4 December 2023 | 8:15PM HKT
APAC Conviction List
Directors’ Cut Launch
Michael Snaith
+852-2978-0455 |
michael.snaith@gs.com
Goldman Sachs (Asia) L.L.C.
Joy Nguyen
We introduce a new investment list highlighting a selection of fundamental
Buy-rated Asia-Pacific stocks across the Goldman Sachs Global Investment Research
department. This new “APAC Conviction List – Directors’ Cut” is designed to
provide investors with a curated and active list of 20-30 stocks of what we believe to
be differentiated fundamental Buy ideas across our Asia-Pacific stock coverage. We
intend to refresh and publish this list monthly in an easily digestible format that
focuses on 1) the analyst’s core investment thesis, 2) key debates and where we are
different, 3) upcoming catalysts, and 4) financials/valuation.
Please see inside for write-ups on the inaugural list of 25 stocks.
Matthew Ross
+61(3)9679-1616 |
matthew.ross@gs.com
Goldman Sachs Australia Pty Ltd
Andrew Lyons
+61(2)9321-8543 |
andrew.lyons@gs.com
Goldman Sachs Australia Pty Ltd
Daiki Takayama
+81(3)6437-9870 |
daiki.takayama@gs.com
Goldman Sachs Japan Co., Ltd.
Sho Kawano
+81(3)6437-9905 | sho.kawano@gs.com
Goldman Sachs Japan Co., Ltd.
Caleb Chan
+852-2978-0790 | caleb.chan@gs.com
Goldman Sachs (Asia) L.L.C.
2e83ab6fea424dc8a1b6a8a7e94c6547
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+852-2978-1106 | joy.nguyen@gs.com
Goldman Sachs (Asia) L.L.C.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Goldman Sachs
APAC Conviction List
How is this list constructed?
5
Regional Macro Challenges, Thematic Tailwinds
6
Anatomy of the List
8
Our 25 Differentiated Buy Recommendations
10
Asics - Brand strength driving channel and mix improvement
11
GCPL - Turnaround accelerating, top-tier domestic growth
14
Shenzhou International - The coming restocking cycle
17
Woolworths Group - Omni-channel leader extending share gains
20
AIA Group - Margin expectations too bearish
23
HDFC Bank - Synergies to drive substantial market share gains
26
MUFG - Rates and reform driven upside
29
Oversea-Chinese Banking Corp - Shareholder returns inflection
32
China Medical System - A new product cycle ahead
35
CSL - Compelling entry point while ROIC & earnings growth inflect
38
Shionogi - Emergence of sustainable earnings drivers
41
Sanhua Intelligent Controls - Global leader in HVAC/EV thermal components, further upside in
Humanoid Robots
44
SMC - Cycle improvement to drive above-consensus earnings
47
Kuaishou Technology - Growth and monetization opportunity as a competitive SFV platform
50
PDD Holdings - Temu taking shape
53
Sony Group - Pivot towards software and content to drive higher growth
56
Suzuki Motor - Pipeline, price, and payout to drive valuation gap closure
59
Baoshan Iron & Steel - Consolidator, mix upgrade and margin upside
62
Lynas Rare Earths - Attractive positioning, expansion projects and valuation
65
Foxconn Industrial Internet - Margin expansion driven upside
68
Hitachi - Geared for next phase of growth
71
Renesas - High quality, cycle bottom, undervalued
74
SK Hynix - Sustaining lead into next generation memory
77
4 December 2023
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Table of Contents
2
Goldman Sachs
APAC Conviction List
80
H World Group - Multiple ways to win
83
Appendix 1: Relevant research for themes
86
Price Target, Risks and Methodology
88
Disclosure Appendix
90
2e83ab6fea424dc8a1b6a8a7e94c6547
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TSMC - Structural trends support long-term growth opportunity
4 December 2023
3
Goldman Sachs
APAC Conviction List
Exhibit 1: APAC Conviction List - Directors’ Cut
All price targets are on a 12-month basis; all prices are in LCY as of close on Dec 1, 2023
Company Name
Consumer
7936.T
Asics Corp.
GOCP.BO
Godrej Consumer Products Ltd.
2313.HK
Shenzhou International Group
WOW.AX
Woolworths Group
Financials
1299.HK
AIA Group
HDBK.BO
HDFC Bank
8306.T
MUFG
OCBC.SI
Oversea-Chinese Banking Corp.
Healthcare
0867.HK
China Medical System Holdings
CSL.AX
CSL Ltd.
4507.T
Shionogi & Co.
Industrials
002050.SZ
Sanhua Intelligent Controls
6273.T
SMC
Internet
1024.HK
Kuaishou Technology
PDD
PDD Holdings
6758.T
Sony Group
Autos
7269.T
Suzuki Motor
Natural Resources & Clean Tech
600019.SS
Baoshan Iron & Steel
LYC.AX
Lynas Rare Earths Ltd.
Technology
601138.SS
Foxconn Industrial Internet
6501.T
Hitachi
6723.T
Renesas Electronics
000660.KS
SK Hynix Inc.
2330.TW
TSMC
Travel & Leisure
H World Group
HTHT
Market cap
($, mn)
Last Close Target price
12m Total Return
Upside to
Fwd Div Potential
12m PT
Yield
(12m)
GS vs.
Cons*
Analyst
Market /
Exchange
6,488
12,586
15,205
27,840
5,238
1025.60
79.05
34.56
6,200
1,185
98
42.40
18%
16%
24%
23%
1%
2%
3%
3%
20%
17%
27%
26%
-1%
4%
-1%
1%
Sho Kawano
Arnab Mitra
Michelle Cheng
Lisa Deng
Japan
India
China H
Australia
98,808
141,585
103,680
42,686
66.85
1555.50
1,273
12.64
97
2,002
1,520
15.50
45%
29%
19%
23%
3%
2%
3%
7%
48%
30%
23%
30%
3%
3%
-3%
3%
Thomas Wang
Rahul Jain
Makoto Kuroda
Melissa Kuang, CFA
Hong Kong
India
Japan
ASEAN
4,744
84,142
14,032
15
262.86
7,040
18.88
309
8,750
26%
18%
24%
4%
2%
2%
30%
19%
26%
2%
2%
22%
Ziyi Chen
Chris Cooper, CFA
Akinori Ueda, Ph.D.
China H
Australia
Japan
14,300
32,329
28.49
74,010
38
103,000
33%
39%
1%
1%
35%
41%
5%
11%
Jacqueline Du
Yuichiro Isayama
China A
Japan
31,553
200,918
105,646
57.20
145.27
12,720
88
176
16,000
54%
21%
26%
0%
1%
54%
21%
27%
4%
16%
4%
Lincoln Kong, CFA
Ronald Keung, CFA
Minami Munakata
China H
China ADR
Japan
22,862
6,058
7,900
30%
3%
33%
5%
Kota Yuzawa
Japan
19,487
3,935
6.25
6.35
8.20
7.50
31%
18%
6%
0%
37%
18%
15%
2%
Trina Chen
Paul Young
China A
Australia
42,075
68,413
32,027
71,695
477,125
15.15
10,455
2562.50
132,600
579
31.61
12,300
3,300
170,000
725
109%
18%
29%
28%
25%
6%
2%
2%
1%
3%
115%
19%
30%
30%
28%
22%
3%
10%
7%
7%
Verena Jeng
Ryo Harada
Daiki Takayama
Giuni Lee
Bruce Lu
China A
Japan
Japan
South Korea
Taiwan
11,506
36.10
52.70
46%
2%
48%
12%
Simon Cheung, CFA
China ADR
FY2 EPS: GOCP.BO, WOW.AX, HDBK.BO, OCBC.SI, 4507.T, 002050.SZ, 1024.HK, 600019.SS, 601138.SS, 6501.T, 6723.T, 2330.TW, HTHT
FY2 OP: 1299.HK, 6273.T, 6758.T, 7269.T, 000660.KS ; FY2 Sales: 7936.T, 2313.HK, 8306.T, CSL.AX, LYC.AX ; FY3 EPS: 0867.HK, PDD
Notes: TSMC ADR price target is US$115 (Dec 1 close: US$98.55); H World Group China-H price target is HK$41.60 (Dec 1 close: HK$28)
Source: Goldman Sachs Global Investment Research, Bloomberg
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Ticker
4 December 2023
4
Goldman Sachs
APAC Conviction List
How is this list constructed?
A subcommittee designated by the Asia-Pacific Investment Review Committee will
select stocks for the “APAC Conviction List – Directors’ Cut” from the Buy
recommendations of Asia-Pacific stocks. The subcommittee will collaborate with each
sector analyst to identify top ideas that offer a combination of conviction, a differentiated
view and high risk-adjusted returns. The subcommittee will then choose what they view
as the top 20-30 ideas across the department for the list.
For the exclusive use of MATTHEW.X.WONG@GS.COM
We intend to refresh and publish the list monthly. Any new names added to the
APAC Conviction List – Directors’ Cut will include a concise description detailing the key
drivers of the analyst’s Buy thesis, with a focus on where these views are different and
relevant market debates, as well as links to their recent reports. All additions to the list
will be captured in this monthly note. Removals (discussed below) may occur
intra-month should a material event occur that requires an adjustment to the list.
Reasons for removal can include (but are not limited to) analysts no longer having
conviction in their idea (e.g. a downgrade), price realisation, the passage of catalysts or
the subcommittee believing there are better opportunities elsewhere. In short, names
will be removed if this committee determines a name is no longer a top investment idea
across our coverage.
Additional information. This list should not be seen as a portfolio, as we will not
attempt to weight the included stocks or ensure diversification across our stock
coverage. Inclusion on this list is not a stock rating and addition to, or removal from, this
list does not necessarily represent a change in the analyst’s investment rating for such
stock.
2e83ab6fea424dc8a1b6a8a7e94c6547
Visit the Conviction List portal page here: Regional Conviction Lists.
4 December 2023
5
Goldman Sachs
APAC Conviction List
Regional Macro Challenges, Thematic Tailwinds
In his 2024 Asia Strategy Outlook (link), Chief Asia Strategist Timothy Moe argues for
the challenging macro backdrop to extend into next year, characterized by slower
growth, elevated interest rates, a strong dollar, political and geopolitical uncertainty and
China’s growth headwinds. Given his expectation of modest index level returns, we
would highlight a collection of themes that cut across our Asia-Pacific stock coverage,
creating investment opportunities and longer-term tailwinds.
See Appendix 1 for relevant research on the below themes.
China in Transition
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China’s complex macro challenges put downward pressure on the aggregate growth
outlook, placing it at the crossroads of supply chain restructuring trends, and driving
unprecedented changes to the outlook for many sectors. The overarching aim of the
government is to shift the composition of growth to more sustainable drivers, to raise
productivity, and to enhance technological competitiveness. Our analysts favor sectors
with global import reliance where self-sufficiency remains the goal, and those that
remain resilient exporters. In the meantime, focus is on the opportunities coming from
new capex, infrastructure and the supply chain beneficiaries. Our analysts believe China
will have to develop its internal production capability on foundational technologies,
specialized equipment, machine tools, and components, and select industrial and
manufacturing sectors if it is to achieve the government’s strategic objectives and
priorities.
Impacted CL stocks: Sanhua Intelligent Controls, Baoshan Iron & Steel, SMC, Lynas
Rare Earths, Shenzhou International
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China Consumption
With China’s economy transitioning, and the risk of a deeper/longer property price
decline cycle, our analysts believe Chinese consumers will ratoinalize their spending
going into 2024, implying a sustainable shift to value-focus. Compared to pre-pandemic
times, our analysts forecast consumption growth to decelerate from +10% in 2016-19
and +8.8% in 2023E, supported by a reopening boost, to +7% next year in nominal
terms. Within that, services consumption growth is expected to be more resilient and
outpace at +9.2% in 2024E (vs. total key goods growth of +6%). In terms of key
fundamental and share price drivers in 2024, our Greater China Consumer, Asia Travel &
Leisure, and China Internet teams concurrently highlight two key themes – value focus
and growing global presence.
Impacted CL stocks: PDD Holdings, Kuaishou Technology, Shenzhou International, H
World Group, Asics
4 December 2023
6
Goldman Sachs
APAC Conviction List
Japan Value in Action
The Tokyo Stock Exchange (TSE) corporate governance reform initiatives, which look to
promote substantive and sustained ROE improvement that would lead to higher P/Bs
for the whole market, have been a game-changer for Japanese equities since January
2023. Our Chief Japan Strategist Bruce Kirk expects continued TSE pressure on
corporates to respond to its requests will lead to further acceleration in corporate
governance-related activity amongst listed Japanese companies in 2024. With the TSE
having announced plans to publish a list of companies that have responded to its
requests starting from January 2024, both our strategists and equity analysts believe
there would be significant near-term pressure on the management teams who have yet
to respond to do so.
Impacted CL stocks: Hitachi, MUFG, Suzuki Motor, Renesas
CHIPS Act & Generative AI
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Our analysts believe the rebuilding of semiconductor supply chains driven by the US
CHIPS Act will drive opportunities for Japan, Korea and Taiwan semiconductor
companies as the supply chain relocates. Meanwhile, with TSMC guiding for a 50% AI
revenue CAGR from 2022 to 2027, our analysts believe AI is at the early stage of rapid
market expansion and remain positive on the related value chains as the next big thing
for Asia technology. They classify companies as either Enablers (that make generative AI
possible) or Empowered Entities (that leverage generative AI to grow stronger), and
subdivide the former into Public cloud hyperscalers, AI servers, Telecom operators,
Networking equipment, Models (LLM developers), Semi/Semi-related, and Other (other
hardware), and the latter into Content generation, Gaming, Automation, and Corporate
productivity.
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Impacted CL stocks: SK Hynix, TSMC, Foxconn Industrial Internet
Make in India
Global geopolitics and supply-chain disruptions have brought two critical issues to the
fore for India’s policymakers: (1) Energy security, and (2) over-reliance on imports. The
government’s US$33bn Production-Linked-Incentive (PLI) schemes aim to boost India’s
energy transition, reduce imports, and eventually help India become a global
manufacturing hub. PLI schemes have committed to capex investments of US$58bn
over the next five years (and US$34bn ex-Semiconductor PLI), with over 660 entities
(both Indian and global) having received approvals for participation. Our analysts
highlight the themes of ‘Energy Transition’, ‘Import Substitution’ and ‘Enablers’, and
given the implications to the broader region, are focused on the opportunities for
Greater China Technology companies and footwear OEMs’ supply chain migration into
India.
Impacted CL stocks: HDFC Bank, Foxconn Industrial Internet
4 December 2023
7
Goldman Sachs
APAC Conviction List
Anatomy of the List
Source: Goldman Sachs Global Investment Research
Exhibit 3: APAC Conviction List - Valuation Table
Ticker
Company Name
YTD Perf
vs.
MXAP
GROWTH
Sales EBITDA EPS
FCF
FY2
Growth Growth Growth Growth
Year
FY2
FY2
FY2
FY2
PE
FY2
VALUATION
EV/
FCF
P/B
EBITDA yield
FY1
FY2
FY2
PROFITABILITY
EBITDA EBITDA
ROE
Margin Margin
CY24
FY1
FY2
LEVERAGE
Net debt/ Net debt/
EBITDA EBITDA
FY1
FY2
Consumer
7936.T
GOCP.BO
2313.HK
WOW.AX
Asics Corp.
Godrej Consumer Products Ltd.
Shenzhou International Group
Woolworths Group
76%
13%
-14%
-1%
24
25
24
25
6%
11%
17%
4%
10%
17%
33%
4%
18%
24%
24%
10%
341%
11%
-67%
17%
28.2x
41.4x
19.7x
21.2x
4.6x
7.0x
3.0x
5.4x
12.2x
30.2x
13.3x
6.9x
3%
2%
2%
4%
12.5%
20.8%
21.1%
9.0%
13.0%
21.8%
24.0%
9.0%
17%
17%
16%
27%
0.3x
0.7x
-2.1x
2.4x
0.1x
0.4x
-1.5x
2.2x
AIA Group
HDFC Bank
MUFG
Oversea-Chinese Banking Corp.
-27%
-8%
39%
0%
24
25
25
24
8%
24%
1%
2%
-
45%
32%
4%
3%
-
14.3x
14.9x
11.0x
7.7x
2.3x
2.4x
0.8x
1.0x
-
-
-
-
17%
17%
7%
14%
-
-
China Medical System Holdings
CSL Ltd.
Shionogi & Co.
18%
-13%
3%
24
25
25
6%
9%
-7%
3%
11%
-1%
6%
15%
0%
-1%
11%
4%
9.8x 1.8x
27.5x 4.4x
11.4x 1.6x
7.4x
16.8x
6.6x
8%
4%
10%
42.2%
32.8%
42.2%
40.8%
33.5%
44.7%
20%
17%
15%
-1.1x
1.9x
-3.3x
-1.4x
1.4x
-4.2x
Sanhua Intelligent Controls
SMC
30%
29%
24
25
24%
18%
25%
21%
34%
8%
519%
-53%
25.4x 5.7x
22.0x 2.5x
18.5x
12.5x
1%
2%
16.8%
33.1%
16.9%
34.0%
24%
12%
0.2x
-2.6x
0.1x
-2.0x
Kuaishou Technology
PDD Holdings
Sony Group
-23%
74%
23%
24
24
25
16%
43%
7%
47%
38%
11%
68%
28%
18%
83%
17%
4%
15.4x 3.7x
20.8x 6.2x
14.9x 1.8x
6.8x
14.2x
6.6x
7%
7%
9%
15.7%
24.8%
17.7%
19.9%
24.0%
18.4%
20%
30%
12%
-1.0x
-3.4x
0.6x
-1.3x
-3.6x
0.0x
Suzuki Motor
38%
25
4%
9%
11%
103%
9.2x
1.4x
3.8x
7%
12.6%
13.2%
16%
-1.8x
-1.7x
Baoshan Iron & Steel
Lynas Rare Earths Ltd.
8%
-23%
24
25
0%
120%
24%
171%
58%
178%
174%
119%
8.9x 0.7x
13.1x 2.1x
3.4x
8.5x
11%
2%
10.0%
39.8%
12.4%
49.0%
8%
13%
0.6x
-1.4x
0.1x
-0.6x
Foxconn Industrial Internet
Hitachi
Renesas Electronics
SK Hynix Inc.
TSMC
61%
52%
113%
73%
25%
24
25
24
24
24
14%
-3%
5%
55%
25%
43%
10%
9%
312%
32%
42%
13%
4%
181%
26%
61%
-32%
-11%
280%
481%
8.6x
15.7x
10.0x
14.0x
14.4x
1.9x
2.1x
1.7x
1.4x
3.6x
5.2x
7.8x
4.9x
4.5x
7.2x
18%
9%
8%
10%
7%
6.4%
13.8%
39.8%
17.3%
67.5%
8.0%
15.6%
41.3%
45.9%
71.1%
24%
14%
23%
11%
27%
-1.0x
0.4x
-0.3x
4.1x
-0.3x
-1.5x
0.4x
-0.7x
0.5x
-0.6x
-19%
24
10%
7%
7%
34%
18.5x 5.4x
10.2x
7%
32.4%
31.5%
32%
-0.3x
-0.8x
Financials
1299.HK
HDBK.BO
8306.T
OCBC.SI
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Exhibit 2: Anatomy of the List
Healthcare
0867.HK
CSL.AX
4507.T
Industrials
002050.SZ
6273.T
Internet
1024.HK
PDD
6758.T
Mobility
7269.T
Natural Resources & Clean Tech
600019.SS
LYC.AX
Technology
601138.SS
6501.T
6723.T
000660.KS
2330.TW
Travel & Leisure
HTHT
H World Group
Source: Bloomberg, Goldman Sachs Global Investment Research
4 December 2023
8
Goldman Sachs
APAC Conviction List
Exhibit 4: Regional exposure of the APAC Conviction List
Exhibit 5: Sector exposure of the APAC Conviction List
Companies by domicile (%)
Companies by GICS Level 1 Sector (%)
Singapore, 4%
Communication Services, 4%
South Korea, 4%
Materials, 8%
Consumer Staples,
8%
India, 8%
Mainland China,
32%
Consumer Discretionary,
24%
Australia, 12%
Greater China,
40%
Industrials, 12%
Information
Technology, 16%
Health Care, 12%
Japan, 32%
Hong
Kong, 4%
Financials, 16%
Source: Bloomberg, Goldman Sachs Global Investment Research
Source: Bloomberg, Goldman Sachs Global Investment Research
Exhibit 6: Upcoming Earnings Catalysts
Ticker
HDBK.BO
2330.TW
4507.T
GOCP.BO
6501.T
000660.KS
8306.T
7269.T
7936.T
6723.T
CSL.AX
6273.T
6758.T
WOW.AX
OCBC.SI
LYC.AX
1299.HK
601138.SS
0867.HK
PDD
HTHT
2313.HK
1024.HK
002050.SZ
600019.SS
Company Name
HDFC Bank
TSMC
Shionogi & Co.
Godrej Consumer Products Ltd.
Hitachi
SK Hynix Inc.
MUFG
Suzuki Motor
Asics Corp.
Renesas Electronics
CSL Ltd.
SMC
Sony Group
Woolworths Group
Oversea-Chinese Banking Corp.
Lynas Rare Earths Ltd.
AIA Group
Foxconn Industrial Internet
China Medical System Holdings
PDD Holdings
H World Group
Shenzhou International Group
Kuaishou Technology
Sanhua Intelligent Controls
Baoshan Iron & Steel
Date
1/12/2024
1/12/2024
1/30/2024
1/31/2024
2/1/2024
2/1/2024
2/2/2024
2/7/2024
2/9/2024
2/9/2024
2/14/2024
2/14/2024
2/14/2024
2/21/2024
2/23/2024
2/27/2024
3/11/2024
3/14/2024
3/18/2024
3/20/2024
3/27/2024
3/28/2024
4/2/2024
4/29/2024
4/29/2024
Event
2024 Q3 HDFC Bank Earnings Release
2023 Y TSMC Earnings Release
2024 Q3 Shionogi & Co. Earnings Release
2024 Q3 Godrej Consumer Products Ltd. Earnings Release
2024 Q3 Hitachi Earnings Release
2023 Y SK Hynix Inc. Earnings Release
2024 Q3 MUFG Earnings Release
2024 Q3 Suzuki Motor Earnings Release
2023 Y Asics Corp. Earnings Release
2023 Y Renesas Electronics Earnings Release
2024 S1 CSL Ltd. Earnings Release
2024 Q3 SMC Earnings Release
2024 Q3 Sony Group Earnings Release
2024 S1 Woolworths Group Earnings Release
2023 Y Oversea-Chinese Banking Corp. Earnings Release
2024 S1 Lynas Rare Earths Ltd. Earnings Release
2023 Y AIA Group Earnings Release
2023 Y Foxconn Industrial Internet Earnings Release
2023 Y China Medical System Holdings Earnings Release
2023 Q4 PDD Holdings Earnings Release
2023 Q4 H World Group Earnings Release
2023 Y Shenzhou International Group Earnings Release
2023 Y Kuaishou Technology Earnings Release
2023 Y Sanhua Intelligent Controls Earnings Release
2023 Y Baoshan Iron & Steel Earnings Release
Date
Dec-23
Mid-Jan 2024
Feb-24
3/3/2024
Apr-Jun 2024
May-24
Jul-24
Event
Stage gate conversation with Terumo (instructive for the pace of further rollout)
Analyst Meeting
Final dividend announcement
The 31st Conference on Retroviruses and Opportunistic Infections
Phase 2 study results for S-309309
Mid Term Plan Announcement
2024 Paris Summer Olympics
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Taiwan, 4%
Source: Bloomberg, Goldman Sachs Global Investment Research
Exhibit 7: Upcoming Non-Earnings Catalysts
Ticker
CSL.AX
2330.TW
OCBC.SI
4507.T
4507.T
8306.T
2313.HK
Company Name
CSL Ltd.
TSMC
Oversea-Chinese Banking Corp.
Shionogi & Co.
Shionogi & Co.
MUFG
Shenzhou International Group
Source: Company data, Goldman Sachs Global Investment Research
4 December 2023
9
Goldman Sachs
APAC Conviction List
Our 25 Differentiated Buy Recommendations
The company specific discussion in the sections below reflect the views of the covering
analyst.
Exhibit 8: APAC Conviction List - Directors’ Cut
Company Name
Summary
Brand strength driving channel and mix improvement
Turnaround accelerating, top tier domestic growth
The coming restocking cycle
Omni-channel leader extending share gains
Margin expectations too bearish
Synergies to drive substantial market share gains
Rates and reform driven upside
Shareholder returns inflection
A new product cycle ahead
Compelling entry point while ROIC & earnings growth inflect
Emergence of sustainable earnings driver
Global leader in HVAC/EV thermal components, further upside Humanoid Robots
Cycle improvement to drive above-consensus earnings
Growth and monetization opportunity as a competitive SFV platform
Temu taking shape
Pivot towards software and content to drive higher growth
Pipeline, price and payout to drive valuation gap closure
Consolidator, mix upgrade and margin upside
Attractive positioning, expansion projects and valuation
Margin expansion driven upside
Geared for next phase of growth
High quality, cycle bottom, undervalued
Sustaining lead into next generation memory
Structural trends support long-term growth opportunity
Multiple ways to win
Source: Goldman Sachs Global Investment Research
4 December 2023
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Ticker
Consumer
7936.T
Asics Corp.
GOCP.BO
GCPL
2313.HK
Shenzhou International Group
WOW.AX
Woolworths Group
Financials
1299.HK
AIA Group
HDBK.BO
HDFC Bank
8306.T
MUFG
OCBC.SI
OCBC
Healthcare
0867.HK
China Medical System
CSL.AX
CSL Ltd.
4507.T
Shionogi & Co.
Industrials
002050.SZ
Sanhua Intelligent Controls
6273.T
SMC
Internet
1024.HK
Kuaishou Technology
PDD
PDD Holdings
6758.T
Sony Group
Mobility
7269.T
Suzuki Motor
Natural Resources &Clean Tech
600019.SS
Baoshan Iron & Steel
LYC.AX
Lynas Rare Earths Ltd.
Technology
601138.SS
Foxconn Industrial Internet
6501.T
Hitachi
6723.T
Renesas Electronics
000660.KS
SK Hynix Inc.
2330.TW / TSM
TSMC
Travel & Leisure
HTHT / 1179.HK H World Group
10
Goldman Sachs
APAC Conviction List
Asics - Brand strength driving channel and mix improvement
Covered by Sho Kawano (sho.kawano@gs.com, +81 3 6437-9905)
7936.T
Buy
12m Price Target: ¥6200
Upside: 18.4%
GS Forecast
12/22
12/23E
12/24E
12/25E
Market cap: ¥958.0bn / $6.5bn Revenue (¥ bn)
484.6
573.0
607.5
657.0
Enterprise value: ¥978.2bn / $6.6bn Op. profit (¥ bn)
34.0
53.5
60.0
70.0
34.0
52.0
--
--
Japan EPS (¥)
108.6
157.2
185.6
218.9
Japan Retail/Restaurants P/E (X)
22.6
33.3
28.2
23.9
P/B (X)
3.0
5.1
4.6
4.1
1.6
1.1
1.3
1.5
3m ADTV :¥7.3bn/ $48.8mn Op. profit CoE (¥ bn)
M&A Rank: 3 Dividend yield (%)
Leases incl. in net debt & EV?: Yes N debt/EBITDA (ex lease,X)
CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Price: ¥5238
EPS (¥)
0.2
0.3
0.1
(0.1)
11.3
11.8
11.6
12.0
6/23
9/23
12/23E
--
46.3
84.5
(62.7)
--
Core thesis: Sho believes brand strength is improving in many regions and categories
on the back of its focus on performance running. The company’s ability to manage costs
has increased with the introduction of category-focused management. He believes it
can deliver sustained margin improvement in step with top-line growth, forecasting
2-year CAGRs of 7%/14% in Sales/OP. Focus is on three growth drivers: (1) the shift to
high-value-added products, (2) improvement in the regional/channel mix, and (3) Asics’
plans to keep annual production volume increases in check and curtail sales of
low-margin products. Investor concerns are around the risk of weak wholesale sales if
the inventory adjustment in the European footwear market persists through 1H12/24,
and potential for guidance to be cautious given the firm’s tendency to set conservative
targets. However, recent stock price trends suggest these concerns have been largely
priced in. Asics trades on EV/NOPAT of 19X FY25E, vs. 24X for the five global sports
brands despite its operating profit CAGR (FY22-FY25E) of +27% vs +18% for peers.
Key debates:
n
Inventory cycle: There is a glut of inventory across sports shoes markets in the
US/Europe, and orders from wholesalers, which account for 63% of the company’s
overall sales, could remain weak. Given the strength of its products, Sho thinks any
weakness will be offset by solid online/retail sales and favorable sales in Asia.
n
Multi category strength: Sho believes the likelihood of medium-term growth has
increased given the spillover effect to other categories from market share gains by
Performance Running (P.Run), scope for a better sales channel and region mix, and
room for reducing operating expenses.
Where we are different: Sho forecasts 3-year operating profit CAGR (FY22-FY25E) of
+27% for Asics, which compares with an average of +18% CAGR for the five
GS-covered global sports brands. Asics’ EV/NOPAT is 19X on FY25E, vs. 24X for the five
4 December 2023
11
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
global sports brands (median), and considering its high growth rate Sho sees
considerable scope for Asics’ valuations to rise. He forecasts operating profit in
FY12/25E to be ¥70bn, which is marginally above Bloomberg consensus.
Catalysts: Look for changes in sales mix to support higher margin drivers of growth:
n
Rising contributions from a broader range of categories, including CPS and SPS, as
these categories gain a knock-on effect from Asics’ stronger brand profile.
n
Earnings growth in Southeast Asia, China, and Japan. In China, local designs (25%
of 2023 sales) are priced more affordably than rivals and are being well-received by
consumers.
n
Improving profitability of low-margin entry models via intentional sales restraint.
Exhibit 9: Sho expects earnings contributions from SE Asia/South
Asia, China and Japan to increase
Exhibit 10: Sales growth for the CPS and SPS categories is
outstripping that for the core P.Run category
Asics: Operating profits and operating margin by market
Asics: Sales growth for 1Q-3Q12/23 (yoy, excluding forex impact)
FY23 FY24 FY25
(GS E) (GS E) (GS E)
Operating profit (JPY mn)
Japan
North America
EMEA
Greater China
Oceania
South-East Asia/ South Asia
Others
Elimination
Consolidated
Operating profit margin
Japan
North America
EMEA
Greater China
Oceania
South-East Asia/ South Asia
Others
Consolidated
Sales growth (YoY, excluding forex impact)
45%
42%
40%
12,100
1,000
13,900
15,000
6,000
5,400
5,100
-5,000
53,500
13,100
1,800
13,900
17,400
6,400
6,900
5,500
-5,000
60,000
14,200
3,700
15,100
20,700
6,800
8,500
6,000
-5,000
70,000
11.5%
0.9%
9.5%
18.5%
16.0%
18.9%
10.2%
9.3%
11.4%
1.6%
9.4%
18.5%
16.0%
19.7%
10.7%
9.9%
11.5%
3.0%
9.7%
18.8%
15.8%
20.2%
11.3%
10.7%
Source: Company data, Goldman Sachs Global Investment Research
36%
36%
35%
30%
25%
20%
15%
10%
7%
5%
0%
0%
P.Run (53%)
SPS (9%)
CPS (11%)
OT (9%)
APEQ (7%)
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Valuation: 12m TP of ¥6,200, based on FY24E EV/NOPAT of 26X, the median multiple
for five global sports brands.
Notes: (1) OT = Onitsuka Tiger, APEQ = apparel and equipment. (2) Percentages in brackets for
each category show sales weightings for FY12/22.
Source: Company data
Relevant Research:
n
Asics Corp. (7936.T): Conference call takeaways: Taking scalpel to low earnings
structure and pursuing offensive strategy; raise GSe
n
4 December 2023
Asics Corp. (7936.T): Earnings Review: Above expectations; guidance hike; solid
growth in earnings; not concerned about US/Europe orders; Buy
12
Goldman Sachs
Income Statement (¥ bn) __________________________________
Asics Corp. (7936.T)
Rating since Aug 6, 2019
CL
Ratios & Valuation _______________________________________
12/22
22.6
3.0
(6.2)
9.8
12/23E
33.3
5.1
0.6
13.5
12/24E
28.2
4.6
2.8
12.3
12/25E
23.9
4.1
2.9
10.9
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
9.2
11.3
13.7
8.2
8.2
19.7
81.2
13.6
11.8
17.0
9.6
9.6
20.1
92.9
12.2
11.6
17.0
2.2
2.2
85.7
97.0
10.7
12.0
18.0
(3.1)
(3.1)
100.0
97.3
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (¥)
Average capital employed (¥)
45.5
56.2
13.0
1.1
2.8
470.7
143.3
48.2
62.7
15.1
1.1
2.6
545.8
187.1
49.5
65.5
16.0
1.1
2.6
581.8
212.8
48.2
64.8
16.9
1.1
2.5
626.0
223.5
BVPS (¥)
824.9
1,030.2
1,147.8
1,286.7
For the exclusive use of MATTHEW.X.WONG@GS.COM
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
12/22
12/23E
12/24E
12/25E
19.9
39.7
111.4
66.7
7.0
10.4
18.2
42.4
44.8
50.0
9.3
12.5
6.0
9.9
18.1
13.3
9.9
13.0
8.1
13.3
17.9
17.6
10.7
13.6
4.1
5.0
5.6
6.1
Price Performance _______________________________________
7936.T (¥)
TOPIX
7,000
2,800
6,000
2,600
5,000
2,400
4,000
2,200
3,000
2,000
2,000
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
6m
12m
(0.0)%
(1.4)%
42.1%
28.2%
72.6%
43.9%
Source: FactSet. Price as of 1 Dec 2023 close.
12/22
484.6
(243.9)
(206.7)
0.0
12/23E
573.0
(278.5)
(241.0)
0.0
12/24E
607.5
(289.8)
(257.7)
0.0
12/25E
657.0
(308.8)
(278.2)
0.0
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-50.5
(16.5)
34.0
(1.1)
-28.7
-71.9
(18.4)
53.5
(1.3)
-49.5
-79.0
(19.0)
60.0
(0.1)
-57.5
-89.5
(19.5)
70.0
(0.1)
-67.5
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
(8.7)
(0.1)
-19.9
-19.9
108.6
108.6
108.6
108.6
(20.4)
(0.3)
-28.8
-28.8
157.2
157.2
157.2
157.2
(23.2)
(0.3)
-34.0
-34.0
185.6
185.6
185.6
185.6
(27.1)
(0.3)
-40.1
-40.1
218.9
218.9
218.9
218.9
40.0
36.8
60.0
38.2
68.0
36.6
80.0
36.5
Total revenue
Cost of goods sold
SG&A
R&D
DPS (¥)
Div. payout ratio (%)
Balance Sheet (¥ bn) _____________________________________
Cash & cash equivalents
Accounts receivable
Inventory
12/22
67.4
70.7
135.6
12/23E
64.7
80.7
155.9
12/24E
78.4
84.0
167.0
12/25E
90.3
89.5
183.2
Other current assets
Total current assets
Net PP&E
Net intangibles
22.5
296.1
25.2
70.2
23.5
324.8
32.5
76.9
24.5
353.8
40.3
80.1
25.5
388.5
48.1
83.5
Total investments
Other long-term assets
Total assets
Accounts payable
57.9
(24.4)
425.1
44.7
66.6
-500.8
51.0
70.2
-544.4
53.1
74.9
-595.0
56.6
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
22.0
-83.9
150.6
22.0
-63.5
136.5
22.0
-62.6
137.7
22.0
-60.7
139.3
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
57.9
-43.8
101.7
61.0
-112.8
173.8
61.0
-133.7
194.7
61.0
-157.2
218.2
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
252.3
-151.1
1.8
425.1
12.5
310.3
-188.7
1.8
500.8
18.4
332.4
-210.3
1.8
544.4
4.7
357.4
-235.7
1.8
595.0
(7.3)
Cash Flow (¥ bn) _________________________________________
12/22
12/23E
12/24E
12/25E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
19.9
16.5
0.1
(61.9)
8.1
(17.3)
(10.6)
--(3.9)
28.8
18.4
0.3
(24.1)
(1.8)
21.7
(15.5)
--(1.0)
34.0
19.0
0.3
(12.3)
(1.9)
39.1
(12.0)
--(1.0)
40.1
19.5
0.3
(18.2)
(1.9)
39.8
(12.2)
--(1.0)
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(14.5)
-(7.3)
2.2
7.4
2.3
(29.5)
(27.9)
(16.5)
-(11.0)
3.1
0.0
(7.9)
(2.7)
6.2
(13.0)
-(12.5)
-0.0
(12.5)
13.7
27.1
(13.2)
-(14.7)
-0.0
(14.7)
12.0
27.6
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
13
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
GCPL - Turnaround accelerating, top-tier domestic growth
Covered by Arnab Mitra (arnab.mitra@gs.com, +91 22 6616-9345)
GOCP.BO
Buy
12m Price Target: Rs1185
Price: Rs1025.6
GS Forecast
3/23
3/24E
3/25E
3/26E
133,159.7
144,903.2
161,433.8
180,347.5
24,304.6
30,156.0
35,210.6
39,696.5
16.66
20.01
24.77
28.65
India P/E (X)
51.7
51.3
41.4
35.8
India Consumer P/B (X)
6.4
7.4
7.0
6.5
0.0
1.6
1.7
1.7
Market cap: Rs1.0tr / $12.6bn Revenue (Rs mn)
Enterprise value: Rs1.1tr / $12.8bn EBITDA (Rs mn)
3m ADTV: NA EPS (Rs)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: Yes CROCI (%)
FCF yield (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 15.5%
EPS (Rs)
(0.1)
0.7
0.4
0.1
17.7
16.3
16.3
17.5
2.2
2.0
2.2
2.5
3/23
6/23E
9/23E
12/23E
4.42
3.12
4.23
6.42
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Key debates:
n
Will new product initiatives deliver higher growth in India? Product strategy in
its home insecticides business should drive a structural upgrade from low end
formats to premium formats like electrics (where GCPL has high market shares). Air
care and liquid detergents make up only ~10-15% of GCPL’s India revenue, but
Arnab expects them to grow at 20-25% over FY23-26. Both these categories have
low penetration and have strong tailwinds for growth.
4 December 2023
n
Will GCPL be able to radically simplify its international business? The company
will move its dry hair business in East Africa from own operations to a franchisee
royalty model, reducing capital employed and improving ROCE. This model can
potentially be replicated for other low margin international businesses of GCPL
(c.25% of GCPL’s revenue is from Africa, out of which dry hair segment is
low-margin).
n
Will the acquired FMCG business deliver on its margin promise? GCPL acquired
the FMCG business of Raymond in May 2023, making up ~10% of GCPL’s India
revenue in FY25E, after the synergies play out. With GCPL’s direct distribution reach
14
2e83ab6fea424dc8a1b6a8a7e94c6547
Core thesis: Godrej Consumer (GCPL) is a leader in home and personal care products in
India with sizable revenues in Indonesia and Africa. Arnab forecasts 20% EPS CAGR
over FY24-26E as the company’s turnaround accelerates. This is driven by a combination
of 1) high single digit volume growth in the India business, 2) cost synergies from the
recent RCCL acquisition, and 3) simplification in Africa operations delivering better
profitability. GCPL trades at 40x FY25E P/E, which is at the lower end of the range for
Arnab’s India FMCG coverage ex-ITC (average FY25E P/E of 46x). Arnab forecasts GCPL
to deliver 18% FY23E-26E earnings CAGR, compared to an average earnings CAGR of
~13% for his FMCG coverage.
Goldman Sachs
APAC Conviction List
and marketing initiatives, Arnab expects EBITDA margins will expand from 5%
pre-acquisition to over 20% in FY25E, contributing to ~5% of consolidated EPS for
FY25E.
Where we are different: Greater conviction on India growth accelerating, driven by its
strong product innovation and marketing efforts in segments where penetration is still
low, driving above market growth and higher ASP. Arnab also sees higher growth/lower
volatility in GCPL’s international business ahead on greater management execution and
focus, lowering market concerns on a business which has been a drag historically. As a
result, Arnab’s FY25E/26E EPS for GCPL are 4% above BBG consensus estimates.
Catalysts: 1) Revenue and cost synergies from the Raymond business beginning
2HFY24; 2) Successful implementation of the Africa business restructuring leading to
higher profitability (4Q FY24); 3) Acceleration of HI growth with the launch of higher
efficacy products (1H FY25).
Exhibit 11: GCPL’s 4 quarter rolling average growth in home care
has been accelerating
Exhibit 12: Arnab expects margin of the recently acquired Raymond
business to improve significantly, driven by synergies
Raymond brands
Home care growth (GCPL)
16%
9,000
14%
8,000
12%
7,000
10%
6,000
8%
6%
5,000
4%
4,000
2%
3,000
0%
2,000
-2%
1,000
-4%
-6%
0
1QFY23
2QFY23
3QFY23
4QFY23
Home care (trailing 4 quarters, YoY)
1QFY24
2QFY24
FY23
Home care (YoY)
Source: Company data
FY24E
Revenue (Rs mn)
FY25E
FY26E
EBITDA (Rs mn)
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
Godrej Consumer Products Ltd. (GOCP.BO): A clear strategy to aggressively grow in
India and simplify international business
n
4 December 2023
Godrej Consumer Products Ltd. (GOCP.BO): Addressing investor questions on the
Raymond Group acquisition
15
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Valuation: 12m TP of Rs1,185, based on a P/E multiple of 44x applied to Q5E-Q8E EPS.
