Sector: Technology
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Fundamental View
AS OF 07 Jan 2025We maintain our Market perform recommendation on JD post its 3Q24 results; the company’s topline growth and margin improved but FOCF turned negative due to higher inventory investment; net cash shrunk while gross debt metrics were flat compared to 2Q24. We expect JD’s credit profile to marginally improve in FY25, which we view as largely priced in. The better debt metrics may be driven by its Home Appliance Trade-In Alliance program which supports topline growth and a continued expansion of the higher-margin 3P sales may result in better EBITDA margin; we expect JD to cover its increased shareholder rewards with FOCF. JD’s $ bonds trade inside A- rated Asian corporates, which we view as fair given its large scale and net cash position. We continue to prefer BABA and TENCNT.
Business Description
AS OF 07 Jan 2025- JD is one of China's leading e-commerce and retail infrastructure service providers.
- JD has a large fulfillment infrastructure which includes over 1,600 warehouses operated by the company, and 2,000 cloud warehouses operated by third-party warehouse owner-operators under JD Logistics Open Warehouse Platform. Its warehouse network had an aggregate gross floor area of approximately over 32 mn square meters, as of 31 December 2023.
- JD has 3 operating segments, namely (1) JD Retail (86% of 3Q24 revenues), which includes JD Health and JD Industrials, and the segment mainly engages in online retail, online marketplace and marketing services in China; (2) JD Logistics (17%) which includes both internal and external logistic businesses; and (3) New businesses (2%) which consist of Dada, JD Property, Jingxi and overseas businesses.
- JD had a market capitalization of RMB 484.0 bn as of 10 December 2024.
Risk & Catalysts
AS OF 07 Jan 2025While Chinese regulators have adopted a friendlier stance towards tech companies, any regulatory clampdowns may still adversely affect the business of JD (e.g. antitrust rules, data security & personal data protection laws).
Intensifying competition amongst Chinese eCommerce platforms with the entrance of new live-streaming/short-form video platforms and group buying discount platforms may result in slower topline growth and weaker EBITDA margin for JD as its increase its user/merchant incentives and promotional activities to defend its market share.
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.
Key Metric
AS OF 07 Jan 2025RMB mn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
---|---|---|---|---|---|
Debt to Book Cap | 12.5% | 12.2% | 19.2% | 18.8% | 22.9% |
Debt/Total Equity | 14.2% | 13.8% | 23.7% | 23.1% | 29.7% |
Debt/Total Assets | 7.5% | 6.9% | 10.9% | 10.9% | 13.7% |
Gross Leverage | 1.4x | 1.8x | 1.9x | 1.5x | 1.7x |
Interest Coverage | 20.1x | 16.1x | 16.3x | 15.5x | 17.8x |
EBITDA Margin | 3.0% | 2.0% | 3.3% | 4.1% | 4.6% |
CreditSight View Comment
AS OF 15 Nov 2024We maintain our Market perform recommendation on JD (A3/A-/NR) post its 3Q24 results; the company’s topline growth and margin improved but FOCF turned negative due to higher inventory investment; net cash shrunk while gross debt metrics were flat compared to 2Q24. We expect JD’s credit profile to marginally improve in FY25, which we view as largely priced in. The better debt metrics may be driven by its Home Appliance Trade-In Alliance program which supports topline growth and a continued expansion of the higher-margin 3P sales may result in better EBITDA margin; we expect JD to cover its increased shareholder rewards with FOCF. JD’s $ bonds trade inside A- rated Asian corporates, which we view as fair given its large scale and net cash position. We continue to prefer Alibaba and Tencent.
Recommendation Reviewed: November 15, 2024
Recommendation Changed: November 21, 2022
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Fundamental View
AS OF 06 Jan 2025We maintain M/P on Baidu post its 3Q24 results; revenues contracted as expected, with adverting and iQiyi revenues continuing to decline; EBITDA margin trended up on disciplined R&D expenses, and FOCF weakened on higher working capital investments; Baidu’s net cash contracted due to higher investments, but gross debt metrics improved. We expect Baidu’s credit metrics to marginally improve over the next 12 months; we expect topline growth to pick up as advertising revenues gradually recover and AI cloud revenues remains strong, and EBITDA margin to trend up; we expect FOCF to narrow due to higher working capital investments, but debt metrics to improve. The better credit outlook is likely priced in as Baidu trades inside Asia A and A- corporates. We prefer Alibaba and Tencent.
