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Sector: Technology
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.Globe Telecom
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 09 May 2023Globe’s 1Q23 revenues and EBITDA grew modestly YoY as strong mobile and enterprise data revenues outweighed poorer broadband revenues. Credit metrics worsened slightly to 4.0x/3.8x.
We see a challenging FY23 for Globe in view of high domestic inflation and strong competition, mitigated by Globe’s leading mobile market position and new entrant DITO’s tight liquidity. We expect low-to-mid single digit % YoY revenue growth in FY23.
We anticipate a mild improvement in Globe’s FY23 credit metrics in view of: 1) Residual PHP 52 bn of tower sales that should conclude by end-FY23 and enlarge Globe’s capex funding and deleveraging buffer; 2) Reduced FY23E capex that is ~22% YoY lower than FY22 actual capex spending.
Business Description
AS OF 09 May 2023- Globe is a leading telecom operator in the Philippines, competing alongside its main rival PLDT in a duopoly setting.
- Globe provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- Globe operates through 2 main business segments – “Mobile Services” and “Fixed Line and Home Broadband Services”.
- Its “Mobile Services” segment offers mobile voice, mobile SMS and mobile data services to retail customers in the Philippines. These services are marketed under the “Globe Postpaid”, “Globe Prepaid” and “TM” brands.
- Its “Fixed Line and Home Broadband Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- Globe commercially launched 5G services on a small-scale basis in Jun-2019. It currently maintains 5G coverage of 96% of the National Capital Region, with over 2,000 5G sites nationwide.
- Globe maintains dominant market shares in the mobile data, voice and SMS space (FY21 revenue market share [RMS] of 52% vs PLDT 47%) and home broadband space (FY21 RMS of 31% vs PLDT 45%). It loses out heavily to PLDT in the fixed line voice space (FY21 RMS of 10% vs PLDT 90%).
- Globe is largely owned by two established corporate groups – Ayala Corporation (~47 stake) and Singtel (~43% stake).
Risk & Catalysts
AS OF 09 May 2023We see a challenging FY23 for Globe in view of high domestic inflation and strong competition, mitigated by Globe’s leading mobile market position and new entrant DITO’s tight liquidity. We expect low-to-mid single digit % YoY revenue growth in FY23.
Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at Globe’s market share and restrain recoveries in average revenues per user (ARPU).
Globe incurs significant capex that has pressurized its leverage metrics and free cash flows. That said, management believes capex has peaked and guided towards lower FY23E capex (~22% YoY lower than FY22 actual capex spending).
Consistent dividend payouts could worsen Globe’s already negative free cash flows.
Key Metrics
AS OF 09 May 2023| PHP bn | FY20 | FY21 | FY22 | 1Q22 | 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 67.2% | 69.4% | 67.5% | 68.5% | 67.6% |
| Net Debt to Book Cap | 59.4% | 63.0% | 63.7% | 64.8% | 64.3% |
| Debt/Total Equity | 204.5% | 227.2% | 208.1% | 217.7% | 208.9% |
| Debt/Total Assets | 49.8% | 56.7% | 57.1% | 56.2% | 56.3% |
| Gross Leverage | 2.2x | 3.3x | 3.9x | 3.4x | 4.0x |
| Net Leverage | 1.9x | 3.0x | 3.7x | 3.2x | 3.8x |
| Interest Coverage | 9.3x | 7.6x | 5.9x | 7.2x | 5.5x |
| EBITDA Margin | 48.7% | 46.7% | 46.7% | 47.5% | 48.2% |
CreditSights View
AS OF 09 May 2023We have a Market perform recommendation on Globe Telecom. Globe’s Jul-2030 bond trades 49 bp tighter than PLDT’s Jan-2031 bond. We think Globe should trade 25-30 bp wider as its unrated credit status and poorer net leverage outweigh its lower FY23E capex and lower corporate governance uncertainties. While we acknowledge the risks of rising inflation and mounting competitive pressures from new entrant DITO, we think this is mitigated by Globe’s leading mobile market position and DITO’s debt woes that could impede its rapid expansion. Further ~PHP 56 bn of tower sales closures and lower capex could support Globe’s credit profile. We anticipate Globe’s credit metrics to improve mildly in the next 3 quarters.
Recommendation Reviewed: May 09, 2023
Recommendation Changed: December 19, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Search topics about wealth insights and investments.PLDT
- Sector: Media and TelecommunicationsTechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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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
How may we help you?