Goldman Sachs
Income Statement (Rs mn) _________________________________
Godrej Consumer Products Ltd. (GOCP.BO)
Rating since Aug 10, 2022
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
3/23
51.7
6.4
2.2
36.2
3/24E
51.3
7.4
2.0
35.5
3/25E
41.4
7.0
2.2
30.2
3/26E
35.8
6.5
2.5
26.5
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
36.1
17.7
13.9
(1.2)
(1.5)
12.5
50.3
35.5
16.3
14.6
15.2
14.9
11.1
37.4
30.2
16.3
17.3
9.8
9.5
24.2
34.0
26.5
17.5
18.8
2.2
2.0
55.3
33.6
32.4
108.5
12.7
0.8
1.3
138,208.7
122,108.0
32.8
98.6
14.4
0.7
1.4
168,111.6
149,591.6
32.4
92.1
16.9
0.8
1.4
171,785.5
163,742.8
32.3
90.5
18.1
0.8
1.3
175,486.4
164,658.8
134.95
138.96
146.73
158.38
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rs)
Average capital employed (Rs)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rs)
Growth & Margins (%) ____________________________________
3/23
3/24E
3/25E
3/26E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
8.5
1.5
(4.5)
NM
16.5
18.3
8.8
24.1
20.1
NM
19.0
20.8
11.4
16.8
23.8
6.3
20.1
21.8
11.7
12.7
15.7
0.0
20.4
22.0
Net income margin
13.2
14.1
15.7
16.2
Price Performance _______________________________________
GOCP.BO (Rs)
India BSE30 Sensex
1,300
80,000
1,200
75,000
1,100
70,000
1,000
65,000
900
60,000
800
55,000
Jan-23
Absolute
Rel. to the India BSE30 Sensex
Apr-23
Jul-23
Oct-23
3m
6m
12m
2.0%
(1.2)%
(2.6)%
(9.9)%
17.0%
9.7%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
3/23
133,159.7
(67,027.9)
(19,201.9)
--
3/24E
144,903.2
(66,547.3)
(22,488.1)
--
3/25E
161,433.8
(72,847.6)
(24,730.7)
--
3/26E
180,347.5
(81,021.8)
(27,628.1)
--
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
(11,510.5)
24,304.6
(2,362.9)
21,941.7
(1,757.4)
-21,868.4
(12,525.6)
30,156.0
(2,571.3)
27,584.7
(2,494.3)
-27,448.2
(13,954.6)
35,210.6
(2,703.2)
32,507.4
(1,341.8)
-33,759.1
(15,589.5)
39,696.5
(2,839.5)
36,857.0
(666.8)
-39,043.0
(4,302.7)
--17,565.7
(541.1)
17,024.6
17.18
17.18
16.66
16.66
(6,999.3)
--20,448.9
-20,448.9
20.01
20.01
20.01
20.01
(8,439.8)
--25,319.3
-25,319.3
24.77
24.77
24.77
24.77
(9,760.8)
--29,282.3
-29,282.3
28.65
28.65
28.65
28.65
0.00
0.0
16.00
80.0
17.00
68.6
17.00
59.3
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rs)
EPS (diluted, pre-except) (Rs)
EPS (basic, post-except) (Rs)
EPS (diluted, post-except) (Rs)
DPS (Rs)
Div. payout ratio (%)
Balance Sheet (Rs mn) ____________________________________
Cash & cash equivalents
Accounts receivable
Inventory
3/23
3,907.7
12,452.8
15,371.5
3/24E
4,670.4
13,551.0
14,349.7
3/25E
3,642.2
15,096.9
15,708.2
3/26E
5,686.4
16,865.7
17,470.8
Other current assets
Total current assets
Net PP&E
Net intangibles
4,431.2
36,163.2
15,340.5
84,034.0
4,832.0
37,403.1
15,667.3
111,534.0
5,272.9
39,720.3
16,192.8
111,534.0
5,757.9
45,780.8
16,960.2
111,534.0
30,289.8
9,160.1
174,987.6
18,231.7
30,289.8
9,160.1
204,054.3
17,736.3
30,289.8
9,160.1
206,896.9
19,016.3
30,289.8
9,160.1
213,724.9
21,150.1
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
-380.1
14,301.3
32,913.1
-380.1
15,769.0
33,885.4
-380.1
17,389.1
36,785.6
-380.1
19,177.7
40,708.0
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
1,891.2
-2,241.1
4,132.3
25,891.2
-2,241.1
28,132.3
17,891.2
-2,241.1
20,132.3
8,891.2
-2,241.1
11,132.3
37,045.4
-137,942.3
-174,987.7
(2,016.5)
62,017.7
-142,036.6
-204,054.4
21,220.8
56,917.9
-149,979.2
-206,897.0
14,249.0
51,840.3
-161,884.7
-213,725.0
3,204.8
Total investments
Other long-term assets
Total assets
Accounts payable
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rs mn) _______________________________________
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
3/23
3/24E
3/25E
3/26E
21,327.3
2,362.9
-933.4
(3,117.1)
21,506.5
27,448.2
2,571.3
-495.1
(6,862.7)
23,651.9
33,759.1
2,703.2
-(445.2)
(9,691.4)
26,325.6
39,043.0
2,839.5
-(93.9)
(11,946.8)
29,841.9
(2,197.4)
(16,747.1)
-(1,789.4)
(20,733.9)
(2,898.1)
(27,500.0)
-2,357.7
(28,040.3)
(3,228.7)
--2,593.5
(635.2)
(3,607.0)
--2,852.9
(754.1)
-0.0
(6,343.6)
(1,599.5)
(7,943.1)
(7,170.5)
19,309.1
-(16,354.6)
24,000.0
(2,494.3)
5,151.1
762.7
20,753.8
-(17,376.7)
(8,000.0)
(1,341.8)
(26,718.6)
(1,028.1)
23,096.9
-(17,376.7)
(9,000.0)
(666.8)
(27,043.6)
2,044.2
26,234.9
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
16
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Shenzhou International - The coming restocking cycle
Covered by Michelle Cheng (michelle.cheng@gs.com, +852 2978-6631)
2313.HK
Buy
12m Price Target: HK$98
Price: HK$79.05
GS Forecast
12/22
12/23E
12/24E
12/25E
27,781.4
26,078.5
30,409.5
34,340.3
5,293.4
5,501.4
7,304.9
8,346.2
3.04
2.96
3.66
4.25
China P/E (X)
26.5
24.4
19.7
17.0
Greater China Retail P/B (X)
3.9
3.3
3.0
2.8
2.1
2.3
2.8
3.2
(1.5)
(2.1)
(1.6)
(1.7)
18.8
16.0
18.3
19.2
2.5
5.2
1.7
5.3
12/22
6/23
12/23E
--
1.46
1.41
1.55
--
Market cap: HK$118.8bn / $15.2bn Revenue (Rmb mn)
Enterprise value: HK$106.2bn / $13.6bn EBITDA (Rmb mn)
3m ADTV :HK$284.1mn/ $36.3mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: Yes CROCI (%)
FCF yield (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 24%
EPS (Rmb)
Core thesis: Michelle’s positive view of Shenzhou is based on: 1) An improving
earnings outlook into 2024 on the back of a global restocking cycle. With brands’
active inventory control from 2H22, Michelle believes the destocking cycle is
approaching the end. Given the easier sales base starting from 4Q23, Shenzhou’s sales
growth should turn positive yoy; into 1Q24, contrary to the majority of Michelle’s China
consumer coverage that have high bases, near-term sales growth could serve as a share
price catalyst. The stock offers the best 2-year recurring NI growth at 23% among larger
cap consumer names. 2) Global presence. Shenzhou has ~75% sales exposure to the
non-China market (as of 2022), which fits with the current broad-based investor
preference for more balanced geographical exposure. 3) Undemanding valuation.
Shenzhou currently trades at a P/E discount compared to its apparel OEM peers vs a
premium during 2018-22 and its own 25x 5-year average (excluding 2021 outlier).
Key debates:
n
Extent of restocking demand: Global economic outlook translates into the
magnitude of the restocking cycle, although inventory level is improving.
n
GPM outlook: Discussions are centered around Shenzhou’s production base
expansion plan in new countries and the effectiveness in ramp-up, scope for
improving utilization rate and margins in China given concerns on shrinking exports
to global markets.
n
Valuation: Shenzhou is trading at par or higher than sportswear brands listed in
Hong Kong but at a discount to OEM peers listed in Taiwan.
Where we are different: Michelle is more constructive on brands’ restocking upcycle
into 2024, on the back of a more positive global market macro backdrop and brands’
efforts on inventory optimization in the past few quarters. She is positive on Shenzhou’s
margin recovery supported by its enhanced order book, rising China utilization rate, and
4 December 2023
17
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
wallet share gain upside, though she still factors in a lower than historical level GPM in
2024-25E.
Catalysts: 1) Nov-Dec 2023: Initial order book outlook for 2024; 2) 2024 Paris Summer
Olympics; and 3) Easier sales base until 4Q24.
Valuation: 12m TP of HK$98 is based on a 25x 2024E P/E.
Exhibit 13: Signs of restocking as global sportswear brands and
fashion/casual brands’ sales growth outpaced inventory growth in
3Q23, which benefits apparel/footwear OEMs
Exhibit 14: OEMs vs brands: growth and valuation
Gap between Sales yoy growth and Inventory yoy growth
Sub-sector
Sports
retailers
1Q21
Apparel/footwear OEM 24 NI yoy growth vs 24PE
2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23
30.0
118% 16%
1% -20% -42% -58% -29% -23% -19% -6%
Eclat
25.0
Retailers
8%
-15% -5% -17% -33% -24% -11% -1%
7%
6%
2%
36% 82% 26%
Sportswear
29% 87% 17% -2% -14% -32% -51% -41% -20% -12% 12%
3%
Current 24PE
Shenzhou
Anta
Makalot Huali
Li Ning
15.0
10.0
Stella
5.0
Xtep
24 NP yoy growth
0.0
0%
5%
10%
15%
20%
25%
30%
Red font denotes GS covered Greater China OEM stocks
Excl. outlier Yue Yuen
Source: Company data
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
Asia Pacific Textile, Apparel & Footwear: Restocking prompts 4Q23 inflection point;
upgrade YY to Buy, downgrade FT to Sell
4 December 2023
n
Asia Pacific Textile, Apparel & Footwear: Marketing feedback our Huali/Feng Tay
initiations
n
Asia Pacific Textile, Apparel & Footwear: Emerging from the downcycle; Initiate on
Huali and Feng Tay
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
20.0
Fashion/
Casual
6% -10% -33% -38% -35% -21% -7%
Feng Tay
Nike
-1%
18
Goldman Sachs
Income Statement (Rmb mn) _______________________________
Shenzhou International Group (2313.HK)
Rating since Aug 29, 2016
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
12/22
26.5
3.9
2.5
21.2
12/23E
24.4
3.3
5.2
17.5
12/24E
19.7
3.0
1.7
13.3
12/25E
17.0
2.8
5.3
11.3
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
21.3
18.8
15.6
(26.3)
(26.6)
132.2
84.7
17.6
16.0
14.0
(35.4)
(35.7)
137.4
86.9
13.3
18.3
16.1
(31.5)
(31.9)
197.0
79.3
11.3
19.2
17.1
(36.5)
(36.8)
229.9
79.6
55.9
19.5
14.8
0.6
1.4
33,328.5
21,759.0
62.4
21.3
13.6
0.6
1.4
33,055.3
21,795.4
60.0
24.3
15.4
0.6
1.4
37,703.0
22,695.6
59.7
24.2
16.3
0.7
1.3
39,390.8
24,542.7
20.46
21.75
23.79
26.02
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rmb)
Average capital employed (Rmb)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rmb)
Growth & Margins (%) ____________________________________
12/22
12/23E
12/24E
12/25E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
16.5
13.4
35.3
23.6
14.3
19.1
(6.1)
3.9
(2.4)
(2.2)
15.8
21.1
16.6
32.8
23.7
23.7
19.4
24.0
12.9
14.3
16.0
16.0
20.1
24.3
Net income margin
16.4
17.1
18.1
18.6
Price Performance _______________________________________
2313.HK (HK$)
Hang Seng China Ent.
140
8,000
120
7,500
100
7,000
80
6,500
60
6,000
40
5,500
Jan-23
Apr-23
Absolute
Rel. to the Hang Seng China Ent.
Jul-23
Oct-23
3m
6m
12m
(1.8)%
7.9%
27.6%
36.2%
6.0%
17.5%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
DPS (Rmb)
Div. payout ratio (%)
12/22
27,781.4
(21,655.6)
(2,158.7)
0.0
12/23E
26,078.5
(19,849.4)
(2,108.5)
0.0
12/24E
30,409.5
(22,071.6)
(2,428.3)
0.0
12/25E
34,340.3
(24,708.4)
(2,733.6)
0.0
-5,293.4
(1,326.3)
3,967.1
49.8
(21.4)
5,262.1
-5,501.4
(1,380.8)
4,120.6
327.8
(21.4)
5,003.2
-7,304.9
(1,395.3)
5,909.6
292.4
(21.4)
6,380.0
-8,346.2
(1,447.9)
6,898.3
285.0
(21.4)
7,381.2
(698.9)
(0.4)
-4,562.8
-4,562.8
3.04
3.04
3.04
3.04
(550.4)
(0.4)
-4,452.5
-4,452.5
2.96
2.96
2.96
2.96
(874.1)
(0.4)
-5,505.5
-5,505.5
3.66
3.66
3.66
3.66
(996.5)
(0.4)
-6,384.3
-6,384.3
4.25
4.25
4.25
4.25
1.67
54.9
1.63
55.0
2.01
55.0
2.34
55.0
Balance Sheet (Rmb mn) __________________________________
Cash & cash equivalents
Accounts receivable
Inventory
12/22
17,391.5
5,005.2
6,260.8
12/23E
20,892.3
3,911.8
6,153.3
12/24E
20,596.0
6,081.9
7,062.9
12/25E
23,611.8
5,151.0
7,906.7
Other current assets
Total current assets
Net PP&E
Net intangibles
1,173.9
26,164.5
11,593.7
125.0
1,173.9
28,464.4
11,717.2
107.1
1,173.9
31,247.8
12,164.3
89.3
1,173.9
34,176.5
12,794.7
71.4
Total investments
Other long-term assets
Total assets
Accounts payable
574.0
5,035.7
43,492.9
931.6
574.0
5,035.7
45,898.4
1,389.5
574.0
5,035.7
49,111.1
1,545.0
574.0
5,035.7
52,652.3
1,729.6
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
7,197.7
29.5
2,100.6
10,259.4
7,197.7
29.5
2,100.6
10,717.3
7,197.7
29.5
2,100.6
10,872.9
7,197.7
29.5
2,100.6
11,057.4
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
2,000.0
87.1
380.6
2,467.6
2,000.0
87.1
380.6
2,467.6
2,000.0
87.1
380.6
2,467.6
2,000.0
87.1
380.6
2,467.6
12,727.1
-30,752.9
12.9
43,492.9
(8,193.9)
13,184.9
-32,700.2
13.2
45,898.4
(11,694.6)
13,340.5
-35,756.9
13.6
49,111.1
(11,398.3)
13,525.1
-39,113.2
14.0
52,652.3
(14,414.1)
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rmb mn) ______________________________________
12/22
12/23E
12/24E
12/25E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
4,562.8
1,326.3
0.4
(1,583.7)
322.4
4,628.1
4,452.5
1,380.8
0.4
1,658.7
(327.8)
7,164.6
5,505.5
1,395.3
0.4
(2,924.2)
(292.4)
3,684.7
6,384.3
1,447.9
0.4
271.6
(285.0)
7,819.3
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(1,567.1)
--1,195.7
(371.3)
(1,486.5)
--327.8
(1,158.7)
(1,824.6)
--292.4
(1,532.2)
(2,060.4)
--285.0
(1,775.5)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
-(2,063.2)
(1,391.0)
(836.6)
(4,290.9)
(34.1)
3,061.1
-(2,505.1)
-0.0
(2,505.1)
3,500.8
5,678.2
-(2,448.9)
-0.0
(2,448.9)
(296.3)
1,860.2
-(3,028.0)
-0.0
(3,028.0)
3,015.8
5,758.9
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
19
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Woolworths Group - Omni-channel leader extending share gains
Covered by Lisa Deng (lisa.deng@gs.com, +61 2 9320-1084)
WOW.AX
Buy
12m Price Target: A$42.4
Price: A$34.56
GS Forecast
Market cap: A$42.0bn / $27.8bn Revenue (A$ mn)
Enterprise value: A$56.3bn / $37.4bn EBITDA (A$ mn)
6/23
6/24E
6/25E
6/26E
64,294.0
66,710.3
69,474.6
71,564.5
5,694.0
6,010.6
6,261.8
6,534.1
1.41
1.49
1.63
1.78
25.8
23.3
21.2
19.4
3m ADTV :A$64.8mn/ $41.7mn EPS (A$)
Australia P/E (X)
ANZ Consumer P/B (X)
Dividend yield (%)
M&A Rank: 3 Net debt/EBITDA (X)
Leases incl. in net debt & EV?: Yes Frank/Imput (%)
CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 22.7%
EPS (A$)
6.9
6.0
5.4
4.9
2.9
3.2
3.6
3.9
2.6
2.4
2.2
2.0
100.0
100.0
100.0
100.0
11.8
12.1
11.7
11.4
6/23
12/23E
6/24E
12/24E
0.69
0.72
0.77
0.72
Core thesis: Lisa’s Buy thesis is based on 1) robust supermarkets growth of ~4% in
FY23-26E driven by strong population growth and a rational, oligopoly environment; 2)
omni-channel leader further extending share gains: Lisa expects market share to
increase 2pp to 37% by 2030E due to its early mover advantage in digitalization and
omni-channel execution. By 2030E, she expects WOW to be the dominant leader in
online with 50% share in a space that is expected to go from 5% to 10% of the total
grocery market; 3) loyalty/retail media further margin opportunities: Woolworth’s
strong digital and omni-channel advantage is further reinforced through a virtuous cycle
of Loyalty and retail media (Cartology). Lisa expects ~A$1B retail media revenue at
~45% EBIT margin by 2030E, with further upside risk. Net net, she forecasts that WOW
will deliver FY23-26E 3-yr group sales CAGR of 3.6% and NPAT CAGR of 8.2% vs key
competitor Coles ~4.4% sales CAGR and -1.0% NPAT CAGR.
Key debates:
4 December 2023
n
Will Woolworth’s margin be eroded as cost of doing business (wage growth)
outweighs sales? Lisa expects that Woolworths will continue to gain market share
due to superior omni-channel execution while delivering margin expansion
opportunities via 1) cost productivity in supply chain automation, promotional
efficiency and workforce optimization; and 2) building further revenue levers with
retail media, loyalty and general merchandise/market place. She expects
Woolworths’ group EBIT margin to expand from 4.8% in FY23 to 5.3% by FY26E.
n
Do digital investments actually result in profitable growth and how long will it
take for Coles to catch-up? Woolworths above market growth at ~5.1% sales
CAGR and EBIT margin +1.3% to 6.0% from FY18-23 provides evidence that digital
investments are driving positive returns. Additionally, in the last 5-years Woolworths
has spent >A$1B in growth capex on ecom/digital. Lisa’s industry checks suggest
20
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
that this will drive a multi-year advantage from a scale of spend and time of learning
perspective vs key industry peers.
Where we are different: Lisa has higher conviction around Woolworths’ multi-year
digital advantage vs Coles which will result in 1) omni-channel execution advantage
with continued online leadership despite COL’s partnership with Ocado. Woolworths
increased scale in online will lead to sustainable profit in this higher growth channel; 2)
margin expansion opportunity from precision execution including mix improvement,
promotional efficiency, employee productivity; and 3) opportunity around ancillary
services including loyalty and retail media will drive further revenue/margin upside.
Valuation: 12m TP of A$42.40 (50/50 SOTP and 10-yr DCF) implies a 12m forward P/E
of ~28x vs company’s current trading P/E of ~22x and the stock’s 5-yr historical average
of 26x.
Exhibit 15: Lisa expects WOW to continue to gain share despite
already being market leader
Exhibit 16: WOW is trading at only ~1x P/E point premium to COL vs
LT average of ~4x
GSe AU Supermarket market share trend, FY23-30E change
WOW P/E point premium to COL
40%
10
WOW: 36.6%
+158bps
35%
9
8
30%
COL: 27.8%
+104bps
25%
7
6
20%
5
15%
Aldi: 9.8%,
+42bps
10%
4
3
2
1
0%
11/23
06/23
02/23
09/22
05/22
12/21
07/21
03/21
10/20
06/20
01/20
08/19
Source: Company data, Goldman Sachs Global Investment Research
0
04/19
Aldi
11/18
FY30e
Metcash
FY29e
FY28e
FY27e
Coles
FY26e
FY25e
FY24e
FY23
FY22
FY21
FY20
FY19
Woolworths
Source: Company data, Goldman Sachs Global Investment Research, FactSet
Relevant Research:
n
Australia Retail: Race for the New Digital Consumer; Initiate on F&B and Home
Retailers
n
4 December 2023
Australia Retail: Supply Chain: Futureproof but Not Game Change; Buy WOW, Sell
COL
21
2e83ab6fea424dc8a1b6a8a7e94c6547
MTS: 9.1%, 209bps
5%
FY18
For the exclusive use of MATTHEW.X.WONG@GS.COM
Catalysts: 1) December 4 Metcash’s 1H24 result, which Lisa expects will confirm
independents’ market share loss. 2) Woolworths’ 1H24 results in Feb 2024 which she
expects will show similar sales growth but superior margin expansion relative to key
competitor COL.
Goldman Sachs
Income Statement (A$ mn) _________________________________
Woolworths Group (WOW.AX)
CL
Rating since Mar 27, 2022
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
6/23
25.8
6.9
2.6
10.3
6/24E
23.3
6.0
3.1
9.4
6/25E
21.2
5.4
4.0
8.9
6/26E
19.4
4.9
4.0
8.4
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
9.1
11.8
27.7
222.4
39.9
19.1
20.7
8.1
12.1
27.0
198.2
30.2
16.2
20.7
7.6
11.7
26.8
169.9
17.3
20.4
20.8
7.2
11.4
26.5
146.9
8.0
25.7
21.2
5.8
56.6
26.2
1.9
5.1
40,735.0
9,274.5
5.7
57.5
25.3
2.0
4.7
43,731.5
9,268.7
5.7
56.9
25.1
2.0
4.4
46,513.7
9,330.1
5.7
57.2
24.8
2.0
4.1
49,511.9
9,384.4
5.29
5.80
6.42
7.10
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (A$)
Average capital employed (A$)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (A$)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
6/23
6/24E
6/25E
6/26E
5.7
12.7
14.3
11.9
4.8
8.9
3.8
5.6
5.6
7.9
4.9
9.0
4.1
4.2
9.5
9.5
5.1
9.0
3.0
4.3
9.4
9.4
5.3
9.1
2.7
2.7
2.9
3.0
Price Performance _______________________________________
WOW.AX (A$)
S&P/ASX 200
42
7,600
40
7,400
38
7,200
36
7,000
34
6,800
32
6,600
Jan-23
Absolute
Rel. to the S&P/ASX 200
Apr-23
Jul-23
Oct-23
3m
6m
12m
(9.3)%
(6.7)%
(9.3)%
(8.8)%
(0.1)%
3.9%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (A$)
EPS (diluted, pre-except) (A$)
EPS (basic, post-except) (A$)
EPS (diluted, post-except) (A$)
DPS (A$)
Div. payout ratio (%)
6/23
64,294.0
(47,118.0)
(11,482.0)
0.0
6/24E
66,710.3
(48,773.3)
(11,926.5)
0.0
6/25E
69,474.6
(50,670.3)
(12,542.5)
0.0
6/26E
71,564.5
(52,091.4)
(12,939.1)
0.0
-5,694.0
(2,578.0)
3,116.0
(677.0)
-2,439.0
-6,010.6
(2,719.5)
3,291.0
(731.8)
-2,559.2
-6,261.8
(2,748.2)
3,513.6
(710.4)
-2,803.2
-6,534.1
(2,774.8)
3,759.2
(692.7)
-3,066.5
(707.0)
(11.0)
-1,721.0
(103.0)
1,618.0
1.42
1.41
1.33
1.32
(741.8)
0.0
-1,817.4
-1,817.4
1.50
1.49
1.50
1.49
(812.6)
0.0
-1,990.6
-1,990.6
1.64
1.63
1.64
1.63
(888.9)
0.0
-2,177.6
-2,177.6
1.79
1.78
1.79
1.78
1.04
73.4
1.12
75.0
1.23
75.0
1.34
75.0
Balance Sheet (A$ mn) ___________________________________
6/23
1,135.0
1,016.0
3,698.0
6/24E
1,084.8
1,059.1
3,875.1
6/25E
1,385.1
1,108.5
4,025.9
6/26E
2,058.2
1,145.8
4,281.5
Other current assets
Total current assets
Net PP&E
Net intangibles
526.0
6,375.0
18,348.0
5,693.0
526.0
6,545.1
18,669.4
5,617.1
526.0
7,045.5
18,940.7
5,551.8
526.0
8,011.5
19,204.4
5,497.6
Total investments
Other long-term assets
Total assets
Accounts payable
0.0
3,232.0
33,648.0
7,623.0
0.0
3,241.7
34,073.3
7,750.3
0.0
3,252.3
34,790.3
8,051.7
0.0
3,264.1
35,977.7
8,277.5
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
466.0
1,637.0
2,160.0
11,886.0
268.5
1,648.9
2,221.6
11,889.3
227.2
1,656.0
2,292.1
12,227.1
227.2
1,663.5
2,345.5
12,513.7
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
3,289.0
10,343.0
1,565.0
15,197.0
2,986.5
10,418.1
1,597.2
15,001.9
2,527.8
10,463.3
1,634.1
14,625.1
2,527.8
10,510.2
1,661.9
14,699.9
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
27,083.0
-6,425.0
140.0
33,648.0
2,620.0
26,891.1
-7,042.1
140.0
34,073.3
2,170.2
26,852.2
-7,798.0
140.0
34,790.3
1,369.9
27,213.6
-8,624.1
140.0
35,977.7
696.8
Cash & cash equivalents
Accounts receivable
Inventory
Cash Flow (A$ mn) _______________________________________
6/23
6/24E
6/25E
6/26E
1,721.0
2,578.0
(11.0)
544.0
(78.0)
4,754.0
1,817.4
2,719.5
0.0
(93.0)
45.5
4,489.4
1,990.6
2,748.2
0.0
101.4
54.1
4,894.3
2,177.6
2,774.8
0.0
(67.1)
22.1
4,907.4
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(2,519.0)
(373.0)
1,020.0
28.0
(1,844.0)
(2,138.1)
-300.0
38.7
(1,799.4)
(2,154.2)
-300.0
42.6
(1,811.7)
(2,176.6)
-300.0
47.2
(1,829.4)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(1,067.0)
(1,031.0)
(601.0)
(110.0)
(2,809.0)
103.0
2,235.0
(1,040.0)
(1,200.2)
(500.0)
0.0
(2,740.2)
(50.2)
2,351.3
(1,047.6)
(1,234.7)
(500.0)
0.0
(2,782.3)
300.3
2,740.1
(1,053.4)
(1,351.6)
-0.0
(2,405.0)
673.1
2,730.8
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
22
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
AIA Group - Margin expectations too bearish
Covered by Thomas Wang (thomas.wang@gs.com, +852 2978-1697)
1299.HK
Buy
12m Price Target: HK$97
Price: HK$66.85
GS Forecast
Market cap: HK$772.2bn / $98.8bn Net inc. ($ mn)
12/22
12/23E
12/24E
12/25E
3,331.0
4,760.1
6,679.6
7,374.5
3m ADTV :HK$1.8bn/ $232.4mn EPS ($)
Hong Kong EPS growth (%)
Greater China Insurance P/E (X)
DPS ($)
M&A Rank: 3 Dividend yield (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 45.1%
0.28
0.41
0.60
0.67
(54.6)
48.1
44.8
12.4
35.6
20.7
14.3
12.7
0.20
0.21
0.23
0.26
3.0
2.0
2.5
2.7
P/B (X)
2.6
2.5
2.3
2.1
ROE (%)
6.6
11.3
16.6
17.4
P/EV (X)
1.7
1.4
1.3
1.2
6/23
12/23E
6/24E
12/24E
EPS ($)
0.19
0.22
0.30
0.30
Core thesis: As Covid disruptions and macro risks unwind, Thomas expects AIA to
deliver strong VONB growth (18% CAGR in FY22-26), driven by: 1) the recovery and
growth in sales to mainland Chinese visitors in HK, and 2) strong VONB growth in
mainland China on the back of footprint-expansion, enlarged customer base following
the build-out of its bancassurance distribution, and resilient consumer demand. AIA’s
strong balance sheet, evident in its US$10bn share buyback program (2022-2024) and
progressive dividend policy, in addition to rising bond yield, supports Thomas’s
expectation of improvements in operating ROE (from 15% in FY23 to 18% by FY26).
AIA now trades at 1.3X FY24E P/EV, near historical lows in 2016/2022 when the market
had concerns about tightening in capital control (2016) and Covid lockdown (2022).
Key debates:
n
Demand for high margin protection products: A larger-than-expected decline in
1H23 margin in mainland China raised investors’ concern that AIA’s affluent target
consumers are reducing purchases for protection products. Thomas believes the
margin decline was due to a mix of: 1) industry-wide push for savings products, and
2) AIA’s build-out of its bancassurance distribution. Underlying demand for
high-margin protection product was resilient, as demonstrated by the strong
double-digit growth in 3Q23.
n
4 December 2023
Pace of footprint expansion in China: Despite receiving new licenses in Sichuan,
Hubei, Henan, Tianjin, and Hebei since 2020, VONB contribution from these new
branch offices has remained low, at 4% in 1H23. Thomas believes this was mainly
the result of Covid-related disruptions, which significantly restricted AIA’s ability to
recruit and develop new agents over the last 3 years. He sees a more aggressive
pace of expansion in the coming 2-3 years, leading to greater contribution from the
new branch offices.
23
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
n
Yield gap supports HK MCV growth momentum: Thomas believes the sequential
decline in sales to mainland Chinese visitors (MCV) in 3Q23 was more of a reflection
of the initial pent-up demand, rather than a decline in appetite from onshore
consumers. Elevated US bond yield and cuts in deposit rates by onshore banks
means that yield gap between HK insurance products and onshore savings products
have widened since early 2023. This should enhance the attractiveness of HK
insurance products for onshore consumers. Thomas expects VONB growth in HK to
remain at 20% or higher in FY24-26E.
Catalysts: 1) Growth in the number of mainland Chinese visitors to HK in Dec and
around the Chinese new year holiday in Feb 2024 could lead to improved confidence on
HK MCV sales; 2) 4Q results to confirm VONB growth momentum; and 3) May 2024
disclosure of FY23 product mix in mainland China and 1Q24 MCV sales product mix.
Valuation: 12m TP of HK$97 based on 14X forward new business multiple, implying
1.9X FY24E P/EV.
Exhibit 17: Resilient demand from affluent consumers is reflected in
AIA China’s higher margin vs. Chinese peers
Exhibit 18: AIA is trading near historical lows, despite strong VONB
growth outlook in next 3 years
Agency channel VONB / APE (%)
AIA 1-year rolling forward P/EV
As of Nov-23,
2023
70%
60%
AIA 1-year rolling forward P/EV
2.3
2.4
59%
2.2
2.2
50%
40%
2.1
34%
24%
25%
1.6
1.7
1.5
1.4
20%
1.0
0%
AIA China
Ping An
China Life
CPIC
China Taiping
NCI
1.5
1.4
1.4
1.2
10%
1.9
1.7
1.8
33%
30%
2.1
2.0
2.0
43%
1.3
1.3
1.4
1.3
1.2
1.2
1.0
0.8
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Company data, Goldman Sachs Global Investment Research
Source: Thomson Reuters Eikon, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
AIA Group (1299.HK): Addressing key investor questions on 1H23 results; Buy
n
AIA Group (1299.HK): First Take: VONB beats on broad-based growth momentum,
China margin improves; Buy
24
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Where we are different: Thomas is more positive on demand from the affluent
consumers in mainland China, reflected in his expectation of continued VONB growth
momentum in both mainland China and in HK (i.e. sales to MCV, mainland Chinese
visitors). He believes margin has likely bottomed out and should improve sequentially in
2H23 and 2024, driven by both growth in protection products and higher margin for
savings products.
Goldman Sachs
Buy
APAC Conviction List
Balance Sheet ($ mn) _____________________________________
AIA Group (1299.HK)
Rating since Dec 2, 2010
CL
Ratios & Valuation _______________________________________
ROE (%)
ROTE (%)
ROA (%)
ROEV (%)
Div. payout ratio (%)
P/E (X)
Dividend yield (%)
P/B (X)
P/NTA per share (X)
EVPS ($)
P/Embedded value (X)
12/22
6.6
6.3
1.1
(1.8)
12/23E
11.3
11.2
1.8
7.9
12/24E
16.6
16.4
2.4
13.2
12/25E
17.4
17.3
2.4
13.8
70.6
35.6
2.0
2.6
4.18
5.82
1.7
50.7
20.7
2.5
2.5
3.97
5.98
1.4
38.4
14.3
2.7
2.3
3.87
6.59
1.3
38.4
12.7
3.0
2.1
3.66
7.29
1.2
Growth & Margins (%) ____________________________________
12/23E
12/24E
12/25E
57.0
----
51.0
----
52.5
----
53.6
----
Price Performance _______________________________________
1299.HK (HK$)
Hang Seng Index
110
26,000
100
24,000
90
22,000
80
20,000
70
18,000
60
12/22
8,020.0
237,941.0
63,363.7
163,872.3
12/23E
8,421.0
244,584.0
63,628.7
170,014.4
12/24E
8,842.1
262,985.4
68,347.6
183,028.1
12/25E
9,284.2
283,827.0
73,745.7
197,819.1
Investments (excl. fixed income)
Net customer loans & advances
Net intangibles
Net PP&E
Other assets
Total assets
10,705.0
-3,277.0
2,844.0
10,589.0
270,471.0
10,941.0
-3,440.9
2,986.2
6,751.6
274,373.6
11,609.7
-3,612.9
3,135.5
7,067.3
294,242.6
12,262.2
-3,793.5
3,292.3
7,402.7
316,629.1
Insurance reserves
Customer deposits
Total debt
Other liabilities
Total liabilities
--11,206.0
22,790.0
225,323.0
--11,423.1
17,623.7
234,342.2
--11,652.7
18,247.5
252,741.6
--11,886.9
18,905.9
272,579.1
44,672.0
-476.0
45,148.0
39,546.0
-485.5
40,031.5
41,002.8
-498.2
41,501.0
43,537.8
-512.2
44,050.1
270,471.0
274,373.6
294,242.6
316,629.1
0.26
15.8
0.35
7.4
0.42
4.7
0.49
2.6
Total common equity
Other comprehensive income
Minorities / others
Total shareholders' equity
Total liabilities & equity
NBVPS ($)
New business multiple (X)
Source: Company data, Goldman Sachs Research estimates.
16,000
Jan-23
Apr-23
Absolute
Rel. to the Hang Seng Index
Jul-23
Oct-23
3m
(6.1)%
6m
(11.1)%
12m
(16.8)%
2.5%
(3.8)%
(7.4)%
Source: FactSet. Price as of 1 Dec 2023 close.
Income Statement ($ mn) __________________________________
12/22
--
12/23E
--
12/24E
--
12/25E
--
-0.0
--
-0.0
--
-0.0
--
-0.0
--
3,331.0
4,760.1
6,679.6
7,374.5
Investment income (pretax)
P&C other income
Non-life pre-tax result
P&C net profit
----
----
----
----
----
----
----
----
Other pre-tax profit
Other net profit
--
--
--
--
--
--
--
--
4,415.0
(28,593.0)
28,593.0
4,415.0
5,960.1
11,810.8
(11,810.8)
5,960.1
7,956.0
13,968.9
(13,968.9)
7,956.0
8,781.5
15,027.6
(15,027.6)
8,781.5
(1,050.0)
(34.0)
3,331.0
-3,331.0
(1,190.1)
(9.9)
4,760.1
-4,760.1
(1,263.3)
(13.1)
6,679.6
-6,679.6
(1,392.6)
(14.4)
7,374.5
-7,374.5
0.28
0.20
0.41
0.21
0.60
0.23
0.67
0.26
Life insurance income
Net invs income (life)
Life other income
Life pre-tax op. results
Life net profit
P&C gross written premium (GWP)
Non-life u.writing income
Total insurance income
Total investment income
Total other income
Pre-tax profit
Provision for taxes
Minorities / other
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) ($)
DPS ($)
4 December 2023
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Life new bus. margin (% of APE)
Life new bus. margin (% of PVP)
P&C combined ratio
Bank net interest margin
12/22
Cash & cash equivalents
Total investments
Equity investments
Debt investments
25
Goldman Sachs
APAC Conviction List
HDFC Bank - Synergies to drive substantial market share gains
Covered by Rahul Jain (rahul.m.jain@gs.com, +91 22 6616-9161)
HDBK.BO
Buy
12m Price Target: Rs2002
Price: Rs1555.5
GS Forecast
3/23
3/24E
3/25E
3/26E
441,085.8
599,471.3
792,049.3
959,699.3
79.05
79.07
104.47
126.58
18.6
0.0
32.1
21.2
India Financials P/E (X)
18.9
19.7
14.9
12.3
P/B (X)
3.0
2.7
2.4
2.1
M&A Rank: 3 ROA (%)
1.9
1.9
2.0
2.1
ROE (%)
17.0
16.7
16.9
18.0
Price/PPOP (X)
16.8
13.2
10.3
8.3
1.3
1.4
1.7
2.0
6/23
9/23
12/23E
3/24E
21.38
21.20
20.65
22.90
Market cap: Rs11.8tr / $141.6bn Net inc. (Rs mn)
3m ADTV: NA EPS (Rs)
India EPS growth (%)
Dividend yield (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 28.7%
EPS (Rs)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: HDFC Bank has potential to gain substantial market share in both lending
and deposits over the next few years, driven by expanding distribution network and
increasing cross-selling opportunities to existing customers. Rahul estimates it will
deliver top quartile earnings growth of c.22%+ in FY24E-26E driven by an 18% CAGR in
its loan book and improving return ratios (avg. ROA/ROE at c.2.0% and 16.6% over
FY24-26E). The stock trades 1 std dev below its LT mean-valuation, after adjusting SOTP
value for its group businesses, which Rahul sees as compelling.
n
Liabilities growth versus asset growth: HDFC Bank reported a loan deposit ratio
of 107% as of 2QFY24 after it merged with HDFC Ltd raising investor concerns on
both liquidity and cost of funds. However, Rahul expects HDFC Bank to grow its
deposit base at 21% CAGR over FY23-26E, a 400bps market share gain, driven by
both expanding distribution network and productivity gains.
n
Margin trajectory: Rahul forecasts NIMs to expand from 3.5% in FY24E on a
consolidated basis to c.3.8% by FY31E, driven by 1) changing loan book mix in favor
of retail loans, 2) cost efficiencies driven by cross-sell synergies, and, 3) realization
of benefits from distribution network expansion carried out in the last 5 years.
n
Return profile to improve: Rahul continues to model superior return ratios for
HDFC Bank including avg ROA of c.2.0% over FY24-FY26E. On ROE, he forecasts
an expansion back to c.18% by FY26E driven by improvement in NIMs, operating
leverage and balance sheet leverage, with long-term normalization at c.20%.
Where we are different: 1) Superior deposit growth key to story: The combination of
an expanding and maturing branch network (c.60% of existing branches <10 yrs old),
mortgage lending post merger with HDFC Ltd, and strong retail lending business should
help grow deposits at a CAGR of +21% over FY23-26E, stronger vs the system. 2)
4 December 2023
26
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
Operating leverage to improve; HDFC Bank to have best-in-class cost-to-income
ratios: Rahul estimates cost-to-income ratio will fall from c.41% in FY24E to c.37% by
FY26E and c.32% by FY31E, with shorter breakeven period for new branches with
increased product offerings (mortgage loans) and operating leverage. HDFC Bank will be
one of the best operating efficiency stories in the India Bank sector with the
cost-to-income gap to its closest peer ICICI Bank rising from 130bps to 820bps by
FY26E. 3) PPOP growth to be stronger than peer-banks: Rahul expects HDFC Bank
to deliver 23% CAGR PPOP growth in FY24E-26E vs. 11%/15% FY24E-FY26E at ICICI
Bank/Axis Bank, with FY25E operating profit ahead of VA consensus by +5%.
better than expected growth would allow the bank to have better control over its
margins as well as drive operating leverage.
Valuation: 12m SOTP-based TP of Rs2,002, c.2.8X FY24-FY25E standalone BVPS for
the banking business (c.90% of the value), HDFC Life contributes 5%, followed by HDB
Financial Services (NBFC), and rest from other subsidiaries.
