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Sector: Media and Telecommunications
JD.com
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 05 Jun 2023We maintain our Market perform recommendation on JD. JD’s 1Q23 revenues were up 1.4% YoY and beat expectations thanks to continued strength of its net services revenues. JD’s EBITDA margins also improved but it incurred a net operating cash outflow in 1Q23 due to higher working capital investments.
We expect JD’s topline growth to gradually recover and achieve mid-to-high single digit growth for FY23. We expect JD’s EBITDA margin to edge lower in FY23 compared to FY22 due to the subsidy program and upcoming large promotional events in 2Q23 (6.18), offset in part by its continued improvement in fulfillment efficiency and economies of scale. We expect JD to continue to generate strong operating cash flow in FY23, and marginally reduce its total debt and Total debt/EBITDA.
Business Description
AS OF 06 Jun 2023- JD is one of China's leading e-commerce and retail infrastructure service providers.
- JD has a large fulfillment infrastructure which includes over 1,500 warehouses with an aggregate gross floor area of approximately over 31 mn square meters, as of 31 March 2023.
- JD has 4 operating segments, namely JD Retail, JD Logistics, Dada and New businesses. Dada began reporting as a standalone segment with effect from 28 February 2022.
- New businesses mainly include JD Property, Jingxi business group, CNLP, overseas businesses and technology initiatives
- JD had a market capitalization of RMB 396.5 bn as of 5 June 2023.
Risk & Catalysts
AS OF 05 Jun 2023Chinese tech companies have been facing increasing scrutiny by the Chinese government. Any regulatory clampdowns may adversely affect the business of JD (e.g. antitrust rules, data security & personal data protection laws).
A prolonged economic slowdown in China would weigh on consumption and JD’s business outlook.
There are regulatory risks involving the use of variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs). Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.
JD may be subject to lawsuits for items listed on its marketplaces, which may be pirated, counterfeit or illegal. JD cooperates with 3rd party logistics cos to help deliver products to buyers. Failure to provide reliable delivery services or unexpected logistics bottleneck may materially affect the business.
Key Metrics
AS OF 05 Jun 2023| RMB mn | FY19 | FY20 | FY21 | FY22 | LTM 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 15.7% | 12.5% | 12.2% | 19.2% | 19.4% |
| Debt/Total Equity | 18.7% | 14.2% | 13.8% | 23.7% | 24.1% |
| Debt/Total Assets | 7.2% | 7.5% | 6.9% | 10.9% | 12.0% |
| Gross Leverage | 1.6x | 1.7x | 3.3x | 2.4x | 2.2x |
| Interest Coverage | 16.2x | 16.4x | 8.5x | 12.8x | 12.5x |
| EBITDA Margin | 2.0% | 2.5% | 1.1% | 2.6% | 2.8% |
CreditSights View
AS OF 12 May 2023We maintain our Market perform recommendation on JD. Within A-rated China tech, we continue to prefer Alibaba and Tencent for similar/higher yields despite being rated 2-3 notches higher. For total return investors, we continue to like JD Apr-26, which yields higher than JD Jan-30 due to the inverted US Treasury curve. We expect JD’s revenue growth to improve to 15% YoY for FY23 (FY22: 10% YoY). We expect revenue growth of JD Logistics, Dada Nexus and new business lines to decelerate from the high bases in FY22 but remain strong. We expect JD’s EBITDA margin to decline marginally to 3.7% from 3.9% in FY22 as the company engages in more promotional activities. We expect JD’s cash flow generation to improve and the company to maintain a net cash position in FY23.
Recommendation Reviewed: May 12, 2023
Recommendation Changed: November 21, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
Search topics about wealth insights and investments.Baidu
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 30 May 2023We maintain our Market perform recommendation on Baidu following its strong 1Q23 results. Baidu posted a solid beat in revenues and EBITDA, and maintained its healthy leverage metrics. Baidu maintained its good cost controls, which led to a better EBITDA margin and improved FOCF in 1Q23. We expect Baidu to maintain healthy debt metrics in FY23, and believe the company is well positioned to benefit from China’s macro recovery. Management sees continued recovery of online advertising in 2Q23 and opportunities in generative AI.