Search topics about wealth insights and investments.Meta Platforms
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Technology
- Country: US
- Bond: META 4.95 33
- Indicative Yield-to-Maturity (YTM): 4.95%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): ( A1 / AA- / - )
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Fundamental View
AS OF 16 Mar 2023- Meta’s further reduction in total expenses for 2023 is a favorable development for creditors, and we expect operating leverage to drive meaningful EBITDA growth in 2024. Gross leverage is just 0.2x and the company has $31 bn net cash, although we do expect a significant decline in net cash as shareholder returns exceed FCF through year-end 2023.
- Meta previously boosted its share buyback authorization by $40 bn which indicates that the company will remain aggressive with repurchases and increases the odds it will come to market this year. The strong balance sheet and durability of its highly cash generative Family of Apps business are supportive in the medium-term although competition and regulation remain long-term concerns.
Business Description
AS OF 16 Mar 2023- Meta Platforms is the largest social networking company in the world. Meta generates substantially all of its revenue from advertising on Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications.
- In 4Q22, Family of Apps was 98% of revenue (97.2% from advertising and 0.6% from other) and Reality Labs was 2% of revenue. Reality Labs generated $13.7 bn in operating losses during LTM 4Q22 as the company is investing heavily in the metaverse.
- Total MAUs and DAUs are 2,963 mn and 2,000 mn respectively at 4Q22. While US & Canada have the lowest number of users, they generate higher revenue than other regions given significantly higher ARPU. Revenue is 49% from US & Canada, 22% from Europe, 19% from Asia Pacific, and 11% from Rest of World.
- Meta is headquartered in Menlo Park, California. Employee headcount was 86.5k at 4Q22.
Risk & Catalysts
AS OF 16 Mar 2023- In December 2020, the FTC filed a lawsuit against Meta targeting its acquisitions of Instagram and Whatsapp. If Meta is forced to unwind prior acquisitions, this would be a credit negative given reduced scale and diversification.
- Meta’s Facebook and Instagram are uniquely exposed to rising competition from TikTok and other social media platforms. Meta is seeking to emulate TikTok’s success with its own short-from video product Reels. The US has again threatened to ban TikTok unless its Chinese owners divest its stake.
- Meta’s business model relies almost entirely on user-generated content. As such, there are risks related to customer privacy (e.g., Cambridge Analytica data scandal in 2018) and regulatory scrutiny.
- In October 2022, activist Altimeter Capital wrote a letter to Zuck and Board although we think it was on the friendly-side of activism and some suggestions have already been implemented.
Key Metrics
AS OF 16 Mar 2023| $ mn | 2018 | 2019 | 2020 | 2021 | LTM 4Q22 |
|---|---|---|---|---|---|
| Revenue YoY % | 37.4% | 26.6% | 21.6% | 37.2% | (1.1%) |
| EBITDA | 33,380 | 34,562 | 46,069 | 63,882 | 49,622 |
| EBITDA Margin | 59.8% | 48.9% | 53.6% | 54.2% | 42.6% |
| CapEx % of Sales | 25.0% | 22.1% | 18.3% | 16.3% | 27.5% |
| Sh. Ret. % of CFO-CapEx | 84% | 20% | 27% | 116% | 152% |
| Net Debt | (41,114) | (54,855) | (61,954) | (47,998) | (30,815) |
| Gross Leverage | 0.0x | 0.0x | 0.0x | 0.0x | 0.2x |
| EV / EBITDA | 10.1x | 15.5x | 15.8x | 14.0x | 5.8x |
CreditSights View
AS OF 22 May 2023We came away from Meta’s 1Q23 results with increased confidence since advertising revenue is seeing a much sharper acceleration in growth than expected. We expect meaningful EBITDA growth in 2024 given improving revenue, tightly managed expenses given the layoffs and facilities consolidation, and lapping of $3-5 bn restructuring costs. Meta has $28 bn net cash at 1Q23, although we expect a significant decline in net cash as shareholder returns exceed FCF through year-end 2023. We estimate gross leverage of 0.4x pro forma for the recent $8.5 bn bond deal. Meta previously commented it will periodically access the debt markets although maintain positive or neutral net cash over time.
Recommendation Reviewed: May 22, 2023
Recommendation Changed: August 04, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India