Exhibit 19: HDFC Bank has managed to get higher incremental
market share gains across states in 1Q19-3Q23 vs FY15-1Q19 period
Exhibit 20: Rahul expects HDFC Bank’s investments in increasing
its distribution footprint should start bearing fruit from FY24E
onwards, widening the cost to income ratio differential vs ICICI
Bank to c820bps in FY26
Source: RBI, Govt. Website
Source: Company data, Goldman Sachs Global Investment Research
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Catalysts: 1) Consistency in deposit share and quality of deposits (CASA): A better
than forecast acceleration in deposit share gain could drive better than expected NIMs,
as well as alleviate cost of funds concerns. 2) NIM improvement: Better-than-expected
or sooner-than-expected improvement in NIMs could act as a catalyst for the company Rahul expects margins to improve from FY25E onwards. 3) Loan growth acceleration:
Rahul models loan growth to remain healthy at 18% CAGR over FY23-FY26E; however,
Relevant Research:
4 December 2023
n
HDFC Bank: The Rise of a Giant; Returns/Growth Outlook Positive; Reinstate at Buy
n
HDFC Bank: Head-to-Head Comparison: HDFC vs ICICI; HDFC at inflection point
27
Goldman Sachs
Income Statement (Rs mn) _________________________________
HDFC Bank (HDBK.BO)
Rating since Jun 21, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
Price/PPOP (X)
P/B (X)
P/NTA per share (X)
3/23
18.9
16.8
3.0
2.98
3/24E
19.7
13.2
2.7
2.69
3/25E
14.9
10.3
2.4
2.37
3/26E
12.3
8.3
2.1
2.07
Dividend yield (%)
Div. payout ratio (%)
1.3
24.0
1.4
27.7
1.7
25.0
2.0
25.0
Growth & Margins (%) ____________________________________
BVPS growth
Total revenue growth
Op. profit growth
Net inc growth
EPS growth
3/23
16.0
16.3
9.9
19.3
18.6
3/24E
15.0
28.2
27.0
35.9
0.0
3/25E
13.7
23.9
28.1
32.1
32.1
3/26E
14.6
19.9
23.8
21.2
21.2
DPS growth
22.6
15.2
19.4
21.2
For the exclusive use of MATTHEW.X.WONG@GS.COM
Asset Quality ___________________________________________
Provision charge/total loans (%)
Gr impaired assets/total loans (%)
NPL ratio (%)
Total provisions/total loans (%)
3/23
0.7
1.1
1.1
0.8
3/24E
0.4
1.4
1.4
1.1
3/25E
0.4
1.3
1.3
1.1
3/26E
0.5
1.3
1.3
1.0
Specific prov/gr impair assets (%)
Loan loss reserve/NPLs (%)
75.8
75.8
80.1
80.1
79.6
79.6
74.7
74.7
Capital Item ____________________________________________
3/23
0.0
17.1
Basel 3 CET1 ratio (%)
Tier 1 capital ratio (%)
3/24E
17.3
18.8
3/25E
17.0
18.6
3/26E
16.8
18.4
Price Performance _______________________________________
HDBK.BO (Rs)
India BSE30 Sensex
1,900
80,000
1,800
75,000
1,700
70,000
1,600
65,000
1,500
60,000
1,400
55,000
Jan-23
Absolute
Rel. to the India BSE30 Sensex
Apr-23
Jul-23
Oct-23
3m
(1.2)%
(4.3)%
6m
(3.0)%
(10.3)%
12m
(3.9)%
(9.9)%
Source: FactSet. Price as of 1 Dec 2023 close.
3/23
868,422.4
238,440.0
(13,411.0)
87,118.0
3/24E
1,084,819.6
286,723.9
30,930.0
111,553.5
3/25E
1,356,950.1
352,000.8
30,930.0
126,973.0
3/26E
1,638,179.4
418,880.9
30,930.0
151,064.1
Total revenue
Compensation & benefits exp.
Non-employee costs
Pre-provision op. profit
Provision for loans
Total provision expense
Income/(loss) from associates
1,180,569.4
(155,123.6)
(334,257.4)
704,048.5
(119,196.7)
(119,196.7)
--
1,514,027.0
(211,312.4)
(425,262.2)
893,974.2
(107,874.4)
(107,874.4)
--
1,875,853.8
(262,444.4)
(487,919.8)
1,145,020.1
(121,909.4)
(121,909.4)
--
2,249,404.4
(304,072.9)
(550,556.7)
1,417,106.6
(162,597.7)
(162,597.7)
--
Pre-tax profit
Provision for taxes
Minority interest
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rs)
EPS (diluted, pre-except) (Rs)
EPS (basic, post-except) (Rs)
EPS (diluted, post-except) (Rs)
584,851.8
(143,766.0)
0.0
441,085.8
-441,085.8
79.05
--79.05
786,099.9
(186,628.6)
0.0
599,471.3
-599,471.3
79.07
--79.07
1,023,110.7
(231,061.4)
0.0
792,049.3
-792,049.3
104.47
--104.47
1,254,508.9
(294,809.6)
0.0
959,699.3
-959,699.3
126.58
--126.58
Wtd avg shares out. (diluted) (mn)
Avg. yield on loans (%)
Gr yld. on int. earning assets (%)
Cost of fund (%)
Net interest margin (%)
5,579.7
8.6
7.5
3.9
3.8
7,581.8
9.3
8.9
5.7
3.5
7,581.8
9.3
8.4
5.3
3.6
7,581.8
9.1
8.3
5.0
3.7
Net interest income
Net fees
Treasury income
Other operating income
Balance Sheet (Rs mn) ____________________________________
3/24E
7,639,850.1
5,302,481.6
3/25E
9,358,816.4
6,250,329.2
3/26E
11,230,579.6
7,440,033.4
Domestic commercial lending
Total overseas lending, gross
Gross loans to customers
Total NPLs, gross
9,738,892.7 12,882,167.6
0.0
0.0
16,142,365.0 26,074,621.0
180,190.3
366,043.5
14,868,196.6
0.0
30,801,157.0
406,794.8
17,462,200.0
0.0
36,497,277.3
487,766.5
Total loan loss reserve
Net customer loans & advances
Other interest earning assets
Interest earning assets
136,506.0
293,337.4
16,005,859.0 25,824,499.3
181,501.4
587,627.6
23,111,496.6 35,019,901.8
323,814.8
30,477,342.2
587,627.6
40,624,357.1
364,464.2
36,132,813.1
587,627.6
47,472,745.4
Other non-int. earning assets
Total assets
Risk weighted assets
CASA deposits
1,549,318.2 2,139,061.5
24,660,814.9 37,158,963.3
16,105,553.5 23,026,101.9
2,734,960.0 3,197,403.3
2,331,104.1
42,955,461.2
26,582,263.2
3,773,484.7
2,541,182.6
50,013,928.0
30,914,561.3
4,559,737.1
Non-CASA deposits
Customer deposits
Other paying liabilities
Other liabilities
16,098,986.5 21,194,327.3
18,833,946.5 24,391,730.6
117,907.6
333,988.0
839,314.9
933,163.1
25,577,384.3
29,350,869.0
317,288.6
979,821.2
31,241,339.3
35,801,076.4
301,424.2
1,028,812.3
Total liabilities
Total shareholders' equity
Total liabilities & equity
BVPS (Rs)
21,858,824.7 32,780,419.1
2,801,990.2 4,378,544.2
24,660,814.9 37,158,963.3
502.18
577.51
37,978,930.7
4,976,530.5
42,955,461.2
656.38
44,309,352.9
5,704,575.2
50,013,928.0
752.40
61.9
61.8
Domestic mortgages
Domestic non-mortgages
RWA/assets (%)
3/23
1,020,670.0
5,246,296.3
65.3
62.0
Profit Drivers ___________________________________________
3/23
3/24E
3/25E
3/26E
Net customer loan growth (%)
Net interest margin (%)
Fee income ratio (%)
Cost/income (ex. goodwill) (%)
Tax rate (%)
CASA ratio (%)
16.9
3.8
26.1
40.4
24.6
14.5
61.3
3.5
28.9
41.0
23.7
13.1
18.0
3.6
28.1
39.0
22.6
12.9
18.6
3.7
27.6
37.0
23.5
12.7
Net cust. loans/deposits (%)
85.0
105.9
103.8
100.9
Profitability _____________________________________________
Op. revenue/avg. assets (%)
Op. expenses/avg. assets (%)
Pre-provision ROA (%)
Loan loss prov./avg. assets (%)
Pre-tax profit/avg. assets (%)
Prov. for inc. tax/avg. assets (%)
3/23
5.2
2.1
3.1
0.5
2.6
0.6
3/24E
4.9
2.0
2.9
0.3
2.5
0.6
3/25E
4.7
1.8
2.9
0.3
2.6
0.6
3/26E
4.8
1.8
3.0
0.3
2.7
0.6
ROA (%)
Leverage (X)
ROE (%)
ROE (pre-except.) (%)
1.9
8.8
17.0
17.0
1.9
8.5
16.7
16.7
2.0
8.6
16.9
16.9
2.1
8.8
18.0
18.0
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
28
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
MUFG - Rates and reform driven upside
Covered by Makoto Kuroda (makoto.kuroda@gs.com, +81 3 6437-9920)
8306.T
Buy
12m Price Target: ¥1520
Price: ¥1273
GS Forecast
Market cap: ¥15.3tr / $103.7bn Net inc. (¥ bn)
3/23
3/24E
3/25E
3/26E
1,116.5
1,321.1
1,359.9
1,381.3
90.7
111.3
116.2
118.0
2.6
22.7
4.3
1.6
8.6
11.4
11.0
10.8
3m ADTV :¥100.4bn/ $673.6mn EPS (¥)
Japan EPS growth (%)
Japan Financials P/E (X)
P/B (X)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 19.4%
0.5
0.8
0.8
0.7
M&A Rank: 3 ROA (%)
0.3
0.3
0.3
0.3
ROE (%)
6.5
7.4
7.3
7.1
Price/PPOP (X)
9.6
9.2
9.1
9.0
Dividend yield (%)
4.1
3.2
3.3
3.3
9/23
12/23E
3/24E
6/24E
30.7
29.9
3.4
25.1
EPS (¥)
Core thesis: Makoto sees MUFG’s profit momentum as strong, due in part to improved
overseas interest spreads, but also growth in loan-related fees and treasury earnings.
Domestically, whilst potential BOJ policy action will be on investors’ minds into 2024,
ROE is already rising from self-help initiatives including improving loan book NIMs,
adjustments to business risk and reduction in cross-shareholdings. The improvement in
total shareholder returns through buybacks and dividends should continue, with
above-target CET1, relatively clean balance sheet (1.1% NPL ratio), and tailwinds from
TSE corporate governance reform. MUFG’s new midterm plan for FY3/27, due to be
announced in May 2024, should offer further details on this next stage of ROE
improvement. Apart from interest rate upside, Makoto also expects continued strength
in domestic/overseas corporate business & treasury/ALM, as well as recovery in Asia
subsidiaries and capital markets to drive FY3/25E earnings.
Key debates:
n
Next mid-term plan: This is a key focus event, with the market awaiting details on
ROE targets/profit levels for the next three years. While equity method profit
contribution from MS may slow down next FY, Makoto sees offsetting rise from
cross-shareholding unwinds, loan NIM improvement, improved fee income, recovery
at its ASEAN subsidiaries.
n
4 December 2023
Interest rate rises: BOJ interest rate outlook, potential yield curve shape and impact
on bank’s P/L and B/S are key discussions into potential BOJ interest rate
normalization post-shunto wage hikes. Notably, MUFG has short-dated JGBs that
can be repriced faster and a sophisticated treasury book; MUFG has raised term
deposit rates but 84% of deposits are ordinary deposits that Makoto believes are
unlikely to reprice given their low beta going into NIRP suggests low beta on the
way up.
29
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
Where we are different: Makoto’s detailed sensitivity analysis of banks’ profits on
various yield curve scenarios suggest that the market may be underappreciating
MUFG’s sensitivity to a potential rise in yen rates, and the benefit from higher recurring
income as its shorter-duration JGBs and loans repricing more than deposits.
Catalysts: Macro - BOJ monetary policy meetings, BOJ operations (reduction in JGB
purchase amount), wage & inflation data. Fundamentals - new mid-term plan
announcement in May, which Makoto believes may include details on growth
investment, and an ROE target higher than 7.5% on a self-help basis before factoring in
higher yen rates; a path toward 9-10% long-term ROE.
Valuation: 12m TP of ¥1,520 is based on a target P/B of 0.93X and end-FY3/25E BPS
estimate of ¥1,635.
Exhibit 21: Large corporate loan spreads improving
SMFG
Mizuho
CAB reinvest in JGBs
ST yield rise to 0.1%
LT yield rises to 1.3%
ROE path without rate rise
12.0%
10.0%
0.7%
8.0%
0.6%
0.4%
0.6%
1.3%
6.0%
4.0%
0.5%
8.0%
2.0%
0.4%
0.0%
0.3%
0.2%
Source: Company data, Goldman Sachs Global Investment Research
Midte…
MUFG
FY3/12
FY3/13
FY3/14
FY3/15
FY3/16
FY3/17
FY3/18
FY3/19
FY3/20
FY3/21
FY3/22
FY3/23
FY3/…
FY3/…
FY3/…
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
Japan Banks: Implications of YCC adjustment
n
MUFG (8306.T): Earnings Review: 2Q above expectations; FY23 guidance
unchanged, but announces Y400bn share buyback; Buy
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
0.8%
Exhibit 22: Megabanks’ ROEs on the rise
30
Goldman Sachs
Income Statement (¥ bn) __________________________________
MUFG (8306.T)
CL
Rating since Dec 15, 2022
Ratios & Valuation _______________________________________
P/E (X)
Price/PPOP (X)
P/B (X)
P/NTA per share (X)
3/23
8.6
9.6
0.5
--
3/24E
11.4
9.2
0.8
--
3/25E
11.0
9.1
0.8
--
3/26E
10.8
9.0
0.7
--
Dividend yield (%)
Div. payout ratio (%)
4.1
35.3
3.2
36.8
3.3
36.2
3.3
35.6
Growth & Margins (%) ____________________________________
BVPS growth
Total revenue growth
Op. profit growth
Net inc. growth
EPS growth
3/23
6.2
13.6
31.0
(1.3)
2.6
3/24E
8.9
(1.1)
4.9
18.3
22.7
3/25E
4.8
1.1
0.4
2.9
4.3
3/26E
4.6
4.3
1.6
1.6
1.6
DPS growth
14.3
28.1
2.4
0.0
For the exclusive use of MATTHEW.X.WONG@GS.COM
Asset Quality ___________________________________________
Provision charge/total loans (%)
Gr impaired assets/total loans (%)
NPL ratio (%)
Total provisions/total loans (%)
3/23
0.6
-NM
--
3/24E
0.4
-NM
--
3/25E
0.3
-NM
--
3/26E
0.3
-NM
--
Specific prov/gr impair assets (%)
Loan loss reserve/NPLs (%)
-NM
-NM
-NM
-NM
Capital Item ____________________________________________
3/23
---
Basel 3 CET1 ratio (%)
Tier 1 capital ratio (%)
3/24E
---
3/25E
---
3/26E
---
Price Performance _______________________________________
8306.T (¥)
TOPIX
1,600
2,800
1,400
2,600
1,200
2,400
1,000
2,200
800
2,000
600
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
7.6%
6.1%
6m
32.1%
19.1%
12m
70.2%
41.9%
Source: FactSet. Price as of 1 Dec 2023 close.
Net interest income
Net fees
Treasury income
Other operating income
Total revenue
Compensation & benefits exp.
Non-employee costs
Pre-provision op. profit
Provision for loans
Total provision expense
Income/(loss) from associates
Pre-tax profit
Provision for taxes
Minority interest
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
Wtd avg shares out. (diluted) (mn)
Avg. yield on loans (%)
Gr yld. on int. earning assets (%)
Cost of fund (%)
Net interest margin (%)
3/23
2,907.5
1,695.4
372.1
(472.0)
3/24E
2,434.8
1,731.5
266.2
20.0
3/25E
2,524.4
1,729.9
224.0
24.5
3/26E
2,717.1
1,733.0
224.0
24.5
4,503.0
-(2,908.7)
1,594.3
(674.8)
(674.8)
425.8
4,452.5
-(2,780.7)
1,671.8
(414.0)
(414.0)
385.3
4,502.8
-(2,824.9)
1,677.9
(307.4)
(307.4)
350.0
4,698.6
-(2,993.9)
1,704.8
(309.2)
(309.2)
350.0
1,569.9
(369.6)
-1,116.5
-1,116.5
90.7
90.7
90.7
90.7
1,815.5
(419.5)
-1,321.1
-1,321.1
111.3
111.3
111.3
111.3
1,919.9
(480.0)
-1,359.9
-1,359.9
116.2
116.2
116.2
116.2
1,948.4
(487.1)
-1,381.3
-1,381.3
118.0
118.0
118.0
118.0
12,305.7
-----
11,864.9
-----
11,706.2
-----
11,706.2
-----
Balance Sheet (¥ bn) _____________________________________
3/23
---
3/24E
---
3/25E
---
3/26E
---
-----
-----
-----
-----
Total loan loss reserve
Net customer loans & advances
Other interest earning assets
Interest earning assets
-109,146.3
86,746.9
309,523.3
-111,993.3
90,449.9
311,068.6
-114,173.0
94,325.7
317,124.1
-115,614.0
94,325.7
318,565.1
Other non-int. earning assets
Total assets
Risk weighted assets
CASA deposits
77,276.1
386,799.5
---
90,389.0
401,457.6
---
91,675.5
408,799.6
---
92,525.9
411,091.1
---
Non-CASA deposits
Customer deposits
Other paying liabilities
Other liabilities
-213,609.5
13,632.6
125,575.8
-216,751.3
16,274.2
132,682.4
-219,970.0
16,515.9
135,695.7
-222,424.0
16,700.2
134,459.2
Total liabilities
Total shareholders' equity
Total liabilities & equity
BVPS (¥)
368,526.6
18,272.9
386,799.5
1,433.1
382,087.8
19,369.8
401,457.6
1,561.1
388,561.6
20,238.1
408,799.6
1,635.3
389,963.4
21,127.7
411,091.1
1,711.3
--
--
--
--
Domestic mortgages
Domestic non-mortgages
Domestic commercial lending
Total overseas lending, gross
Gross loans to customers
Total NPLs, gross
RWA/assets (%)
Profit Drivers ___________________________________________
3/23
3/24E
3/25E
3/26E
Net customer loan growth (%)
Net interest margin (%)
Fee income ratio (%)
Cost/income (ex. goodwill) (%)
Tax rate (%)
CASA ratio (%)
(1.2)
-NM
64.6
23.5
--
2.6
-NM
62.5
23.1
--
1.9
-NM
62.7
25.0
--
1.3
-NM
63.7
25.0
--
Net cust. loans/deposits (%)
51.1
51.7
51.9
52.0
Profitability _____________________________________________
Op. revenue/avg. assets (%)
Op. expenses/avg. assets (%)
Pre-provision ROA (%)
Loan loss prov./avg. assets (%)
Pre-tax profit/avg. assets (%)
Prov. for inc. tax/avg. assets (%)
3/23
1.2
0.8
0.4
0.2
0.4
0.1
3/24E
1.1
0.7
0.4
0.1
0.5
0.1
3/25E
1.1
0.7
0.4
0.1
0.5
0.1
3/26E
1.1
0.7
0.4
0.1
0.5
0.1
ROA (%)
Leverage (X)
ROE (%)
ROE (pre-except.) (%)
0.3
21.2
6.5
6.2
0.3
20.7
7.4
7.0
0.3
20.2
7.3
6.9
0.3
19.5
7.1
6.7
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
31
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Oversea-Chinese Banking Corp - Shareholder returns inflection
Covered by Melissa Kuang (melissa.kuang@gs.com, +65 6889-2869)
OCBC.SI
Buy
12m Price Target: S$15.5
Price: S$12.64
GS Forecast
Market cap: S$57.1bn / $42.7bn Net inc. (S$ mn)
12/22
12/23E
12/24E
12/25E
5,748.0
7,233.3
7,447.9
7,344.5
3m ADTV :S$54.9mn/ $40.4mn EPS (S$)
1.27
1.60
1.65
1.63
18.3
25.8
3.0
(1.4)
Asean Financials P/E (X)
9.5
7.9
7.7
7.8
P/B (X)
1.1
1.1
1.0
1.0
M&A Rank: 3 ROA (%)
1.0
1.3
1.2
1.2
ROE (%)
12.8
Singapore EPS growth (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 22.6%
11.2
13.9
13.7
Price/PPOP (X)
8.6
6.9
6.9
7.0
Dividend yield (%)
5.6
6.7
7.2
7.4
9/23
12/23E
3/24E
6/24E
0.40
0.41
0.43
0.42
EPS (S$)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: OCBC is a self-help story. The company has started to show its willingness
to return capital to shareholders (new dividend policy of a minimum 50% payout),
optimise its capital structure and reduce the drag on ROEs. According to Melissa, this
should drive a narrowing of the valuation gap with peers with OCBC currently trading at
1-year forward P/B discount to peers of -12%. In a blue sky scenario, where OCBC fully
pares its excess capital of S$5bn (8.7% of OCBC’s market cap and 87% of 2023E net
income), Melissa sees Group ROEs rising to 15.1% in 2024E from her current forecast
of 13.7%.
n
Willingness to pay: Underpinned by her deep dive analysis into OCBC, Melissa
argues this change around capital management is underestimated by the market.
The next-step is for OCBC to increase its core payout to reduce the build up in
excess capital at both OCBC and GEH. She forecasts dividend payout ratios to rise
to 58% by 2025E from 53% in 2022.
n
OCBC Bank capability to pay: Melissa sees OCBC Bank as able to further lift
dividends closer to 70% to maintain a more stable CET1 ratio. OCBC Bank is capital
generative given its decent profitability, muted loan growth as well as its low
dividend payout ratio. Melissa’s analysis shows over the next three years, a move
towards 70% dividend payout ratio for the bank entity assuming 2.5% CAGR in loan
growth in 2023-2025E would see it better able to cap the rise in CET1 to prevent
further drag on its ROEs.
Where we are different: GEH to support OCBC dividend policy, given robust capital
levels. GEH has been a drag on OCBC’s dividend payout given its lower dividend payout
of 28-39% over the last five years while accounting for 11-22% of total group net
income. Melissa forecasts the dividend payout to rise to 60% by 2025 as: (1) profitability
4 December 2023
32
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
improves with ROEs rising supported by higher investment returns given the higher
interest rate environment, (2) solvency/CET1 ratios remain robust at its local entities,
and (3) importantly, its increased willingness to pay as evident from the raising of its
interim dividend to S$0.35, a 38% payout ratio, from S$0.10 in 1H22, a 21% payout.
GEH changed the dividend policy at 1H23 to one that will be progressive and in line with
profit trends vs a steady dividend policy based on sustainable profit levels in the past.
Furthermore, there is S$2.4bn of surplus capital held at the Hold Co level sitting on
GEH’s balance sheet, weighing on its ROEs.
Valuation: 12m TP of S$15.50 is based on 2-staged DDM model.
Exhibit 23: Excess capital of S$5.0bn, 8.7% of market cap, could
lead to 1.4ppt uplift in 2024 ROE if pared back
ROE
GEH excess
Excess capital as% of market cap
%
18
DBS: 4.7%
ROE uplift with excess liquiditiy paid out
GEH deduction on CET1
12
16.3
10
20
13
10
12
-
11
(10)
10
(20)
9
UOB: 1.4%
0.6
0.6
0.8
14
Asset to equity
(x)
14
ROA (%)
30
OCBC: 5.1%
GEH: 3.6%
1.1
16
Exhibit 24: While group asset to equity ratio has fallen to a low,
OCBC bank standalone has closed the ROA gap to DBS since 2022
0.2
17.4%
15.1%
13.7
13.7
14.0%
8
(30)
8
2013
6
DBS
OCBC
UOB
For DBS, Melissa reversed the -$2.5bn hit to equity from cash flow hedges
2014 2015 2016 2017
Asset to equity (OCBC, RHS)
2018
2019
2020 2021 2022 9M23
ROA gap (OCBC ex GEH - UOB)
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Catalysts: 1) Any further clarity on the pace of capital repatriation from OCBC or Great
Eastern. 2) Announcement of OCBC’s final dividend in Feb 2024 - Melissa views a 2023
final dividend payout at similar levels to 2022 levels of 53% or higher will be positive and
demonstrate OCBC’s willingness to return to shareholders. 3) Announcement of GEH
final dividend in Feb 2024. Melissa views a higher payout of min 50% earnings inline
with OCBC’s new dividend policy from its historical 28-39% would lift the ability for
OCBC to raise its dividend payout.
ROA gap (OCBC ex GEH - DBS)
Source: Company data, Goldman Sachs Global Investment Research
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
OCBC: Higher dividends to close the valuation gap; reiterate Buy
n
OCBC: 3Q23 Earnings Review: Running on track, still potential for higher capital
payout
n
OCBC: Potential for more capital returns still there; PTBC deal small
33
Goldman Sachs
Income Statement (S$ mn) _________________________________
Oversea-Chinese Banking Corp. (OCBC.SI)
Rating since May 2, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
Price/PPOP (X)
P/B (X)
P/NTA per share (X)
Dividend yield (%)
Div. payout ratio (%)
12/22
9.5
8.6
1.1
--
12/23E
7.9
6.9
1.1
--
12/24E
7.7
6.9
1.0
--
12/25E
7.8
7.0
1.0
--
5.6
53.4
6.7
53.1
7.2
55.2
7.4
57.8
Growth & Margins (%) ____________________________________
BVPS growth
Total revenue growth
Op. profit growth
Net inc growth
EPS growth
DPS growth
12/22
(0.1)
10.2
14.0
18.3
18.3
12/23E
2.2
16.4
24.6
25.8
25.8
12/24E
6.4
2.2
0.5
3.0
3.0
12/25E
5.8
0.4
(2.1)
(1.4)
(1.4)
28.3
25.0
7.1
3.3
For the exclusive use of MATTHEW.X.WONG@GS.COM
Asset Quality ___________________________________________
Provision charge/total loans (%)
Gr impaired assets/total loans (%)
NPL ratio (%)
Total provisions/total loans (%)
12/22
0.2
1.1
1.1
1.2
12/23E
0.2
1.0
1.0
1.1
12/24E
0.2
1.1
1.1
1.1
12/25E
0.2
1.1
1.1
1.1
Specific prov/gr impair assets (%)
Loan loss reserve/NPLs (%)
38.7
103.8
24.6
112.8
12.7
104.0
4.6
94.6
Capital Item ____________________________________________
12/22
-15.9
Basel 3 CET1 ratio (%)
Tier 1 capital ratio (%)
12/23E
-15.7
12/24E
-16.2
12/25E
-16.5
Price Performance _______________________________________
OCBC.SI (S$)
FTSE Straits Times Index
14.0
3,500
13.5
3,400
13.0
3,300
12.5
3,200
12.0
3,100
11.5
3,000
Jan-23
Apr-23
Absolute
Rel. to the FTSE Straits Times Index
Jul-23
3m
0.7%
5.4%
Oct-23
6m
3.4%
5.9%
12m
2.3%
9.1%
Source: FactSet. Price as of 1 Dec 2023 close.
12/22
7,688.0
1,851.0
(206.0)
1,028.0
12/23E
9,581.2
1,749.2
0.0
1,147.0
12/24E
9,488.1
1,924.1
0.0
1,201.8
12/25E
9,103.1
2,193.5
0.0
1,225.9
Total revenue
Compensation & benefits exp.
Non-employee costs
Pre-provision op. profit
Provision for loans
Total provision expense
Income/(loss) from associates
11,675.0
(3,233.0)
(1,793.0)
6,649.0
(505.0)
(584.0)
978.0
13,589.8
-(5,302.4)
8,287.4
(643.1)
(656.1)
1,022.0
13,892.8
-(5,567.6)
8,325.3
(723.4)
(723.4)
1,114.0
13,942.7
-(5,790.3)
8,152.4
(746.9)
(746.9)
1,192.0
Pre-tax profit
Provision for taxes
Minority interest
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (S$)
EPS (diluted, pre-except) (S$)
EPS (basic, post-except) (S$)
EPS (diluted, post-except) (S$)
6,939.0
(1,057.0)
-5,748.0
-5,748.0
1.27
--1.27
8,549.3
(1,147.3)
-7,233.3
-7,233.3
1.60
--1.60
8,611.8
(990.4)
-7,447.9
-7,447.9
1.65
--1.65
8,493.5
(976.8)
-7,344.5
-7,344.5
1.63
--1.63
Wtd avg shares out. (diluted) (mn)
Avg. yield on loans (%)
Gr yld. on int. earning assets (%)
Cost of fund (%)
Net interest margin (%)
4,515.0
3.0
2.8
1.0
1.8
4,515.0
4.9
4.7
2.8
2.2
4,515.0
4.9
4.7
2.9
2.1
4,515.0
4.6
4.3
2.7
1.9
Net interest income
Net fees
Treasury income
Other operating income
Balance Sheet (S$ mn) ____________________________________
12/22
62,015.0
34,752.0
12/23E
63,185.2
33,222.8
12/24E
64,740.8
34,040.7
12/25E
67,341.0
35,407.9
Domestic commercial lending
Total overseas lending, gross
Gross loans to customers
Total NPLs, gross
179,157.0
-294,980.0
3,383.0
182,717.2
-297,757.3
3,027.8
187,215.9
-305,088.3
3,254.9
194,735.1
-317,341.6
3,544.3
Total loan loss reserve
Net customer loans & advances
Other interest earning assets
Interest earning assets
3,513.0
291,467.0
53,794.0
427,567.0
3,415.2
294,513.1
61,620.2
445,992.1
3,385.1
301,874.2
61,590.1
459,506.4
3,353.9
314,158.7
61,558.9
474,407.8
Other non-int. earning assets
Total assets
Risk weighted assets
CASA deposits
132,389.0
559,956.0
231,648.0
181,281.0
140,118.5
586,110.6
246,669.4
169,972.1
148,368.0
607,874.4
255,828.8
175,071.2
157,196.9
631,604.7
265,815.9
185,575.5
Non-CASA deposits
Customer deposits
Other paying liabilities
Other liabilities
168,800.0
350,081.0
212.0
28,065.0
199,839.3
369,811.4
292.0
29,944.1
205,834.5
380,905.7
292.0
29,944.1
208,043.1
393,618.6
292.0
29,944.1
Total liabilities
Total shareholders' equity
Total liabilities & equity
BVPS (S$)
505,288.0
54,668.0
559,956.0
11.38
530,925.6
55,185.0
586,110.6
11.63
549,131.4
58,742.9
607,874.4
12.38
569,453.6
62,151.0
631,604.7
13.10
41.4
42.1
42.1
42.1
Domestic mortgages
Domestic non-mortgages
RWA/assets (%)
Profit Drivers ___________________________________________
12/22
12/23E
12/24E
12/25E
Net customer loan growth (%)
Net interest margin (%)
Fee income ratio (%)
Cost/income (ex. goodwill) (%)
Tax rate (%)
CASA ratio (%)
1.8
1.8
NM
42.2
15.2
51.8
1.0
2.2
NM
38.3
13.4
46.0
2.5
2.1
NM
39.3
11.5
46.0
4.1
1.9
NM
40.8
11.5
47.1
Net cust. loans/deposits (%)
83.3
79.6
79.3
79.8
Profitability _____________________________________________
Op. revenue/avg. assets (%)
Op. expenses/avg. assets (%)
Pre-provision ROA (%)
Loan loss prov./avg. assets (%)
Pre-tax profit/avg. assets (%)
Prov. for inc. tax/avg. assets (%)
ROA (%)
Leverage (X)
ROE (%)
ROE (pre-except.) (%)
12/22
2.1
0.9
1.2
0.1
1.3
0.2
12/23E
2.4
0.9
1.4
0.1
1.5
0.2
12/24E
2.3
0.9
1.4
0.1
1.4
0.2
12/25E
2.2
0.9
1.3
0.1
1.4
0.2
1.0
10.2
11.2
10.5
1.3
10.6
13.9
13.2
1.2
10.3
13.7
13.1
1.2
10.2
12.8
12.2
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
34
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
China Medical System - A new product cycle ahead
Covered by Ziyi Chen (ziyi.chen@gs.com, +852 2978-0526)
0867.HK
Buy
12m Price Target: HK$18.88
Price: HK$15
GS Forecast
12/22
12/23E
12/24E
12/25E
9,150.3
8,837.1
9,383.0
11,087.8
3,887.0
3,726.5
3,827.9
4,480.9
1.33
1.33
1.40
1.64
China P/E (X)
7.5
10.3
9.8
8.4
China Pharma, Biotech & Medtech P/B (X)
1.7
2.0
1.8
1.6
Market cap: HK$37.1bn / $4.7bn Revenue (Rmb mn)
Enterprise value: HK$32.8bn / $4.2bn EBITDA (Rmb mn)
3m ADTV :HK$40.1mn/ $5.1mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: No CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 25.9%
5.2
3.8
4.0
4.7
(0.7)
(1.1)
(1.4)
(1.6)
29.1
25.0
24.5
26.4
FCF yield (%)
12.2
8.1
8.0
8.6
6/23
12/23E
6/24E
12/24E
EPS (Rmb)
0.78
0.54
0.72
0.68
Core thesis: Ziyi expects CMS’ revenue/earnings growth to accelerate from flattish in
2023 to 15-20% in 2025 and beyond, driven by: 1) a new product cycle built on a
license-in focused pipeline - three new products approved in ‘23, likely four more in
‘24/’25; and 2) overhang removal for its three core products (Deanxit/Plendil/Ursofalk,
collectively accounting for 50% of the revenue in 2022) exposed to drug volume-based
procurement (VBP), which leads to notable product sales decline. Ziyi expects their
dermatology/aesthetics portfolio to become a new driver, growing at a 3-year CAGR of
45%+ along with new product launches. With ROE staying at 20%+, consistent
dividend payout at 40% and earnings near inflection, valuation (trading at 9x 2024 PE vs.
average HK-listed pharma peers 15x) is attractive.
Key debates:
4 December 2023
n
Will earnings bottom in 2H23/1H24? Three key legacy products’ post-VBP sales
performance is critical to earnings in 2023/24 as they collectively contributed c.50%
of revenue/profit in 2022. While there are investor concerns on the company’s
capacity to meet the guidance of retaining 50% of pre-VBP sales for the three core
drugs, Ziyi sees higher probability given: 1) the smooth execution demonstrated for
Deanxit, with 65% of pre-VBP volume/60% of sales retained after VBP result
became effective in late November 2022; and 2) Plendil/Ursofalk see higher chances
of achieving the target given their similarities to Deanxit’s brand profile (25+ years of
marketing in China)/channel mix (30-40% of sales from retail channel).
n
Can some of the pipeline value be unlocked? After five years of pipeline build-up,
2023 marks the year for CMS to start a new product cycle. However, there are
market concerns over the company’s ability to deliver commercial success given the
lack of meaningful new launches in recent years. Ziyi is more confident, with the
company’s expanding commercial franchise (8 marketed products, 600+ sales reps,
35
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
a network of 20+ dermatologists/10k+ institutions) for dermatology/aesthetics under
a new brand ‘CMS Aesthetics’ paving the way for solid commercial execution.
Where we are different: 1) Pipeline value – Ziyi uses DCF valuation for newly-launched
products and near-commercial candidates, including Ilumetri and Opzelura with peak
sales of Rmb1.5bn/2bn, respectively, and upside option from an earlier stage pipeline
once the regulatory pathway is more visible; 2) Expectations on sales outlook for
core drugs post VBP - Ziyi’s analysis indicates a higher probability than what the market
expects on CMS’ management guidance of retaining 50%+ of pre-VBP sales, given the
company’s consistent VBP strategy since 2019, execution track record on Deanxit and
branded drug’s post VBP performance in the past (link).
Valuation: 12m TP of HK$18.88 is derived from: 1) valuation of Rmb39.1bn for legacy
products based on a 5-year exit P/E of 9.6x (average FY24E P/E of global generic peers)
and 2) DCF-based value of Rmb4.2bn for the innovative drug pipeline.
Exhibit 25: Ziyi expects revenue / earnings growth to bottom out in
2023
Exhibit 26: Derma/Aesthetics to contribute 47% of 3-year
incremental revenue
Revenue / earnings growth of CMS (2018-2025E)
Dissection of 2022-2025E revenue growth by therapeutic category
Three core VBP products
Non-VBP assets
New Therapeutics
Consumer Health
Revenue yoy
OP yoy
12
10
25%
Others
Ophthalmology
20%
15%
8
CCV
GI
Derma
+
Aesthetics
10%
6
Derma / Aesthetics contribute 47% of the
incremental revenue generated between
2022 and 2025E (GS estimates)
5%
4
0%
2
-5%
-
-10%
Revenue
(2022)
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Catalysts: 1) 2023 NRDL negotiation results for newly approved products, particularly
Ilumetri; 2) sales/earnings performance in 2H23 post implementation of 8th batch VBP
and amid industry-wide anti-corruption measures; 3) meaningful regulatory progress of
ruxolitinib cream in China.
Revenue
(2025E)
2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E
Source: Company data, Goldman Sachs Global Investment Research
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
China Medical System Holdings (0867.HK): A new product cycle ahead to drive
3-year earnings acceleration; upgrade to Buy
4 December 2023
n
China Medical System Holdings (0867.HK): APAC Healthcare Corporate Day 2023 —
Key Takeaways: In-line post VBP performance; Guidance maintained
n
China Medical System Holdings (0867.HK): Earnings Review: Deanxit delivered
guided post-VBP sales in 1H; full year guidance maintained
36
Goldman Sachs
Income Statement (Rmb mn) _______________________________
China Medical System Holdings (0867.HK)
Rating since Oct 5, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
12/22
7.5
1.7
12.2
5.7
12/23E
10.3
2.0
8.1
8.0
12/24E
9.8
1.8
8.0
7.4
12/25E
8.4
1.6
8.6
6.0
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
5.7
29.1
23.8
(17.6)
(17.6)
74.9
18.9
8.0
25.0
20.9
(24.2)
(24.2)
69.6
19.4
7.4
24.5
19.5
(29.1)
(29.1)
71.1
18.9
6.0
26.4
20.2
(33.2)
(33.2)
83.6
18.3
84.7
102.9
22.1
0.5
1.2
12,141.7
11,641.4
83.0
98.7
19.5
0.4
1.2
12,876.5
12,408.1
79.2
92.9
18.3
0.4
1.2
13,762.0
13,000.5
75.3
89.3
18.9
0.4
1.2
14,891.3
13,766.4
5.95
6.75
7.60
8.60
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rmb)
Average capital employed (Rmb)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rmb)
Growth & Margins (%) ____________________________________
12/22
12/23E
12/24E
12/25E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
9.8
12.0
8.6
11.1
40.2
42.5
(3.4)
(4.1)
(0.1)
(0.1)
39.8
42.2
6.2
2.7
5.5
5.5
38.4
40.8
18.2
17.1
16.8
16.8
38.1
40.4
Net income margin
35.6
36.9
36.6
36.2
Price Performance _______________________________________
0867.HK (HK$)
Hang Seng China Ent.
20
8,000
18
7,500
16
7,000
14
6,500
12
6,000
10
5,500
Jan-23
Apr-23
Absolute
Rel. to the Hang Seng China Ent.
Jul-23
Oct-23
3m
6m
12m
32.5%
45.6%
33.5%
42.4%
32.3%
46.6%
Source: FactSet. Price as of 1 Dec 2023 close.
12/22
9,150.3
(2,114.5)
(3,357.9)
0.0
12/23E
8,837.1
(2,052.9)
(3,264.4)
0.0
12/24E
9,383.0
(2,252.1)
(3,531.7)
0.0
12/25E
11,087.8
(2,687.6)
(4,173.4)
0.0
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-3,887.0
(209.1)
3,677.9
56.4
65.1
3,762.9
-3,726.5
(206.8)
3,519.8
81.1
290.4
3,823.8
-3,827.9
(228.8)
3,599.2
118.3
299.7
3,927.7
-4,480.9
(254.1)
4,226.7
156.9
352.1
4,591.8
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
(486.7)
(17.2)
-3,259.0
-3,259.0
1.33
1.33
1.33
1.33
(565.3)
(1.6)
-3,256.8
-3,256.8
1.33
1.33
1.33
1.33
(489.8)
(1.7)
-3,436.2
-3,436.2
1.40
1.40
1.40
1.40
(576.6)
(2.0)
-4,013.2
-4,013.2
1.64
1.64
1.64
1.64
0.52
39.2
0.52
39.2
0.55
39.2
0.64
39.2
Total revenue
Cost of goods sold
SG&A
R&D
DPS (Rmb)
Div. payout ratio (%)
Balance Sheet (Rmb mn) __________________________________
Cash & cash equivalents
Accounts receivable
Inventory
12/22
4,376.4
2,043.9
477.2
12/23E
5,831.4
1,974.0
463.3
12/24E
7,266.9
2,095.9
508.3
12/25E
8,835.5
2,476.7
606.6
Other current assets
Total current assets
Net PP&E
Net intangibles
1,931.9
8,829.4
425.5
3,732.4
1,931.9
10,200.6
891.1
3,566.9
1,931.9
11,803.0
1,366.1
3,401.5
1,931.9
13,850.6
1,913.5
3,236.0
3,044.8
1,721.4
17,753.5
563.2
3,339.3
1,721.4
19,719.4
546.8
3,643.0
1,721.4
21,934.9
599.8
3,999.0
1,721.4
24,720.6
715.8
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
1,783.3
-530.6
2,877.1
1,783.3
-529.7
2,859.8
1,783.3
-599.9
2,983.1
1,783.3
-825.9
3,325.1
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
0.0
-139.4
139.4
0.0
-139.4
139.4
0.0
-139.4
139.4
--139.4
139.4
3,016.5
-14,589.1
148.0
17,753.5
(2,593.0)
2,999.2
-16,570.5
149.6
19,719.4
(4,048.1)
3,122.5
-18,661.1
151.4
21,934.9
(5,483.6)
3,464.5
-21,102.8
153.4
24,720.6
(7,052.1)
Total investments
Other long-term assets
Total assets
Accounts payable
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rmb mn) ______________________________________
12/22
12/23E
12/24E
12/25E
3,259.0
209.1
17.2
90.1
(22.1)
3,553.2
3,256.8
206.8
1.6
67.5
(294.4)
3,238.2
3,436.2
228.8
1.7
(113.8)
(303.7)
3,249.1
4,013.2
254.1
2.0
(363.1)
(356.1)
3,550.2
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(524.9)
(353.0)
-(300.3)
(1,178.2)
(507.0)
---(507.0)
(538.3)
---(538.3)
(636.1)
---(636.1)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
-(1,276.2)
-(123.7)
(1,399.9)
975.1
3,028.3
-(1,276.2)
-0.0
(1,276.2)
1,455.1
2,731.3
-(1,275.3)
-0.0
(1,275.3)
1,435.5
2,710.9
-(1,345.6)
-0.0
(1,345.6)
1,568.5
2,914.1
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
37
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
CSL - Compelling entry point while ROIC & earnings growth inflect
Covered by Chris Cooper (chris.cooper@gs.com, +61 2 9320-1489)
CSL.AX
Buy
12m Price Target: A$309
Price: A$262.86
GS Forecast
Market cap: A$126.8bn / $84.1bn Revenue ($ mn)
Enterprise value: A$143.9bn / $95.5bn EBITDA ($ mn)
6/23
6/24E
6/25E
6/26E
13,310.0
14,988.6
16,273.4
17,365.5
6,117.6
3,900.0
4,919.9
5,452.3
3m ADTV :A$199.7mn/ $128.2mn EPS ($)
4.55
5.54
6.35
7.43
Australia P/E (X)
43.3
31.5
27.5
23.5
ANZ Healthcare P/B (X)
6.0
4.9
4.4
4.0
1.1
1.5
1.8
2.1
2.7
1.9
1.4
0.9
--
--
--
--
CROCI (%)
15.1
12.5
13.3
14.3
6/23
12/23E
6/24E
12/24E
EPS ($)
3.11
4.75
2.44
5.22
Dividend yield (%)
M&A Rank: 3 Net debt/EBITDA (X)
Leases incl. in net debt & EV?: No Frank/Imput (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 17.6%
Core thesis: CSL is now entering a period of more capital-efficient growth, driving a
sharp improvement in ROIC, coinciding with a period of historically-high earnings growth
(+14% CAGR FY23-27E vs. +9% pre-Covid i.e. FY15-19) driven by core plasma franchise
(Behring) margin recovery. Although valuation has historically correlated closely with
Chris’s measure of forward returns, this relationship broke down through FY22-23 as
NTM P/E de-rated more quickly than expected (from c.46x in Jun-21 to c.23x in Oct-23)
given greater margin pressures, debates around competitive threats to core plasma
franchise and underwhelming performance on its recent Vifor acquisition. However, the
forward profile is now materially stronger, and Chris expects reported improvements in
margins/returns through the upcoming periods to once again drive a re-rating.