However, we think Baidu’s $ bonds are expensive compared to Alibaba and Tencent. For those seeking exposure to Baidu, we prefer Baidu short-end (24, 25s, 26) on a total return basis, as its yield curve is relatively, and we prefer Baidu 26 and 30s for spread investors.
Business Description
AS OF 30 May 2023- Founded in 2000, Baidu started out as an internet search provider and has since added another two segments, transaction services and iQIYI. Transaction services include Baidu Nuomi, Baidu Deliveries, Baidu Mobile Game, Baidu Wallet, and Baidu Maps. iQIYI is an online video platform with a content library that includes licensed movies, television series, cartoons, and other programs.
- "Baidu Core" (primarily marketing services triggered by internet search queries) made up around 75% of 1Q23 revenues, but generated the majority of Baidu's operating profit. Baidu's other key segment, iQIYI, turned profitable only from 1Q22.
- Baidu has also been pouring investment into artificial intelligence (AI), self-driving vehicles, and smart bikes. According to the company, Baidu has been deploying AI since 2010 - 2011 and launched Apollo, its autonomous driving platform, in 2017. Baidu also launched ERNIE bot in Mar-23, a generative AI chatbot based on a large language model
- Baidu has a market capitalization of RMB 312.6 bn as of 30 May 2023.
Risk & Catalysts
AS OF 30 May 2023Any regulatory clampdowns abroad and domestically (e.g. potential US investment ban, antitrust rules, data security and personal information protection laws) may adversely affect the business of Baidu. The interpretation of Chinese laws and regulations involves some degree of uncertainty.
There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Baidu has made significant investments into long-term AI-related projects, which may take time to turn profitable. A potential escalation of the US chip restriction could have a material negative impact its AI related business (ie. cloud, ernie bot, autonomous driving).
Key Metrics
AS OF 30 May 2023| RMB bn | FY19 | FY20 | FY21 | FY22 | LTM 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 30.0% | 30.4% | 29.7% | 28.5% | 28.3% |
| Net Debt to Book Cap | n/m | n/m | n/m | n/m | n/m |
| Debt/Total Equity | 42.8% | 43.8% | 42.2% | 39.8% | 39.5% |
| Debt/Total Assets | 24.4% | 24.8% | 24.1% | 23.4% | 23.5% |
| Gross Leverage | 3.5x | 2.7x | 3.3x | 2.8x | 2.6x |
| Net Leverage | n/m | n/m | n/m | n/m | n/m |
| Interest Coverage | 7.2x | 9.8x | 8.2x | 11.4x | 11.9x |
| EBITDA Margin | 19.7% | 28.5% | 22.6% | 26.8% | 28.3% |
CreditSights View
AS OF 17 May 2023We maintain our Market perform recommendation on Baidu following its strong 1Q23 results. Baidu posted a solid beat in revenues and EBITDA, and maintained its healthy leverage metrics. Baidu maintained its good cost controls, which led to a better EBITDA margin and improved FOCF in 1Q23. We expect Baidu to maintain healthy debt metrics in FY23, and believe the company is well positioned to benefit from China’s macro recovery. Management sees continued recovery of online advertising in 2Q23 and opportunities in generative AI. However, we think Baidu’s $ bonds are expensive compared to Alibaba and Tencent. For those seeking exposure to Baidu, we prefer Baidu short-end (24, 25s, 26) on a total return basis, as its yield curve is relatively, and we prefer Baidu 26 and 30s for spread investors.
Recommendation Reviewed: May 17, 2023
Recommendation Changed: August 31, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
Search topics about wealth insights and investments.PLDT
- Sector: Media and TelecommunicationsTechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
This article is exclusive to Metrobank preferred clients.
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Fundamental View
AS OF 09 May 2023PLDT’s 1Q23 results were solid. Earnings growth was buoyed by sustained broadband and enterprise data demand that outweighed strong mobile competition and higher fuel/typhoon-related expenses. Credit metrics improved slightly to 2.8x/2.5x.