Business Description
AS OF 10 Dec 2024- Founded in 2000, Baidu started out as a search engine business and began its development into artificial intelligent (AI) since 2010.
- Baidu Core is the main revenue driver of the company (79% of 3Q24 revenues) which provides search-based, feed-based and other online marketing services (total: 56% of 3Q24 revenues), as well as products and services from new AI initiatives (23% of revenues); Baidu's AI initiatives include AI cloud (enterprise & public sector cloud, and personal cloud), Intelligent Group Driving (Apollo Go, Apollo auto solutions, and intelligent EVs under Jidu Auto), Mobile Ecosystem (Baidu App, ERNIE Bot, Haokan and Baidu Post), and other growth initiatives (ie. Xiaodu smart devices powered by DuerOS smart assistant and AI chips).
- iQiyi accounts for the remaining revenues of Baidu; iQIYI is an online video platform with a content library that includes licensed movies, television series, cartoons, and other programs.
- Baidu launched ERNIE bot in Mar-23, a generative AI chatbot powered by ERNIE, Baidu's in-house foundation model.
- Baidu has a market capitalization of RMB 236.3 bn as of 10 December 2024.
Risk & Catalysts
AS OF 10 Dec 2024Any 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 Metric
AS OF 10 Dec 2024RMB bn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
---|---|---|---|---|---|
Debt to Book Cap | 30.4% | 29.7% | 28.5% | 25.0% | 22.3% |
Debt/Total Equity | 43.8% | 42.2% | 39.8% | 33.4% | 28.7% |
Debt/Total Assets | 24.8% | 24.1% | 23.4% | 20.8% | 18.5% |
Gross Leverage | 2.7x | 3.3x | 2.8x | 2.2x | 1.9x |
Interest Coverage | 9.8x | 8.2x | 11.4x | 12.1x | 13.4x |
EBITDA Margin | 28.5% | 22.6% | 26.8% | 29.2% | 29.7% |
CreditSight View Comment
AS OF 22 Nov 2024We maintain M/P on Baidu (A3/NR/A) post its 3Q24 results; revenues contracted as expected, with adverting and iQiyi revenues continuing to decline; EBITDA margin trended up on disciplined R&D expenses, and FOCF weakened on higher working capital investments; Baidu’s net cash contracted due to higher investments, but gross debt metrics improved. We expect Baidu’s credit metrics to marginally improve over the next 12 months; we expect topline growth to pick up as advertising revenues gradually recover and AI cloud revenues remains strong, and EBITDA margin to trend up; we expect FOCF to narrow due to higher working capital investments, but debt metrics to improve. The better credit outlook is likely priced in as Baidu trades in Asia A and A- corporates. We prefer Alibaba and Tencent.
Recommendation Reviewed: November 22, 2024
Recommendation Changed: August 31, 2022
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Fundamental View
AS OF 14 Nov 2024Globe’s FY23 earnings and 9M24 earnings grew modestly, but leverage metrics have not yet improved due to a weak broadband business, sticky dividends, and still-historically high capex (even if lower YoY).
We believe credit metrics may improve only slightly in FY24 as modest EBITDA growth, lower YoY capex, and PHP 11 bn of residual tower sales closures through 2H24 are negated by potentially higher dividend payouts.
While we acknowledge the competitive pressures by new entrant DITO, we think the impact is mitigated by Globe’s still-dominant mobile market position and DITO’s slowing expansion (given its weak financials and the costly capex involved).
Weakness in the broadband business could decelerate and improve from 3Q24 onwards.
Business Description
AS OF 14 Nov 2024- 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 (FY22 revenue market share [RMS] of 52% vs PLDT 40%), but loses out to PLDT in the home broadband space (FY22 RMS of 28%-30% vs PLDT 48%-50%).
- Globe is largely owned by two established corporate groups – Ayala Corporation (~47 stake) and Singtel (~43% stake).