Key debates:
4 December 2023
n
Are the historical advantages of plasma over pharma narrowing? Potentially,
yes...and the sector will still offer a more attractive investment profile than pharma
for many years to come. Concerns around competition and long-term industry
headwinds are now overpriced, according to Chris.
n
If/when the Behring gross margin returns to pre-Covid levels? What needs to
happen to exceed this? Behring is CSL’s core plasma franchise where FY23 GM of
49% was -790bps below pre-Covid levels given ongoing cost per litre challenges.
Despite this, FY23 looks near-certain to see Behring’s GM trajectory trough and
expectations have now been appropriately re-calibrated offering a more favourable
risk/reward profile than anytime in the last two years. Chris’ base case assumes a
recovery to pre-Covid GMs of 57% by FY28E.
n
Are Vifor’s NT challenges actually LT in nature? This is the segment which Chris
has the least confidence and the NT trajectory for Vifor appears less favourable than
management had hoped for at acquisition. The dialysis sector could recover NT but
38
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
appears pressured LT and now faces additional uncertainty from the GLP-1 class.
This segment remains the primary cause for concern in driving the Group’s inflection
in momentum but at 15% of sales and 7% of post-NCI NPAT, relative earnings
headwinds are more than offset by improving fundamentals in Behring.
Catalysts: Dec-23: A significant stage gate conversation occurring with Terumo
(manufacturer of new plasmapheresis system Rika) in December will be instructive for
the pace of further rollout (in c.15 out of 300+ centres currently). Feb-24: CSL will report
1H24 results. Investor focus will likely be centered around: (i) Behring margin recovery;
(ii) update on new product launches; (iii) updates around Vifor, and headwinds currently
faced. 1Q24: CSL will provide top-line data for CSL112 in early CY24. Across CSL’s
pipeline, CSL112 represents the most material opportunity in Chris’s view, and remains
the primary focus amongst the investor base.
Valuation: 12m TP of A$309 is based on 20.5x NTM EV/EBITDA.
Exhibit 27: Compelling entry point given ROIC inflection
compounded by elevated earnings growth
Exhibit 28: Behring (core plasma franchise) GM recovery now
offers favourable risk/reward profile
CSL: 12m forward P/E vs. GSe forward returns profile
Behring gross margin forecasts
30
25
20
30x
23x
0.5
31x
30x
-
27x
20x
24x
21x
(0.5)
15
10
(1.0)
2e83ab6fea424dc8a1b6a8a7e94c6547
36x
35
60.0%
1.0
42x
Behring gross margin (%)
41x
40
3yr forward returns profile^
45
12m Forward P/E
For the exclusive use of MATTHEW.X.WONG@GS.COM
Where we are different: Chris recently focused on five key investor debates and his
analysis suggests more upside risk to consensus than any time since the start of the
pandemic given: i) competitive analysis of FcRn inhibitors in CIDP (his base case
assumes a (3)-(4)% impact to Group EBIT FY27-30E); ii) modeling of key near-term
launch opportunities (Hemgenix and garadacimab to re-inject growth into two key
high-margin franchises); iii) Behring margin accretion analysis (he models +330bps from
manufacturing yield alone); iv) updated thoughts on Vifor (challenges remain but are now
more broadly understood); v) ROIC vs. CROCI analysis (ROIC to improve from 12% to
18% by FY30E).
58.0%
56.0%
54.0%
52.0%
50.0%
48.0%
5
0
(1.5)
Cons - current GM
^ ROIC * 3yr forward change in ROIC * 3yr EPS CAGR
Source: Company data, Goldman Sachs Global Investment Research
GS - current GM
Cons - pre downgrade GM
Source: Company data, Visible Alpha Consensus Data, Goldman Sachs Global Investment
Research
Relevant Research:
n
CSL: ROIC inflection compounded by period of high earnings growth; Compelling
entry point after multiple de-rate; Upgrade to Buy
n
4 December 2023
CSL: Near-term margin risk skewed to upside; new launches key to long-term ROIC
39
Goldman Sachs
Income Statement ($ mn) __________________________________
CSL Ltd. (CSL.AX)
Rating since Nov 14, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
6/23
43.3
6.0
0.9
27.6
6/24E
31.5
4.9
3.3
19.4
6/25E
27.5
4.4
3.6
17.3
6/26E
23.5
4.0
4.4
15.1
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
27.6
15.1
14.5
59.9
59.9
6.9
134.4
19.4
12.5
16.1
47.1
47.1
7.8
133.5
17.3
13.3
16.9
35.5
35.5
8.7
127.1
15.1
14.3
17.9
23.2
23.2
9.9
124.3
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) ($)
Average capital employed ($)
53.0
148.1
12.3
0.4
2.0
34,462.0
21,152.0
56.6
163.2
13.7
0.4
2.0
35,663.5
28,583.5
56.6
161.2
14.3
0.4
1.9
37,042.1
28,788.4
56.1
163.9
15.2
0.4
1.8
38,303.2
28,948.7
32.73
35.86
39.39
43.55
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS ($)
Growth & Margins (%) ____________________________________
6/23
6/24E
6/25E
6/26E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
26.0
5.1
(5.4)
0.0
23.1
29.3
12.6
26.2
21.7
21.6
25.9
32.8
8.6
10.8
14.7
14.7
26.6
33.5
6.7
12.2
17.0
17.0
28.4
35.2
Net income margin
16.5
17.8
18.8
20.6
Price Performance _______________________________________
CSL.AX (A$)
S&P/ASX 200
320
7,600
300
7,400
280
7,200
260
7,000
240
6,800
220
6,600
Jan-23
Absolute
Rel. to the S&P/ASX 200
Apr-23
Jul-23
Oct-23
3m
6m
12m
(2.3)%
0.5%
(15.3)%
(14.8)%
(12.0)%
(8.5)%
Source: FactSet. Price as of 1 Dec 2023 close.
6/23
13,310.0
(6,466.0)
(2,540.0)
(1,235.0)
6/24E
14,988.6
(6,721.3)
(3,031.2)
(1,360.8)
6/25E
16,273.4
(7,161.4)
(3,340.4)
(1,444.9)
6/26E
17,365.5
(7,376.4)
(3,523.1)
(1,541.8)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-3,900.0
(831.0)
3,069.0
(406.0)
0.0
2,663.0
-4,919.9
(1,044.6)
3,875.3
(438.6)
0.0
3,436.7
-5,452.3
(1,125.6)
4,326.7
(399.8)
0.0
3,926.9
-6,117.6
(1,193.5)
4,924.1
(353.4)
-4,570.7
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) ($)
EPS (diluted, pre-except) ($)
EPS (basic, post-except) ($)
EPS (diluted, post-except) ($)
(419.0)
(50.0)
-2,194.0
247.0
2,441.0
4.55
4.53
5.06
5.04
(618.6)
(147.2)
-2,670.9
-2,670.9
5.54
5.52
5.54
5.52
(706.8)
(157.2)
-3,062.8
-3,062.8
6.35
6.33
6.35
6.33
(822.7)
(165.0)
-3,583.0
-3,583.0
7.43
7.40
7.43
7.40
2.22
48.8
2.70
48.7
3.09
48.7
3.62
48.7
Total revenue
Cost of goods sold
SG&A
R&D
DPS ($)
Div. payout ratio (%)
Balance Sheet ($ mn) _____________________________________
6/23
1,548.0
2,205.0
5,466.0
6/24E
3,050.7
2,442.0
5,497.6
6/25E
4,657.7
2,606.8
5,838.0
6/26E
6,763.4
2,734.1
5,993.1
Other current assets
Total current assets
Net PP&E
Net intangibles
40.0
9,259.0
9,352.0
16,446.0
40.0
11,030.4
9,624.6
16,178.0
40.0
13,142.5
9,888.0
15,863.1
40.0
15,530.6
10,134.3
15,499.9
Total investments
Other long-term assets
Total assets
Accounts payable
0.0
9,256.0
36,234.0
2,947.0
0.0
9,256.0
38,010.0
3,063.3
0.0
9,256.0
40,070.6
3,263.9
0.0
9,256.0
42,341.8
3,361.9
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
1,055.0
-606.0
4,608.0
1,055.0
-606.0
4,724.3
1,055.0
-606.0
4,924.9
1,055.0
-606.0
5,022.9
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
11,172.0
-2,628.0
13,800.0
11,172.0
-2,628.0
13,800.0
11,172.0
-2,628.0
13,800.0
11,172.0
-2,628.0
13,800.0
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
18,408.0
-15,786.0
2,040.0
36,234.0
10,679.0
18,524.3
-17,298.5
2,187.2
38,010.0
9,176.3
18,724.9
-19,001.2
2,344.4
40,070.6
7,569.3
18,822.9
-21,009.5
2,509.4
42,341.8
5,463.6
Cash & cash equivalents
Accounts receivable
Inventory
Cash Flow ($ mn) ________________________________________
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
6/23
6/24E
6/25E
6/26E
2,194.0
596.0
-(1,035.0)
561.0
2,601.0
2,670.9
744.6
-(152.3)
147.2
3,857.6
3,062.8
814.7
-(304.5)
157.2
4,198.4
3,583.0
874.8
-(184.4)
165.0
4,922.0
(1,692.0)
(10,534.0)
111.0
272.0
(11,843.0)
(1,049.2)
---(1,049.2)
(1,074.0)
---(1,074.0)
(1,076.7)
---(1,076.7)
-(1,239.0)
1,741.0
(46.0)
456.0
(8,888.0)
909.0
-(1,339.6)
-34.0
(1,305.6)
1,502.7
2,808.4
-(1,551.4)
-34.0
(1,517.4)
1,607.0
3,124.4
-(1,773.7)
-34.0
(1,739.7)
2,105.7
3,845.3
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
40
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Shionogi - Emergence of sustainable earnings drivers
Covered by Akinori Ueda (akinori.ueda@gs.com, +81 3 6437-9910)
4507.T
Buy
12m Price Target: ¥8750
Upside: 24.3%
GS Forecast
3/23
3/24E
3/25E
Market cap: ¥2.1tr / $14.0bn Revenue (¥ bn)
426.7
446.7
415.6
435.0
Enterprise value: ¥1.5tr / $9.9bn Op. profit (¥ bn)
149.0
171.1
169.7
184.1
3m ADTV :¥8.7bn/ $58.1mn Op. profit CoE (¥ bn)
3/26E
--
150.0
--
--
Japan EPS (¥)
621.3
613.7
616.6
664.5
Japan Pharmaceuticals and Medical P/E (X)
Equipment
10.8
11.5
11.4
10.6
1.8
1.7
1.6
1.4
2.0
2.1
2.2
2.4
(3.4)
(3.3)
(4.2)
(4.6)
8.0
10.6
9.7
9.5
6/23
9/23
12/23E
3/24E
144.6
164.0
145.2
159.9
P/B (X)
M&A Rank: 3 Dividend yield (%)
Leases incl. in net debt & EV?: Yes N debt/EBITDA (ex lease,X)
CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Price: ¥7040
EPS (¥)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: Shionogi is a branded drug maker with a strong presence in infectious
diseases. According to Akinori, concerns over the impending patent cliff for mainstay
anti-HIV drug dolutegravir (DTG) appear discounted in the share price already based on
his DCF analysis. The share price could rise as three catalysts in particular are
recognized: (1) the possibility of long-acting drugs blunting the decline in Shionogi’s HIV
franchise; (2) potential for obesity treatment S-309309 to become a blockbluster; and (3)
prospects for the COVID-19 therapeutic Xocova also attaining blockbuster status and
launching in global markets.
n
Will royalty income decline sharply after DTG patent expiry?: Akinori expects
the decline in royalty income due to DTG patent expiry to be offset by around half by
market penetration of the long-acting injectable cabotegravir (CAB) for HIV
treatment and prevention.
n
Could S-309309 be a blockbuster?: While it is too early to discuss the potential for
the drug to become a blockbuster at this time (when late stage clinical trials results
have not been released), Akinori thinks it could be widely used for additional weight
loss when combined with GLP-1 receptor agonists, given its convenience as well as
cheap and stable supply.
n
What are the prospects for COVID-19 therapeutic Xocova to attain blockbuster
status and launch in global markets?: This drug has the potential to reduce the
risk of long COVID-19 as it is effective in patients with mild symptoms with no risk
of severe illness. Akinori thinks it could become a blockbuster through global market
launch as well as usage in Japan (received emergency regulatory approval) as a
best-in-class oral COVID-19 treatment.
Where we are different: According to Akinori, the share price doesn’t adequately reflect
4 December 2023
41
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
Catalysts: At the time of quarterly results announcements, focus will be on market
penetration by Cabenuva and Apretude, and sales of Xocova. In terms of products in
development, of particular interest will be: (1) Data on CAB 400 to be presented at CROI
2024; (2) Phase 2 study results for S-309309 and potential licensing agreements for this
drug; and (3) Potential for global rollout of Xocova, with data from the global Phase 3
SCORPIO-HR study also due out in Apr-Jun 2024.
Valuation: 12m TP of ¥8,750 is based on a 12-year DCF model assuming a WACC of 6%
and terminal growth of 0%.
Exhibit 29: The company wide earnings trends is maintained at a
relatively high level even after the patent cliff of DTG
Exhibit 30: Main driver to offset patent cliff of DTG is cabotegravir
with Akinori positive on its growth and opportunity
Sales (lhs) and operating profits (rhs) (¥ mn)
ViiV: Sales outlook for anti-HIV drugs (£ mn)
500,000
250,000
8,000
7,000
450,000
400,000
200,000
350,000
6,000
150,000
250,000
200,000
2e83ab6fea424dc8a1b6a8a7e94c6547
5,000
300,000
4,000
100,000
3,000
50,000
1,000
2,000
Other sales
Other HIV products
Operating profit
Source: Company data, Goldman Sachs Global Investment Research
Dovate + Juluca
FY3/31e
FY3/30e
FY3/29e
FY3/28e
FY3/27e
FY3/31e
FY3/30e
FY3/29e
FY3/28e
FY3/27e
FY3/26e
FY3/25e
FY3/24e
HIV royalty
0
FY3/26e
0
0
FY3/25e
50,000
FY3/24e
100,000
FY3/23
150,000
FY3/23
For the exclusive use of MATTHEW.X.WONG@GS.COM
sustained earnings contributions its HIV franchise and potential for obesity treatment
S-309309 and COVID-19 treatment Xocova to become blockbusters. In HIV treatments,
Shionogi’s long-acting products offered by its licensing partner ViiV Healthcare have an
edge in terms of proven track record and development timing over those offered by rival
company Gilead Sciences. Akinori thinks it is possible that S-309309 remains
underrated, considering its potential for producing an additional weight loss effect when
combined with GLP-1 receptor agonists. He also believes Xocova has what it takes to
become best-in-class as an oral COVID-19 therapeutic, as (1) it can also be used by
patients with low risk of developing serious illness; (2) it is highly convenient; and (3)
expectations it will also aid in reducing the risk of developing “long COVID” symptoms.
He thinks Shionogi is under-recognized due to the complex treatment regimen and
development trends for anti-HIV drugs, the lack of clinical trial data disclosures for
S-309309, and the peak-out of investor interest in the COVID-19 theme.
Cabotegravir
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
Shionogi & Co. (4507.T): Pipeline in Focus: FAQ on S-309309; an anti-obesity drug
that can coexist with GLP-1 receptor agonists
4 December 2023
n
Shionogi & Co. (4507.T): Increasingly attractive infectious disease specialist,
Reiterate Buy
n
Shionogi & Co. (4507.T) Buy: An infectious idea; initiate Buy
42
Goldman Sachs
Income Statement (¥ bn) __________________________________
Shionogi & Co. (4507.T)
Rating since Jun 8, 2017
CL
For the exclusive use of MATTHEW.X.WONG@GS.COM
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
3/23
10.8
1.8
2.8
8.8
3/24E
11.5
1.7
9.1
7.4
3/25E
11.4
1.6
9.5
6.7
3/26E
10.6
1.4
9.3
5.5
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
8.8
8.0
17.8
(50.2)
(50.2)
33.1
44.4
7.4
10.6
15.4
(53.5)
(53.5)
38.0
42.3
6.7
9.7
14.3
(59.5)
(59.5)
37.7
38.1
5.5
9.5
13.9
(63.4)
(63.4)
40.9
35.3
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (¥)
Average capital employed (¥)
99.5
89.1
16.5
0.3
1.2
1,414.8
543.3
91.8
93.1
14.8
0.3
1.2
1,490.0
553.0
97.4
86.1
13.4
0.3
1.1
1,632.3
538.6
91.8
80.0
13.0
0.3
1.1
1,788.5
530.1
BVPS (¥)
3,737.8
4,077.0
4,538.4
5,030.9
Growth & Margins (%) ____________________________________
3/23
3/24E
3/25E
3/26E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
27.3
31.2
64.0
17.4
34.9
38.9
4.7
13.3
(1.2)
11.1
38.3
42.2
(7.0)
(1.3)
0.5
3.3
40.8
44.7
4.7
7.2
7.8
11.0
42.3
45.8
Net income margin
43.3
39.0
42.1
43.3
Price Performance _______________________________________
4507.T (¥)
TOPIX
8,000
2,800
7,500
2,600
7,000
2,400
6,500
2,200
6,000
2,000
5,500
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
6m
12m
9.5%
7.9%
13.7%
2.6%
1.3%
(15.5)%
Source: FactSet. Price as of 1 Dec 2023 close.
3/23
426.7
(62.2)
(113.0)
(102.4)
3/24E
446.7
(49.0)
(114.9)
(111.7)
3/25E
415.6
(44.3)
(97.7)
(103.9)
3/26E
435.0
(46.1)
(100.4)
(104.4)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-166.2
(17.2)
149.0
71.3
-220.3
-188.3
(17.2)
171.1
47.5
-218.6
-185.9
(16.2)
169.7
49.3
-219.0
-199.3
(15.2)
184.1
52.4
-236.5
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
(35.8)
0.5
-185.0
-185.0
621.3
621.1
621.3
621.1
(45.0)
0.5
-174.1
-174.1
613.7
613.5
613.7
613.5
(44.6)
0.5
-174.9
-174.9
616.6
616.4
616.6
616.4
(48.5)
0.5
-188.5
-188.5
664.5
664.3
664.5
664.3
DPS (¥)
Div. payout ratio (%)
135.0
21.7
150.0
24.4
155.0
25.1
172.0
25.9
Total revenue
Cost of goods sold
SG&A
R&D
Balance Sheet (¥ bn) _____________________________________
Cash & cash equivalents
Accounts receivable
Inventory
3/23
563.4
109.8
57.9
3/24E
630.4
114.9
45.6
3/25E
778.4
106.9
41.2
3/26E
917.1
111.9
42.9
Other current assets
Total current assets
Net PP&E
Net intangibles
53.1
784.2
112.1
112.6
54.6
845.5
105.8
112.6
49.8
976.3
100.0
112.6
51.1
1,123.0
94.7
112.6
247.7
55.2
1,311.8
14.0
247.7
54.5
1,366.1
11.0
247.7
56.5
1,493.1
9.9
247.7
56.1
1,634.1
10.3
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
--144.5
158.6
--144.5
155.5
--144.5
154.4
--144.5
154.8
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
0.0
-31.4
31.4
--32.8
32.8
--30.5
30.5
--31.9
31.9
189.9
-1,100.0
21.8
1,311.8
(563.4)
188.3
-1,156.5
21.3
1,366.1
(630.4)
184.9
-1,287.4
20.8
1,493.1
(778.4)
186.7
-1,427.1
20.3
1,634.1
(917.1)
Total investments
Other long-term assets
Total assets
Accounts payable
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (¥ bn) _________________________________________
3/23
3/24E
3/25E
3/26E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
185.0
17.2
(0.5)
10.0
(33.8)
177.9
(120.5)
--72.2
174.1
17.2
(0.5)
4.2
0.5
195.5
(10.9)
----
174.9
16.2
(0.5)
11.3
0.5
202.4
(10.4)
----
188.5
15.2
(0.5)
(6.3)
0.5
197.4
(9.9)
----
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(48.3)
-(36.1)
-(38.6)
(74.8)
54.8
57.3
(10.9)
-(42.6)
-(75.0)
(117.6)
67.0
184.6
(10.4)
-(44.0)
-0.0
(44.0)
148.0
192.0
(9.9)
-(48.8)
-0.0
(48.8)
138.7
187.5
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
43
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Sanhua Intelligent Controls - Global leader in HVAC/EV thermal
components, further upside in Humanoid Robots
Covered by Jacqueline Du (jacqueline.du@goldmansachs.cn, +86 21 2401-8948)
002050.SZ
Buy
12m Price Target: Rmb38
Price: Rmb28.49
GS Forecast
12/22
12/23E
12/24E
12/25E
21,347.5
26,489.1
32,871.0
40,393.3
3,071.6
4,437.1
5,546.3
6,866.9
0.72
0.84
1.12
1.40
China P/E (X)
31.3
34.0
25.4
20.3
China Industrial Tech & Machinery P/B (X)
6.2
6.8
5.7
4.8
0.9
0.9
1.2
1.5
Market cap: Rmb102.1bn / $14.3bn Revenue (Rmb mn)
Enterprise value: Rmb103.1bn / $14.4bn EBITDA (Rmb mn)
3m ADTV :Rmb608.0mn/ $83.6mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
1.4
0.2
0.1
(0.0)
19.5
21.3
25.1
25.9
FCF yield (%)
(0.5)
0.2
1.0
1.9
6/23
9/23
12/23E
--
EPS (Rmb)
0.22
0.21
0.23
--
Leases incl. in net debt & EV?: No CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 33.4%
Core thesis: Sanhua is a global leader in HVAC control & EV thermal management
components. Jacqueline forecasts the company to deliver 23%/30% revenue/EPS
CAGRs in 2023E-25E, driven by its growth potential in auto/EV thermal management,
and on HVAC, continued Electronic Expansion Valve (EEV) penetration, and new growth
opportunities from ESS and overseas residential heat pumps (especially in Europe). The
humanoid robot component business is gradually kicking in as a new revenue stream,
where Sanhua has the potential to become a Tier-1 supplier with the highest visibility
among supply chain peers. Key upside could be whether the company can potentially
produce planetary roller screw, a key component for the humanoid robot other than the
likely actuator assembly business.
Key debates:
n
EV industry growth: Despite the fact that Tesla’s share in revenue is declining
(c.40% of segment revenue as of 1-3Q23), Sanhua has a wide customer base and is
growing its share within BYD, aiming to supply not only components but also the
thermal management modules and is collaborating with new EV entrants (AITO
under Seres, Luxeed under Chery Auto and Xiaomi). Jacqueline expects the
new-comers’ sales growth to make up for Tesla’s contribution drop.
n
4 December 2023
Humanoid robot outlook: Investors’ key debates have focused on commercial
feasibility, volume outlook, content value, etc. Jacqueline holds a positive view on
the industry outlook heading into 2024-2025E supported by accelerating progress on
various aspects: advancement in AI, better hardware configuration, widened &
deepened manufacturing supply chain especially in China, significant cost reduction
from likely $100-250k per unit last year to $30-150k now (much faster than GS
assumption of -15% p.a.) through optimization in design and manufacturing
44
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
technique, as well as improving visibility on several initial application settings (special
operations, manufacturing and commercial use).
Where we are different: Jacqueline is 1%/4% above Wind consensus for 2024E/25E
net profit, where she is more confident in the company’s margin improvement trend,
driven by volume leverage and favorable product mix. Jacqueline is also more positive
on the company’s ability to capture the opportunity from future technology innovations
and believes humanoid robots have the potential to become the next widely adopted
terminal device (after smartphones/cars) in a blue-sky scenario.
Catalysts: 1) Continued order wins in EV segment (content value increase or new
customers); 2) acceleration in ESS revenue recognition; 3) humanoid robot indication of
interest kick in around mid-24E and volume production to start from 4Q24E.
Exhibit 31: Clear content value improves, driven by increasing
importance of thermal management systems ensures EV segment
structural growth
Exhibit 32: Jacqueine believes humanoid robots have the potential
to become the next widely adopted terminal device (after
smartphones/cars) in a blue-sky scenario.
GS global humanoid robot shipment forecast (2022-2035E) vs. global EV
shipment (2010-2021) and global smartphone shipment (2003-2016)
Global EV shipment since 2010
Global smartphone shipment since 2003
Bluesky Scenario
Bull Case
Global humanoid robot shipment base case
Bear Case
10000
7500
2025-35E sales
CAGR
94%
5000
59%
2500
40%
0
ICE
Among which: Sanhua value
EV
EV+
Total thermal management content value
Source: Company data, Goldman Sachs Global Investment Research
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Valuation: 12m TP of Rmb38, based on a 30X 2025E P/E discounted back to 2024E.
Source: IDC, IEA, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
China humanoid robot field trip: Seeing upside risks into 2024-2025E; Buy Sanhua
n
Global Automation: The investment case for humanoid robots
n
Sanhua Intelligent Controls (002050.SZ): Accelerating into green cooling and
heating; reiterate Buy
45
Goldman Sachs
Income Statement (Rmb mn) _______________________________
Sanhua Intelligent Controls (002050.SZ)
Rating since Nov 2, 2022
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rmb)
Average capital employed (Rmb)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rmb)
12/22
31.3
6.2
(0.5)
27.7
12/23E
34.0
6.8
0.2
23.2
12/24E
25.4
5.7
1.0
18.6
12/25E
20.3
4.8
1.9
14.9
27.7
19.5
21.4
33.5
33.5
10.7
68.2
23.2
21.3
21.5
5.2
5.2
38.4
62.4
18.6
25.1
24.5
3.4
3.4
73.5
58.7
14.9
25.9
25.6
(0.7)
(0.7)
91.8
59.0
74.8
82.1
19.6
0.8
2.1
19,610.7
16,013.6
81.0
82.1
19.7
0.9
1.8
18,606.9
16,781.7
81.3
81.2
22.2
1.0
1.8
22,409.5
17,401.9
81.6
81.6
23.1
1.1
1.7
26,484.2
20,147.4
3.61
4.20
4.98
5.96
Growth & Margins (%) ____________________________________
12/22
12/23E
12/24E
12/25E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
33.2
34.1
53.1
34.1
11.7
14.4
24.1
44.5
16.7
25.7
13.9
16.8
24.1
25.0
34.0
34.0
14.0
16.9
22.9
23.8
24.7
24.7
14.3
17.0
Net income margin
12.1
11.3
12.2
12.4
Price Performance _______________________________________
002050.SZ (Rmb)
Shanghai - Shenzhen 300
32.5
4,400
30.0
4,200
27.5
4,000
25.0
3,800
22.5
3,600
20.0
3,400
Jan-23
Apr-23
Absolute
Rel. to the Shanghai - Shenzhen 300
Jul-23
Oct-23
3m
6m
12m
(4.3)%
4.1%
13.4%
24.0%
27.2%
42.2%
Source: FactSet. Price as of 1 Dec 2023 close.
12/22
21,347.5
(15,781.1)
(2,768.5)
--
12/23E
26,489.1
(19,129.5)
(3,417.1)
--
12/24E
32,871.0
(23,752.9)
(4,174.6)
--
12/25E
40,393.3
(29,175.2)
(5,049.2)
--
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
(301.4)
3,071.6
(575.1)
2,496.5
(45.1)
(84.7)
3,051.3
(264.9)
4,437.1
(759.4)
3,677.7
(44.6)
(101.8)
3,567.9
(328.7)
5,546.3
(931.5)
4,614.8
(4.1)
-4,762.2
(403.9)
6,866.9
(1,101.8)
5,765.1
0.1
-5,931.8
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
(443.2)
(34.7)
-2,573.3
-2,573.3
0.72
0.72
0.72
0.72
(524.5)
(39.9)
-3,003.5
-3,003.5
0.84
0.84
0.84
0.84
(690.5)
(45.9)
-4,025.8
-4,025.8
1.12
1.12
1.12
1.12
(860.1)
(52.8)
-5,018.9
-5,018.9
1.40
1.40
1.40
1.40
0.20
27.9
0.25
30.0
0.34
30.0
0.42
30.0
Total revenue
Cost of goods sold
SG&A
R&D
DPS (Rmb)
Div. payout ratio (%)
Balance Sheet (Rmb mn) __________________________________
12/22
2,050.3
5,228.1
4,334.9
12/23E
2,348.4
6,531.6
4,716.9
12/24E
2,516.1
8,105.2
5,856.9
12/25E
3,287.3
9,960.0
7,193.9
Other current assets
Total current assets
Net PP&E
Net intangibles
7,142.4
18,755.7
6,374.9
791.0
3,000.0
16,596.8
8,227.5
750.3
3,000.0
19,478.2
9,874.2
707.8
3,000.0
23,441.2
11,334.7
663.3
Total investments
Other long-term assets
Total assets
Accounts payable
32.4
2,007.2
27,961.2
3,884.6
(69.4)
2,435.8
27,941.1
4,716.9
(69.4)
2,400.2
32,391.0
5,856.9
(69.4)
2,382.3
37,752.2
7,193.9
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
1,862.2
-3,709.1
9,455.9
2,562.2
-3,893.2
11,172.3
2,562.2
-4,199.9
12,619.0
2,562.2
-4,497.8
14,253.9
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
4,578.3
-807.7
5,386.0
578.3
-928.8
1,507.1
578.3
-1,068.1
1,646.5
578.3
-1,228.3
1,806.7
14,841.9
-12,941.3
178.0
27,961.2
4,390.2
12,679.4
-15,043.8
217.9
27,941.1
792.2
14,265.4
-17,861.8
263.8
32,391.0
624.4
16,060.6
-21,375.0
316.6
37,752.2
(146.8)
Cash & cash equivalents
Accounts receivable
Inventory
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rmb mn) ______________________________________
12/22
12/23E
12/24E
12/25E
2,573.3
575.1
34.7
(925.5)
252.0
2,509.7
3,003.5
759.4
39.9
(853.2)
222.9
3,172.6
4,025.8
931.5
45.9
(1,573.6)
139.3
3,568.8
5,018.9
1,101.8
52.8
(1,854.8)
160.2
4,478.9
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(2,941.8)
(5.9)
84.6
191.8
(2,671.3)
(3,000.0)
--4,142.4
1,142.4
(2,500.0)
---(2,500.0)
(2,500.0)
---(2,500.0)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
-(1,021.6)
331.0
212.6
(478.0)
(639.7)
(432.1)
-(717.0)
(3,300.0)
0.0
(4,017.0)
298.0
172.6
-(901.0)
-0.0
(901.0)
167.8
1,068.8
-(1,207.7)
-0.0
(1,207.7)
771.2
1,978.9
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
46
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
SMC - Cycle improvement to drive above-consensus earnings
Covered by Yuichiro Isayama (yuichiro.isayama@gs.com, +81 3 6437-9806)
6273.T
Buy
12m Price Target: ¥103000
Price: ¥74010
GS Forecast
3/23
3/24E
3/25E
3/26E
Market cap: ¥4.8tr / $32.3bn Revenue (¥ bn)
824.8
803.0
944.0
1,044.0
Enterprise value: ¥4.1tr / $27.6bn Op. profit (¥ bn)
258.2
235.0
285.0
330.0
248.5
233.0
--
--
Japan EPS (¥)
3,482.3
3,114.6
3,367.2
3,942.0
Japan Machinery P/E (X)
18.4
23.8
22.0
18.8
P/B (X)
2.4
2.6
2.5
2.3
1.4
1.2
1.5
1.6
(2.2)
(2.6)
(2.0)
(1.8)
18.3
19.4
19.4
20.1
6/23
9/23
12/23E
3/24E
808.5
660.3
0.0
0.0
3m ADTV :¥17.8bn/ $119.6mn Op. profit CoE (¥ bn)
M&A Rank: 3 Dividend yield (%)
Leases incl. in net debt & EV?: No N debt/EBITDA (ex lease,X)
CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 39.2%
EPS (¥)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: SMC is the No. 1 global maker of pneumatic equipment. Yuichiro expects
the company to sustain its strong top-line performance driven by market share gains and
improvement in regional sales mix. Although valuations are rising, the stock still looks
undervalued versus other global FA makers and an improvement in the company’s
fundamentals, coupled with aggressive shareholder return policies, should underpin the
share price from here. SMC is trading on 22X FY3/25E P/E and 14.9X EV/EBITDA, versus
the average of large-cap FA at 26.5X and 17.0X, respectively.
n
Order cycle bottoming-out: Yuichiro believes that the new order cycle has
bottomed out and a positive earnings revision cycle will start sooner for SMC vs
other FA peers.
n
Semiconductor capex cycle: SMC has one of the highest revenue exposure to
semiconductor industry amongst GS global automation coverage with over 20% this
fiscal year, and over 30% at the previous peak cycle. Capex outlook for the
semiconductor supply chain should resume/recover earlier vs other major
applications and Yuichiro expects its higher exposure should fuel a rerating of SMC
in to 2024.
Where we are different: Following his vertical/horizontal industry cross-check on
Asian/global FA industry, Yuichiro sits ~11% above on EBIT for SMC vs Bloomberg
consensus for FY3/25-26E. 2QFY3/24 results revealed underlying EBIT power was
indeed above consensus by 15%. Additionally, confirmation of bottoming order
momentum and its strong earnings power in the semiconductor industry provide upside
risk, setting up well for the coming upcycle in FY3/25E(CY24) and beyond.
Catalysts: Solid earnings power to drive consensus revisions; as the company is
4 December 2023
47
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
bottoming out from the trough, more earnings revisions should follow from each
quarter. Also, as confirmed from the recent results, Yuichiro continues to expect the
company to deploy 50%+ payout to investors, which should further trigger the rerating
of the company as one of the best companies to execute on fundamentals and to pay
back investors.
Valuation: 12m TP of ¥103,000 is based on FY3/28E EV/EBITDA, applying the
sector-average multiple of 9X, then applying the stock’s historical average premium of
60% and discounted back to FY3/25.
Exhibit 33: Absolute level of orders has been bottoming in most
major regions - Japan, China, AeCJ likely to drive the recovery,
centered in semiconductor applications
Exhibit 34: Yuichiro sees his Street high estimate as achievable in
to FY3/25E and beyond, thanks to market share gain and favorable
industry mix. Further expansion in EBITDA margin likely as well
SMC: Trends in monthly order by region (indexed)
SMC: Trends in revenue and EBITDA margin
Japan
(indexed)
America
Europe
China
(JPYmn)
AeCJ
1,200,000
Japan
North America
Europe
Asia
Others/Elimination
EBITDA margin (%, rhs)
40%
180
1,000,000
35%
160
800,000
30%
600,000
25%
400,000
20%
200,000
15%
0
10%
140
120
100
80
Source: Company data
Jul-23
Oct-23
Apr-23
Jan-23
Jul-22
Oct-22
Apr-22
Jan-22
Jul-21
Oct-21
Apr-21
Jan-21
Jul-20
Oct-20
Apr-20
Jan-20
Jul-19
Oct-19
Apr-19
Jan-19
Jul-18
Oct-18
Apr-18
Jan-18
Jul-17
Oct-17
40
3/1999
3/2000
3/2001
3/2002
3/2003
3/2004
3/2005
3/2006
3/2007
3/2008
3/2009
3/2010
3/2011
3/2012
3/2013
3/2014
3/2015
3/2016
3/2017
3/2018
3/2019
3/2020
3/2021
3/2022
3/2023
3/2024E
3/2025E
3/2026E
60
Apr-17
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
Asia Pacific Machinery: Automation: Asia Opportunities Revisited; Closer look at
competitive advantages and cyclical growth; upgrade CKD to Buy, downgrade Hiwin
to Sell
n
4 December 2023
Japan Machinery: Beyond the Cycle: 2H23 investment strategy: Focus on
AI/semiconductors and US; Buy-rated Daikin/SMC
48
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
200
Goldman Sachs
Income Statement (¥ bn) __________________________________
SMC (6273.T)
Rating since Feb 21, 2019
CL
Ratios & Valuation _______________________________________
3/23
18.4
2.4
0.5
12.4
3/24E
23.8
2.6
4.2
15.1
3/25E
22.0
2.5
2.0
12.5
3/26E
18.8
2.3
3.4
10.6
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
12.4
18.3
13.8
(35.9)
(35.9)
2,459.1
159.8
15.1
19.4
11.4
(39.1)
(39.1)
-178.8
12.5
19.4
11.6
(34.7)
(34.7)
-154.8
10.6
20.1
12.7
(33.2)
(33.2)
-159.3
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (¥)
Average capital employed (¥)
97.5
61.4
13.2
0.4
1.1
1,222.8
982.4
102.2
63.8
11.1
0.4
1.1
1,255.5
1,089.6
92.9
56.7
11.3
0.4
1.1
1,410.7
1,156.1
95.6
60.8
12.3
0.5
1.1
1,538.0
1,275.9
26,331.7
27,997.9
29,730.9
31,954.1
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (¥)
Growth & Margins (%) ____________________________________
3/23
3/24E
3/25E
3/26E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
13.4
14.3
17.9
28.6
31.3
34.4
(2.6)
(6.3)
(10.6)
0.0
29.3
33.1
17.6
20.7
8.1
22.2
30.2
34.0
10.6
15.6
17.1
9.1
31.6
35.5
Net income margin
27.2
24.7
22.4
23.4
Price Performance _______________________________________
6273.T (¥)
TOPIX
100,000
2,800
90,000
2,600
80,000
2,400
70,000
2,200
60,000
2,000
50,000
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
6m
12m
3.2%
1.7%
(2.1)%
(11.7)%
17.3%
(2.2)%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
DPS (¥)
Div. payout ratio (%)
3/23
824.8
(403.6)
(163.0)
(27.4)
3/24E
803.0
(402.0)
(166.0)
(30.0)
3/25E
944.0
(469.0)
(190.0)
(33.0)
3/26E
1,044.0
(497.0)
(217.0)
(36.0)
-284.0
(25.8)
258.2
11.6
-308.8
-266.0
(31.0)
235.0
6.0
-271.5
-321.0
(36.0)
285.0
6.0
-291.0
-371.0
(41.0)
330.0
6.0
-336.0
(83.9)
(0.3)
-224.6
-224.6
3,482.3
3,482.3
3,482.3
3,482.3
(73.0)
(0.1)
-198.4
-198.4
3,114.6
3,114.6
3,114.6
3,114.6
(79.0)
(0.2)
-211.8
-211.8
3,367.2
3,367.2
3,367.2
3,367.2
(91.0)
(0.2)
-244.8
-244.8
3,942.0
3,942.0
3,942.0
3,942.0
900.0
25.8
900.0
28.9
1,100.0
32.7
1,200.0
30.4
Balance Sheet (¥ bn) _____________________________________
3/23
623.5
228.8
418.6
3/24E
711.5
220.8
368.0
3/25E
662.6
259.6
432.7
3/26E
673.1
287.1
478.5
Other current assets
Total current assets
Net PP&E
Net intangibles
52.9
1,323.8
327.0
16.6
52.9
1,353.2
396.0
16.6
52.9
1,407.8
440.0
16.6
52.9
1,491.6
479.0
16.6
Total investments
Other long-term assets
Total assets
Accounts payable
82.4
178.1
1,927.9
73.6
82.4
178.1
2,006.4
66.9
82.4
178.1
2,104.9
78.7
82.4
178.1
2,227.8
87.0
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
7.1
-108.1
188.8
7.1
-108.1
182.1
7.1
-108.1
193.9
7.1
-108.1
202.2
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
5.0
-31.7
36.8
5.0
-31.7
36.8
5.0
-31.7
36.8
5.0
-31.7
36.8
225.6
-1,698.4
3.9
1,927.9
(611.3)
218.9
-1,783.5
4.0
2,006.4
(699.3)
230.6
-1,870.1
4.2
2,104.9
(650.4)
239.0
-1,984.4
4.4
2,227.8
(660.9)
Cash & cash equivalents
Accounts receivable
Inventory
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (¥ bn) _________________________________________
3/23
3/24E
3/25E
3/26E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
224.6
25.8
0.3
(110.4)
(38.7)
101.6
(81.6)
--(5.5)
198.4
31.0
0.1
51.9
15.0
296.4
(100.0)
----
211.8
36.0
0.2
(91.7)
15.0
171.4
(80.0)
----
244.8
41.0
0.2
(65.0)
15.0
236.0
(80.0)
----
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(87.1)
-(58.1)
0.6
(55.9)
(113.3)
(81.3)
20.0
(100.0)
-(57.3)
-(51.1)
(108.4)
88.0
196.4
(80.0)
-(69.2)
-(71.0)
(140.2)
(48.8)
91.4
(80.0)
-(74.5)
-(71.0)
(145.5)
10.5
156.0
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
49
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Kuaishou Technology - Growth and monetization opportunity as a
competitive SFV platform
Covered by Lincoln Kong (lincoln.kong@gs.com, +852 2978-6603)
1024.HK
Buy
12m Price Target: HK$88
Price: HK$57.2
GS Forecast
12/22
12/23E
12/24E
12/25E
94,182.5
113,505.2
131,722.7
153,431.5
1,464.8
17,828.9
26,242.2
35,737.8
(1.35)
2.02
3.40
5.11
Hong Kong P/E (X)
NM
25.9
15.4
10.2
China Gaming & Entertainment P/B (X)
6.8
4.9
3.7
2.8
NM
NM
NM
NM
15.5
(2.4)
(2.3)
(2.4)
1.8
53.1
66.0
79.2
FCF yield (%)
(4.0)
3.9
7.0
10.4
9/23
12/23E
3/24E
6/24E
EPS (Rmb)
0.74
0.64
0.51
0.83
Market cap: HK$246.6bn / $31.6bn Revenue (Rmb mn)
Enterprise value: HK$227.4bn / $29.1bn EBITDA (Rmb mn)
3m ADTV :HK$1.1bn/ $135.6mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: Yes CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 53.8%
Core thesis: Kuaishou is China’s 2nd-largest short-form video (SFV) player in terms of
total timespent. Lincoln forecasts Kuaishou to deliver 16% yoy revenue growth in both
2024 & 2025, driven by a high 20% eCommerce GMV CAGR, monetization rate
expansion and ads share gain. This is achieved through product category expansion,
improving eCommerce recommendation feeds and store-wide ROI measures that drives
better merchant ads conversion. He also expects Kuaishou to deliver group OP margin
of 13%/17% by 2024E/2025E (vs. 8% in 2023) from better business mix
(ads/commission high margin vs. livestreaming) and tight control of sales & marketing
expenses as users/timespent reach peak level. Valuation (16x 2024GSe P/E) remains
undemanding for 70%/52% 2024E/25E earnings growth.
