Sectors:

Automobile & Air (Zhang Jing)

Utilities, Commodity, Shipping& Banking (Margaret Li)

TMT, Semiconductors (Megan Tao)

TMT, Semiconductors, Consumer & Healthcare （Eric Li）

Automobile & Air (Zhang Jing)

This month I released an updated report of Geely (175.HK) and an initiation report of JSHL (601100.CH).

Thanks to its strong sales volume this year, Geely Auto has seen great growth in both revenue and profit. According to the Q3 report released by the Company, it reported a revenue of RMB60,378 million, up 20.5% yoy and 9.8% qoq, and a net profit attributable to the parent company of RMB2,455 million, up 92.4% yoy and down 72.8% qoq. The qoq decrease is mainly due to a one-time gain of approximately RMB RMB7.47 billion from the sale of the HORSE equity in the prior quarter. If this factor is excluded, up 56% qoq. Besides, if the one-time provision for LYNK&CO Europe in Q3 is excluded, the net profit attributable to the parent company excluding non-recurring items reaches RMB2.76 billion, up 116% yoy. In Q3, 534 thousand units were sold, representing a yoy increase of 18.7% and a qoq increase of 11.2%, respectively. Driven by the new models, the proportion of NEVs, especially high-end models, increased, boosting the ASP, which was up 4.1% yoy to RMB113 thousand.

Changes in the auto industry are accelerating, and competition among NEVs is intensifying. To pursue long-term development, the Company issued the Taizhou Declaration in September 2024, clarifying strategic mergers and reorganisations as the development target for the next stage. In October, GEOME merged into Galaxy, and in November, LYNK&CO merged into ZEEKR. Upon completion, the Company will own 81% of LYNK&CO. LYNK&CO's results will be consolidated in the future. We believe that mergers and reorganisations can enhance strategic synergies and business integration across various sub-brands, eliminate horizontal competition, reduce duplicate investments, achieve complementary distribution networks, improve supply chain efficiency, and facilitate cost reduction and efficiency improvements. The brand positioning, technology planning, and product portfolio of the Company will be clearer. ZEEKR is positioned as a global luxury technology brand covering the high-end luxury market. LYNK&CO is positioned as a global mid-to-high-end brand in the new energy sector, covering the mid-to-high-end market. Geely Galaxy and China Star are positioned as mainstream brands, covering mainstream markets. Following the merger, ZEEKR and LYNK&CO plan to achieve a target sales volume of more than 1 million units by 2026. Two SUVs and two sedans of the Galaxy series will be launched next year, one per quarter. Distribution outlets will be expanded from the current 900 to 1,250 by the end of next year.

We revised our financial forecast and target price to HK$20.2, equivalent to 12.1/16/11.8x P/E ratio in2024/2025/2026, and we give the rating of Buy.

Utilities, Commodity, Shipping& Banking (Margaret Li)

This month I released 1 initiation reports of HSBC HOLDINGS (0005.HK).

HSBC Holdings (0005.HK) is one of the world's largest banking and financial services institutions. HSBC's business spans all over the world, including 62 countries and regions. As of the end of 2023, HSBC's assets reached $3 trillion (US dollars, same below) and it had approximately 42 million customers. The company provides wealth management and personal banking services, industrial and commercial banking services, and global banking and capital markets services.

Revenue in the third quarter of 2024 was $17 billion with a year-on-year increase of 5%, and revenue in the first nine months of 2024 was $54.3 billion with a year-on-year increase of 2%. The main reason for the increase in Q3 revenue was the growth in customer activity in the wealth management products of the Wealth Management and Personal Banking business and the foreign exchange, stock and global debt market businesses of the Global Banking and Capital Markets business. Revenue for the third quarter of 2024 already included a loss of $300 million due to early redemptions of existing securities, as well as a loss of $100 million resulting from the repositioning and risk management of the treasury business. Profit after tax was $24.4 billion, an increase of $100 million compared with the first nine months of 2023. Diluted earnings per share was $1.22 with a year-on-year increase of 7%.