Risk & Catalysts
AS OF 14 Nov 2024Globe faces mounting competitive pressures from new mobile entrant DITO and incumbent broadband competitor PLDT.
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, capex should meaningfully decline ahead in line with management guidance (FY24E capex ~22% YoY lower than FY23A capex).
Consistent dividend payouts could worsen Globe’s already negative free cash flows; Globe recently raised the upper end of its dividend policy from 75% to 90% of net income, suggesting an increased skew to shareholder-friendly actions.
Key Metric
AS OF 14 Nov 2024PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
---|---|---|---|---|---|
Debt to Book Cap | 69.4% | 67.5% | 69.7% | 69.1% | 69.5% |
Net Debt to Book Cap | 63.0% | 63.7% | 66.6% | 66.0% | 65.4% |
Debt/Total Equity | 227.2% | 208.1% | 230.5% | 223.2% | 227.4% |
Debt/Total Assets | 56.7% | 57.1% | 60.3% | 58.1% | 61.1% |
Gross Leverage | 3.3x | 3.9x | 4.3x | 4.3x | 4.3x |
Net Leverage | 3.0x | 3.7x | 4.1x | 4.1x | 4.1x |
Interest Coverage | 7.6x | 5.9x | 4.6x | 4.6x | 4.3x |
EBITDA Margin | 46.7% | 46.7% | 47.7% | 48.2% | 49.0% |
CreditSight View Comment
AS OF 14 Nov 2024We have a Market perform recommendation on Globe. Globe 2030 trades slightly tight to PLDT 2031 and ICTSI 2031, while Globe 2035 and c.2026 trade more fairly. We expect Globe to improve its net leverage by only slightly in FY24 as lower capex and residual ~PHP 11 bn of tower sales closures are offset by a continued weak broadband business and sticky dividends. Stiff competition in both the mobile and broadband spaces is a key concern too. Globe also recently revised its dividend policy to 60%-90% of PAT from 60%-75% previously, suggesting an increased skew towards shareholder-friendly actions.
Recommendation Reviewed: November 14, 2024
Recommendation Changed: June 18, 2024
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Fundamental View
AS OF 13 Nov 2024PLDT’s FY23 and 1H24 results were stable as expected; we see a modestly improving FY24 credit outlook aided by resilient EBITDA growth and residual PHP 14 bn of tower sales, which could offset persisting high capex and dividends.
A potential stake sale of the data center business could drive further deleveraging.
While the spillover of a PHP 33 bn capex overrun to FY24-FY25 could weigh on free cash flows, we draw mild comfort that it was likely not due to fraud but rather a management misstep.
Business Description
AS OF 13 Nov 2024- 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 13 Nov 2024Aggressive 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 (though these have eased in recent months).
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 Metric
AS OF 13 Nov 2024PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
---|---|---|---|---|---|
Debt to Book Cap | 68.3% | 71.9% | 73.3% | 72.9% | 74.1% |
Net Debt to Book Cap | 62.3% | 65.7% | 69.3% | 68.0% | 71.3% |
Debt/Total Equity | 215.2% | 256.2% | 273.9% | 269.6% | 286.2% |
Debt/Total Assets | 43.8% | 46.8% | 49.6% | 50.0% | 52.1% |
Gross Leverage | 2.8x | 2.9x | 2.9x | 3.0x | 3.0x |
Net Leverage | 2.6x | 2.7x | 2.8x | 2.8x | 2.9x |
Interest Coverage | 8.1x | 7.4x | 6.5x | 6.9x | 6.2x |
EBITDA Margin | 50.7% | 48.7% | 49.1% | 52.2% | 51.8% |
CreditSight View Comment
AS OF 13 Nov 2024We have a Market perform recommendation on PLDT. PLDT 2031 trades fairly to Globe 2030, Axiata 2030, and Bharti 2031. We do not like the PLDT 2050 that provides a low spread pickup of just 13 bp wider versus the PLDT 2030. We are comfortable with PLDT’s sturdy credit profile aided by a resilient broadband business and tower sales (PHP 15.3 bn to close in FY24), cushioning high capex and dividends. A minority stake sale of its data center business is also credit positive. Corporate governance fears have also eased post its capex overrun in end-2022. We are watchful of strong competition in the mobile space due to DITO’s ramp up.