Key debates:
n
What underpins Kuaishou’s GMV/Ads market share gain, and the durability?
While the market recognizes Kuaishou’s consistent share gain/above-industry
revenue growth since listing, drivers and durability of its growth have been
questioned. Lincoln takes a more positive view on 1) room for category expansion in
Ecommerce, towards standard goods/E&A, furniture vertical (c.16% of Kuaishou’s
GMV in 3Q23) as merchants seek new GMV growth channel. 2) growing paying
users as Kuaishou current 110mn monthly Ecommerce paying users remain a small
fraction of its total MAU base of 650mn – Lincoln sees upside to both user
penetration and ARPU/purchase frequency, driven by better livestreaming
Ecommerce content recommendation and broad shelf based Ecommerce
expansion. 3) monetization efficiency driven by store-wide ROI products released to
merchants which is expected to elevate Ecommerce ad take rate.
n
4 December 2023
What is the profit margin outlook in the medium term? Post Kuaishou delivering
50
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
10% group net profit margin in 2Q/3Q23, investors are questioning its margin level
sustainability. Lincoln sees multiple margin accretive levers, including 1) positive mix
shift driven by ecommerce take rate expansion, and lower contribution of
less-profitable entertainment live streaming; and 2) across-the-board cost discipline,
improving efficiency on user acquisition and retention, bandwidth optimization.
n
How is the competitive intensity of the short form video landscape on
Where we are different: Market is still questioning Kuaishou’s ability to maintain such
fast GMV/ads growth, and in the meantime expand domestic profit margin into 24/25E.
Lincoln forecasts 20%+ GMV/ads CAGR, as Kuaishou have a differentiated user base
skewed to lower tier cities, plenty of traffic that can be monetized (8% ad load vs. top
player at mid teens), and merchants’ improving ROI on Ecommerce. Therefore, Lincoln’s
forecasts are 4-5% above Visible Alpha consensus on 24/25 operating profit.
Catalysts: 1. Solid print into 4Q23/year end, 2. Resilient ads growth and increase in take
rate further from better Ad tech in 2H23
Valuation: 12m TP of HK$88, based on a discounted P/E valuation.
Exhibit 35: China online advertising: ad spend and timespent share
among top platforms; Kuaishou the only platform to see gradual
increase in timespent share and ad spend share
Exhibit 36: Lincoln sees room for Kuaishou to expand take rate and
ARPU/purchase frequency
China eCommerce: key metrics across platforms (as of 2023E)
*bubble size indicative of ad revenue base
35%
2e83ab6fea424dc8a1b6a8a7e94c6547
Bytedance 202325
30%
Ad revenue % share
For the exclusive use of MATTHEW.X.WONG@GS.COM
users/timespent and ads budget, especially given the fast ramp up of Tencent
Video account? Lincoln notes that Kuaishou remains differentiated from Douyin
Video Account in multiple aspects, providing diversified content to attract different
user cohorts. The competition remains intense between the 3 players, though it’s
more the 3 combined gaining timespent and ads share in the overall Internet space.
25%
20%
15%
10%
Baidu - 2023-25
5%
BILI - 2023-25
Kuaishou 2023-25
Tencent 2023-25
0%
0%
5%
10%
15%
20%
25%
Timespent share %
30%
Source: Company data, Goldman Sachs Global Investment Research
35%
40%
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
Kuaishou Technology (1024.HK): 3Q23 review: Profit ahead, solid growth and ads
share gain into year-end, margin uplift for 24-25E; Buy
n
4 December 2023
Kuaishou Technology (1024.HK): Highly engaging short-form video community now
at a profitability inflection point; initiate at Buy
51
Goldman Sachs
Income Statement (Rmb mn) _______________________________
Kuaishou Technology (1024.HK)
Rating since Sep 4, 2022
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
12/22
NM
6.8
(4.0)
167.6
12/23E
25.9
4.9
3.9
11.7
12/24E
15.4
3.7
7.0
7.4
12/25E
10.2
2.8
10.4
4.8
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
NM
1.8
(13.9)
(23.5)
(66.4)
(11.5)
--
13.5
53.1
20.8
(38.0)
(73.3)
17.4
--
8.0
66.0
27.6
(54.9)
(82.0)
31.7
--
5.0
79.2
31.1
(68.9)
(88.8)
48.4
--
18.8
167.8
(15.3)
1.1
2.3
28,919.3
12,566.3
19.1
161.6
18.8
1.1
2.2
33,767.3
12,476.0
20.6
162.9
24.3
1.1
2.0
38,029.1
11,630.9
21.7
163.2
26.9
1.0
1.8
41,905.2
10,143.0
8.85
10.69
13.98
18.95
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rmb)
Average capital employed (Rmb)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rmb)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
12/22
12/23E
12/24E
12/25E
16.2
111.3
72.5
NM
(6.7)
1.6
20.5
NM
249.1
NM
7.9
15.7
16.0
47.2
68.4
NM
12.6
19.9
16.5
36.2
50.4
NM
16.7
23.3
(6.1)
7.7
11.2
14.7
Price Performance _______________________________________
1024.HK (HK$)
Hang Seng Index
90
26,000
80
24,000
70
22,000
60
20,000
50
18,000
40
16,000
Jan-23
Absolute
Rel. to the Hang Seng Index
Apr-23
Jul-23
Oct-23
3m
6m
12m
(10.9)%
(2.7)%
6.8%
15.6%
(0.9)%
10.4%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
12/22
94,182.5
(51,261.9)
(39,727.9)
(9,638.6)
12/23E
113,505.2
(56,289.6)
(39,745.2)
(9,707.4)
12/24E
131,722.7
(62,136.8)
(43,709.7)
(10,585.6)
12/25E
153,431.5
(69,552.0)
(48,320.9)
(11,208.9)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
137.0
1,464.8
(7,773.7)
(6,308.8)
165.6
-(4,593.1)
1,221.2
17,828.9
(8,844.7)
8,984.2
534.3
-9,665.5
1,283.6
26,242.2
(9,668.0)
16,574.3
637.3
-17,211.5
1,228.6
35,737.8
(10,159.5)
25,578.4
872.6
-26,451.0
(1,158.3)
--(5,751.4)
(7,937.9)
(13,689.4)
(1.35)
(1.35)
(3.22)
(3.22)
(966.5)
--8,698.9
(4,064.2)
4,634.8
2.02
2.02
1.07
1.07
(2,409.6)
--14,801.9
(4,254.6)
10,547.3
3.40
3.40
2.42
2.42
(3,967.6)
--22,483.3
(4,955.8)
17,527.5
5.11
5.11
3.98
3.98
-0.0
-0.0
-0.0
-0.0
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
DPS (Rmb)
Div. payout ratio (%)
Balance Sheet (Rmb mn) __________________________________
Cash & cash equivalents
Accounts receivable
Inventory
12/22
25,006.7
5,230.0
--
12/23E
33,846.7
6,633.4
--
12/24E
49,992.8
8,242.3
--
12/25E
74,107.7
9,979.1
--
Other current assets
Total current assets
Net PP&E
Net intangibles
16,478.1
46,714.8
25,595.4
1,090.0
17,259.3
57,739.4
26,806.6
988.2
17,995.9
76,231.0
27,491.2
870.1
18,873.6
102,960.4
28,354.8
1,020.7
Total investments
Other long-term assets
Total assets
Accounts payable
0.0
13,008.6
87,819.9
23,614.5
0.0
13,208.2
100,153.6
26,223.8
0.0
13,424.9
119,428.4
29,225.2
0.0
13,659.3
147,406.4
32,980.7
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
-6,622.9
10,305.8
40,543.1
-6,382.7
11,384.9
43,991.3
-6,193.0
12,652.9
48,071.1
-6,113.7
14,246.9
53,341.3
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
-9,537.0
84.0
9,621.0
-9,928.6
84.0
10,012.6
-10,321.7
84.0
10,405.7
-10,546.1
84.0
10,630.2
50,164.2
-37,649.1
6.6
87,819.9
(25,006.7)
54,003.9
-46,143.1
6.6
100,153.6
(33,846.7)
58,476.8
-60,945.0
6.6
119,428.4
(49,992.8)
63,971.5
-83,428.3
6.6
147,406.4
(74,107.7)
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rmb mn) ______________________________________
12/22
12/23E
12/24E
12/25E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
(12,531.1)
7,773.7
-(1,116.1)
5,380.5
(493.0)
5,601.3
8,844.7
-1,503.8
2,693.0
18,642.7
12,956.9
9,668.0
-1,924.0
1,628.4
26,177.2
21,495.2
10,159.5
-2,735.0
753.8
35,143.4
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(9,672.3)
---(9,672.3)
(9,954.1)
---(9,954.1)
(10,234.5)
---(10,234.5)
(11,173.7)
---(11,173.7)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
---2,559.5
2,559.5
(7,605.8)
(10,165.2)
---151.4
151.4
8,840.0
8,688.6
---203.4
203.4
16,146.1
15,942.7
---145.2
145.2
24,114.9
23,969.7
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
52
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
PDD Holdings - Temu taking shape
Covered by Ronald Keung (ronald.keung@gs.com, +852 2978-0856)
PDD
Buy
12m Price Target: $176
Price: $145.27
GS Forecast
12/22
12/23E
12/24E
12/25E
130,557.6
236,551.9
338,667.7
422,904.2
40,344.5
58,715.6
81,185.9
129,963.5
27.51
38.97
49.81
79.29
China P/E (X)
13.9
26.6
20.8
13.1
China Ecommerce & Logistics P/B (X)
4.7
8.7
6.2
4.3
0.0
0.0
0.0
0.0
Market cap: $200.9bn Revenue (Rmb mn)
Enterprise value: $172.6bn EBITDA (Rmb mn)
3m ADTV :$906.3mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: No CROCI (%)
FCF yield (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 21.2%
EPS (Rmb)
(3.3)
(3.4)
(3.6)
(3.2)
355.8
NM
NM
NM
9.9
6.3
7.2
8.9
6/23
9/23
12/23E
--
10.47
11.61
9.96
--
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Key debates:
n
Can PDD sustain its value-focused proposition and profit margin amid
intensified ecommerce price competition? Despite Alibaba, JD and Douyin’s
increased shift towards value-for-money offerings, Ronald believes PDD has already
built the strongest value-for-money mindshare amongst users, with high user
retention and upside to shopping frequency/categories. He sees further room for
PDD to expand average order value (AOV), driving GMV market share gains on
consumers trading down. On margins, driven by PDD’s lean staff cost base and low
S&M costs driven by its grocery-driven traffic advantage, Ronald expects PDD main
platform margins to remain highest amongst peers (EBIT margin 55-60%), with
improving Temu profitability.
n
4 December 2023
Can PDD further lift take rate, as it is now higher than Taobao-Tmall? Still room
for yoy take rate expansion on continued step-up in merchants adoption rate of the
new standardized & site-wide marketing features given high certainty of ROI &
easier functionalities, shifting merchants’ traditional click-based marketing to
sales-based with improved focus on product price competitiveness and marketing
53
2e83ab6fea424dc8a1b6a8a7e94c6547
Core thesis: Ronald sees PDD as the region’s best positioned eCommerce company
with a promising growth outlook (2024E: 43% rev. growth) driven by its Pinduoduo
(China-based) and Temu (US-based, now in ~50 countries) platforms, leveraging its
strong value-for-money user mindshare on the back of SKU focused algorithms, leading
adtech capabilities combined with China’s most cost-competitive suppliers / merchants /
supply chains. Ronald sees risk-reward as attractive, even after recent outperformance,
given the market is still pricing the domestic platform at <15X 2024E P/E (vs. 20%+
domestic online marketing growth) with limited valuation ascribed to Temu, which is
tapping into overseas TAM with strong traction and a clear profitability path.
Goldman Sachs
APAC Conviction List
efficiency. China is one of the lowest take rate eCommerce markets vs. US / LatAm
/ ASEAN peers, with PDD’s GMV take rate at 4% vs. HSD/teens at global peers.
n
What is Temu’s long-term growth outlook & profit potential? Temu’s success
Where we are different: 1) Temu’s profitability potential (Ronald expects Temu to
turnaround as soon as in 2025E, three years earlier vs. V.A. consensus) based on a unit
economics deep dive, with Temu delivering faster-than-expected expansion (GSe
US$49bn GMV scale by 2025E) and product mark-up. 2) More positive view on the
domestic platform’s potential vs. street for take rate expansion where Ronald sees
the company’s consistent roll-out of ROI-based ‘blackbox’ advertisement solutions as
driving further ad product adoption across merchants and improvement in take rates.
Catalysts: 1) Domestic GMV run-rate into 4Q23/2024, DAU/MAU trends (per GS
monthly eCommerce tracker); 2) Progress on merchants’ adoption of the new marketing
tools and further take rate expansion; 3) Temu’s performance (DAU/GMV) over the next
few months, on the back of post-Black Friday promotions incl. Christmas, further
expansion in key markets, and continued GMV ramp up in 2024.
Valuation: 12m TP of US$176, with domestic Pinduoduo platform at US$143/ADS (15X
24E NOPAT) and Temu at US$45/ADS (US$65bn), partly offset by SOTP discount.
Exhibit 37: Ronald is above V.A. Consensus on PDD Earnings due to
a more positive view on Temu profitability
Exhibit 38: Temu to rapidly expand GMV scale while improving unit
economics
U.S. GMV (US$ bn)
Non-U.S. GMV (US$ bn)
GMV margin (%)
90.0
80.0
6%
1%
60.0
50.0
49
40.0
20.0
10.0
10%
78
71
70.0
30.0
9%
-19%
18
6.1
11.9
45.8
0%
-5%
33.5
-12%
34
12.9
25.5
21.5
23.9
27.8
30.3
32.1
2024E
2025E
2026E
2027E
2028E
-10%
-15%
0.0
-20%
-25%
2023E
Source: Goldman Sachs Global Investment Research, Visible Alpha Consensus Data
10%
5%
61
40.7
15%
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
PDD: 3Q23 review: Double beat: lifting Temu profit assumptions and valuation; Buy
n
PDD: Progress check on Temu: Lifting Temu GMV and near-term loss drag; refreshing
scenarios; retain Buy
54
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
comes from: 1) its entrusted business model, focus on blockbuster SKUs and PDD’s
flexible/cheapest supply chain to support the competitive prices; 2) unique low-price
merchant ecosystem with high overlap with the Pinduoduo main platform & Duo
Duo Grocery manufacturing merchants; 3) strong profitability of PDD’s domestic
business, allowing PDD to invest into global. Ronald forecasts Temu 4Q23 GMV to
exceed US$8bn and reach US$34bn/$49bn GMV by FY24E/25E, with an estimated
US$4bn FY24E EBIT loss drag to PDD before turning around from 2025E with
long-term positive high-single digit GMV profit margin potential.
Goldman Sachs
Income Statement (Rmb mn) _______________________________
PDD Holdings (PDD)
Rating since Aug 30, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
12/22
13.9
4.7
9.9
8.7
12/23E
26.6
8.7
6.3
20.5
12/24E
20.8
6.2
7.2
14.1
12/25E
13.1
4.3
8.9
8.1
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
8.7
355.8
41.0
(113.8)
(113.8)
---
20.5
(3,443.9)
39.1
(116.1)
(116.1)
---
14.1
(232.5)
35.2
(116.6)
(116.6)
---
8.1
(245.1)
39.1
(112.0)
(112.0)
---
1.8
751.8
33.6
0.6
2.0
13,932.5
17,270.5
1.3
318.9
32.8
0.7
1.9
(16,915.4)
9,434.8
1.4
278.6
30.0
0.8
1.8
(43,891.3)
(20,913.8)
1.5
274.4
32.7
0.7
1.5
(51,667.1)
(40,014.8)
81.96
118.79
166.28
242.31
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rmb)
Average capital employed (Rmb)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rmb)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
12/22
12/23E
12/24E
12/25E
39.0
206.4
175.4
NM
29.2
30.9
81.2
45.5
41.7
NM
24.3
24.8
43.2
38.3
27.8
NM
23.5
24.0
24.9
60.1
59.2
NM
30.3
30.7
30.3
24.1
22.0
28.6
Price Performance _______________________________________
PDD ($)
NASDAQ Composite
240
15,000
200
14,000
160
13,000
120
12,000
80
11,000
40
10,000
Jan-23
Apr-23
Absolute
Rel. to the NASDAQ Composite
Jul-23
Oct-23
3m
6m
12m
40.6%
38.0%
110.3%
92.6%
73.5%
39.2%
Source: FactSet. Price as of 1 Dec 2023 close.
12/22
130,557.6
(31,428.5)
(53,145.7)
(7,863.1)
12/23E
236,551.9
(84,016.2)
(86,761.8)
(8,281.7)
12/24E
338,667.7
(117,707.2)
(128,144.9)
(13,279.6)
12/25E
422,904.2
(134,691.1)
(140,417.5)
(19,632.5)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-40,344.5
(2,224.2)
38,120.3
3,945.4
-44,255.4
-58,715.6
(1,223.4)
57,492.2
7,452.3
-68,596.5
-81,185.9
(1,650.0)
79,535.9
6,453.6
-88,613.9
-129,963.5
(1,800.3)
128,163.2
6,310.4
-137,097.9
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
(4,725.7)
--39,529.7
(7,718.4)
31,811.4
31.26
27.51
24.94
21.95
(11,482.8)
--57,113.7
(8,907.4)
48,206.2
42.11
38.97
34.97
32.36
(14,163.1)
--74,450.8
(11,532.7)
62,918.1
53.82
49.81
45.48
42.09
(16,208.8)
--120,889.1
(12,986.7)
107,902.4
85.68
79.29
76.47
70.77
-0.0
-0.0
-0.0
-0.0
Total revenue
Cost of goods sold
SG&A
R&D
DPS (Rmb)
Div. payout ratio (%)
Balance Sheet (Rmb mn) __________________________________
12/22
92,300.4
587.7
--
12/23E
180,702.7
1,064.8
--
12/24E
283,779.4
1,524.5
--
12/25E
414,244.6
1,903.7
--
Other current assets
Total current assets
Net PP&E
Net intangibles
123,729.8
216,617.9
1,044.8
134.0
127,636.5
309,404.0
1,223.4
73.1
128,798.5
414,102.4
1,819.0
18.4
130,043.1
546,191.4
2,760.1
12.9
Total investments
Other long-term assets
Total assets
Accounts payable
0.0
19,323.2
237,120.0
64,993.1
0.0
19,323.2
330,023.8
81,836.5
0.0
19,323.2
435,263.0
97,867.0
0.0
19,323.2
568,287.5
104,679.0
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
--51,896.4
116,889.5
--71,625.9
153,462.4
--86,383.9
184,250.8
--91,707.3
196,386.3
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
--2,459.6
2,459.6
--2,459.6
2,459.6
--2,459.6
2,459.6
--2,459.6
2,459.6
119,349.0
-117,770.9
-237,120.0
(92,300.4)
155,921.9
-174,101.8
-330,023.8
(180,702.7)
186,710.4
-248,552.6
-435,263.0
(283,779.4)
198,845.8
-369,441.7
-568,287.5
(414,244.6)
Cash & cash equivalents
Accounts receivable
Inventory
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rmb mn) ______________________________________
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
12/22
12/23E
12/24E
12/25E
31,811.4
2,224.2
-7,423.4
7,048.9
48,507.9
48,206.2
1,223.4
-32,189.0
8,124.7
89,743.4
62,918.1
1,650.0
-29,166.8
11,532.7
105,267.6
107,902.4
1,800.3
-10,511.7
12,986.7
133,201.1
(635.7)
--(21,726.0)
(22,361.7)
(1,341.1)
---(1,341.1)
(2,190.9)
---(2,190.9)
(2,735.9)
---(2,735.9)
---110.2
110.2
26,256.4
47,872.2
---0.0
0.0
88,402.3
88,402.3
---0.0
0.0
103,076.7
103,076.7
---0.0
0.0
130,465.2
130,465.2
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
55
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Sony Group - Pivot towards software and content to drive higher growth
Covered by Minami Munakata (minami.munakata@gs.com, +81 3 6437-9830)
6758.T
Buy
12m Price Target: ¥16000
Price: ¥12720
GS Forecast
3/23
3/24E
3/25E
3/26E
Market cap: ¥15.6tr / $105.6bn Revenue (¥ bn)
11,539.8
12,059.1
12,850.8
13,582.4
Enterprise value: ¥17.0tr / $114.9bn Op. profit (¥ bn)
1,208.2
1,209.3
1,409.1
1,571.1
1,160.0
1,170.0
--
--
Japan EPS (¥)
758.4
725.3
855.1
954.7
Japan Games & Internet P/E (X)
14.7
17.5
14.9
13.3
P/B (X)
1.9
2.0
1.8
1.6
0.7
0.7
0.7
0.9
3m ADTV :¥38.9bn/ $260.7mn Op. profit CoE (¥ bn)
M&A Rank: 3 Dividend yield (%)
Leases incl. in net debt & EV?: No N debt/EBITDA (ex lease,X)
CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 25.8%
EPS (¥)
1.1
0.6
0.0
(0.5)
4.8
8.1
8.9
9.6
6/23
9/23
12/23E
3/24E
176.1
161.9
261.1
121.7
Core thesis: Minami expects investors to shift focus from further hardware penetration
to software and content growth on expansion of Sony’s entertainment contents
portfolio. She sees earnings driven by (1) higher growth of anime industry than game or
music, and (2) full-scale entry into live service games where life cycle revenues tend to
be larger than games for one-time purchases and recurring revenue is foreseeable. For
Crunchyroll, she forecasts 126% CAGR growth in operating profit for the next 5 years,
accounting for 42% of pictures segment OP in FY3/28. She also forecasts first-party
game content’s 5-year gross profit CAGR at 24%. Her SoTP-based target price is
¥16,000, whereas the current PER of 14.9X is still lower compared to its 5-year historical
average of 15.3X.
Key debates:
4 December 2023
n
Outlook for PS5 shipments: As PS5’s life cycle approaches the middle innings,
focus is on the pace and outlook for installed base expansion. Minami forecasts PS5
shipments of 22 mn units in both FY3/24 & FY3/25, although achieving company
guidance (25 mn units in FY3/24) is a high hurdle given 1H progress. She expects
consensus to be at around 20-22 mn units.
n
G&NS segment profit swing factors in FY3/25: Minami expects key profit growth
drivers to be a partial contribution from PS Plus price hikes, growth in software and
add-on content with the launch of live service games and expansion of the PS5
installed base. As the game segment’s profitability has decreased, the extent to
which revenue recovers in FY3/25 has become a focal point. She is optimistic about
a recovery in profitability due to (1) effectively leveraging PS5 installed base with the
expanding sales of software and content, and (2) the high profitability PS Plus price
increase emerges.
n
I&SS segment risk scenarios through FY3/25: Market focus has been on
56
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
production yield of new CMOS product in FY3/24 as well as overall smartphone /
China market conditions. With yields for the new CMOS products improving, she
expects FY3/24 profits to mark the bottom and improve going forward, while yen
appreciation could be a risk due to high forex sensitivity.
n
Competition from other platforms in the G&NS business: She thinks the
possible acquisition of larger game studios and IP could be more likely now, given
the increasing importance of exclusive content with the PS5 platform.
Catalysts: (1) Sell-through momentum for PS5 hardware (weekly updates for Japan
region and irregular updates for global). (2) The announcement of first-party and
third-party PS5 titles from FY3/25 (State of Play & PS Showcase typically air in February
and/or May-June). (3) Updates on paid subscriber numbers for Crunchyroll and progress
in collaboration with Amazon Prime Video (to be verified on FY3/24 Q3-Q4 earnings
release and business segment in May 2024). (4) The announcement of the
medium-term plan for FY3/25-FY3/27 expected in 2024, particularly given the M&A
strategy for the content business and capital allocation priorities (planned for May 2024).
Valuation: 12m TP of ¥16,000, based on a FY3/26 SOTP.
Exhibit 39: Crunchyroll to drive profit growth in the pictures
segment
Exhibit 40: Minami forecasts strong growth in add-on content,
especially first-party content
Sony Group: Pictures segment profit outlook and breakdown
G&NS segment: Gross gross profit breakdown
20
150
15
100
10
50
5
0
-
2022
2023E
2024E
2025E
2026E
2027E
Television production (LHS)
Motion pictures (LHS)
Other media networks (LHS)
Crunchyroll (LHS)
Crunchyroll number of paying subscriber (RHS)
Source: Company data, Goldman Sachs Global Investment Research
1,800
1,600
1,400
Network services
Full games 3P
Full games 1P
Add on contents 3P
Add on contents 1P
1,200
2022-2027E
CAGR
+13%
2e83ab6fea424dc8a1b6a8a7e94c6547
200
G&NS gross profit breakdown (JPY bn)
2,000
25
Number of paying subscriber (mn)
250
Pictures segment operating profit
(¥bn)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Where we are different: GSe FY3/25-FY3/27 operating profit estimates are 4-11%
higher than the Bloomberg consensus given bullish assumptions for sales per user
rather than PS5 shipment volume and a positive impact on earnings from Japanese
anime content via Crunchryoll.
-3%
1,000
800
600
400
200
0
+18%
+15%
+32%
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
Sony Group (6758.T): Rising to prominence as an anime/game content operator; up
to Buy
n
Sony Group (6758.T): President meeting confirms confidence in live game pipeline;
Buy
57
Goldman Sachs
Income Statement (¥ bn) __________________________________
Sony Group (6758.T)
Rating since Jul 13, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
3/23
14.7
1.9
(2.2)
7.3
3/24E
17.5
2.0
8.2
8.0
3/25E
14.9
1.8
8.6
6.7
3/26E
13.3
1.6
9.6
5.6
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
7.3
4.8
13.0
32.8
32.8
-37.0
8.0
8.1
11.7
16.3
16.3
30.2
45.4
6.7
8.9
12.5
0.8
0.8
35.2
45.0
5.6
9.6
12.5
(13.0)
(13.0)
39.3
45.2
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (¥)
Average capital employed (¥)
53.9
94.4
12.9
0.4
4.4
22,503.9
9,088.6
55.0
90.6
11.1
0.4
4.1
22,416.1
9,480.1
54.5
92.1
11.8
0.4
3.8
22,462.9
9,137.1
54.7
92.5
11.8
0.4
3.5
22,508.2
8,831.7
5,850.7
6,453.8
7,214.0
8,058.7
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (¥)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
3/23
3/24E
3/25E
3/26E
16.3
8.6
6.5
15.4
10.5
19.2
4.5
(3.6)
(4.4)
13.3
10.0
17.7
6.6
10.7
17.9
11.8
11.0
18.4
5.7
8.1
11.7
15.8
11.6
18.8
8.1
7.4
8.2
8.6
Price Performance _______________________________________
6758.T (¥)
TOPIX
18,000
2,800
16,000
2,600
14,000
2,400
12,000
2,200
10,000
2,000
8,000
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
6m
12m
1.5%
0.1%
(5.1)%
(14.4)%
12.3%
(6.4)%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
3/23
11,539.8
(7,174.7)
(2,451.7)
(705.2)
3/24E
12,059.1
(7,902.8)
(2,221.8)
(725.2)
3/25E
12,850.8
(8,408.6)
(2,287.9)
(745.2)
3/26E
13,582.4
(8,855.0)
(2,371.2)
(785.2)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-2,212.8
(1,004.6)
1,208.2
-24.4
1,180.3
-2,133.5
(924.2)
1,209.3
(20.0)
20.0
1,189.3
-2,361.9
(952.8)
1,409.1
(20.0)
20.0
1,389.1
-2,553.4
(982.3)
1,571.1
(20.0)
20.0
1,551.1
(236.7)
(6.5)
-937.1
-937.1
758.4
755.0
758.4
755.0
(293.4)
(6.4)
-889.5
-889.5
725.3
722.9
725.3
722.9
(333.5)
(6.9)
-1,048.7
-1,048.7
855.1
852.3
855.1
852.3
(373.1)
(7.1)
-1,170.9
-1,170.9
954.7
951.6
954.7
951.6
75.0
9.9
85.0
11.7
95.0
11.1
110.0
11.5
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
DPS (¥)
Div. payout ratio (%)
Balance Sheet (¥ bn) _____________________________________
Cash & cash equivalents
Accounts receivable
Inventory
3/23
1,480.9
1,777.9
1,468.0
3/24E
2,565.5
1,857.9
1,534.1
3/25E
3,794.6
1,979.9
1,634.8
3/26E
5,158.6
2,092.6
1,727.9
Other current assets
Total current assets
Net PP&E
Net intangibles
1,049.6
5,776.5
1,344.9
3,400.8
1,049.6
7,007.2
1,418.7
2,954.4
1,049.6
8,458.9
1,464.0
2,508.0
1,049.6
10,028.8
1,479.7
2,061.6
18,770.9
2,748.1
32,041.2
1,866.0
18,790.9
2,748.1
32,919.3
2,055.4
18,810.9
2,748.1
33,990.0
2,186.9
18,830.9
2,748.1
35,149.1
2,303.0
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
2,102.9
-5,340.1
9,308.9
2,100.0
-5,340.1
9,495.4
2,100.0
-5,340.1
9,627.0
2,100.0
-5,340.1
9,743.1
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
1,767.7
-13,676.3
15,444.0
1,767.7
-13,676.3
15,444.0
1,767.7
-13,676.3
15,444.0
1,767.7
-13,676.3
15,444.0
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
24,752.9
-7,229.7
58.6
32,041.2
2,389.7
24,939.4
-7,914.9
65.0
32,919.3
1,302.2
25,070.9
-8,847.1
71.9
33,990.0
73.1
25,187.0
-9,883.1
79.0
35,149.1
(1,290.9)
Total investments
Other long-term assets
Total assets
Accounts payable
Cash Flow (¥ bn) _________________________________________
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
3/23
3/24E
3/25E
3/26E
937.1
1,004.6
6.5
(740.2)
(893.4)
314.7
(613.6)
(282.2)
(282.2)
125.3
889.5
924.2
6.4
43.3
(20.0)
1,843.4
(551.7)
----
1,048.7
952.8
6.9
(91.2)
(20.0)
1,897.2
(551.7)
----
1,170.9
982.3
7.1
(89.7)
(20.0)
2,050.6
(551.7)
----
(1,052.7)
-(92.7)
(99.8)
361.8
169.2
(568.7)
(298.9)
(551.7)
-(104.2)
(2.9)
(100.0)
(207.1)
1,084.6
1,291.7
(551.7)
-(116.5)
-0.0
(116.5)
1,229.1
1,345.6
(551.7)
-(134.9)
-0.0
(134.9)
1,364.0
1,498.9
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
58
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Suzuki Motor - Pipeline, price, and payout to drive valuation gap closure
Covered by Kota Yuzawa (kota.yuzawa@gs.com, +81 3 6437-9863)
7269.T
Buy
12m Price Target: ¥7900
Price: ¥6058
GS Forecast
3/23
3/24E
3/25E
3/26E
Market cap: ¥3.4tr / $22.9bn Revenue (¥ bn)
4,641.6
5,147.0
5,352.0
5,584.0
Enterprise value: ¥2.7tr / $18.1bn Op. profit (¥ bn)
350.6
459.0
506.0
528.0
--
430.0
--
--
Japan EPS (¥)
455.2
591.6
658.7
693.8
Japan Automobiles P/E (X)
9.9
10.2
9.2
8.7
P/B (X)
1.3
1.6
1.4
1.3
3m ADTV :¥10.6bn/ $70.9mn Op. profit CoE (¥ bn)
M&A Rank: 2 Dividend yield (%)
Leases incl. in net debt & EV?: No N debt/EBITDA (ex lease,X)
CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 30.4%
EPS (¥)
2.2
2.6
3.3
3.5
(2.4)
(1.8)
(1.7)
(1.6)
9.8
13.2
13.9
13.8
6/23
9/23
12/23E
3/24E
138.0
128.8
143.2
181.6
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: Suzuki Motor’s market cap implies a negative value for the parent company
after deducting Maruti Suzuki’s market cap versus a premium pre-2021; a gap Kota
expects to narrow, with a 2024 pipeline of new launches resulting in acceleration of
volume growth both domestically and in India, and with a mix shift margin upgrade.
Finally, he believes an improvement in capital efficiency at the parentco level should act
as a potential upside valuation catalyst.
n
India capacity expansion: The India business is executing a growth plan to increase
annual production capacity to over 4mn vehicles by 2030, from 2.25mn, enabling the
company to grow market share from 40%+ now to 50%. Suzuki is also considering
leveraging its competitive India manufacturing operations to divert 1mn vehicles for
export, of the targeted 4mn capacity.
n
EV strategy: Investors are concerned that Suzuki has been slow to introduce EVs
relative to rivals. However, Kota believes Suzuki can be competitive, even as a
latecomer, given that: (1) India, its main market for consolidated sales, has set a
target of net zero in 2070; (2) the Make in India policy is likely to limit EV imports
from China (where there is concern about oversupply) and other countries.
n
Capital allocation: Management has a multi-pronged approach to capital
management: progressive dividends, a target dividend payout ratio of 30% (for
FY3/26) from 22% in 3/2022, and an increase in the total shareholder return rate
through buybacks. Kota believes the company is conscious of enhancing
shareholder returns even as it makes investments in growth and implements an
electrification strategy.
Where we are different: Kota’s FY3/24-FY3/25 operating profit estimates are
6.5%/7.4% above IFIS consensus, with a more positive outlook for Japan price hikes
4 December 2023
59
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
and India mix improvement. He also thinks management recognizes valuation is low,
excluding the mkt cap of its Indian subsidiary Maruti Suzuki (58% equity interest) and
plans to address this through better operational efficiency and capital allocation
improvements.
Catalysts: (1) India launches in 1H24. With Suzuki Maruti focused on regaining a 50%
market share in India, Kota expects production capacity to ramp to over 4mn units by
2025 and with a roll out of its SUV pipeline. (2) Price hikes, Kota has modeled price
hikes in Japan for 2024 which should give comfort to the market that they can
comfortably offset the impact of inflation as it launches new models. (3) Kota believes
the market will gain some comfort that the company can successfully transition over to
EV product with the launch of the first model in 2024, and vertically integrate the
product platform with the start-up of local battery production in India.
Valuation: 12m TP of ¥7,900 based 85% on FY3/25E SOTP-based fundamental value of
¥7,800 (applying the historical 10-year average discount of 10%), and 15% M&A value of
Exhibit 41: Doubling capacity in India
Exhibit 42: Non-India operation improving
India capacity outlook
NAV and Japan segment OPM
12,000
6.0%
10,000
5.0%
8,000
4.0%
6,000
4,000
3.0%
2,000
2.0%
0
-4,000
2013
Source: Company data, Goldman Sachs Global Investment Research
2014
2015
2016 2017
Valuation gap
2018
2019 2020 2021 2022
Suzuki JPN ex.Royalty OPM
1.0%
0.0%
2023
2e83ab6fea424dc8a1b6a8a7e94c6547
-2,000
April
September
February
July
December
May
October
March
August
January
June
November
April
September
February
July
December
May
October
March
August
January
June
November
April
September
February
For the exclusive use of MATTHEW.X.WONG@GS.COM
¥8,700 (SOTP-based, assuming a discount of 0%).
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
Suzuki Motor (7269.T): Earnings Review: Guidance raise above expectations; we
raise our TP and reiterate Buy
n
4 December 2023
Japan Value in Action II: Reiterate Buy on five large-caps with potential for further
change and highlight seven companies prompting FAQs
60
Goldman Sachs
Income Statement (¥ bn) __________________________________
Suzuki Motor (7269.T)
Rating since Jun 21, 2016
CL
For the exclusive use of MATTHEW.X.WONG@GS.COM
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
3/23
9.9
1.3
0.6
2.6
3/24E
10.2
1.6
3.6
3.4
3/25E
9.2
1.4
7.5
3.0
3/26E
8.7
1.3
8.3
2.8
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
2.6
9.8
14.0
(11.6)
(11.6)
52.0
33.6
3.4
13.2
16.4
(5.9)
(5.9)
60.4
36.3
3.0
13.9
16.4
(5.3)
(5.3)
64.1
37.4
2.8
13.8
15.5
(5.5)
(5.5)
64.4
37.4
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (¥)
Average capital employed (¥)
36.4
35.8
10.7
1.0
2.2
3,789.9
1,654.4
36.7
38.4
12.6
1.1
2.2
3,851.2
1,963.2
37.9
39.7
12.9
1.0
2.1
4,062.6
2,179.9
37.8
39.4
12.4
1.0
2.1
4,266.3
2,342.3
BVPS (¥)
3,376.0
3,772.6
4,201.9
4,662.9
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
3/23
3/24E
3/25E
3/26E
30.1
49.5
37.9
9.9
7.6
11.4
10.9
23.0
30.0
60.0
8.9
12.6
4.0
9.1
11.4
25.0
9.5
13.2
4.3
4.4
5.3
5.0
9.5
13.2
4.8
5.5
5.7
5.7
Price Performance _______________________________________
7269.T (¥)
TOPIX
9,000
2,800
8,000
2,600
7,000
2,400
6,000
2,200
5,000
2,000
4,000
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
6m
12m
5.0%
3.5%
32.9%
19.9%
24.4%
3.8%
Source: FactSet. Price as of 1 Dec 2023 close.
