPUs, and GPUs from Intel and Nvidia, the ThinkPad P1 Gen 7 delivers unparalleled power and efficiency to tackle demanding AI tasks effectively. Moreover, it stands as the world’s inaugural mobile workstation to integrate LPDDR5x LPCAMM2 memory, a collaboration between Micron and Lenovo, providing one of the swiftest and most energy-efficient modular memory solutions for PCs.
• Increasing partnerships to increase AI portfolio. Lenovo has forged strategic alliances with leading U.S. chip companies like Intel Corp and Qualcomm Inc. to pioneer AI-powered PCs, catering to the escalating need for intelligent productivity solutions. The latest AI PC lineup from Lenovo introduces an AI assistant named “Xiao Tian,” driven by Alibaba’s Tongyi Qianwen model. Additionally, Lenovo has previously disclosed a partnership with Baidu to integrate Baidu’s advanced generative AI technology into its smartphones. These collaborations with key industry players position Lenovo at the forefront of AI innovation, enhancing value propositions for customers and consequently driving demand for its AI PC series.
• PC demand recovery. PC demand has shown signs of recovery and is expected to continue recovering in 2024, after a demand slump in 2023. The worldwide traditional PC market returned to growth during 1Q24 with 59.8mn shipments, growing 1.5% YoY, according to preliminary results from the International Data Corporation (IDC). AI technology is also expected to propel the global PC market in 2024, with increasing demand for PCs equipped with new AI technologies. Furthermore, suppliers are also gearing up more for replacement demand, where many consumers are expected to replace their PCs, accessories, and peripherals after more than 2 years of usage since the digital boom during the Covid-19 pandemic.
• 3Q24 results. Revenue rose by 2.97% YoY to US$15.7bn in 3Q24, compared to US$15.3bn in 3Q23. Net profit fell by 22.8% YoY to US$337mn in 3Q24, compared to US$437mn in 3Q23. Basic EPS fell to US2.81cents in 3Q24, compared to US3.65cents in 3Q23.
• Market consensus.

(Source: Bloomberg)

First Solar Inc (FSLR US): Potential tailwinds from tariffs

• Entry – 188 Target –210 Stop Loss – 177
• First Solar, Inc. designs and manufactures solar modules. The Company uses a thin film semiconductor technology to manufacture electricity-producing solar modules.
• Potential tariff on China’s photovoltaic products. The Biden administration is expected to impose new tariffs on China’s products from three industries including semiconductor, electric vehicle, and solar. The US photovoltaic products will benefit from a new round of tariff as China’s import prices will become unattractively low. Futhermore, Europe could follow the US once the tariff is imposed.
• Data center electricity demand is expected to double by 2026. According to the International Energy Agency’s Power Report 2024, global electricity demand for data centers, cryptocurrency, and artificial intelligence is expected to nearly double by 2026, reaching 620 to 1,050 terawatt-hours (TWh), slightly above the base case of 800 TWh and up from 460 TWh in 2022.
• Solar demand is set to surge. Solar panel installations in the United States are projected to increase significantly in the coming years to meet soaring electricity demand, particularly driven by data centers, electric vehicles, and heating/cooling systems. Solar is one of the fastest-growing energy sources in the US, and is expected to expand substantially despite facing challenges such as permitting delays and rising capital costs. To meet the growing demand, solar companies plan to ramp up manufacturing capacity, buoyed by tax incentives in President Biden’s Inflation Reduction Act.
• 1Q24 earnings review. Revenue rose by 44.8% YoY to US$794mn, beatings estimates by US$7.19mn. GAAP EPS was US$2.20, beating estimates by US$0.22. FY24 revenue guidance projects net revenue of US$4.4bn to US$4.6bn, above the market consensus of US$4.51bn. EPS of US$13 to US$14, versus the market consensus of US$13.60. Sales orders are expected to be 78.3 GW.
• Market consensus.

(Source: Bloomberg)

Nextera Energy Inc (NEE US): Foresee a power supply gap

• RE-ITERATE Entry – 72 Target – 80 Stop Loss – 68
• NextEra Energy, Inc. provides sustainable energy generation and distribution services. The Company generates electricity through wind, solar, and natural gas. Through its subsidiaries, NextEra Energy also operates multiple commercial nuclear power units.
• Electricity is the foundation of artificial intelligence. Since the beginning of this year, technology and chip giants have all discussed the gap in power supply in the wave of artificial intelligence. Even in the current environment of stubborn inflation and high interest rates, power companies are still actively increasing their investment in renewable energy power generation. The next few years will be the harvest period for the profit growth of power companies, and funds have been actively deployed in the power sector last year.
• Strong performance in both businesses. Nextera Energy operates two business segments, Florida Power & Light and NextEra Energy Resources. Nextera’s electric utility business, Florida Power & Light (FPL), generates most of its electricity from natural gas and added 100,000 more customers in the first quarter compared to the same quarter last year. FPL serves approximately 1.2 million customers with natural gas, propane, and electric service. This segment has benefited from Florida’s growing population and the presence of financial institutions and technology companies in the state. Additionally, Florida has historically been a popular destination for high-net-worth immigrants, further solidifying its customer base. NextEra Energy Resources (NEER) is Nextera Energy’s other business segment. This new energy segment focuses on developing and investing in renewable energy sources, such as nuclear, wind, solar, and energy storage. With ambitious growth plans, NEER aims to have an expected installed capacity of 12.1-14.6 gigawatts and 20.6-27.2 gigawatts in 2024 and 2025, respectively.
• 1Q24 earnings review. Revenue fell by 14.7% YoY to US$5.73bn, missing estimates by US$750mn. Non-GAAP EPS was US$0.91, beating estimates by US$0.13. In 2024, the company continues to expect adjusted earnings per share to be in the range of US$3.23 to US$3.43 vs US$3.40 consensus. For 2025 and 2026, it expects to grow 6% to 8%, off the 2024 adjusted earnings per share range, translating to a range of US3.45 to US$3.70 vs US$3.67 consensus for 2025 and US$3.63 to US$4.00 vs US$3.96 consensus for 2026.
• Market consensus.
  

(Source: Bloomberg)

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Trading Dashboard Update: Add and cut loss on Frencken Group Ltd. (FRKN SP) at S$1.28. Cut loss on Winking Studios Ltd. (WKS SP) at S$0.250.

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