Recommendation Reviewed: November 13, 2024
Recommendation Changed: May 31, 2022
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Fundamental View
AS OF 30 Dec 2024Meta has extremely strong credit metrics of 0.3x gross leverage (pro forma for $10.5 bn bond deal) and $40 bn net cash. We are encouraged by Meta’s strong advertising growth relative to peers. However, Meta is going through a heavy investment cycle for both AI and the metaverse.
We continue to expect Meta to be a regular/annual issuer to fund its shareholder returns and massive investments. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance. Meta has legal and regulatory risks notably an FTC suit that seeks to unwind its prior acquisitions of Instagram and WhatsApp.
Business Description
AS OF 13 Aug 2024- Meta Platforms is the largest social networking company in the world. Meta generates substantially all of its revenue from advertising which includes Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications.
- In 2Q24, Family of Apps was 99% of revenue (98.1% from advertising and 0.9% from other) and Reality Labs was 1% of revenue. Reality Labs generated $16.7 bn in operating losses during LTM 2Q24 as the company is investing heavily in the metaverse.
- There are 3.27 bn Family Daily Active People (DAP) as of 2Q24, and the Family Average Revenue per Person (ARPP) was $11.89 quarterly in 2Q24. While US & Canada have the lowest number of users, they generate higher revenue than other regions given significantly higher ARPU. Revenue was 43% from US & Canada, 24% from Europe, 20% from Asia Pacific, and 13% from Rest of World in 2Q24.
- Meta is headquartered in Menlo Park, California. Employee headcount was 70.8k at 2Q24.
Risk & Catalysts
AS OF 13 Aug 2024- In December 2020, the FTC filed a lawsuit against Meta targeting its acquisitions of Instagram and Whatsapp. If Meta is forced to unwind prior acquisitions, this would be a credit negative given reduced scale and diversification.
- Meta’s business model relies almost entirely on user-generated content. As such, there are risks related to customer privacy (e.g., Cambridge Analytica data scandal in 2018) and regulatory changes (e.g., Section 230 protections).
- In April 2024, the US signed into law a bill requiring a sale or ban of TikTok, although we expect legal challenges. If a ban is implemented, this would positively impact Meta and others with competing short-form video products.
- In October 2022, activist Altimeter Capital wrote a letter to Zuck and Board although it was on the friendly-side of activism and some suggestions have already been implemented.
Key Metric
AS OF 13 Aug 2024$ mn | 2020 | 2021 | 2022 | 2023 | LTM 2Q24 |
---|---|---|---|---|---|
Revenue YoY % | 21.6% | 37.2% | (1.1%) | 15.7% | 24.3% |
EBITDA | 46,069 | 63,882 | 49,622 | 71,955 | 86,932 |
EBITDA Margin | 53.6% | 54.2% | 42.6% | 53.3% | 58.0% |
CapEx % of Sales | 18.3% | 16.3% | 27.5% | 20.8% | 19.9% |
Sh. Ret. % of CFO-CapEx | 27% | 116% | 152% | 46% | 69% |
Net Debt | (61,954) | (47,998) | (30,815) | (47,018) | (39,691) |
Gross Leverage | 0.0x | 0.0x | 0.2x | 0.3x | 0.2x |
EV / EBITDA | 15.8x | 14.0x | 5.8x | 12.3x | 14.7x |
CreditSight View Comment
AS OF 30 Jan 2025We are encouraged by Meta’s strong advertising growth relative to peers in 2023 and 2024. Meta has extremely strong credit metrics of 0.3x gross leverage and $49 bn net cash. We continue to expect Meta to be a regular/annual issuer to fund its shareholder returns and massive investments in AI and the metaverse. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance. Meta does have legal and regulatory risks notably an FTC suit that seeks to unwind its prior acquisitions of Instagram and WhatsApp. However, not all event risk is negative as Meta would be the greatest beneficiary from a potential TikTok ban.
Recommendation Reviewed: January 30, 2025
Recommendation Changed: April 18, 2024
Who We Recommend
UBS
Reliance Industries
Security Bank