HSBC Holdings will continue to maintain its leading international position, and the group's goal is still to target a mid-teens return on average tangible equity (`RoTE`) in 2024 and 2025 and to manage group's CET1 capital ratio within medium-term target range of 14% to 14.5%. In addition, the group actively rewards investors and sets the target dividend payout ratio in 2024 at 50%. In 2024, the Chinese government released a series of policies to promote economic growth, which drove an increase in customer activities and had a significant impact on Hong Kong's wealth management, stocks and global foreign exchange businesses. It is expected that more favorable policies will be launched in the future, and HSBC Holdings is expected to benefit from them. We predict that the group's operating income will be $67.1 billion, $68.7 billion and $69.1 billion respectively in 2024-2026 with a compound annual growth rate of 4%. EPS will be 1.22/1.29/1.31 US dollars/share, corresponding to the P/E of 7.85x/7.45x/7.29x. The group's average P/E in the past three years is 8.5x, giving the group a P/E of 8.5 times in 2024, with a target price of HK$80.68, and our investment rating is" Accumulate".

TMT, Semiconductors (Megan Tao)

In this month, I published two research reports on Tencent (0700.HK) and Trip.com (9961.HK).

In the third quarter of 2024, Tencent (0700.HK) achieved a total revenue of 167 billion yuan. Compared to the same period last year, this represents an 8.1% increase. In terms of profitability, the unadjusted operating profit was 61 billion yuan, showing a growth of 18.6% year-on-year. The operating profit margin increased from 33.0% in the same period last year to 37.0%. The unadjusted profit for the period was 54 billion yuan, marking a 46.8% year-on-year growth.

Regarding departmental revenues, in Q3 2024, the gaming business revenue experienced strong growth, increasing by 12.6% year-on-year to 52 billion yuan. This growth was mainly driven by the steady performance of evergreen games globally and the contribution of new games with evergreen potential. Marketing services revenue grew by 16.7% year-on-year to 30 billion yuan, primarily due to strong demand from video accounts, mini-programs, and WeChat search. Fintech and business services business revenue increased by 2.1% year-on-year to 53 billion yuan, with a slight decrease in payment service revenue due to weak consumer spending.

Overall, we are optimistic about the company's medium to long-term growth prospects. We expect the company's operating revenue for the years 2024 to 2026 to be 655/707/768 billion yuan respectively, and the unadjusted profits for the same periods to be 208/237/263billion yuan, corresponding to EPS of 21.7/24.7/27.5 yuan, and PE ratios of 22.9/20.1/18.1x. Based on the SOTP valuation method using the latest market values or valuations of subsidiaries and investee companies with a 10.0% discount, we assign a 2025 Tencent total target market value of 4.6 trillion yuan, corresponding to a target price of 496 yuan/540 HKD, and rate it as a "Buy".

TMT, Semiconductors, Consumer & Healthcare （Eric Li）

This month I released reports of JNBY Design Limited(3306.HK) & FSE Lifestyle Services (331.HK)

In FY2024, JNBY reported total revenue of RMB 5.238 billion, a year-on-year increase of 17.3%. This growth was primarily driven by a 10.7% rise in comparable sales across physical stores, an 18.4% expansion in online sales, and a moderate increase in store footprint. Gross margin improved to 66.3% (FY2023: 65.3%), reflecting the Company's strong brand equity and effective cost management.

Net profit surged by 36.5% year-on-year to RMB 848.1 million, with the net profit margin increasing from 13.9% in FY2023 to 16.2% in FY2024. This demonstrates significant profitability improvement. Notably, net cash inflow from operating activities increased by 70.7% to RMB 1.603 billion, showcasing a robust cash position and strong operational efficiency. With a final dividend of HKD 0.86 per ordinary share, bringing the total dividend payout for FY2024 to 97% of net profit. This reflects the Company's solid cash flow and commitment to shareholder returns.

Considering JNBY's strong financial performance, brand advantages, and industry prospects, we remain cautiously optimistic about its future. With a net profit margin of 16.2% and robust cash flow in FY2024, the Company demonstrates a solid foundation for sustained earnings growth, we expect FY2025E & FY2026E estimated basic EPS to be RMB$1.79 & RMB$1.85 respectively, with TP is HKD17.73, implies a FY2025E P/E of 9.0x (in line with its 5 years average +1 standard deviation) and FY2025E dividend yield of ~8.9%. Our investment rating is “BUY”.

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