In today’s briefing:
- Alibaba: Growth Avenues Are Closing Fast
- China Aviation Oil Fuels Up for Next Stage of Growth
- Vertex Pharmaceuticals (VRTX US): Beat-And-Raise Q2 Results Driven by Strong Uptake of Trikafta
- 3M Company: Innovation
- SHEN: Return of Debt
- IIJ (Buy) – Q1 22 Results Reaction: Solid Results and Share Split
- HWKN: A Growth Story Continues
- Cadence Design Systems Inc: The Future Facilities Acquisition & Other Drivers
- Schlumberger NV: Increasing Exploration Activity
- HHC: Operating Model Generating Income
Alibaba: Growth Avenues Are Closing Fast
- Alibaba Group (9988 HK)’s 1QFY23 results were above consensus but it was still quite disappointing with revenue and OP declining 0.1% and 19.1% YoY respectively.
- Withholding the disclosure of active buyers, which Alibaba was proudly speaking of in the previous quarter, is a tell-tale sign that the business is undergoing some serious trouble.
- With expectations of 9.4% YoY OP growth in the next 3-quarters and 42% YoY OP growth in FY24, we think consensus is optimistic from 2QFY23 and bound for a correction.
Vertex Pharmaceuticals (VRTX US): Beat-And-Raise Q2 Results Driven by Strong Uptake of Trikafta
- Vertex Pharmaceuticals (VRTX US) reported strong Q2 results, with both revenue and adjusted EPS surpassing consensus. Flagship drug, Trikafta reported 51% y/y revenue growth and contributed 86% of revenue.
- Vertex estimates more than 25K CF patients that are addressable with its Trikafta are still untreated, thereby providing sustainable growth opportunities. No immediate competition is seen.
- The company lifted 2022 product revenue guidance by 2% at the mid-point to $8.6–8.8 billion. R&D costs are also expected to remain elevated as multiple ongoing clinical trials.
3M Company: Innovation
- Apart from being known as one of the most innovative companies in today’s times, 3M also has a strong reputation of successful restructuring and cost management which has helped the industrial conglomerate survive through many challenging business cycles.
- The company continues to benefit from strong spending discipline, restructuring savings, and selling price actions.
- We provide the stock of 3M Company with a ‘Hold’ rating with a revision in the target price.
SHEN: Return of Debt
- SHEN reported a narrower than expected operating loss for the second quarter as revenue increased from first quarter levels.
- SHEN has started to see an increase in the number of Glo Fiber subscribers as the Company ramps up its fiber buildout
- SHEN drew on its credit facility in July and expects to draw additional capital before the end of the year. The return of leverage could lead to a lower valuation.
IIJ (Buy) – Q1 22 Results Reaction: Solid Results and Share Split
- IIJ posted solid results including double-digit revenue and operating profit growth as corporate DX demand drive cloud and security growth at rates well above larger rivals
- Shares sold off 7% after the mid-day announcement which reflects modestly aggressive consensus forecasts and/or disappointment on lack of a guidance raise
- The company did announce its second share split in three years which tells us management remains confident on the mid- to long-term track
HWKN: A Growth Story Continues
- HWKN reported fiscal first quarter (June) results where continued price increases resulted in the Company reporting higher sales and earnings compared to our estimates
- HWKN operates a business where the increase in sales generates higher gross profit dollars with minimal change in operating expenses
- HWKN reported sales of $246.5 million compared to our forecast of $209.9 million. A LIFO charge of $3.8 million was lower and led to EPS beating our estimate
Cadence Design Systems Inc: The Future Facilities Acquisition & Other Drivers
- Digital transformation is accelerating across various industries thanks to generational trends like 5G, hyperscale computing, and autonomous vehicles supported by AI, ML, and data analytics.
- These trends are boosting design activity, creating a strong secular tailwind for the core end-to-end EDA, IP, and expanding systems portfolio.
- Cadence also acquired Future Facilities during the quarter to expand its CFD portfolio to include data centres.
Schlumberger NV: Increasing Exploration Activity
- Schlumberger has benefitted from the growing oil industry activity by leveraging the strength of its core, its global reach, and its technology, showcasing its capacity to seize growth in every land and offshore basin.
- The management also reports substantial offshore and onshore growth in North America’s increased drilling and completion activity.
- Besides, their second quarter sequential growth in most regions and in support of all divisions was largely due to the increase in offshore activity, particularly deepwater.
HHC: Operating Model Generating Income
- HHC delivered discernable second quarter 2022 results of progress in a pivot from landowners to landowners and operators
- Q2 results displayed how HHC’s business model can work. HHC’s operating assets within MPCs are generating a higher level of income as the MPCs’ population have increased
- HHC’s decision to pivot to operating assets in MPCs continued the trend of giving investors another value point
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