3/23
4,641.6
(3,491.7)
(799.4)
(205.6)
3/24E
5,147.0
(3,845.1)
(842.9)
(230.0)
3/25E
5,352.0
(3,986.3)
(859.7)
(240.0)
3/26E
5,584.0
(4,177.7)
(878.3)
(250.0)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-527.9
(177.3)
350.6
31.2
11.6
381.0
-649.0
(190.0)
459.0
30.3
15.2
501.0
-708.0
(202.0)
506.0
30.0
16.8
550.3
-739.0
(211.0)
528.0
29.7
17.5
572.7
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
(106.8)
(53.2)
-221.1
-221.1
455.2
445.7
455.2
445.7
(150.3)
(69.1)
-281.6
-281.6
591.6
579.0
591.6
579.0
(165.1)
(77.9)
-307.3
-307.3
658.7
644.6
658.7
644.6
(171.8)
(83.7)
-317.2
-317.2
693.8
678.8
693.8
678.8
100.0
22.0
160.0
27.0
200.0
30.4
210.0
30.3
Total revenue
Cost of goods sold
SG&A
R&D
DPS (¥)
Div. payout ratio (%)
Balance Sheet (¥ bn) _____________________________________
Cash & cash equivalents
Accounts receivable
Inventory
3/23
1,003.8
491.3
485.3
3/24E
894.3
544.8
538.2
3/25E
920.8
566.5
559.6
3/26E
965.2
591.0
583.8
Other current assets
Total current assets
Net PP&E
Net intangibles
208.1
2,188.5
1,134.5
3.8
291.3
2,268.5
1,134.5
3.8
407.8
2,454.7
1,082.5
3.8
570.9
2,711.0
1,021.5
3.8
Total investments
Other long-term assets
Total assets
Accounts payable
1,118.2
132.6
4,577.7
383.2
1,358.2
132.6
4,897.7
424.9
1,453.4
132.6
5,127.0
441.8
1,496.5
132.6
5,365.5
460.9
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
347.0
-757.2
1,487.4
347.0
-1,104.3
1,876.2
347.0
-1,104.3
1,893.1
347.0
-1,104.3
1,912.3
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
416.8
-164.9
581.7
416.8
-173.7
590.5
446.8
-183.4
630.2
476.8
-194.1
670.9
4,139.5
-1,639.8
430.6
4,577.7
(240.0)
4,693.1
-1,795.8
430.6
4,897.7
(130.4)
4,914.1
-1,960.2
430.6
5,127.0
(127.0)
5,145.4
-2,131.7
430.6
5,365.5
(141.4)
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (¥ bn) _________________________________________
3/23
3/24E
3/25E
3/26E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
221.1
177.3
53.2
(83.2)
(81.8)
286.6
(269.9)
--(32.8)
281.6
190.0
69.1
(64.6)
(15.9)
460.2
(340.0)
--(78.0)
307.3
202.0
77.9
(26.2)
(17.5)
543.5
(300.0)
--(78.0)
317.2
211.0
83.7
(29.7)
(18.2)
564.0
(300.0)
--(78.0)
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(302.7)
-(46.6)
105.2
(27.0)
31.6
15.5
16.7
(418.0)
-(76.2)
-(75.6)
(151.7)
(109.6)
120.2
(378.0)
-(93.3)
30.0
(75.6)
(138.9)
26.6
243.5
(378.0)
-(96.0)
30.0
(75.6)
(141.6)
44.4
264.0
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
61
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Baoshan Iron & Steel - Consolidator, mix upgrade and margin upside
Covered by Trina Chen (trina.chen@gs.com, +852 2978-2678)
600019.SS
Buy
12m Price Target: Rmb8.2
Price: Rmb6.25
GS Forecast
12/22
12/23E
12/24E
12/25E
366,406.0
340,405.3
340,709.2
343,596.3
36,325.4
33,995.9
42,199.9
46,817.5
0.55
0.44
0.70
0.86
China P/E (X)
11.2
14.1
8.9
7.3
China Basic Materials P/B (X)
0.7
0.7
0.7
0.6
4.5
3.6
5.7
7.0
0.6
0.6
0.1
(0.2)
Market cap: Rmb139.2bn / $19.5bn Revenue (Rmb mn)
Enterprise value: Rmb181.5bn / $25.4bn EBITDA (Rmb mn)
3m ADTV :Rmb504.5mn/ $69.3mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: No CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 31.2%
5.9
6.3
7.4
7.8
FCF yield (%)
14.1
(15.4)
11.2
12.9
6/23
12/23E
6/24E
12/24E
EPS (Rmb)
0.20
0.24
0.36
0.34
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Key debates:
n
Depressed industry steel margin in weak demand environment, absence of output
control, and elevated raw material costs.
n
Despite strong 3Q23A results, there are questions on how much of the strong GP
(Rmb315/t for 3Q23) comes from the lagged raw material cost.
n
Earnings and return impact from the potential capacity growth targets.
Where we are different: (1) Trina forecasts a higher steel margin outlook for Baosteel in
the next 6-12 months, driven by improvement in CRC margin, on the back of end of
finished goods destocking in the manufacturing sector and the positive outlook for China
auto production (9% growth for 2024E). While the steel cycle is expected to remain
depressed in China in 2024E, she sees limited downside to industry margins from the
current levels. This would allow the relative outperformance of CRC product to
materialize. Baosteel’s unit gross profit should improve to an average of Rmb500/t in
2025E versus current 1H23A of Rmb150/t, with ROE expanding from 5.0% to 7.4-8.7%
in 2024-25E. (2) The company’s medium and long-run business strategy, capacity
expansion plans and continued product mix upgrades, could lead to further upside.
4 December 2023
62
2e83ab6fea424dc8a1b6a8a7e94c6547
Core thesis: With nearly 27% of product sales exposed to auto sheet, and more than
50% market share in the China auto sheet market, Baosteel is a unique beneficiary of
the price premium recovery of flat steel CRC in China. The company’s medium-term plan
for continued consolidation and product mix upgrades provide further upside. Already,
the largest steel mill in China, it is spending 10% of annual capex on technical
transformation, mostly on automation. Risk reward is attractive from both margin and
valuation prospective. Baosteel currently is trading at 0.65x P/B, low end of its historical
range of 0.5-2.0x, and an average of 1.0x P/B in global steel peers. Upside risks are
underpinned with improving ROE, from 5% in 2023E to 8% in 2024E, and 10% in 2025.
Goldman Sachs
APAC Conviction List
Specifically, Baosteel targets to reach total steel capacity of 80mnt by 2024E, and
100mnt by 2027E, from 51mnt in 2022, mostly through internal asset restructuring,
acquisitions, and construction of new capacity overseas. Additionally, product mix
upgrades could significantly improve the GP mix of the company.
Catalysts: Quarterly realized margin in the coming months.
Valuation: 12m TP of Rmb8.20, derived from a historical P/B vs. ROE correlation – or
2024E P/B of 0.95x on 2024E ROE of 7.4%.
Exhibit 43: Unit gross profit - Baosteel
Unit GP (Rmb/t)
Baosteel
1,200
Unit GP by product - Baosteel (Rmb/t)
1,200
1,000
1,000
800
800
600
600
400
400
200
200
0
0
Source: Company data, Mysteel, Goldman Sachs Global Investment Research
HR products
Other steel products
1H25E
1H24E
1H23A
1H22A
1H21A
1H20A
1H19A
1H18A
1H17A
1H16A
1H15A
1H14A
1H13A
1H12A
1H11A
1H10A
1H09A
1H08A
(200)
(200)
1Q09A
3Q09A
1Q10A
3Q10A
1Q11A
3Q11A
1Q12A
3Q12A
1Q13A
3Q13A
1Q14A
3Q14A
1Q15A
3Q15A
1Q16A
3Q16A
1Q17A
3Q17A
1Q18A
3Q18A
1Q19A
3Q19A
1Q20A
3Q20A
1Q21A
3Q21A
1Q22A
3Q22A
1Q23A
3Q23A
2024E
CR product
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
China commodities 2024 outlook: New and old, a year of deceleration: 4 preferred
themes in copper, flat steel, value in cement, and the hog cycle
n
Baoshan Iron & Steel (600019.SS): Earnings Review: Strong 3Q23 on higher unit
steel profit; Maintain Buy
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Exhibit 44: Unit gross profit by products - Baosteel
4 December 2023
63
Goldman Sachs
Income Statement (Rmb mn) _______________________________
Baoshan Iron & Steel (600019.SS)
Rating since Sep 4, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rmb)
Average capital employed (Rmb)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rmb)
12/22
11.2
0.7
14.1
4.9
12/23E
14.1
0.7
(15.4)
5.3
12/24E
8.9
0.7
11.2
4.0
12/25E
7.3
0.6
12.9
3.4
4.9
5.9
6.3
9.5
9.5
9.2
47.6
5.3
6.3
5.0
8.8
8.8
13.5
49.1
4.0
7.4
7.6
2.6
2.6
18.0
48.0
3.4
7.8
8.9
(3.0)
(3.0)
29.6
46.8
36.5
63.6
5.6
0.9
1.8
481,309.3
237,393.0
38.1
71.7
4.5
0.9
1.7
504,769.3
238,425.4
37.4
75.2
6.6
0.9
1.6
523,425.2
240,309.8
37.2
76.0
7.7
0.9
1.6
542,925.8
240,214.6
8.74
8.90
9.38
9.88
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
12/22
12/23E
12/24E
12/25E
1.0
(29.7)
(48.9)
(53.0)
4.5
9.9
(7.1)
(6.4)
(19.1)
(19.1)
4.4
10.0
0.1
24.1
57.6
57.6
6.8
12.4
0.8
10.9
22.5
22.5
8.0
13.6
3.3
2.9
4.6
5.5
Price Performance _______________________________________
600019.SS (Rmb)
Shanghai - Shenzhen 300
7.5
4,400
7.0
4,200
6.5
4,000
6.0
3,800
5.5
3,600
5.0
3,400
Jan-23
Apr-23
Absolute
Rel. to the Shanghai - Shenzhen 300
Jul-23
Oct-23
3m
6m
12m
(1.7)%
7.0%
6.8%
16.8%
11.4%
24.6%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
DPS (Rmb)
Div. payout ratio (%)
12/22
366,406.0
(346,292.8)
(9,308.4)
(3,168.2)
12/23E
340,405.3
(321,626.8)
(9,387.3)
(3,167.4)
12/24E
340,709.2
(312,309.7)
(9,421.0)
(3,166.1)
12/25E
343,596.3
(310,547.6)
(9,452.7)
(3,166.1)
431.4
36,325.4
(19,735.3)
16,590.1
(1,546.0)
2,548.3
15,044.0
1,183.6
33,995.9
(19,173.5)
14,822.3
(802.5)
2,548.3
14,019.9
-42,199.9
(19,173.5)
23,026.4
(924.6)
2,548.3
22,101.8
-46,817.5
(19,173.5)
27,644.0
(578.2)
2,548.3
27,065.8
(1,015.1)
(1,842.1)
-12,186.9
-12,186.9
0.55
0.55
0.55
0.55
(2,663.8)
(1,491.1)
-9,865.0
-9,865.0
0.44
0.44
0.44
0.44
(4,199.3)
(2,350.7)
-15,551.8
-15,551.8
0.70
0.70
0.70
0.70
(5,142.5)
(2,878.6)
-19,044.6
-19,044.6
0.86
0.86
0.86
0.86
0.28
50.9
0.23
50.9
0.36
50.9
0.44
50.9
Balance Sheet (Rmb mn) __________________________________
12/22
24,149.7
36,297.0
46,010.0
12/23E
36,770.0
34,859.6
45,488.7
12/24E
36,802.8
34,890.7
44,171.0
12/25E
37,114.7
35,186.3
43,921.8
Other current assets
Total current assets
Net PP&E
Net intangibles
68,432.0
174,888.8
148,258.7
12,079.7
36,432.0
153,550.2
156,808.2
12,079.7
36,432.0
152,296.4
157,634.7
12,079.7
36,432.0
152,654.7
158,461.2
12,079.7
Total investments
Other long-term assets
Total assets
Accounts payable
0.0
63,021.7
398,248.9
62,046.3
0.0
63,021.7
385,459.8
64,350.6
0.0
63,021.7
385,032.5
64,408.0
0.0
63,021.7
386,217.3
64,953.8
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
17,482.5
-64,458.8
143,987.7
16,893.0
-32,458.8
113,702.4
12,883.4
-32,458.8
109,750.2
8,873.1
-32,458.8
106,285.8
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
27,073.0
-11,311.8
38,384.8
39,417.0
-11,311.8
50,728.8
30,061.2
-11,311.8
41,373.0
20,703.9
-11,311.8
32,015.7
182,372.5
-194,622.9
21,253.4
398,248.9
20,405.8
164,431.2
-198,284.1
22,744.6
385,459.8
19,539.9
151,123.2
-208,814.0
25,095.2
385,032.5
6,141.7
138,301.5
-219,941.9
27,973.9
386,217.3
(7,537.6)
Cash & cash equivalents
Accounts receivable
Inventory
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rmb mn) ______________________________________
12/22
12/23E
12/24E
12/25E
12,186.9
19,735.3
1,842.1
18,338.4
(7,383.6)
44,719.0
9,865.0
19,173.5
1,491.1
(27,737.0)
(0.0)
2,792.6
15,551.8
19,173.5
2,350.7
1,344.1
-38,420.1
19,044.6
19,173.5
2,878.6
499.3
-41,596.1
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(22,423.0)
--(3,768.0)
(26,191.0)
(27,723.0)
---(27,723.0)
(20,000.0)
---(20,000.0)
(20,000.0)
---(20,000.0)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
-(13,092.2)
(3,273.7)
(25,610.3)
(13,739.7)
4,103.7
22,296.0
-(6,203.8)
11,754.4
32,000.0
37,550.6
12,620.2
(24,930.3)
-(5,021.9)
(13,365.4)
0.0
(18,387.3)
32.8
18,420.1
-(7,916.8)
(13,367.5)
0.0
(21,284.3)
311.9
21,596.1
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
64
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Lynas Rare Earths - Attractive positioning, expansion projects and
valuation
Covered by Paul Young (paul.young1@gs.com, +61 2 9321-8302)
LYC.AX
Buy
12m Price Target: A$7.5
Upside: 18.1%
GS Forecast
6/23
6/24E
6/25E
6/26E
739.3
600.3
1,321.3
1,761.0
377.7
238.8
647.5
858.8
0.34
0.17
0.48
0.66
Australia P/E (X)
23.5
36.5
13.1
9.6
ANZ Resources FCF yield (%)
(2.3)
(8.2)
1.9
7.9
0.0
0.0
0.0
0.0
(2.2)
(1.4)
(0.6)
(0.9)
Market cap: A$5.9bn / $3.9bn Revenue (A$ mn)
Enterprise value: A$5.6bn / $3.7bn EBITDA (A$ mn)
3m ADTV :A$24.2mn/ $15.5mn EPS (A$)
Dividend yield (%)
M&A Rank: 3 Net debt/EBITDA (X)
Leases incl. in net debt & EV?: Yes EV/EBITDA (X)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Price: A$6.35
17.2
23.4
8.5
6.0
ROCE (%)
30.3
11.4
21.3
25.9
6/23
12/23E
6/24E
12/24E
EPS (A$)
0.18
0.05
0.13
0.20
Core thesis: The largest western world producer of high-value rare earth (RE) elements
used in the production of magnets for electric vehicles and wind turbines; neodymium
(Nd), praseodymium (Pr). With the global NdPr market dominated by China (~70-80% of
production), LYC is an important ex-China source of NdPr and has long-term offtakes
with Japanese and Chinese magnet producers. With the commissioning of LYC’s
Kalgoorlie facility underway and the recent 3-year extension to LYC’s operating licence in
Malaysia, investors should look through FY24 considering it is a transitional year. LYC
also has a strategic agreement with the US Department of Defence (DoD) which is fully
funding the company’s US refinery. The stock is trading at ~0.85x NAV (A$7.92/sh) and
pricing in just US$71/kg NdPr (spot at US$69/kg) vs. Paul’s long run US$80/kg (real $,
from 2027) NdPr price forecast. LYC’s balance sheet is strong with net cash of
~A$700mn and US/Australia/Japan government support and funding.
Key debates:
n
Competing against China’s dominant position in RE production: China releases
a half-yearly RE quota with the most recently announced production quota in-line
with Paul’s latest rare earths (NdPr) SD model. He continues to think that China
Northern Rare Earths (CNRE), as the largest producer and therefore the primary
liquidity provider into the Chinese NdPr price index and price setter, will continue to
moderate production to even out margins through the RE value chain from mines to
magnets over the medium term.
n
Ramp-up and capex of expansion projects: Kalgoorlie cracking and leaching
facility, Mt Weld mine expansion and US refinery.
Where we are different: Paul is constructive on the rare earth market over the medium
to long run: Paul has developed a proprietary global Rare Earth Oxide (REO) NdPr
4 December 2023
65
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
supply/demand model built bottom-up and incorporating GS latest demand forecasts for
EVs and Wind turbines along with mapping out all global mine supply and potential
development projects. This drives his forecast of US$80/kg versus spot at US$69/kg.
Catalysts: 1) Possibility that China announces a flat production quota in 2024; 2)
Ramp-up of the key Kalgoorlie Facility; 3) Capex and timing update on Mt Weld
expansion - resource and reserve upgrades/announcement of any future expansion
plans.
Valuation: 12m TP of A$7.50, based on 50:50 NAV:EV/EBITDA with a target multiple of
16x.
Exhibit 45: Paul expects China’s supply to keep the market
balanced over the medium term
Exhibit 46: Lynas is growing NdPr production by >50% over the next
~4 years and adding a Heavy Rare Earth Product Stream (Tb, Dy)
from their US refinery
NdPr supply by source and total global demand (kt)
Production Volumes (kt)
120
kt NdPr
60
80
38.9
40
60
28.4
40
20
16.0
16.8
20
10
10.1
10.6
5.9
6.1
4.8
2023
2024E
12.2
2030E
2029E
2028E
2027E
2026E
2025E
2024E
2023E
2022
2021
2020
2019
Australia
China
SE Asia
North America
Africa
Rest-of-World
Recycled
Total demand
Supply volumes are recovery adjusted
0
49.1
49.1
6.2
6.5
6.5
30.5
30.5
30.5
30.5
11.9
12.0
12.0
2028E
2029E
2030E
27.2
30
0
48.8
4.9
47.1
50
2018
2022
NdPr
18.3
7.4
8.9
10.5
11.7
2025E
2026E
2027E
Other Light Rare Earths
Heavy Rare Earths
Source: Company data, Goldman Sachs Global Investment Research
Source: Company data, Goldman Sachs Global Investment Research, Bloomberg, Wood
Mackenzie
Relevant Research:
4 December 2023
n
Lynas Rare Earths Ltd. (LYC.AX): Malaysia extends Crack & Leach license to 2026,
increasing our FY24 & FY25 NdPr production & PT to A$7.5; Buy
n
Lynas Rare Earths Ltd. (LYC.AX): World’s largest single producer of NdPr for EVs &
Wind, doubling to 10.5ktpa & likely upsizing to >12ktpa, but fully valued; initiate
Neutral
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
100
66
Goldman Sachs
Income Statement (A$ mn) _________________________________
Lynas Rare Earths Ltd. (LYC.AX)
Rating since Oct 10, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
6/23
23.5
3.4
(2.3)
17.0
6/24E
36.5
2.5
(8.2)
22.8
6/25E
13.1
2.1
1.9
8.4
6/26E
9.6
1.8
7.9
6.0
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
17.1
27.7
16.3
(37.9)
(38.5)
78.4
47.7
23.4
9.8
7.2
(14.5)
(15.0)
37.1
66.8
8.5
26.2
17.7
(15.1)
(15.6)
126.2
47.0
6.0
30.0
20.5
(22.7)
(23.1)
194.6
51.7
41.8
77.5
14.4
0.3
1.2
1,369.1
1,098.2
35.6
89.0
6.9
0.2
1.2
2,032.1
1,659.3
25.0
67.4
16.3
0.4
1.2
2,408.8
2,164.1
27.5
76.3
19.0
0.5
1.2
2,567.1
2,416.1
2.36
2.50
2.96
3.46
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (A$)
Average capital employed (A$)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (A$)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
6/23
6/24E
6/25E
6/26E
(19.6)
(37.2)
(43.2)
NM
42.7
51.1
(18.8)
(36.8)
(48.9)
NM
25.4
39.8
120.1
171.2
178.4
NM
39.5
49.0
33.3
32.6
36.0
NM
40.2
48.8
42.0
27.1
34.2
34.9
Price Performance _______________________________________
LYC.AX (A$)
S&P/ASX 200
10
7,600
9
7,400
8
7,200
7
7,000
6
6,800
5
6,600
Jan-23
Absolute
Rel. to the S&P/ASX 200
Apr-23
Jul-23
Oct-23
3m
6m
12m
(12.3)%
(9.7)%
(14.8)%
(14.3)%
(27.8)%
(25.0)%
Source: FactSet. Price as of 1 Dec 2023 close.
6/23
739.3
(346.2)
(45.8)
--
6/24E
600.3
(313.3)
(48.3)
--
6/25E
1,321.3
(624.1)
(49.7)
--
6/26E
1,761.0
(848.0)
(54.2)
--
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
30.4
377.7
(62.2)
315.5
32.3
-347.8
-238.8
(86.0)
152.8
38.5
-191.2
-647.5
(125.7)
521.8
10.6
-532.4
-858.8
(151.5)
707.4
16.4
-723.8
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (A$)
EPS (diluted, pre-except) (A$)
EPS (basic, post-except) (A$)
EPS (diluted, post-except) (A$)
(37.2)
--310.7
-310.7
0.34
0.34
0.34
0.34
(28.7)
--162.5
-162.5
0.17
0.17
0.17
0.17
(79.9)
--452.5
-452.5
0.48
0.48
0.48
0.48
(108.6)
--615.2
-615.2
0.66
0.66
0.66
0.66
-0.0
-0.0
-0.0
-0.0
Total revenue
Cost of goods sold
SG&A
R&D
DPS (A$)
Div. payout ratio (%)
Balance Sheet (A$ mn) ___________________________________
Cash & cash equivalents
Accounts receivable
Inventory
6/23
1,011.2
59.6
111.9
6/24E
522.3
57.5
108.0
6/25E
583.2
123.7
232.4
6/26E
879.8
142.1
266.9
Other current assets
Total current assets
Net PP&E
Net intangibles
3.9
1,186.6
1,344.2
--
3.9
691.7
1,992.0
--
3.9
943.2
2,262.0
--
3.9
1,292.7
2,402.4
--
Total investments
Other long-term assets
Total assets
Accounts payable
0.0
107.9
2,638.7
82.0
0.0
107.9
2,791.6
70.8
0.0
107.9
3,313.1
159.7
0.0
107.9
3,803.0
194.7
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
10.0
4.5
68.5
165.0
10.0
4.5
58.5
143.8
10.0
4.5
53.5
227.7
10.0
4.5
53.5
262.7
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
167.4
8.5
134.5
310.3
160.4
8.5
138.1
306.9
140.4
8.5
164.5
313.3
120.4
8.5
169.0
297.8
475.3
-2,163.4
-2,638.7
(833.8)
450.6
-2,340.9
-2,791.6
(352.0)
541.0
-2,772.1
-3,313.1
(432.9)
560.6
-3,242.4
-3,803.0
(749.4)
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (A$ mn) _______________________________________
6/23
6/24E
6/25E
6/26E
310.7
62.2
-46.0
(32.1)
386.8
162.5
86.0
-4.7
(54.9)
198.4
452.5
125.7
-(96.6)
5.8
487.4
615.2
151.5
-(17.9)
(11.9)
736.9
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(595.5)
--41.0
(554.5)
(727.5)
--42.6
(684.9)
(389.4)
--14.7
(374.7)
(285.6)
--20.0
(265.6)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(3.2)
-(6.0)
208.1
199.0
45.6
(208.8)
(6.3)
0.0
(7.0)
10.9
(2.4)
(488.9)
(529.0)
(6.3)
(121.4)
(20.0)
95.9
(51.8)
60.9
98.0
(6.3)
(354.8)
(20.0)
206.4
(174.8)
296.6
451.3
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
67
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Foxconn Industrial Internet - Margin expansion driven upside
Covered by Verena Jeng (verena.jeng@gs.com, +852 2978-1681)
601138.SS
Buy
12m Price Target: Rmb31.61
Price: Rmb15.15
GS Forecast
12/22
12/23E
12/24E
12/25E
511,849.6
487,620.7
558,033.8
645,179.4
23,431.7
31,421.9
44,777.7
54,120.8
1.01
1.24
1.76
2.01
China P/E (X)
9.6
12.2
8.6
7.5
Greater China Technology P/B (X)
1.5
2.1
1.9
1.7
Market cap: Rmb300.5bn / $42.1bn Revenue (Rmb mn)
Enterprise value: Rmb269.9bn / $37.8bn EBITDA (Rmb mn)
3m ADTV :Rmb1.7bn/ $239.0mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: No CROCI (%)
FCF yield (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 108.7%
EPS (Rmb)
5.7
4.4
6.3
7.2
(0.4)
(1.0)
(1.5)
(1.4)
23.2
18.8
23.5
23.3
3.8
11.3
18.2
9.6
9/23
12/23E
3/24E
6/24E
0.32
0.56
0.33
0.32
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: Foxconn Industrial Internet (FII) is a key contributor to Hon Hai and a
leading EMS of telecom equipment, network equipment, cloud service equipment,
precision tools and industrial robots. Given its broad exposure along the AI supply chain,
from GPU modules, GPU baseboards, AI servers, and related infrastructure, Verena sees
FII as well-placed to capture strong AI demand growth. She forecasts AI revenue
contribution to grow from 2% in 2022 to 24% in 2025E. At the same time, the company
is moving from OEM to ODM and towards cloud service providers (CSP) from
enterprises, which Verena views as positive for mix and gross margins.
n
Legacy business in better shape: Investor concerns focus on the potential for the
legacy businesses to be a growth drag, but Verena argues these to be in better
shape in 2024 with new customers and upgrade of the business model from OEM
to ODM. In networking, Verena sees the opportunity for market share gains with
existing customers as well as new customer penetration. Additionally, she expects
AI should lead to increasing demand for high-speed routers and switches and
value-add opportunities for EMS/ODM given a more complex design/manufacturing
process. In general servers, the company is transitioning from EMS business
models to ODM, creating the potential for significant profitability improvement with
3~4% GM for EMS, vs. 7~9% GM for ODM.
n
4 December 2023
AI server comprehensive offerings: FII’s comprehensive solutions from GPU
modules to baseboards, from L6 server motherboard to L12 full rack server clusters,
etc., set it apart from its competitors. Additionally, its diverse server manufacturing
capacity in Taiwan, Mainland China, South East Asia and Mexico, means clients have
the flexibly to choose where to manufacture and deliver their systems. As a result of
this combination, Verena believes FII should gain market share in the AI server era.
68
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
Where we are different: GSe 2024E/2025E earnings are 22%/20% higher than
Bloomberg consensus, driven by Verena’s more positive expectations around FII’s GM
expansion. She believes the market is underestimating the profitability improvement
from product upgrades across major business segments including networking
(increasing contribution of high speed networking), server (ramp up of AI servers with
general servers migrating to ODMs from OEMs), and smartphone components.
Valuation: 12m TP of Rmb31.61 is based on 18x 2024E P/E, the higher-end of FII’s
historical trading range, reflecting a positive view on its AI servers business.
Exhibit 47: FII: Networking, AI servers, GPU module and server
parts as the main drivers in 2022-25E
(Rmb m)
57,000
16%
FII water fall chart (2022-2025E)
52,000
47,000
6,183
42,000
32,000
30%
CSP revenues: AI server + general servers + HPC
AI server revenues: AI server + GPU modules
25%
12%
7,625
14,370
8%
10%
10%
10%
27,000
20%
9%
7%
15%
39,966
22,000
17,000
14%
2,492
1,792
3,714
37,000
Exhibit 48: AI and Cloud revenues support GM expansions
6%
4,102
20,010 20,073
10%
4%
12,000
5%
2%
0%
0%
2022
GM
Source: Company data, Goldman Sachs Global Investment Research
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Catalysts: (1) AI servers ramp up: Shipments started in 3Q23 and 2024 is the first full
year with more chipset platforms. FII doubled server capacity in both Mexico and
Vietnam to fulfill clients’ needs. (2) Customers (US cloud, large-scale enterprises) to
announce 2024 capex in early 2024. Verena expects FII to have new customers, along
with the GPU supply bottleneck easing in 2024. (3) General servers market recovery to
start in 4Q23-1Q24, driven by Intel (Eaglestream) and AMD (Geona) new chipset
platforms and healthier channel inventory. (4) 4Q23 results, to be announced in
mid-March 2024, which Verena expects to show stronger revenues YoY and continuous
GM expansion vs. 3Q23.
2023E
CSP servers revenue %
2024E
2025E
AI server revenues %
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
Foxconn Industrial Internet (601138.SS): AI infrastructure to be early beneficiary
under Large Language Model trend; upgrade to Buy
4 December 2023
n
Foxconn Industrial Internet (601138.SS): Chairman visit: AI server ramp up in
3Q/4Q23 reaffirmed, better product mix to drive GM ahead; Buy
n
Global Tech: PCs, smartphones, servers: Quantifying market opportunities
69
Goldman Sachs
Income Statement (Rmb mn) _______________________________
Foxconn Industrial Internet (601138.SS)
Rating since Apr 12, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (Rmb)
Average capital employed (Rmb)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (Rmb)
12/22
9.6
1.5
3.8
7.8
12/23E
12.2
2.1
11.3
8.6
12/24E
8.6
1.9
18.2
5.2
12/25E
7.5
1.7
9.6
4.2
7.8
23.2
16.2
(7.9)
(7.9)
13.6
53.2
8.6
18.8
18.3
(22.0)
(22.0)
11.0
58.5
5.2
23.5
23.6
(42.6)
(42.6)
16.1
52.3
4.2
23.3
24.2
(42.3)
(42.3)
20.1
45.7
65.9
58.1
15.5
1.8
2.2
151,536.9
106,383.3
66.0
59.0
17.5
1.7
2.1
168,156.0
114,393.2
52.0
59.0
22.3
1.7
2.1
190,652.4
99,691.9
50.0
59.0
22.9
1.8
2.0
215,263.0
95,289.3
6.49
7.06
7.86
8.77
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
12/22
12/23E
12/24E
12/25E
16.4
3.9
0.4
10.2
3.9
4.6
(4.7)
34.1
22.5
22.5
5.3
6.4
14.4
42.5
41.8
41.8
6.8
8.0
15.6
20.9
14.6
14.6
7.4
8.4
3.9
5.0
6.3
6.2
Price Performance _______________________________________
601138.SS (Rmb)
Shanghai - Shenzhen 300
30
4,400
25
4,200
20
4,000
15
3,800
10
3,600
5
3,400
Jan-23
Apr-23
Absolute
Rel. to the Shanghai - Shenzhen 300
Jul-23
Oct-23
3m
6m
12m
(28.7)%
(22.4)%
(15.5)%
(7.6)%
64.9%
84.3%
Source: FactSet. Price as of 1 Dec 2023 close.
12/22
511,849.6
(474,677.8)
(5,372.3)
(11,588.0)
12/23E
487,620.7
(445,381.2)
(5,548.5)
(10,675.0)
12/24E
558,033.8
(502,744.3)
(4,269.0)
(12,834.8)
12/25E
645,179.4
(577,997.6)
(4,613.0)
(14,839.1)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-23,431.7
(3,220.2)
20,211.4
339.4
2.6
21,963.0
-31,421.9
(5,405.9)
26,016.0
(78.8)
(1.0)
26,944.1
-44,777.7
(6,592.0)
38,185.7
(747.0)
-38,338.7
-54,120.8
(6,391.2)
47,729.6
(1,110.5)
-47,019.1
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
(1,879.1)
(10.8)
-20,073.1
-20,073.1
1.01
1.01
1.01
1.01
(2,346.9)
(0.1)
-24,597.1
-24,597.1
1.24
1.24
1.24
1.24
(3,450.5)
0.0
-34,888.2
-34,888.2
1.76
1.76
1.76
1.76
(7,052.9)
0.0
-39,966.3
-39,966.3
2.01
2.01
2.01
2.01
0.55
54.4
0.67
54.4
0.96
54.4
1.09
54.4
Total revenue
Cost of goods sold
SG&A
R&D
DPS (Rmb)
Div. payout ratio (%)
Balance Sheet (Rmb mn) __________________________________
12/22
69,429.8
97,689.8
77,321.8
12/23E
90,162.1
78,655.2
78,866.7
12/24E
125,950.1
80,346.2
80,909.6
12/25E
133,091.2
96,415.3
80,613.1
Other current assets
Total current assets
Net PP&E
Net intangibles
4,498.5
248,939.9
15,937.0
440.3
4,498.5
252,182.6
19,426.9
440.3
4,498.5
291,704.4
18,834.9
440.3
4,498.5
314,618.1
15,443.7
440.3
Total investments
Other long-term assets
Total assets
Accounts payable
12,215.7
6,654.8
284,187.7
74,233.4
12,215.7
6,654.8
290,920.3
69,752.9
12,215.7
6,654.8
329,850.0
92,778.2
12,215.7
6,654.8
349,372.6
94,081.3
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
55,764.6
-19,177.6
149,175.6
55,764.6
-19,177.6
144,695.1
55,764.6
-19,177.6
167,720.4
55,764.6
-19,177.6
169,023.5
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
3,484.5
-2,194.1
5,678.6
3,484.5
-2,194.1
5,678.6
3,484.5
-2,194.1
5,678.6
3,484.5
-2,194.1
5,678.6
154,854.2
-128,975.2
358.3
284,187.7
(10,180.7)
150,373.6
-140,188.2
358.4
290,920.3
(30,913.0)
173,399.0
-156,092.7
358.4
329,850.0
(66,701.0)
174,702.1
-174,312.1
358.4
349,372.6
(73,842.1)
Cash & cash equivalents
Accounts receivable
Inventory
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (Rmb mn) ______________________________________
12/22
12/23E
12/24E
12/25E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
20,073.1
3,220.2
10.8
(18,693.2)
10,754.7
15,365.6
24,597.1
5,405.9
0.1
13,009.1
6.9
43,019.0
34,888.2
6,592.0
0.0
19,291.6
-60,771.7
39,966.3
6,391.2
0.0
(14,469.5)
-31,888.0
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
(8,093.3)
(342.5)
-(6,871.8)
(15,307.5)
(8,902.6)
---(8,902.6)
(6,000.0)
---(6,000.0)
(3,000.0)
---(3,000.0)
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
-(11,089.8)
2,246.1
(4,661.7)
(13,505.3)
(13,447.2)
7,272.3
-(13,384.0)
-0.0
(13,384.0)
20,732.3
34,116.3
-(18,983.7)
-0.0
(18,983.7)
35,788.0
54,771.7
-(21,746.9)
-0.0
(21,746.9)
7,141.1
28,888.0
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
70
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Hitachi - Geared for next phase of growth
Covered by Ryo Harada (ryo.harada@gs.com, +81 3 6437-9865)
6501.T
Buy
12m Price Target: ¥12300
Price: ¥10455
GS Forecast
3/23
3/24E
3/25E
3/26E
Market cap: ¥10.1tr / $68.4bn Revenue (¥ bn)
10,881.2
8,977.3
8,748.5
9,448.4
Enterprise value: ¥11.1tr / $75.0bn Op. profit (¥ bn)
748.1
735.1
853.9
983.6
--
720.0
--
--
Japan EPS (¥)
671.3
590.8
667.0
777.4
Japan Industrial Electronics P/E (X)
10.0
17.7
15.7
13.4
P/B (X)
1.3
2.3
2.1
1.9
2.2
1.5
1.6
1.7
3m ADTV :¥23.6bn/ $158.7mn Op. profit CoE (¥ bn)
M&A Rank: 3 Dividend yield (%)
Leases incl. in net debt & EV?: No N debt/EBITDA (ex lease,X)
CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 17.6%
EPS (¥)
1.1
0.4
0.4
0.1
4.5
12.1
14.4
14.9
6/23
9/23
12/23E
3/24E
75.0
150.1
141.2
246.2
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: Whereas business portfolio reforms have been the focus of investors
to-date, Hitachi has transformed itself and become globally competitive, shifting
attention to the next phase of organic growth centered on its acquired businesses,
GlobalLogic and Hitachi Energy (formerly ABB Power Grid). Ryo forecasts adjusted
operating profit CAGR to accelerate to 17% over the next 3 years, from 8% in the last 3
years. Moreover, Ryo expects CROCI will rise to 14.9% in FY3/26E, from 6.7% in
FY3/20, on business growth as well as the deconsolidation of businesses with low
capital efficiency.
n
North American IT investment outlook and its impact on GlobalLogic: Whilst
GlobalLogic will not be immune to any potential slowdown, Ryo believes GlobalLogic
could be more insulated than competitors and able to leverage cross-selling
opportunities from existing Hitachi customers, to win new orders at limited
acquisition cost, in Japan and Asia primarily.
n
Group synergies: Hitachi is aiming to utilize embedded software from GlobalLogic
to extract data from Hitachi Energy’s power grid business, and analyze it using
Hitachi’s Lumada (AI) in order to control infrastructure more efficiently. Ryo believes
that synergies between Hitachi Energy’s power grid unit and IT operations
(GlobalLogic and Lumada) could be higher than what the market currently perceives.
Ryo’s scenario analysis suggests that Hitachi Energy’s FY3/28 adjusted operating
profit margin could reach up to 12% under a blue sky scenario.
Where we are different: (1) Ryo argues that linking the key businesses of Hitachi
Energy and GlobalLogic with Hitachi’s IoT platform has the potential to transform Hitachi
Energy into a major earnings driver in the future. Specifically, he expects Hitachi to apply
the digital technologies of GlobalLogic to infrastructure businesses like power grids and
4 December 2023
71
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
railways, expanding its future services business offering, leading to margin expansion.
(2) Ryo’s scenario analysis suggests that per-share implied valuation could reach as high
as ¥15,000 if the market were to price in Hitachi’s longer-term growth potential on
progress integrating its hardware and software businesses (see Ryo’s deep dive report
& IR Day site visit note on Hitachi Energy.
Catalysts: 1) Capital management: Ryo expects another share buyback (Y200bn) to be
announced at the end of FY3/24. 2) Business optimisation: Hitachi has already
completed major business restructuring efforts, but does intend to reshape its business
portfolio on an ongoing basis, such as the home appliances business. 3) Strategy
update: New medium-term plan (to start from FY3/26), and management commentary
prior to that could give an indication as to its direction.
Exhibit 49: Profit growth CAGR will accelerate from 8% in the past 3
years to 17% for the next 3 years, fueled by Digital and Green.
Exhibit 50: Software (grid automation) to contribute from the next
medium-term plan
Trend of adjusted operating profit
Sales assumptions by scenario
(JPYmn)
1,200,000
CAGR (3/23-3/26E)
17%
1,000,000
CAGR (3/20-3/26E) 8%
800,000
600,000
400,000
200,000
0
FY3/21
FY3/22
FY3/23
FY3/23 FY3/24E FY3/25E FY3/26E
FY3/20
(ex. HCM,
(ex.
HM,
Hitachi
Astemo)
Chemical)
Total Digital Systems & Services Green Energy & Mobility Connective Industries
FY3/20 ~ FY3/23 is adjusted with annualized HCM and HM. FY3/23 (ex. HCM, HM, Astemo) ~
FY3/26 is the sum excluding Others and Elimination. HCM is Hitachi Construction Metals, HM is
Hitachi Metals.
Source: Company data, Goldman Sachs Global Investment Research
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Valuation: 12m TP of ¥12,300, based on 9.5x FY3/25E EV/EBITDA.
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
Hitachi (6501.T) - Hitachi Energy IR Days: Reconfirmed top global competitiveness;
upbeat on margin/CF growth, good prospects for digital cooperation; raise TP
n
Hitachi (6501.T) - Hitachi Energy: Potential to become a more powerful earnings
driver combining power grid and IT
n
Hitachi (6501.T) - Beneficiary of global digital and green transformation trends;
reinstate at Buy
72
Goldman Sachs
Income Statement (¥ bn) __________________________________
Hitachi (6501.T)
Rating since Mar 16, 2023
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
3/23
10.0
1.3
6.9
6.5
3/24E
17.7
2.3
13.8
8.9
3/25E
15.7
2.1
9.3
8.2
3/26E
13.4
1.9
9.6
7.2
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
6.5
4.5
14.0
25.9
25.9
14.6
61.9
8.9
12.1
12.2
11.1
11.1
18.8
63.2
8.2
14.4
13.9
10.7
10.7
25.1
65.5
7.2
14.9
14.5
2.7
2.7
28.9
67.4
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (¥)
Average capital employed (¥)
98.2
73.6
12.2
0.9
2.3
11,739.8
7,114.4
108.2
81.5
11.8
0.8
2.4
10,165.1
6,029.4
101.2
82.8
11.8
0.7
2.2
10,446.1
5,665.5
96.7
81.5
12.2
0.7
2.1
10,794.1
6,097.8
5,111.8
4,540.2
5,035.7
5,621.5
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (¥)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
3/23
3/24E
3/25E
3/26E
6.0
(0.3)
11.3
0.0
6.9
11.7
(17.5)
(2.5)
(12.0)
10.3
8.2
13.8
(2.5)
9.6
12.9
6.3
9.8
15.6
8.0
9.5
16.5
2.9
10.4
15.8
6.0
6.3
7.3
7.8
Price Performance _______________________________________
6501.T (¥)
TOPIX
11,000
2,800
10,000
2,600
9,000
2,400
8,000
2,200
7,000
2,000
6,000
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
6m
12m
5.4%
4.0%
30.1%
17.4%
42.8%
19.1%
Source: FactSet. Price as of 1 Dec 2023 close.
