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Key Research Idea

Baidu Inc (9888 HK / BIDU US) – Pressure on near-term outlook while pressing on with long-term initiatives  

Baidu’s 3Q21 results were broadly in-line. Total revenue increased by 13% YoY to RMB31.9b, which was largely in-line with consensus and the mid-point of guidance. In terms of Baidu Core, revenue grew 15% YoY; non-online marketing revenue grew 76% YoY on the back of cloud and other AI-powered businesses. Baidu has guided for 4Q21 revenue to be between RMB31.0b – RB34.0b, which represents a growth rate of 2-12% YoY, and this assumes Baidu Core revenue growth of 5-16% YoY. On advertising, similar to comments made by Tencent, management believes that the subdued sentiment seen in 3Q will likely be a multi-quarter occurrence. Thus, in the near-term, we could expect some margin pressure due to the macro impact on ads as well as the ongoing investment in new businesses. Management struck a relatively optimistic tone around the recent regulatory guidelines encouraging the opening of internet platforms, and highlighted that searchable third-party SKUs from China’s top e-commerce sites reached almost 1b in Sep’21 with GMV rapidly expanding, though revenue contribution directly from transactions is not expected to be large. While the soft advertising outlook might weigh on sentiment, we believe that Baidu is well-positioned across a number of secular initiatives with strong execution thus far. Following adjustments and more conservative assumptions, we reduce our FV from HKD263 to HKD234 (9888 HK) / USD272 to USD242 (BIDU US). BUY(Research Team)

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Research Ideas

Raffles Medical Group (RFMD SP) – Improving outlook

Founded in 1976, Raffles Medical Group is a leading integrated private healthcare provider operating in 14 cities in five countries across Asia. As part of its growth strategy, Raffles aims to expand in the Chinese healthcare market, where it now has two international tertiary hospitals (Beijing, Shanghai), in addition to Raffles Chongqing hospital (opened in January 2019). Gestation period for its Raffles Shanghai hospital (newly opened on 26th July 2021) is likely to take about three years, taking a cue from the Chongqing hospital experience, which should see EBITDA breakeven in FY22E. We see an improving recovery outlook in tandem with ongoing economic re-opening efforts in Singapore, while medium term catalysts could come from a gradual recovery in foreign patients as vaccinations progress and regional travel restrictions ease further. The company has guided for FY21E dividends (transition year) to be minimally on par with FY20’s 2.5 cents/share, and will consolidate its dividends thereafter into an annual core dividend up to half its average sustainable dividend. BUY(Research Team)

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