We anticipate its FY23 earnings to grow modestly YoY as strong broadband and enterprise data revenue growth outweigh strong mobile competition and hot domestic inflation. We take comfort in PLDT’s leading market position in the higher-margin broadband space.
While its capex overrun should keep FY23 capex elevated, we draw mild comfort that it was likely not due to fraud but rather a management misstep. The impact is also mitigated by PLDT’s robust operating cash flows and a further PHP 33 bn of tower sales closures by end-2023.
Business Description
AS OF 09 May 2023- PLDT is a leading telecom operator in the Philippines, competing alongside its main rival Globe Telecom in a predominant duopoly.
- PLDT provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- PLDT operates through 2 main business segments – “Wireless Services” and “Fixed Line Services”.
- Its “Wireless” segment offers mobile voice, mobile SMS, mobile data and mobile broadband services to retail customers in the Philippines. These services are marketed under the “Smart Postpaid”, “Smart Prepaid”, "Sun Postpaid" and “TNT Prepaid” brands.
- Its “Fixed Line Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- PLDT commercially launched 5G services on a small-scale basis in Jul-2020. It currently has over 3,000 5G sites nationwide.
- PLDT maintains dominant market shares in the mobile data, voice and SMS space (FY21 revenue market share [RMS] of 47% vs Globe 52%), the fixed line voice space (FY21 RMS of 90% vs Globe 10%), and the home broadband space (FY21 RMS of 45% vs Globe 31%).
- PLDT is backed by three established corporate groups, namely First Pacific (~15% stake), NTT Corporation (~12% stake) and JG Summit Holdings (~7% stake).
Risk & Catalysts
AS OF 09 May 2023Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at PLDT’s market share and restrain recoveries in average revenues per user (ARPU).
PLDT incurs significant capex that has restrained improvements in its leverage metrics and free cash flows. This is worsened by a recent capex overrun that has induced mild corporate governance uncertainties. Such uncertainties have eased since.
Consistently high dividend payouts could worsen PLDT’s already negative free cash flows.
PLDT is exposed to $/PHP depreciation risks ($300 mn 2050 bond is fully unhedged).
Key Metrics
AS OF 09 May 2023| PHP bn | FY20 | FY21 | FY22 | 1Q22 | 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 67.0% | 68.3% | 71.9% | 68.6% | 72.2% |
| Net Debt to Book Cap | 55.9% | 62.3% | 65.7% | 62.2% | 65.7% |
| Debt/Total Equity | 202.9% | 215.2% | 256.2% | 218.7% | 260.3% |
| Debt/Total Assets | 42.2% | 43.8% | 46.8% | 43.9% | 46.4% |
| Gross Leverage | 2.7x | 2.8x | 2.9x | 2.9x | 2.8x |
| Net Leverage | 2.2x | 2.6x | 2.7x | 2.6x | 2.5x |
| Interest Coverage | 7.8x | 8.2x | 7.3x | 7.8x | 7.4x |
| EBITDA Margin | 50.4% | 50.7% | 48.4% | 43.7% | 48.6% |
CreditSights View
AS OF 09 May 2023We have a Market perform recommendation on PLDT. PLDT’s Jan-2031 bond trades 38 bp tighter than Globe’s Jul-2030 bond. We think PLDT should trade 25-30 bp tighter than Globe as PLDT’s IG rated status and stronger net leverage could outweigh its mild corporate governance flaws and higher capex. The concluded capex overrun audit helps to ease corporate governance fears and aid free cash flow recovery. Further clarity on US SCA lawsuits and management replacements are welcome too. Residual PHP 33 bn of tower sales would provide greater financial flexibility for capex funding and some mild deleveraging. While we acknowledge the risks of hot domestic inflation and strong competition, we think the impact is negated by its leading broadband market position and DITO’s debt woes.Â
Recommendation Reviewed: May 09, 2023
Recommendation Changed: May 31, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India