3/23
10,881.2
(8,192.1)
(1,624.7)
(316.2)
3/24E
8,977.3
(6,650.1)
(1,264.1)
(328.0)
3/25E
8,748.5
(6,343.1)
(1,223.5)
(328.0)
3/26E
9,448.4
(6,789.2)
(1,347.6)
(328.0)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-1,274.3
(526.2)
748.1
(25.7)
52.8
820.0
-1,242.9
(507.8)
735.1
(15.0)
190.0
824.1
-1,361.7
(507.8)
853.9
(10.0)
200.0
1,027.9
-1,491.4
(507.8)
983.6
(10.0)
200.0
1,157.6
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
(116.1)
(54.7)
-649.1
-649.1
671.3
671.3
671.3
671.3
(206.0)
(50.0)
-568.1
-568.1
590.8
590.8
590.8
590.8
(257.0)
(130.0)
-640.9
-640.9
667.0
667.0
667.0
667.0
(289.0)
(130.0)
-738.6
-738.6
777.4
777.4
777.4
777.4
145.0
21.6
160.0
27.1
170.0
25.5
175.0
22.5
Total revenue
Cost of goods sold
SG&A
R&D
DPS (¥)
Div. payout ratio (%)
Balance Sheet (¥ bn) _____________________________________
Cash & cash equivalents
Accounts receivable
Inventory
3/23
833.3
2,875.0
1,646.2
3/24E
1,258.7
2,445.9
1,463.8
3/25E
1,206.6
2,405.8
1,676.8
3/26E
1,608.9
2,598.3
1,810.9
Other current assets
Total current assets
Net PP&E
Net intangibles
574.1
5,928.5
1,700.5
3,410.0
574.1
5,742.5
1,238.0
3,482.8
574.1
5,863.3
1,248.0
3,482.8
574.1
6,592.3
1,258.0
3,482.8
975.5
486.9
12,501.4
1,548.5
975.5
(11.6)
11,427.2
1,421.4
975.5
486.9
12,056.5
1,458.1
975.5
486.9
12,795.4
1,574.7
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
919.5
-2,698.2
5,166.2
919.5
-2,698.2
5,039.1
919.5
-2,698.2
5,075.8
919.5
-2,698.2
5,192.4
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
1,293.8
-705.8
1,999.7
873.8
-705.8
1,579.7
863.8
-705.8
1,569.7
853.8
-705.8
1,559.7
7,165.8
-4,942.9
392.7
12,501.4
1,380.1
6,618.8
-4,365.8
442.7
11,427.2
534.7
6,645.4
-4,838.3
572.7
12,056.5
576.8
6,752.1
-5,340.6
702.7
12,795.4
164.4
Total investments
Other long-term assets
Total assets
Accounts payable
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (¥ bn) _________________________________________
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
3/23
3/24E
3/25E
3/26E
649.1
526.2
54.7
293.3
(696.3)
827.0
(349.7)
0.8
(52.8)
552.8
568.1
507.8
50.0
484.3
190.0
1,800.2
(350.0)
(72.8)
(190.0)
--
640.9
507.8
130.0
(136.2)
200.0
1,342.5
(350.0)
0.0
(200.0)
--
738.6
507.8
130.0
(210.0)
200.0
1,366.4
(350.0)
0.0
(200.0)
--
151.1
-(129.0)
(486.4)
(498.2)
(1,113.7)
(135.5)
477.3
(612.8)
-(153.9)
(420.0)
(188.2)
(762.1)
425.4
1,450.2
(550.0)
-(163.3)
(10.0)
(671.3)
(844.6)
(52.1)
992.5
(550.0)
-(166.3)
(10.0)
(237.8)
(414.1)
402.3
1,016.4
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
73
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Renesas - High quality, cycle bottom, undervalued
Covered by Daiki Takayama (daiki.takayama@gs.com, +81 3 6437-9870)
6723.T
Buy
12m Price Target: ¥3300
Price: ¥2562.5
GS Forecast
12/22
12/23E
12/24E
12/25E
Market cap: ¥4.7tr / $32.0bn Revenue (¥ bn)
1,502.7
1,468.6
1,547.5
1,756.1
Enterprise value: ¥4.6tr / $30.9bn Op. profit (¥ bn)
559.4
505.2
538.7
643.7
541.7
--
--
--
Japan EPS (¥)
192.6
247.8
256.6
314.4
Japan Electronic P/E (X)
Components/Semiconductors
6.9
10.3
10.0
8.2
1.6
2.3
1.7
1.2
3m ADTV :¥31.5bn/ $211.2mn Op. profit CoE (¥ bn)
P/B (X)
M&A Rank: 3 Dividend yield (%)
0.0
0.0
1.6
2.0
0.7
(0.3)
(0.7)
(1.1)
CROCI (%)
19.0
12.8
14.1
16.1
6/23
9/23
12/23E
--
EPS (¥)
66.3
60.4
56.1
--
Leases incl. in net debt & EV?: No N debt/EBITDA (ex lease,X)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 28.8%
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Core thesis: Daiki views Renesas as attractive in terms of both visibility on earnings
bottoming out and underappreciated valuation multiples. He expects earnings to trough
in 4Q12/23-1Q12/24 with the operating margin holding at 30% or more, followed by a
strong recovery trend beginning 2Q12/24. At the same time, he believes the valuation
discount is likely to be eliminated. With a 12m TP of ¥3,300, the stock is high-quality,
undervalued, and a likely beneficiary of a cyclical recovery in the Asia technology
hardware sector as a whole.
n
Early Signals: Are there early signs of earnings bottoming out in 1Q-2Q12/24, such
as sustainability in automotive applications, a bottom-out for industrial and consumer
product applications (IOT), and a recovery in DC applications?
n
Competition: What are the risks from local Chinese peer companies and current
pricing conditions in the market?
n
Returns: Is there any risk of a decline in ROE and CROCI over the medium to long
term due to upfront investment and M&A? As a result, are there any risks of lower
capital allocation to shareholder returns?
n
Valuations: Overall, would valuations remain low?
Where we are different: Daiki thinks the earnings structure is now already more
resilient than in past cycles due to multiple changes, including management, product
mix, inventory management, and industry positioning. The valuation discount is likely to
be eliminated through improvement in earnings momentum from around 2Q12/24 and
progress in enhancing shareholder returns (reinstatement of dividends), and following
conclusion of the sale of Renesas’ shares held by major shareholder INCJ (Nov 2023).
Catalysts: Daiki expect earnings to hit a major bottom with the operating margin holding
4 December 2023
74
2e83ab6fea424dc8a1b6a8a7e94c6547
Key debates:
Goldman Sachs
APAC Conviction List
at 30% or more in 4Q12/23 (results for this quarter are typically announced in the first
half of February) and then the company to start seeing a gradual increase in capacity
utilization (front-end) coupled with profit margin improvement from 1Q-2Q12/24.
Valuation: 12m TP of ¥3,300 (based on FY12/24-FY12/25E average EV/GCI vs.
CROCI/WACC, applying an EV/DACF multiple of 10X).
Exhibit 51: Renesas’ OPM is second highest after TI; Daiki sees
4Q23 as the margin trough in the current cycle
Exhibit 52: While the gap is being closed with the 5-company
average, Renesas still looks cheap with the lowest P/E
OPM: Global peer comparison
P/E: Global peer comparison
Historical PER
OPM
40.0
60%
35.0
50%
30.0
25.0
40%
20.0
30%
15.0
10.0
20%
5.0
0.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Jan-23
Mar-23
May-23
Jul-23
Sep-23
Nov-23
0%
1Q
-10%
2Q
3Q
4Q
2018
Renesas
1Q
2Q
3Q
4Q
1Q
2019
Infineon
2Q
3Q
4Q
1Q
2Q
2020
3Q
4Q
1Q
2021
STMicro
2Q
3Q
2022
NXP
4Q
1Q
2Q
3Q 4QE
2023E
2024 2025
Texas Instruments
Source: Data compiled by Goldman Sachs Global Investment Research
Renesas
Infineon
STMicro
NXP
Texas Instruments
5 comp Avg
Source: Data compiled by Goldman Sachs Global Investment Research
Relevant Research:
n
Japan Technology: Hardware - Electronic Components: Raise TPs on Renesas
Electronics, Rohm, reiterate Buy ratings as both names look more attractive
n
Renesas Electronics (6723.T): Earnings Review: Above expectations; looking for
earnings to bottom out while high margins maintained
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
10%
4 December 2023
75
Goldman Sachs
Income Statement (¥ bn) __________________________________
Renesas Electronics (6723.T)
Rating since Oct 14, 2020
CL
Ratios & Valuation _______________________________________
12/22
6.9
1.6
10.6
4.5
12/23E
10.3
2.3
7.8
7.0
12/24E
10.0
1.7
8.2
4.9
12/25E
8.2
1.2
12.4
2.7
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
4.5
19.0
28.0
27.3
27.3
8.8
39.6
7.0
12.8
25.6
(9.3)
(9.3)
63.1
46.2
4.9
14.1
22.0
(21.9)
(21.9)
89.8
44.5
2.7
16.1
22.9
(33.6)
(33.6)
107.3
42.9
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (¥)
Average capital employed (¥)
36.8
120.2
24.5
0.5
1.8
3,110.8
1,855.4
40.0
126.4
23.3
0.5
1.6
3,177.8
1,828.1
38.5
123.5
20.6
0.5
1.5
3,259.0
1,677.3
37.2
127.8
21.4
0.5
1.4
3,349.3
1,637.0
822.8
1,124.0
1,501.3
2,196.7
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (¥)
Growth & Margins (%) ____________________________________
12/22
12/23E
12/24E
12/25E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
51.1
70.3
60.0
NM
37.2
42.5
(2.3)
(8.5)
28.6
NM
34.4
39.8
NM
NM
NM
NM
34.8
41.3
13.5
18.8
22.5
25.0
36.7
43.2
Net income margin
25.1
29.6
28.3
29.7
Price Performance _______________________________________
6723.T (¥)
TOPIX
3,500
2,800
3,000
2,600
2,500
2,400
2,000
2,200
1,500
2,000
1,000
1,800
Jan-23
Absolute
Rel. to the TOPIX
Apr-23
Jul-23
Oct-23
3m
6m
12m
4.0%
2.5%
7.7%
(2.9)%
88.1%
56.8%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (¥)
EPS (diluted, pre-except) (¥)
EPS (basic, post-except) (¥)
EPS (diluted, post-except) (¥)
DPS (¥)
Div. payout ratio (%)
12/22
1,502.7
(648.7)
(230.8)
(196.0)
12/23E
1,468.6
(636.7)
(235.3)
(220.0)
12/24E
1,547.5
(661.1)
(249.7)
(230.0)
12/25E
1,756.1
(700.1)
(294.4)
(250.0)
132.3
639.2
(79.8)
559.4
(61.9)
0.0
483.0
128.5
585.2
(80.0)
505.2
26.0
-529.8
132.0
638.7
(100.0)
538.7
(2.0)
-522.3
132.0
758.7
(115.0)
643.7
(2.0)
-627.3
(105.5)
(0.2)
0.0
377.3
0.0
377.3
202.4
202.4
202.4
202.4
(94.0)
(0.5)
-435.3
-435.3
261.9
261.9
261.9
261.9
(84.0)
(0.5)
-437.8
-437.8
310.4
310.4
310.4
310.4
(106.0)
(0.5)
-520.8
-520.8
469.9
469.9
469.9
469.9
-0.0
-0.0
40.0
12.9
50.0
10.6
Balance Sheet (¥ bn) _____________________________________
12/22
336.1
162.6
188.0
12/23E
753.9
158.9
183.7
12/24E
946.1
167.5
193.6
12/25E
1,200.7
190.0
219.7
Other current assets
Total current assets
Net PP&E
Net intangibles
28.5
715.1
208.0
1,539.8
34.7
1,131.2
205.6
1,442.2
34.7
1,341.8
253.2
1,344.6
34.7
1,645.1
295.8
1,247.0
Total investments
Other long-term assets
Total assets
Accounts payable
14.2
335.1
2,812.3
222.9
14.2
122.0
2,915.3
217.9
14.2
122.0
3,075.9
229.6
14.2
122.0
3,324.2
260.5
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
120.0
-182.5
525.5
45.0
-124.3
387.2
45.0
-124.3
398.9
45.0
-124.3
429.8
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
635.7
-113.6
749.3
535.7
-120.3
656.0
435.7
-120.3
556.0
335.7
-120.3
456.0
1,274.8
0.0
1,533.8
3.7
2,812.3
419.7
1,043.2
-1,868.4
3.7
2,915.3
(173.2)
954.9
-2,117.3
3.7
3,075.9
(465.4)
885.8
-2,434.6
3.7
3,324.2
(820.0)
Cash & cash equivalents
Accounts receivable
Inventory
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (¥ bn) _________________________________________
12/22
12/23E
12/24E
12/25E
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
377.3
79.8
0.2
(65.5)
87.5
479.3
(216.4)
(6.7)
-125.7
435.3
80.0
0.5
2.9
(94.5)
424.2
(90.0)
--(97.6)
437.8
100.0
0.5
(6.7)
(84.5)
447.1
(150.0)
--(97.6)
520.8
115.0
0.5
(17.7)
(106.5)
512.1
(160.0)
--(97.6)
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(97.5)
--(129.9)
(137.8)
(267.7)
114.1
262.9
(187.6)
--(175.0)
356.2
181.2
417.8
334.2
(247.6)
-68.3
(100.0)
24.4
(7.3)
192.2
297.1
(257.6)
-82.8
(100.0)
17.3
0.1
254.6
352.1
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
76
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
SK Hynix - Sustaining lead into next generation memory
Covered by Giuni Lee (giuni.lee@gs.com, +82 2 3788-1177)
000660.KS
Buy
12m Price Target: W170000
Price: W132600
GS Forecast
12/22
12/23E
12/24E
12/25E
44,621.6
31,883.0
49,506.9
57,003.3
20,960.9
5,517.2
22,722.2
29,832.3
3,242
(11,609)
9,450
16,950
South Korea P/E (X)
31.5
NM
14.0
7.8
Korea Technology P/B (X)
1.1
1.6
1.4
1.2
1.2
0.9
1.5
1.6
0.8
4.0
0.5
0.1
12.4
1.9
10.7
14.5
(6.5)
(6.0)
9.9
13.1
9/23
12/23E
3/24E
6/24E
(3,174)
(338)
971
1,884
Market cap: W93.6tr / $71.7bn Revenue (W bn)
Enterprise value: W116.2tr / $89.0bn EBITDA (W bn)
3m ADTV :W415.1bn/ $311.9mn EPS (W)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: Yes CROCI (%)
FCF yield (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
Upside: 28.2%
EPS (W)
Core thesis: Whilst Giuni expects memory industry production to recover next year,
with both DRAM and NAND likely to grow at low-teens% yoy, this will be well below his
shipment growth forecasts (+20-25% yoy), driven by a cyclical recovery in traditional
demand drivers such as PCs and smartphones, and new growth areas such as rising AI
demand (high-bandwidth memory). This will lead to meaningfully lower inventory levels
and the pricing upcycle to continue for the next several quarters. Hynix is well on track
in preparing for the next generation HBM3E, which should allow the company to
continue to be the market leader in High-Bandwidth Memory (HBM) for the next couple
of years. Hynix and Samsung Electronics (SEC) are both highly leveraged to the memory
cycles and will benefit from the cycle upturn, but Giuni forecasts a relatively sharper
recovery in operating margin and ROE for Hynix through the upcycle.
Key debates:
n
1Q24 DRAM/NAND ASP: Investor discussions are centered around the magnitude
of potential ASP increase in 1Q24. Similar to market expectations, Giuni forecasts a
deceleration in NAND ASP increases from the likely high base in 4Q23E; for DRAM,
he expects ASP growth to accelerate in 1Q24E due to the pronounced impact from
SEC’s larger-than-expected production cuts in September 2023, and the continued
mix shift toward HBM/DDR5 (a significant ASP premium over DDR4 DRAM).
4 December 2023
n
HBM competition: With Hynix currently leading the HBM3 market for Nvidia,
investors question how long this can be maintained, particularly through the
transition to next generation HBM3E. Hynix has a head start in the sampling process
for HBM3E and this should help it sustain its lead through 2024/25.
n
Timing of memory production recovery: Companies will likely have to see a
normalized (or at least reasonable) level of inventory and margin before considering
bringing a meaningful level of production back up. Giuni estimates this to be
77
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
mid-2024 for DRAM and late-2024 for NAND.
Where we are different: GSe Hynix 2024 OP estimate is 7% above Bloomberg
consensus (NAND estimates are lower but DRAM estimates are higher for 2024E).
Giuni forecasts ROE to improve from -13.5% in 2023 to 17% in 2024E.
Catalysts: 1) Acceleration of memory pricing growth in 1Q24, 2) Confirmation of
memory inventory normalization trend during 1H24, 3) Rising HBM/DDR5 penetration
rate in 2024, 4) Timing of memory production recovery, 5) Higher on-device AI
penetration rate, and 6) server/smartphone/PC demand recovery in 2024.
Valuation: 12m TP of W170,000, based on 1.8X 2024E P/B
Exhibit 53: While HBM revenue accounted for only 5% of Hynix’s
DRAM revenue in 2022, we expect the weighting will rise to 21% by
2025E
Exhibit 54: Hynix shares are trading at 1.4X 12m FWD P/B with
2024E ROE of 11%
Hynix 12m FWD P/B
Hynix HBM revenue as % of total DRAM
10
25%
8
20%
6
15%
40%
1.5X
30%
20%
1.0X
4
10%
2
5%
10%
0%
0.5X
-10%
0%
0
2021
2022
2023E
Hynix HBM revenue
2024E
2025E
Hynix HBM revenue % of DRAM
Source: Company data, Goldman Sachs Global Investment Research
0.0X
Jan 13Jan 14Jan 15Jan 16Jan 17Jan 18Jan 19Jan 20Jan 21Jan 22Jan 23Jan 24
12m FWD P/B
15yr avg.
-1 STDEV
ROE (RHS)
-20%
+1 STDEV
Source: Company data, Goldman Sachs Global Investment Research, Bloomberg
Relevant Research:
4 December 2023
n
South Korea Technology: Semiconductors - Memory: DRAM/NAND industry bit
shipment to continue to outpace production in 2024
n
Samsung Electronics (005930.KS): HBM deep-dive; AI memory a new US$2bn profit
opportunity by 2025, raise TP and reiterate Buy
78
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
50%
2.0X
(W tn)
Goldman Sachs
Income Statement (W bn) _________________________________
SK Hynix Inc. (000660.KS)
Rating since Jan 10, 2022
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
12/22
31.5
1.1
(6.5)
4.2
12/23E
NM
1.6
(6.0)
20.6
12/24E
14.0
1.4
9.9
4.6
12/25E
7.8
1.2
13.1
3.2
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
4.2
12.4
3.6
29.2
26.4
13.7
100.7
21.8
1.9
(13.5)
40.8
37.5
(6.0)
165.0
4.5
10.7
11.0
19.1
16.4
7.7
82.3
3.2
14.5
17.1
6.5
4.0
17.4
57.9
55.0
22.3
3.5
0.4
1.6
154,652.3
75,597.5
70.3
23.7
(14.4)
0.3
1.8
161,897.6
78,039.7
57.2
23.1
10.3
0.5
1.7
171,046.5
74,938.3
55.0
22.9
16.0
0.5
1.6
187,209.2
74,889.3
92,004
80,390
92,088
106,090
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (W)
Average capital employed (W)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (W)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
12/22
12/23E
12/24E
12/25E
3.8
(9.1)
(76.8)
(22.1)
15.3
47.0
(28.5)
(73.7)
(458.1)
0.0
(26.0)
17.3
55.3
311.8
181.4
66.7
18.0
45.9
15.1
31.3
79.4
5.0
27.2
52.3
5.0
(25.1)
13.1
20.5
Price Performance _______________________________________
000660.KS (W)
KOSPI
160,000
3,000
140,000
2,800
120,000
2,600
100,000
2,400
80,000
2,200
60,000
2,000
Jan-23
Absolute
Rel. to the KOSPI
Apr-23
Jul-23
Oct-23
3m
6m
12m
10.5%
13.1%
20.2%
23.3%
56.6%
55.0%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
12/22
44,621.6
(28,993.7)
(4,343.9)
(4,474.6)
12/23E
31,883.0
(32,873.6)
(3,675.2)
(3,622.5)
12/24E
49,506.9
(32,508.2)
(4,374.1)
(3,734.5)
12/25E
57,003.3
(32,060.6)
(5,536.4)
(3,886.1)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-20,960.9
(14,151.5)
6,809.4
(443.6)
131.2
4,002.8
-5,517.2
(13,805.5)
(8,288.3)
(1,249.0)
44.8
(10,095.8)
-22,722.2
(13,832.0)
8,890.2
(930.7)
104.0
8,863.5
-29,832.3
(14,312.0)
15,520.3
(619.4)
144.0
15,884.9
(1,761.1)
(12.1)
-2,229.6
-2,229.6
3,242
3,242
3,242
3,242
2,107.8
(0.2)
-(7,988.2)
-(7,988.2)
(11,609)
(11,609)
(11,609)
(11,609)
(2,348.8)
(12.0)
-6,502.6
-6,502.6
9,450
9,450
9,450
9,450
(4,209.5)
(12.0)
-11,663.4
-11,663.4
16,950
16,950
16,950
16,950
1,200
37.0
1,200
(10.3)
2,000
21.2
2,100
12.4
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (W)
EPS (diluted, pre-except) (W)
EPS (basic, post-except) (W)
EPS (diluted, post-except) (W)
DPS (W)
Div. payout ratio (%)
Balance Sheet (W bn) ____________________________________
Cash & cash equivalents
Accounts receivable
Inventory
12/22
6,409.0
5,186.1
15,664.7
12/23E
10,746.0
7,087.5
13,154.8
12/24E
18,137.0
8,428.5
9,163.2
12/25E
25,551.2
8,744.3
8,930.3
Other current assets
Total current assets
Net PP&E
Net intangibles
1,473.6
28,733.3
60,228.5
3,512.1
1,542.1
32,530.4
52,788.9
3,510.0
2,257.8
37,986.5
50,084.5
3,337.5
2,257.8
45,483.6
51,825.7
3,158.0
1,749.2
9,648.3
103,871.5
2,186.2
1,864.6
11,666.7
102,360.5
2,077.1
1,968.6
14,181.0
107,558.1
2,036.3
2,112.6
14,756.8
117,336.6
1,984.5
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
7,423.2
280.9
9,953.3
19,843.7
11,221.3
316.7
8,756.3
22,371.4
10,221.3
300.4
8,772.5
21,330.6
10,221.3
310.9
8,762.1
21,278.8
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
15,671.4
1,516.2
3,549.7
20,737.3
20,285.2
1,530.1
2,831.3
24,646.5
18,285.2
1,451.7
3,086.7
22,823.6
18,285.2
1,502.2
3,220.6
23,007.9
40,581.0
-63,266.4
24.2
103,871.5
16,685.6
47,017.9
-55,315.9
26.7
102,360.5
20,760.5
44,154.2
-63,365.2
38.7
107,558.1
10,369.5
44,286.7
-72,999.2
50.7
117,336.6
2,955.3
Total investments
Other long-term assets
Total assets
Accounts payable
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
Cash Flow (W bn) ________________________________________
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
12/22
12/23E
12/24E
12/25E
2,229.6
14,151.5
12.1
(2,806.6)
1,194.0
14,780.5
(7,988.2)
13,805.5
0.2
499.3
(3,789.9)
2,526.9
6,502.6
13,832.0
12.0
2,609.8
(3,156.9)
19,799.6
11,663.4
14,312.0
12.0
(134.6)
(535.5)
25,317.2
(19,010.3)
(1,027.7)
-2,154.2
(17,883.7)
(7,705.9)
--(616.0)
(8,321.9)
(10,500.0)
--(1,082.9)
(11,582.9)
(13,000.0)
(2,400.0)
-(1,126.8)
(16,526.8)
(301.9)
(1,677.8)
5,394.4
(2,575.0)
839.7
(2,263.6)
(4,229.7)
(326.4)
(825.7)
8,411.9
2,872.3
10,132.0
4,337.0
(5,179.1)
(306.4)
(825.7)
(3,000.0)
3,306.4
(825.7)
7,391.0
9,299.6
(314.1)
(1,376.2)
-314.1
(1,376.2)
7,414.2
12,317.2
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
79
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
TSMC - Structural trends support long-term growth opportunity
Covered by Bruce Lu (bruce.lu@gs.com, +886 2 2730-4185)
2330.TW
12m Price Target: NT$725
Price: NT$579
Upside: 25.2%
TSM
12m Price Target: $115
Price: $98.55
Upside: 16.7%
Buy
GS Forecast
12/22
12/23E
12/24E
12/25E
2,263,891
2,152,730
2,699,202
3,266,925
1,558,533
1,454,077
1,919,532
2,398,014
39.20
31.85
40.27
50.64
Taiwan P/E (X)
13.2
18.2
14.4
11.4
Taiwan Semiconductor P/B (X)
4.5
4.3
3.6
3.0
2.1
2.0
2.9
3.7
(0.3)
(0.3)
(0.6)
(0.8)
26.4
18.6
21.9
24.5
3.9
1.2
6.7
7.8
9/23
12/23E
3/24E
6/24E
8.13
8.72
8.53
9.80
Market cap: NT$15.0tr / $477.1bn Revenue (NT$ mn)
Enterprise value: NT$14.6tr / $464.9bn EBITDA (NT$ mn)
3m ADTV :NT$13.4bn/ $417.8mn EPS (NT$)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: Yes CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
FCF yield (%)
EPS (NT$)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Key debates:
n
Pricing outlook: Some investors are concerned with TSMC’s pricing outlook in 2024
and the competition from mainland China for mature nodes. However, Bruce
believes TSMC’s pricing should be relatively firm especially for advanced nodes
thanks to its technology leadership. As for the competition for legacy nodes, he
believes the impact would be minimal given its focus on specialty technology and
single source.
n
Technology dominance: There are market concerns on the sustainability of TSMC’s
technology lead into N2 with GAA (Gate-All-Around) structure given the potential
come back of Intel, as well as the competition from Samsung. Nevertheless, TSMC
remains confident in maintaining its advantage for N2 when it is introduced in 2025.
Where we are different: Bruce’s 2024/2025E earning estimates are 7-11% higher than
consensus, as he is more optimistic on TSMC’s revenue growth outlook driven by: 1)
Re-stocking demand from PCs/smartphones/servers, and incremental AI
contribution. He believes the end demand recovery from these segments alongside
the AI demand support its utilization rate (UTR) outlook especially for N5/N7; 2)
4 December 2023
80
2e83ab6fea424dc8a1b6a8a7e94c6547
Core thesis: Despite a choppy near-term outlook, Bruce believes TSMC will achieve its
15-20% revenue CAGR target for the next several years, driven primarily by mid-to-high
single digit % silicon content growth and HPC demand, with GM to remain at 53%+. He
favors TSMC’s leadership position, with long-term growth opportunity underpinned by
structural industry trends (5G/AI/HPC/EV) and the key AI enabler among our Taiwan
semis coverage thanks to its leadership stance in leading edge nodes and advanced
packaging technology.
Goldman Sachs
APAC Conviction List
Incremental contribution from 3nm. He also estimates that 3nm will account for 15%
of its total wafer revenue in 2024E (vs 6% in 2023E); and 3) Intel outsourcing
expansion. Bruce’s analysis shows that Intel is likely to account for c.7%/10% of
TSMC’s revenue in 2024/2025E. Net net, Bruce is looking for a 24%/21% of revenue (in
USD term) growth in 2024/2025E. He also sees upside potential on its quarterly
dividend payout on improving free cash flow.
Catalysts: 1) The potentially stronger than expected monthly revenue (November &
December), partially driven by better FX and rush orders, and 2) its next analyst meeting
in mid-January 2024, which Bruce believes the company will provide a strong guidance
on its 2024/1Q24 revenue growth outlook.
Valuation: 12m TP of NT$725, which is derived by applying a target P/E multiple of 18x
(0.5stdv above its 5-year trading average) to 2024E EPS. Bruce is also Buy rated on the
ADR (TSM) with a 12m TP of US$115, based on a USD/TWD rate of 31.5.
Exhibit 56: Bruce sees potential upside on cash dividend payout
120,000
40%
35
32
35%
100,000
30%
25%
80,000
20%
15%
60,000
30
27
25
20
10%
5%
40,000
0%
-5%
20,000
-10%
Total revenue (USDmn)
YoY (%, RHS)
Source: Company data, Goldman Sachs Global Investment Research
2025E
2024E
2022
2023E
2021
2020
2019
2018
2017
2016
2015
2014
2013
-15%
2012
0
2011
15
22
10
5
17
10
10
11
2019
2020
2021
11
12
2022
2023E
Cash dividend (NT$/share)
2024E
2025E
Cash div. based on 70% of FCF per share
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
4 December 2023
n
TSMC (2330.TW): Embracing a new growth chapter in 2024; reiterate Buy
n
TSMC (2330.TW): Assessing TAM from Intel outsourcing for TSMC; reiterate Buy
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Exhibit 55: TSMC’s revenue growth outlook (in USD terms)
81
Goldman Sachs
Income Statement (NT$ mn) _______________________________
TSMC (2330.TW)
Rating since May 7, 2019
CL
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
12/22
13.2
4.5
3.9
8.3
12/23E
18.2
4.3
1.2
10.1
12/24E
14.4
3.6
6.7
7.3
12/25E
11.4
3.0
7.8
5.5
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
8.3
26.4
39.8
(17.0)
(17.0)
79.2
33.4
10.1
18.6
25.7
(11.9)
(11.9)
51.8
46.8
7.3
21.9
27.2
(26.7)
(26.7)
82.6
47.8
5.5
24.5
28.4
(36.6)
(36.6)
179.2
49.1
34.6
181.0
34.3
0.5
1.7
6,390,285.9
2,145,407.7
39.6
182.2
23.5
0.4
1.6
7,571,949.7
2,776,987.0
38.9
180.0
24.5
0.4
1.5
8,331,824.9
3,110,850.9
44.5
231.4
25.6
0.5
1.4
9,354,829.8
3,188,286.6
113.60
134.32
162.09
194.23
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Gross cash invested (ex cash) (NT$)
Average capital employed (NT$)
For the exclusive use of MATTHEW.X.WONG@GS.COM
BVPS (NT$)
Growth & Margins (%) ____________________________________
12/22
12/23E
12/24E
12/25E
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
42.6
45.3
70.4
(0.0)
49.5
68.8
(4.9)
(6.7)
(18.8)
6.8
42.6
67.5
25.4
32.0
26.4
44.7
44.0
71.1
21.0
24.9
25.8
26.5
46.0
73.4
Net income margin
44.9
38.4
38.7
40.2
Price Performance _______________________________________
2330.TW (NT$)
Taiwan SE Weighted Index
650
18,000
600
17,000
550
16,000
500
15,000
450
14,000
400
13,000
Jan-23
Apr-23
Absolute
Rel. to the Taiwan SE Weighted Index
Jul-23
Oct-23
3m
6m
12m
5.7%
0.8%
5.1%
(0.5)%
16.1%
(0.0)%
Source: FactSet. Price as of 1 Dec 2023 close.
Total revenue
Cost of goods sold
SG&A
R&D
12/22
2,263,891.3
(915,536.5)
(63,813.7)
(163,262.2)
12/23E
2,152,730.0
(979,272.7)
(69,323.7)
(187,098.3)
12/24E
2,699,202.0
(1,226,412.5)
(76,284.0)
(209,552.0)
12/25E
3,266,924.8
(1,433,904.4)
(88,884.0)
(241,552.0)
Other operating inc./(exp.)
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
Pre-tax profit
-1,558,533.1
(437,254.3)
1,121,278.9
8,272.4
7,798.4
1,144,190.7
-1,454,077.3
(537,042.1)
917,035.3
34,673.2
5,473.0
966,382.8
-1,919,532.4
(732,578.9)
1,186,953.5
37,312.4
6,395.9
1,230,661.9
-2,398,014.2
(895,429.8)
1,502,584.4
43,155.3
6,196.0
1,551,935.7
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (NT$)
EPS (diluted, pre-except) (NT$)
EPS (basic, post-except) (NT$)
EPS (diluted, post-except) (NT$)
(127,290.2)
(370.3)
-1,016,530.2
-1,016,530.2
39.20
39.20
39.20
39.20
(141,023.7)
529.5
-825,888.6
-825,888.6
31.85
31.85
31.85
31.85
(187,312.7)
820.0
-1,044,169.2
-1,044,169.2
40.27
40.27
40.27
40.27
(239,589.7)
820.0
-1,313,166.0
-1,313,166.0
50.64
50.64
50.64
50.64
11.00
28.1
11.75
36.9
17.00
42.2
21.50
42.5
DPS (NT$)
Div. payout ratio (%)
Balance Sheet (NT$ mn) __________________________________
Cash & cash equivalents
Accounts receivable
Inventory
12/22
1,342,814.1
231,408.8
221,149.1
12/23E
1,325,012.8
236,056.7
331,111.7
12/24E
1,747,608.7
339,142.5
375,932.2
12/25E
2,183,322.5
458,190.5
503,223.3
Other current assets
Total current assets
Net PP&E
Net intangibles
257,524.7
2,052,896.7
2,693,837.0
25,999.2
255,359.1
2,147,540.3
3,087,359.8
20,009.1
255,359.1
2,718,042.4
3,244,462.6
12,327.4
255,359.1
3,400,095.4
3,459,214.4
4,645.8
Total investments
Other long-term assets
Total assets
Accounts payable
68,927.9
123,118.1
4,964,778.9
510,823.1
97,910.1
123,807.4
5,476,626.7
466,618.2
104,306.0
123,807.4
6,202,945.9
743,045.2
110,502.0
123,807.4
7,098,265.1
1,075,075.5
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
0.0
-433,403.7
944,226.8
0.0
-361,946.6
828,564.8
0.0
-361,946.6
1,104,991.8
0.0
-361,946.6
1,437,022.1
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
839,096.5
-220,966.7
1,060,063.2
907,321.4
-225,846.4
1,133,167.8
607,321.4
-225,846.4
833,167.8
307,321.4
-225,846.4
533,167.8
Total liabilities
Preferred shares
Total common equity
Minority interest
Total liabilities & equity
Net debt, adjusted
2,004,290.0
-2,945,653.2
14,835.7
4,964,778.9
(503,717.6)
1,961,732.6
-3,483,243.2
31,650.8
5,476,626.7
(417,691.3)
1,938,159.6
-4,203,269.3
61,517.0
6,202,945.9
(1,140,287.2)
1,970,190.0
-5,036,692.0
91,383.1
7,098,265.1
(1,876,001.0)
Cash Flow (NT$ mn) ______________________________________
Net income
D&A add-back
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
12/22
12/23E
12/24E
12/25E
1,016,530.2
437,254.3
370.3
52,321.6
104,122.8
1,610,599.2
825,888.6
537,042.1
(529.5)
(158,815.4)
(36,471.7)
1,167,114.0
1,044,169.2
732,578.9
(820.0)
128,520.8
(6,395.9)
1,898,052.9
1,313,166.0
895,429.8
(820.0)
85,691.1
(6,196.0)
2,287,271.0
(1,082,672.1)
--(108,256.1)
(1,190,928.2)
(992,098.1)
--21,475.0
(970,623.2)
(882,000.0) (1,102,500.0)
------(882,000.0) (1,102,500.0)
-(285,234.2)
84,022.6
59,364.5
(141,847.1)
277,823.9
527,927.1
-(285,227.4)
49,601.0
21,334.2
(214,292.1)
(17,801.3)
175,015.9
-(324,143.2)
(300,000.0)
30,686.2
(593,457.0)
422,595.9
1,016,052.9
-(479,743.3)
(300,000.0)
30,686.2
(749,057.2)
435,713.8
1,184,771.0
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
82
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
H World Group - Multiple ways to win
Covered by Simon Cheung (simon.cheung@gs.com, +852 2978-6102)
HTHT
12m Price Target: $52.7
Price: $36.1
Upside: 46%
1179.HK
12m Price Target: HK$41.6
Price: HK$28
Upside: 48.6%
Buy
GS Forecast
12/22
12/23E
12/24E
12/25E
13,862.0
21,583.8
23,750.4
25,789.4
1,120.0
6,351.4
7,421.8
8,543.4
(2.64)
13.09
13.94
17.04
China P/E (X)
NM
19.7
18.5
15.1
Asia Leisure P/B (X)
8.5
6.4
5.4
4.5
0.0
2.5
2.4
3.0
Market cap: $11.5bn Revenue (Rmb mn)
Enterprise value: $11.3bn EBITDA (Rmb mn)
3m ADTV :$45.5mn EPS (Rmb)
Dividend yield (%)
M&A Rank: 3 N debt/EBITDA (ex lease,X)
Leases incl. in net debt & EV?: No CROCI (%)
For the exclusive use of MATTHEW.X.WONG@GS.COM
FCF yield (%)
EPS (Rmb)
7.9
(0.3)
(0.8)
(1.2)
12.2
21.5
22.0
23.3
0.7
5.4
7.2
8.6
6/23
9/23
12/23E
--
3.34
4.80
2.45
--
Core thesis: H World is one of the leading multi-brand chain hotel operators in China
with 9k hotels in operations and another 129 in Europe under its subsidiary, Deutsche
Hospitality. The company is well-positioned to benefit from a number of themes
highlighted in Simon’s recent services consumption deep-dive report (Link): (1)
Tradedown for its focus in the economy/midscale segments and further expansion into
lower-tiered cities - the latter representing 55% of its pipeline; (2) Industry
consolidation in a highly fragmented market structure amid rising chain penetration HTHT only captures 3% of hotel room share in China and targets to double its hotel
count to ~20k by 2030; (3) Pricing power for its quality product offerings, as people pay
more attention to hygiene in the post-pandemic era.
Key debates:
n
Where we are in the cycle: Sustainability of H World’s RevPar cyclical improvement
heading into next year and how fast it would grow in longer run given various factors
in play (i.e., dilution from penetration into lower-tiered cities, expansion in upscale
segment, intensity of competition).
n
Long-term penetration level: At what level China’s chain hotel penetration would
settle at? Getting close to the US level (72%) would suggest more upside, but
reaching only to ~40% in Europe would imply less.
n
Overseas business: Its ability to drive better profitability for Deutsche Hospitality by
replicating its success in China to Europe, i.e., revamp its membership programs,
hotel adds by franchise/asset light model.
Where we are different: Simon believes cyclical leisure/travel demand recovery has
further to run with its share of China’s personnel consumption expenditure only half way
4 December 2023
83
2e83ab6fea424dc8a1b6a8a7e94c6547
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 01 Dec 2023 close.
Goldman Sachs
APAC Conviction List
back to pre-pandemic level at 11% (vs. 14% in FY19 and 8% in FY22). He forecasts
RevPar to continue growing though modestly at +3% yoy, contrary to market concerns
that it would fall next year. He models +10% EBITDA growth for China hotels to
Rmb7bn in FY24E, implying 38% EBITDA margin (vs. Rmb6.3bn or 37% in FY23E).
While long-term industry RevPar is subject to debate, he believes quality offerings
would warrant continued 3-4% CAGR for H World in the medium term and sees
potential upside in hotel additions and capital returns to help support stock performance
ahead.
Valuation: 12m TPs of US$52.70/HK$41.60. Valuation is attractive at 11.5x/10.4x
FY23E/24E EV/EBITDA, well below its historical average of 16-17x and at a discount to
its global peers (14-15x for Marriott and Hilton). In Simon’s stress test where he
assumes -14% RevPar next year, the stock would still be trading below mid-cycle at
13.7x.
Net add
Gross add
545
450
14%
13%
12%
9% 9% 9%
8%
7% 7%
5%
350
6% 6% 6% 6% 6%
5% 5%
3% 3% 3%
74
244
250
1% 1%
0%
150
109 163
135
50
84
95
7
15
209
111
-
53
116
180
89
18
67
22
337
313
216
210
192
22
316
120
262
258
195
309
139
390 374
383
406 256
94
270
158
136
-
67
27
130
53
197
81
77
-
Source: Goldman Sachs Global Investment Research
1Q23
Jinjiang
H World
BTG
2Q23
GHG
Jinjiang
H World
Jinjiang
BTG
GHG
4Q22
H World
Note: Green denotes services category, Blue denotes goods category, Red denotes total consumption.
Jinjiang
(50)
3Q23
Source: Company data, Goldman Sachs Global Investment Research
Relevant Research:
n
China consumption services 2024 outlook: A more resilient backdrop: 5 key themes,
deep-dive into structural drivers. Stress tests
n
4 December 2023
H World Group (HTHT): 3Q23 call takeaway: Cautiously optimistic on 4Q23 outlook.
Both recurring and special dividend; Buy
84
2e83ab6fea424dc8a1b6a8a7e94c6547
18%18%
10%
Gross closure
BTG
15%
Domestic hotels
GHG
20%
650
550
BTG
2024E YoY growth (Base case)
25% 23%
Exhibit 58: Quarterly hotel openings vs. peers
GHG
Exhibit 57: 2024 consumption growth breakdown by category (base
case)
H World
For the exclusive use of MATTHEW.X.WONG@GS.COM
Catalysts: 1) After retreating to ~85% of 2019 levels (from ~110% during the Golden
Week holidays), Simon expects industry RevPar to bounce back in coming weeks. 2)
Accelerating hotel sign-ups and addition as the industry attracts more capital from
property sector given better payback and visibility. (3) M&A or improving capital return
for its strong FCF.
Goldman Sachs
Income Statement (Rmb mn) _______________________________
H World Group (HTHT)
CL
Rating since Mar 29, 2020
Ratios & Valuation _______________________________________
P/E (X)
P/B (X)
FCF yield (%)
EV/EBITDAR (X)
12/22
NM
8.5
0.7
23.3
12/23E
19.7
6.4
5.4
9.8
12/24E
18.5
5.4
7.2
9.0
12/25E
15.1
4.5
8.6
7.9
EV/EBITDA (excl. leases) (X)
CROCI (%)
ROE (%)
Net debt/equity (%)
Net debt/equity (excl. leases) (%)
Interest cover (X)
Days inventory outst, sales
130.3
12.2
(18.5)
54.9
54.9
(0.7)
2.1
11.5
21.5
38.0
(14.4)
(14.4)
12.5
1.8
10.2
22.0
31.6
(37.5)
(37.5)
12.4
2.2
8.4
23.3
32.4
(56.6)
(56.6)
17.2
2.1
30.5
147.2
(20.7)
0.2
7.0
14,670.0
28.06
31.5
145.0
31.6
0.3
5.0
12,379.9
40.33
37.2
152.6
28.7
0.3
4.4
10,399.1
48.00
37.5
167.1
29.3
0.4
3.9
8,864.6
57.37
For the exclusive use of MATTHEW.X.WONG@GS.COM
Receivable days
Days payable outstanding
DuPont ROE (%)
Turnover (X)
Leverage (X)
Average capital employed (Rmb)
BVPS (Rmb)
Growth & Margins (%) ____________________________________
Total revenue growth
EBITDA growth
EPS growth
DPS growth
EBIT margin
EBITDA margin
Net income margin
12/22
12/23E
12/24E
12/25E
8.4
(29.0)
(1,509.4)
(100.0)
(2.1)
8.1
55.7
467.1
596.6
NM
23.2
29.4
10.0
16.9
6.5
(4.4)
25.3
31.2
8.6
15.1
22.2
22.2
27.5
33.1
(13.1)
19.0
18.7
21.1
Price Performance _______________________________________
HTHT ($)
NASDAQ Composite
55
15,000
50
14,000
45
13,000
40
12,000
35
11,000
30
10,000
Jan-23
Apr-23
Absolute
Rel. to the NASDAQ Composite
Jul-23
3m
(13.3)%
(15.0)%
12/22
13,862.0
(10,846.0)
(2,288.0)
--
12/23E
21,583.8
(12,514.5)
(3,023.9)
--
12/24E
23,750.4
(13,397.6)
(3,237.0)
--
12/25E
25,789.4
(14,071.0)
(3,481.1)
--
Other operating inc./(exp.)
ESO expense
EBITDA
Depreciation & amortization
EBIT
Net interest inc./(exp.)
Income/(loss) from associates
392.0
-610.0
(1,414.0)
(294.0)
(322.0)
(36.0)
306.1
-6,996.5
(1,348.3)
5,003.1
(172.7)
3.0
306.1
-7,481.6
(1,403.9)
6,017.9
(11.8)
--
306.1
-8,607.0
(1,458.8)
7,084.6
239.1
--
Pre-tax profit
Provision for taxes
Minority interest
Preferred dividends
Net inc. (pre-exceptionals)
Post-tax exceptionals
Net inc. (post-exceptionals)
EPS (basic, pre-except) (Rmb)
EPS (diluted, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
(1,641.0)
(207.0)
28.0
-(1,820.0)
1,000.0
(820.0)
(5.85)
(5.85)
(2.64)
5,339.4
(1,174.0)
(60.0)
-4,105.4
64.0
4,169.4
12.89
12.88
13.09
6,006.1
(1,501.5)
(60.0)
-4,444.6
-4,444.6
13.94
13.94
13.94
7,323.6
(1,830.9)
(60.0)
-5,432.7
-5,432.7
17.04
17.04
17.04
(2.64)
-0.00
13.08
-6.57
13.94
-6.28
17.04
-7.67
Total revenue
Cost of goods sold
SG&A
R&D
EPS (diluted, post-except) (Rmb)
EPS (diluted, excl. ESO) (Rmb)
DPS (Rmb)
Balance Sheet (Rmb mn) __________________________________
12/22
12/23E
12/24E
12/25E
Cash & cash equivalents
Accounts receivable
Inventory
5,086.0
1,425.0
70.0
10,538.7
2,306.2
137.1
14,484.7
2,537.7
146.8
19,160.2
2,755.6
154.2
Other current assets
Total current assets
Net PP&E
Net intangibles
2,597.0
9,178.0
6,784.0
5,278.0
359.0
13,341.0
6,298.8
5,199.5
359.0
17,528.2
5,701.7
5,121.0
359.0
22,429.0
5,085.6
5,042.4
Total investments
Other long-term assets
Total assets
Accounts payable
1,945.0
38,322.0
61,507.0
4,736.0
1,948.0
38,322.0
65,109.3
5,209.6
1,948.0
38,322.0
68,620.9
5,991.0
1,948.0
38,322.0
72,827.0
6,889.7
Short-term debt
Short-term lease liabilities
Other current liabilities
Total current liabilities
3,288.0
-5,122.0
13,146.0
922.0
-5,318.2
11,449.8
--5,543.8
11,534.9
--5,803.3
12,693.0
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Total long-term liabilities
6,635.0
-32,923.0
39,558.0
7,748.7
-32,923.0
40,671.7
8,670.7
-32,923.0
41,593.7
8,670.7
-32,923.0
41,593.7
Total liabilities
Preferred shares
Total common equity
Minority interest
52,704.0
-8,729.0
74.0
52,121.5
-12,853.8
134.0
53,128.6
-15,298.3
194.0
54,286.7
-18,286.3
254.0
Total liabilities & equity
Net debt, adjusted
RNAV
61,507.0
4,837.0
--
65,109.3
(1,868.0)
--
68,620.9
(5,813.9)
--
72,827.0
(10,489.4)
--
Oct-23
6m
(3.7)%
(11.8)%
12m
(4.1)%
(23.0)%
Source: FactSet. Price as of 1 Dec 2023 close.
Cash Flow (Rmb mn) ______________________________________
Net income
D&A add-back
12/22
(1,820.0)
1,414.0
12/23E
4,105.4
1,348.3
12/24E
4,444.6
1,403.9
12/25E
5,432.7
1,458.8
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
Capital expenditures
Acquisitions
Divestitures
Others
(28.0)
205.0
1,793.0
1,564.0
(1,053.0)
(57.0)
-588.0
60.0
(474.8)
193.2
5,232.1
(784.6)
-2,238.0
0.0
60.0
540.3
225.6
6,674.4
(728.4)
----
60.0
673.4
259.5
7,884.4
(764.2)
----
Cash flow from investing
Repayment of lease liabilities
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow
Free cash flow
(522.0)
-0.0
(644.0)
(453.0)
(1,097.0)
(55.0)
511.0
1,453.4
-(2,092.5)
(1,252.3)
2,111.9
(1,232.8)
5,452.7
4,447.5
(728.4)
-(2,000.1)
0.0
0.0
(2,000.1)
3,946.0
5,946.1
(764.2)
-(2,444.7)
-0.0
(2,444.7)
4,675.5
7,120.2
Source: Company data, Goldman Sachs Research estimates.
4 December 2023
85
2e83ab6fea424dc8a1b6a8a7e94c6547
Buy
APAC Conviction List
Goldman Sachs
APAC Conviction List
Appendix 1: Relevant research for themes
China in Transition
China in Transition: At the crossroads of the supply chain
China commodities 2024 outlook: New and old, a year of deceleration: 4 preferred
themes in copper, flat steel, value in cement, and the hog cycle
China Real Estate: Focus shifting to the secondary market and “Stage II easing”
Global Automation: The investment case for humanoid robots
For the exclusive use of MATTHEW.X.WONG@GS.COM
Asia Economics Analyst: Sizing the “New Three” in the Chinese Economy
China Strategy: Equity lessons learned for China from Japan’s lost decades and
investment implications
China Consumption
China Consumer: Deceleration in consumption growth on China economy transitioning
2e83ab6fea424dc8a1b6a8a7e94c6547
China Consumer: 2024 outlook: 5 key themes and a sustainable shift to value-focus and
growing global presence
China Consumption Services 2024 Outlook. A more resilient backdrop: 5 key themes,
deep-dive into structural drivers. Stress tests
China eCommerce 2024 Outlook: One of our top preferred sub-sectors: 6 key themes
across value-for-money, adtech & going global
Japan Value in Action
Japan Value in Action II: Reiterate Buy on five large-caps with potential for further
change and highlight seven companies prompting FAQs
Japan Portfolio Strategy: 2024 Outlook: TSE corporate governance reform and net
inflows to drive continued TOPIX upside
Japan Value in Action: Five large-cap Buys to size up the opportunity
4 December 2023
86
Goldman Sachs
APAC Conviction List
CHIPS Act & Generative AI
The Asia AI Ecosystem
Rebuilding the semiconductor supply chains: Opportunities for
Japan/KoreaSemiconductors: ‘Taiwan plus one’
Global Technology: Semiconductors: Is CHIPS Act enough to re-shape global supply
chain? - Assessing cost differences between Taiwan and US
Generative AI in China: A roadmap for internet giants; opportunity set and risk factors
For the exclusive use of MATTHEW.X.WONG@GS.COM
GC Tech: AI vs. general servers: debates on profitability and supply chain beneficiaries
Make in India
Make in India: Kick-starting the Growth Engines
Make in India: Exploring Greater China Tech’s opportunity
2e83ab6fea424dc8a1b6a8a7e94c6547
Make in India: The path of Greater China footwear OEMs’ migration
4 December 2023
87
Goldman Sachs
APAC Conviction List
Price Target, Risks and Methodology
Ticker
Company Name
1299.HK
AIA Group
7936.T
Asics Corp.
PTMR
We are Buy rated on AIA. Our 12-month discounted model-based target price is HK$97, based on 14X forward new business multiple. This implies 1.9X FY24E P/EV.
Downside risks: Slowdown in mainland China growth, especially for high-margin protection products; delays in regulatory approval for new provinces in mainland
China; significant tightening in capital control from mainland China, negatively affecting sales and policy renewal in HK; and broad economic growth weakness in Asia.
Our 12-month price target of ¥6,200 is based on FY24E EV/NOPAT of 26X, the median multiple for five global sports brands. Key risks include the relaxation of efforts
to achieve a robust cost structure and an unexpected slowdown in the performance running category.
600019.SS Baoshan Iron & Steel
We are Buy rated on Baosteel with a 12-month target price of Rmb8.2/share, derived from a historical P/B vs. ROE correlation – or 2024E P/B of 0.95x on 2024E ROE
of 7.4%. Downside risks to our view: 1) lower-than-expected steel prices and margin which are determined by the industry supply-demand balance 2) lower CRC
margin due to the weaker auto market demand in which Baosteel has higher exposure than peers, 3)higher raw material cost which included iron ore, coking coal.
0867.HK
China Medical System Holdings
Our 12m TP of HK$18.88 is derived from: 1) valuation of Rmb39.1bn for legacy products based on a 5-year exit P/E of 9.6x (average FY24E P/E of global generic peers)
and 5-year earnings CAGR of 8%, for which we expect the generics portfolio to resume single-digit growth for VBPed drugs and steady growth for non-VBP drugs; and
2) DCF-based value of Rmb4.2bn for the innovative drug pipeline with a discount rate of 8.5% (same as the discount rate for the whole company) and terminal growth
rate of 2% (for other early-stage assets, in-line with other biotech/pharma under our coverage), implying PS of 0.7x for sales in 2033E. Downside risks: 1) penetration
of targeted therapies in psoriasis/vitiligo may come below expectations; 2) market share gain may come below expectations amid competition; 3) post-VBP
performance of generics portfolio may be worse than expected.
CSL.AX
CSL Ltd.
Key downside risks: Competitive product launches, continued operating challenges could mitigate margin recovery, negative results form pipeline/commercialisation
activities.
601138.SS Foxconn Industrial Internet
Our 12m target price is Rmb31.61 based on 18.0x 2024E P/E, set in line with peers' regression of P/E and forward year earnings growth and is consistent with its peer
average for 2024E P/E. We are positive on FII given its growing exposure to AI servers, where its ODM business carries higher GM, and its comprehensive client base
to better benefit from the AI servers trend. Key downside risks: (1) Worse-than-expected demand and profit from the AI server business; (2) Worse-than-expected
iPhone component business expansion due to fierce competition; (3) Slower-than-expected capacity ramp-up in the new factory; (4) Lower-than-expected iPhone
shipment given FII provides components for iPhone.
GOCP.BO
We are Buy rated on GCPL with a 12-month target price of Rs1,185. We value GCPL at 44x on our Q5 to Q8 EPS. Key risks include adverse weather impacting seasonal
demand for products, increased supply of non-compliant incense sticks, macro conditions impacting commodity prices, increases in commodity costs.
HTHT /
1179.HK
Godrej Consumer Products Ltd.
Methodology: We are Buy rated on H World Group with 12-month target prices of US$52.7/HK$41.6. Our TPs are SOTP-based, with 15x FY24E EV/EBITDA on its core
hotel operations business and other investments at reported book value. We view this as warranted given we expect H World to also be a key beneficiary of 1) valuefocused consumption trend; 2) industry consolidation amid rising chain penetration; 3) Pricing power on quality product offerings.
H World Group
Key Risks: (1) weaker-than-expected macro leading to slower-than-expected RevPAR growth; (2) weaker-than-expected funding channels in China leading to fewerthan-expected franchisee additions; (3) slower-than-expected recovery of consumer/travel demand in China post Covid; (4) dilutive M&A; and (5) weaker-thanexpected operating performance and cash drag from Deutsche Hospitality.
We value HDFC Bank on a sum-of-the-parts basis which comprises the value of the bank and its subsidiaries including its life and non-life insurance businesses, asset
management businesses, a non-banking finance company, and a stockbroking company. Our 12m SOTP-based target price of Rs 2,002 is based on:
We value the banking business (contributing 90% of total target valuation) at c.19X FY24-FY25E EPS (c.2.9X FY24-FY25E standalone BVPS) given its superior RORWA at
3.3% (FY24-FY26 avg.). These valuations are close to 1STDEV higher than the historical mean as we believe the bank will be able to achieve strong EPS growth as well
as improving ROEs consistently over the next few years, without the need to raise any capital in our estimates.
HDFC Ergo valued similar to ICICI Lombard's trailing P/E valuations at 35X FY23E PAT.
HDBK.BO
HDFC Bank
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
Our 12-month target price of A$309 is based on 20.5x NTM EV/EBITDA.
HDB Financial Services valued at level similar to HDFC Bank given the lending nature of the business and similar business practices catering to different business
segments.
HDFC Securities valued similar to other retail brokers such as Angel One/ICICI Securities based on trailing P/E valuations at 15X FY23E PAT.
CREDILA Financial Services valuation is based on the proposed investment agreement between HDFC Ltd. and BPEA EQT Group and Chrys Capital group as of Jun 19,
2023.
Key risks include: 1) Execution strategy in terms of cross-selling; 2) Aggressive competition in retail loans and deposits; 3) Lack of traction in digital properties; and 4)
Macro slowdown.
Our 12-month target price of ¥12,300 for Hitachi is based on EV/EBITDA of 9.5X (FY3/25E). Hitachi's deconsolidation of Hitachi Construction Machinery and Hitachi
Metals (PROTERIAL) in FY3/23 and Astemo in FY3/24 removed from its consolidated accounts two businesses with relatively large capex and low capital efficiency
when compared with IT and other businesses. Following the deconsolidation of these businesses, we look for investors to price in prospects for future CROCI
improvement.
6501.T
Hitachi
1024.HK
Kuaishou Technology
Risks: Digital systems & services: delays and losses generated on large projects, weaker IT capex sentiment at customers accompanying a macroeconomic downturn,
reemergence of supply disruptions for servers and other products, slower standalone growth at GlobalLogic, slower-than-expected realization of synergies between it
and GlobalLogic; Green energy & mobility (Hitachi Energy): delays on power transmission/distribution projects, a sharp rise in input costs; Connective industries:
weaker new construction demand in China, losing out on new repair/maintenance orders to competitors in Japan, semiconductor production equipment (SPE) prices
not improving over the long term a risk for Hitachi High-Tech; companywide: Forex swings (¥1 appreciation vs. USD likely has a negative impact of ¥1 bn on sales and
¥0.1 bn on adjusted EBITA) and an increase in purchase price allocation (PPA) amortization due to forex swings.
Our 12m target price for Kuaishou is HK$88, which is based on a discounted P/E valuation (target P/E multiple of 18x 2025E EPS). Key downside risks: 1) Slower than
expected ad budget recovery; 2) Weaker-than-expected monetization; 3) Slower than expected growth of its aggregate user engagement base (DAU x time spent per
DAU); 4) Lower-than-expected profitability.
Note: Company specific views in the exhibit are those of the covering analyst.
Source: Goldman Sachs Global Investment Research
4 December 2023
88
Goldman Sachs
APAC Conviction List
Ticker
Company Name
PTMR
LYC.AX
Lynas Rare Earths Ltd.
Our 12m PT is A$7.5, based on 50:50 NAV:EV/EBITDA with a target multiple of 16x. Downside risks: (1) Macro risks and lower-than-expected RE magnet demand on
lower EM & DM demand growth for wind turbines and electric vehicles, (2) lower NdPr prices, (3) Project execution & capex risks on key projects Kalgoorlie C&L
facility, Mt Weld, LAMP and construction of the US Heavy & Light rare earth refinery.
Our 12-month target price of ¥1,520 is based on a target P/B of 0.93X and our end-FY3/25E BPS estimate of ¥1,635. We derive our target P/B multiple from our
normalized ROE estimate of 7.71% (FY3/26 ROE forecast adjusted by normalized credit cost of -12 bp) and a cost of equity of 8.3%. We are Buy rated.
8306.T
MUFG
Key downside risks: (1) long-term yield decline due to global economic downturn; (2) credit cycle worsening due to global economy hard-landing scenario; and (3)
capital markets remaining weak for a long time.
OCBC.SI
Oversea-Chinese Banking Corp.
PDD
PDD Holdings
6723.T
Renesas Electronics
We are Buy rated on OCBC with a 12-m target price of S$15.50 (Based on 2-stage DDM). Key risks include: (-) Sudden or sharper than expected FED cut cycle; (-)
Changes in strategy to return capital; (-) Unexpected dilutive M&A activity.
Key risks: (1) Domestic GMV/online marketing revenue moderation in growth, (2) Engagement weakness on lower engagement at its Duo Duo Grocery business and
following its app version update in Mar 2023, (3) Lack of disclosures of Temu thus far and rising Temu losses where equity markets may not price in the long-term
value today, (4) Any further rise in cross-border eCommerce competition in the US.
We are Buy rated on Renesas. Our 12-month target price of ¥3,300 is based on the average of FY12/24E-FY12/25E EV/GCI vs. CROCI/WACC, applying an EV/DACF
multiple of 10X (25% premium to the sector average, implying a target P/E of 13X). Key risks include a slowdown or delayed recovery in consumer electronics-related
demand, stagnant automobile production, protracted reduction in semiconductor inventories, delayed recovery for industrial equipment applications, and yen
appreciation.
002050.SZ Sanhua Intelligent Controls
Our 12-month target price for Sanhua Intelligent Controls is Rmb38, based on a 30X 2025EP/E discounted back to 2023E on a COE of 10.5%. Key downside risks: 1)
More intensified competition in the EV thermal management segment; 2) Worse-than-expected Tesla EV sales; 3) Increasing home appliance demand/home
appliance cycle downturn.
2313.HK
Shenzhou International Group
We are Buy rated on Shenzhou with a 12-month TP of HK$98, based on a 25x 2024E P/E. Key risks: 1) Slower-than-expected demand recovery; 2) weaker-thanexpected cost control, which could lead to earnings risks; 3) a slower ramp-up in production in Vietnam/Cambodia; and 4) FX volatility.
4507.T
Shionogi & Co.
Our 12-month target price of ¥8,750 is based on a 12-year DCF model assuming WACC of 6% and terminal growth of 0%. Key risks include downside in key drug sales
versus our expectations, development suspensions or delays, and changes in product evaluation, lower sales of Xofluza due to a decline in the number of influenza
patients, and changes in insurance reimbursement systems for infectious disease treatments globally.
000660.KS SK Hynix Inc.
We are Buy-rated on SK Hynix with a 12-month target price of W170,000 derived using a target P/B applied to 2024E BVPS. Our target P/B multiple is 1.8X, applying a
premium to the average of the peak P/B multiples during the past 4 upcycles (1.7X) given the company's stronger positioning in the premium segment as well as
better visibility for an improving pricing trend.
Key risks: A major deterioration in memory supply/demand and delays in technology migration.
6273.T
SMC
Our 12-month target price of ¥103,000 is based on FY3/28E EV/EBITDA, applying the sector-average multiple of 9X. We then apply the stock’s historical average
premium of 60% and discount this back to FY3/25.
Risks include a downturn in capex sentiment in the auto and tech industries, key client industries.
6758.T
Sony Group
Our 12-month target price is ¥16,000. We use an SOTP methodology to calculate our target price for Sony, with FY3/26E as our base year. Key risks to our thesis are
weaker-than-expected (1) growth in sales per user in the G&NS business, (2) performance of Crunchyroll, and (3) CMOS earnings.
7269.T
Suzuki Motor
Our 12-month target price of ¥7,900 is based 85% on a FY3/25E SOTP-based fundamental value of ¥7,800 (applying the stock’s historical 10-year average discount of
10%), and 15% on M&A value of ¥8,700 (SOTP-based theoretical value, assuming a discount of 0%). Key risks include protracted semiconductor shortages, yen
appreciation, and a stalling Indian economy due to inflation.
We are Buy rated on TSMC, with a 12m TP of NT$725, which is derived by applying a target P/E multiple of 18x (0.5stdv above its 5-year trading average) to 2024E
EPS. We are Buy rated on the ADR (TSM) with a 12m TP of US$115, based on a USD/TWD rate of 31.5.
2330.TW /
TSM
TSMC
WOW.AX
Woolworths Group
2e83ab6fea424dc8a1b6a8a7e94c6547
For the exclusive use of MATTHEW.X.WONG@GS.COM
We are Buy rated on Pinduoduo. Our 12-month DCF-based target price is US$176, with a WACC of 14% and terminal growth rate of 3%, cross-checked with SOTP.
Key downside risks to our views: (1) further deterioration in end-demand recovery impacting capacity utilization; (2) slower customer node migrations; (3) further
delays in 5G penetration resulting in slower long-term semiconductor content growth; (4) poor yields/execution resulting in worse-than-expected profitability; (5)
stronger competition resulting in ASP/profitability erosion; and (6) unfavorable FX trend or higher-than-expected cost increase weighing on margin outlook.
Our 12m TP for WOW is A$42.4, based on 50/50 SOTP and 10-yr DCF to reflect short-term management capabilities and longer-term strategic growth.
Downside risks: Worse than expected price competition driving deflation, better than expected take-up of COL Ocado expansive range driving WOW online share
loss, inability to drive positive returns from supply chain automation and workforce optimization programs, expectations of retail media sales/margin opportunity
not materializing.
Note: Company specific views in the exhibit are those of the covering analyst.
Source: Goldman Sachs Global Investment Research
4 December 2023
89
Goldman Sachs
APAC Conviction List
Disclosure Appendix
Reg AC
We, Michael Snaith, Joy Nguyen, Matthew Ross, Andrew Lyons, Daiki Takayama, Sho Kawano and Caleb Chan, hereby certify that all of the views
expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that
no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
GS Factor Profile
The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its
sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The
normalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each metric may
vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
higher percentile indicating a higher growth company. Financial Returns is based on a stock’s forward-looking ROE, ROCE and CROCI (for financial
stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock’s forward-looking P/E, P/B,
price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile
indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.
M&A Rank
Across our global coverage, we examine stocks using an M&A framework, considering both qualitative factors and quantitative factors (which may vary
across sectors and regions) to incorporate the potential that certain companies could be acquired. We then assign a M&A rank as a means of scoring
companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2
representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not
factor into our price target, and may or may not be discussed in research.
Quantum
Quantum is Goldman Sachs’ proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
Disclosures
Financial advisory disclosure
Goldman Sachs and/or one of its affiliates is acting as a financial advisor in connection with an announced strategic matter involving the following
company or one of its affiliates: Sony Group Corporation
Logos disclosure
Third party brands used in this presentation are the property of their respective owners, and are used here for informational purposes only. The use of
such brands should not be viewed as an endorsement, affiliation or sponsorship by or for Goldman Sachs or any of its products/services.
The rating(s) for Renesas Electronics is/are relative to the other companies in its/their coverage universe: Alps Alpine, Hirose Electric, IRISO
Electronics, Ibiden, Japan Aviation Electronics Industry, Japan Display Inc., Kyocera, Mabuchi Motor, Maxell Ltd., MinebeaMitsumi Inc., Murata Mfg.,
NGK Insulators, Nichicon, Nidec, Nippon Ceramic, Niterra, Nitto Denko, Pacific Industrial, Renesas Electronics, Rohm, Shinko Electric Industries, TDK,
Taiyo Yuden
The rating(s) for China Medical System Holdings is/are relative to the other companies in its/their coverage universe: 3SBio Inc., Angelalign
Technology, Autobio, BeiGene Ltd. (A), BeiGene Ltd. (ADR), Betta Pharma, BioKangtai, CSPC Pharma, China Medical System Holdings, Dian
Diagnostics, Eyebright, Fosun Pharma (A), Fosun Pharma (H), Hansoh Pharma, Hengrui Medicine, Huadong Medicine Co., Hualan Biological
Engineering, InnoCare Pharma (A), InnoCare Pharma (H), Innovent Biologics, Jiangsu Nhwa Pharmaceutical Co., Kelun Biotech, Kingmed, Legend
Biotech Corp., Lepu, Livzon Pharmaceutical Group (A), Livzon Pharmaceutical Group (H), Mindray, Pien Tze Huang, Shandong Weigao Group, Sichuan
Kelun Pharmaceutical Co., Sino Biopharmaceutical, Tong Ren Tang Ltd., Tonghua Dongbao, United Imaging, Walvax, Zai Lab (ADR), Zai Lab (H), Zhejiang
Huahai Pharmaceutical, Zhifei
The rating(s) for PDD Holdings is/are relative to the other companies in its/their coverage universe: Alibaba Group (ADR), Alibaba Group (H),
Dada Nexus Ltd., Full Truck Alliance Co., JD Logistics, JD.com Inc. (ADR), JD.com Inc. (H), Kerry Logistics Network Ltd., Meituan, PDD Holdings, STO
Express, Sinotrans Ltd. (A), Sinotrans Ltd. (H), Tencent Holdings, Vipshop Holdings, YTO Express Group, Yunda Holding, ZTO Express (Cayman) Inc.
(ADR), ZTO Express (Cayman) Inc. (H)
The rating(s) for SK Hynix Inc. is/are relative to the other companies in its/their coverage universe: Hansol Chemical, LG Display, LG Electronics,
LG Innotek Co., SK Hynix Inc., Samsung Electro-Mechanics, Samsung Electronics, Samsung Electronics (Pref), Samsung SDS Co.
The rating(s) for Lynas Rare Earths Ltd. is/are relative to the other companies in its/their coverage universe: Allkem Ltd., Alumina, BHP Group
Ltd., BlueScope Steel, Capricorn Metals Ltd., Champion Iron Ltd., Core Lithium Ltd., Coronado Global Resources Inc., De Grey Mining Ltd., Deterra
Royalties Ltd., Evolution Mining Ltd., Fortescue Metals Group, Gold Road Resources Ltd., IGO Ltd., Iluka Resources, Liontown Resources Ltd., Lynas
Rare Earths Ltd., Mineral Resources, New Hope Corp., Northern Star Resources Ltd., Pilbara Minerals Ltd., Regis Resources, Rio Tinto Ltd., Sandfire
Resources, Sims Metal Management Ltd., South32 Ltd., Whitehaven Coal Ltd.
The rating(s) for Suzuki Motor is/are relative to the other companies in its/their coverage universe: Aisin, Bridgestone, Denso, Hino Motors,
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Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics).
Goldman Sachs
APAC Conviction List
Honda Motor, Isuzu Motors, Mazda Motor, Mitsubishi Motors, Mitsui High-tec Inc., Nifco Inc., Nissan Motor, Subaru Corp., Sumitomo Metal Mining,
Sumitomo Rubber Industries, Suzuki Motor, TOYO TIRE, Toyota Boshoku, Toyota Industries, Toyota Motor, Unipres Corp., Yamaha Motor
The rating(s) for TSMC and TSMC (ADR) is/are relative to the other companies in its/their coverage universe: ASE Technology Holding, ASE
Technology Holding (ADR), Chipbond Technology Corp., Delta Electronics, GlobalWafers Co., King Yuan Electronics Co., Lotes, MediaTek, Novatek
Microelectronics, Parade Technologies Ltd., Realtek Semiconductor Corp., Silergy Corp., TSMC, TSMC (ADR), United Microelectronics Corp., United
Microelectronics Corp. (ADR), Vanguard International Corp., Win Semiconductors Corp., uPI
The rating(s) for MUFG is/are relative to the other companies in its/their coverage universe: Aeon Financial Service Co., GMO FG, GMO PG,
Japan Exchange Group, Japan Post Bank, Japan Post Insurance, MUFG, Mizuho FG, Net Protections Holdings, Rakuten Bank Ltd., SBI Sumishin Net
Bank Ltd., SMFG, SMTH
The rating(s) for Sanhua Intelligent Controls is/are relative to the other companies in its/their coverage universe: AVIC Jonhon, Anhui Ronds,
CRRC Corp. (A), CRRC Corp. (H), Centre Testing Intl Group, China Railway Signal & Comm (A), China Railway Signal & Comm (H), Cubic Sensor &
Instrument, Estun Automation Co., Faratronic, HCFA, Haitian International Holdings, Han’s Laser Technology, HangKe Technology, Hongfa Technology,
Hymson, Kehua Data Co., Lead Intelligent, Leader Harmonious Drive Systems Co., Luster LightTech Co., Nantong Jianghai Capacitor Co., OPT Machine
Vision Tech Co., Pony Testing, Raytron Technology, Sanhua Intelligent Controls, Shanghai Baosight Software, Shanghai Friendess Electronic Tech,
Shenzhen Envicool Technology, Shenzhen Inovance Technology Co., Shenzhen Kstar Science & Tech, Shuanghuan Driveline, Techtronic Industries,
United Winners, Wuhan Raycus Fiber Laser Tech, Yiheda Automation, Zhejiang Supcon Technology Co., Zhuzhou CRRC Times Electric Co. (A), Zhuzhou
CRRC Times Electric Co. (H)
The rating(s) for H World Group (ADR) and H World Group (H) is/are relative to the other companies in its/their coverage universe: Air China
(A), Air China (H), BTG Hotels Group, Bloomberry Resorts Corp., China Eastern Airlines (A), China Eastern Airlines (H), China Southern Airlines (A),
China Southern Airlines (H), China Tourism Group Duty Free (A), China Tourism Group Duty Free (H), Fosun Tourism Group, Galaxy Entertainment Group,
Genting Berhad, Genting Malaysia Bhd, Genting Singapore Ltd., GreenTree Hospitality Group, Guangzhou Baiyun Intl Airport Co., H World Group (ADR),
H World Group (H), Hainan Meilan Intl Airport, Kangwon Land, MGM China, Melco International Development, Melco Resorts & Entertainment Ltd.,
Nagacorp Ltd., Paradise Co., SJM Holdings, Sands China, Shanghai Intl Airport, Shanghai Jinjiang Int’l Hotels, Shangri-La Asia, Shiji, Songcheng
Performance, Spring Airlines Co., Tongcheng Travel Holdings, Trip.com Group (ADR), Trip.com Group (H), Wynn Macau
The rating(s) for Godrej Consumer Products Ltd. is/are relative to the other companies in its/their coverage universe: Asian Paints (India),
Avenue Supermarts Ltd., Britannia Industries Ltd., Colgate Palmolive (India), Dabur India, Devyani International Ltd., Emami Ltd., Godrej Consumer
Products Ltd., Hindustan Unilever, ITC, Jubilant Foodworks, Marico, Nestle India, Pidilite Industries, Sapphire Foods India Ltd., Tata Consumer Products
Ltd., Titan Co., Westlife Foodworld Ltd.
The rating(s) for Oversea-Chinese Banking Corp. is/are relative to the other companies in its/their coverage universe: BDO Unibank, Bangkok
Bank, Bank Central Asia, Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, Bank of Philippine Islands, DBS Group, Kasikornbank, Krung
Thai Bank, Metropolitan Bank and Trust Co, Oversea-Chinese Banking Corp., SCB X PCL, TMBThanachart Bank PCL, United Overseas Bank
The rating(s) for Baoshan Iron & Steel is/are relative to the other companies in its/their coverage universe: Aluminum Corp. of China (A),
Aluminum Corp. of China (H), Angang Steel (A), Angang Steel (H), Anhui Conch Cement (A), Anhui Conch Cement (H), BBMG Corp. (A), BBMG Corp.
(H), Baoshan Iron & Steel, CMOC Group (A), CMOC Group (H), Chenming Paper (A), Chenming Paper (H), China Coal Energy (A), China Coal Energy (H),
China Hongqiao Group, China National Building Material, China Resources Cement Holdings, China Shenhua Energy (A), China Shenhua Energy (H),
GEM Co., Ganfeng Lithium (A), Ganfeng Lithium (H), Huayou Cobalt, Jiangxi Copper (A), Jiangxi Copper (H), Lee & Man Paper Manufacturing Ltd.,
MMG Ltd, Maanshan Iron & Steel (A), Maanshan Iron & Steel (H), Nine Dragons Paper Holdings, Qinghai Salt Lake Industry, Shanying Int Holdings,
Sichuan Yahua Industrial Group, Sun Paper, Tianqi Lithium (A), Tianqi Lithium (H), West China Cement, Yankuang Energy (A), Yankuang Energy (H),
YongXing Special Materials, Zhaojin Mining Industry, Zijin Mining (A), Zijin Mining (H)
The rating(s) for CSL Ltd. is/are relative to the other companies in its/their coverage universe: CSL Ltd., Capitol Health Ltd., Cochlear Ltd., Fisher
& Paykel Healthcare Corp., Integral Diagnostics Ltd., Nanosonics Ltd., Opthea Ltd., Pro Medicus Ltd., Ramsay Health Care Ltd., ResMed Inc., Sonic
Healthcare Ltd.
The rating(s) for Kuaishou Technology is/are relative to the other companies in its/their coverage universe: 37 Interactive Entertainment,
Baidu.com Inc. (ADR), Baidu.com Inc. (H), Bilibili Inc. (ADR), Bilibili Inc. (H), Focus Media Information Tech, G-Bits, Kuaishou Technology, Mango
Excellent Media, NetEase Inc. (ADR), NetEase Inc. (H), Perfect World, Tencent Music Entertainment Group (ADR), Tencent Music Entertainment Group
(H), XD Inc., Zhihu Inc. (ADR), Zhihu Inc. (H), iQIYI Inc.
The rating(s) for Hitachi is/are relative to the other companies in its/their coverage universe: Daihen, Fuji Electric Co., Fujikura, Furukawa
Electric, Hitachi, Meidensha, Mitsubishi Electric, Panasonic Holdings, Sumitomo Electric Industries
The rating(s) for AIA Group is/are relative to the other companies in its/their coverage universe: AIA Group, China Life Insurance Co. (A), China
Life Insurance Co. (H), China Pacific Insurance (A), China Pacific Insurance (H), China Taiping Insurance Holdings, Lufax Holding Ltd. (ADR), Lufax
Holding Ltd. (H), New China Life Insurance (A), New China Life Insurance (H), PICC Group (A), PICC Group (H), PICC Property and Casualty Co., Ping An
Insurance Group (A), Ping An Insurance Group (H), Prudential Plc, Prudential Plc (H), Waterdrop Inc.
The rating(s) for Shenzhou International Group is/are relative to the other companies in its/their coverage universe: Angel Yeast, Anta Sports
Products, Bosideng International Holdings, China Pet Foods, Chow Tai Fook Jewellery Group, Eclat Textile Co., Feng Tay Enterprises, Fu Jian Anjoy
Foods Co., Gourmet Master Co., Haidilao International Holding, Helens, Henan Shuanghui Ltd., Huali Industrial Group, Jiumaojiu, Juewei Food, Li Ning
Co., Ligao Foods, Luk Fook Holdings, Makalot Industrial Co, Miniso (ADR), Miniso (H), Nayuki, Petpal Pet Nutrition Technology, Pop Mart, Pou Sheng
International Holdings, President Chain Store, Qianweiyangchu, Sanquan Foods, Shanghai M&G, Shenzhou International Group, Stella International
Holdings, Toly Bread, Topsports Intl Holdings, Uni-President Enterprises, WH Group, Weizhixiang, Xiabuxiabu Catering Management, Xtep International
Holdings, Yue Yuen Industrial, Yum China Holdings, Yum China Holdings (H), Zhou Hei Ya Intl
The rating(s) for Foxconn Industrial Internet is/are relative to the other companies in its/their coverage universe: 3PEAK, AAC, ACM Research,
AMEC, ASMPT, ASR Micro, AccoTest, Actions Technology, Amlogic, Anji Micro, Anlogic, Arcsoft, Asus, Awinic, BOE, Bestechnic, Bomin, CCore, CFME,
CR Micro, Cambricon, Cellwise, China Mobile (HK), China Telecom, China Tower Corp., China Unicom, China United Network Comm, Chinasoft Intl,
Chipown, Comba, Compal, Dahua, Desay SV, EHang, Empyrean, Eoptolink, Espressif, Etek, Everbright Photonics, FIT Hon Teng, Fiberhome, Foxconn
Industrial Internet, GalaxyCore, Gigabyte, Gigadevice, Glodon Co., Goodix, HG Tech, HTC Corp., Hengtong, Hikvision, Hirain, Hon Hai, Hua Hong,
Huatian, ISoftStone, Innolight, Inventec, JCET, Jingce, KFMI, Kingdee, Kingsemi, Kingsoft Office, Largan, Lenovo, Lianchuang, Longsys, Luxshare,
Maxscend, Montage, NAURA, NSIG, NavInfo Co., Novosense, O-film, Pegatron, Primarius, Quanta, Rockchip, Ruijie, SG Micro, SICC, SMIC (A), SMIC
(H), Sanan, Sangfor, Shennan Circuits, Silan, SinoWealth, StarPower, Sunny Optical, TFC Optical, Thundersoft, Thunisoft, Tongfu, Transsion, USI, Vanchip,
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The rating(s) for Woolworths Group is/are relative to the other companies in its/their coverage universe: A2 Milk Co., Breville Group, Coles
Group, Corporate Travel Management Ltd., Domino’s Pizza Enterprises, Endeavour Group, Flight Centre Travel Group, Harvey Norman Holdings, JB Hi-Fi
Ltd., Metcash Ltd., Premier Investments Ltd., Super Retail Group, Treasury Wine Estates Ltd., Webjet Ltd., Wesfarmers Ltd., Woolworths Group
Goldman Sachs
APAC Conviction List
Venustech, VeriSilicon, Will Semi, Wingtech, Wistron, Wiwynn, YJ Semitech, YJK, YOFC (A), YOFC (H), Yonyou, ZTE (A), ZTE (H), ZWSOFT, iFlytek
The rating(s) for HDFC Bank is/are relative to the other companies in its/their coverage universe: Aavas Financiers Ltd., Axis Bank, Bajaj Finance,
Bandhan Bank Ltd., HDFC Bank, ICICI Bank, IDFC First Bank Ltd., IndusInd Bank, Kotak Mahindra Bank, L&T Finance Holdings, LIC Housing Finance,
Mahindra & Mahindra Financial Svcs, PNB Housing Finance Ltd., SBI Cards & Payment Services Ltd., Shriram Finance Ltd., State Bank of India, Yes
Bank
The rating(s) for Shionogi & Co. is/are relative to the other companies in its/their coverage universe: Astellas Pharma, CUC Inc., CareNet Inc.,
Chugai Pharmaceutical, Daiichi Sankyo, Eisai, JMDC Inc., M3, Olympus, Ono Pharmaceutical, Otsuka Holdings, PHC Holdings, PeptiDream Inc., Santen
Pharmaceutical, Sawai Group, Shionogi & Co., Sysmex, Takeda Pharmaceutical, Terumo
The rating(s) for Asics Corp. is/are relative to the other companies in its/their coverage universe: ABC-Mart, Adastria, Aeon, Asics Corp., Askul,
Cosmos Pharmaceutical, Fast Retailing, Isetan Mitsukoshi Holdings, J. Front Retailing Co., Lawson, Marui Group, MonotaRO, Nitori, Pan Pacific
International Holdings, Rakuten Group, Ryohin Keikaku, Saizeriya, Seven & i Holdings, Shimamura, Shimano, Skylark Co., Sugi Holdings Co., Tsuruha
Holdings, Welcia Holdings, Workman Co., ZOZO
The rating(s) for Sony Group is/are relative to the other companies in its/their coverage universe: Bandai Namco Holdings, Capcom,
CyberAgent, Konami Group, LY Corp., Nexon, Nintendo, Oriental Land, Recruit Holdings, Sony Group, Square Enix Holdings
The rating(s) for SMC is/are relative to the other companies in its/their coverage universe: CKD Corp., Daifuku Co., Daikin Industries, FUJI,
Fanuc, Fujitsu General, Harmonic Drive Systems Inc., Hitachi Construction Machinery, Hoshizaki Corp., Keyence, Komatsu, Kubota, Kurita Water
Industries, Makita, Misumi Group, NSK, NTN, Okuma Corp., Omron Corp., Organo Corp., Renova Inc., SMC, THK, Takeuchi MFG, West Holdings,
Yaskawa Electric
Company-specific regulatory disclosures
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global Equity coverage universe
Rating Distribution
Global
Investment Banking Relationships
Buy
Hold
Sell
Buy
Hold
Sell
48%
36%
16%
62%
56%
44%
As of October 1, 2023, Goldman Sachs Global Investment Research had investment ratings on 2,960 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by the FINRA Rules. See ‘Ratings, Coverage universe and related definitions’ below. The Investment
Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided
investment banking services within the previous twelve months.
Price target and rating history chart(s)
Compendium report: please see disclosures at https://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this
compendium can be found in the latest relevant published research
Target price history table(s)
SK Hynix Inc. (000660.KS)
Date of report Target price (W)
26-Oct-23
170,000
20-Sep-23
160,000
21-Jun-23
155,000
15-Mar-23
118,000
01-Feb-23
120,000
12-Jan-23
110,000
26-Oct-22
115,000
25-Sep-22
120,000
27-Jul-22
135,000
21-Jun-22
155,000
19-Apr-22
181,000
10-Mar-22
182,000
30-Jan-22
173,000
10-Jan-22
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Compendium report: please see disclosures at https://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this
compendium can be found in the latest relevant published research
Regulatory disclosures
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or
co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed
public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs trades or may trade as a
principal in debt securities (or in related derivatives) of issuers discussed in this report.
The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts,
professionals reporting to analysts and members of their households from owning securities of any company in the analyst’s area of coverage.
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Goldman Sachs
APAC Conviction List
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Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in
prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs
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Ratings, coverage universe and related definitions
Buy (B), Neutral (N), Sell (S) Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or
Sell on an Investment List is determined by a stock’s total return potential relative to its coverage universe. Any stock not assigned as a Buy or a Sell on
an Investment List with an active rating (i.e., a stock that is not Rating Suspended, Not Rated, Coverage Suspended or Not Covered), is deemed
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