Baidu Inc

Baidu Inc (NASDAQ-GS: BIDU) is a Software & Computer Services company providing Internet search in the Chinese language. The company also provide a platform for corporates to reach their customers.

Investment Highlights – Baidu Inc – Avoid at USD 222.29

• Despite the improved financial performance in FY2020, the Company remained cautious towards macroeconomic environment.
• In the last one month, the Company delivered a negative return of ~15.07% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, the Price/Earnings multiple of the Baidu Inc is currently higher as compared to the corresponding multiple of the Software & IT Services industry, reflecting overstretched valuations.
• From the technical standpoint, shares were trading below the support level of 21-day simple moving average prices (USD 244.987), which reflects a downtrend in the stock and can move down further.

Key Risks

• The Company’s operations will remain impacted due to uncertain political and economic climate for short to medium term.
• The disruptive technology trends and cybercrimes also impose a risk to the business model.

Financial Highlights – Q4 & FY2020 (31 December 2020) (released on 17 March 2021)

(Source: Quarterly Report, Company Website) 

• For the financial year 2020, the revenue remined flat compared to FY2019 data. In Q4 FY2020, the revenue increased by 5%, driven by increased revenue from Baidu Core.
• The profitability margins in Q4 FY2020 declined, due to higher costs and expenses, while for FY2020 the costs and expenses declined, which improved profitability margins.
• The cash balance as on 31 December 2020 slightly increased to RMB 35,782 million (31 December 2019: RMB 33,443 million).

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Conclusion

The Company has shown a decline in financial performance in the fourth quarter of the financial year 2020, while financial performance improved in FY2020. The Company was benefited by improvement in macroeconomic environment and digitalization of industrial Internet. BIDU is well-positioned as a leading AI company as it enters FY2021 with strong Internet foundation. Despite the improved performance in the financial year 2020, the Company expects trading environment to remained uncertain in FY2021 and is hoping to capitalize on huge Internet reach with more non-marketing services. The stock made a 52-week low and high of USD 90.94 and USD 354.82, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Baidu Inc at the closing price of USD 222.29 (as on 5 April 2021), and with support from few catalysts needs to be evaluated at a later stage such as continuous investment in technology for future growth.

AeroCentury Corp

AeroCentury Corp (AMEX: ACY) is an Industrial Transportation Company. The Company is engaged in the business of offering finance and leasing services to regional airlines and other commercial users globally.

Investment Highlights - AeroCentury Corp – Avoid at USD 11.47

• The Company’s financial performance remained impacted due to the impact of covid-19 in 9 months period, reflecting higher operating expenses and lower revenue.
• As per valuation metrics, the EV/Sales multiple of the AeroCentury Corp is currently higher as compared to the corresponding multiple of the Banking Services industry, reflecting overstretched valuations.
• The Company has reported a negative ROE (Return on Equity) of 100.1% in H1 FY2020, which is significantly lower than the industry median of 2.6%. The Company’s ROE is continuously declining from last 4 years.
• From the technical standpoint, 14-day RSI is supporting a downside move (around 60 level), which means the stock price could decline in the short term.

Key Risks

• The Company’s businesses are significantly impacted by the covid-19 crisis and travel restrictions imposed by the government.
• Any change in the regulations and government policies could affect the overall business of the Company.

Financial Highlights – Q3 & 9M FY2020 (30 September 2020) (released on 12 November 2020)

(Source: Quarterly Report, Company Website) 

• In the Q3 and 9M period of FY2020, due to the impact of the covid-19 pandemic on the business performance, the revenue and other income declined to $3,249,100 and $12,395,800, respectively.
• Due to lower revenue and higher expenses, the profitability margins for 9 months period declined significantly. The Company reported a net loss of $27,777,200 for nine months period of FY2020. The net loss in Q3 FY2020 declined, reflecting lower expenses incurred.
• The cash balance as on 30 September 2020 stood at $4,863,800 (31 December 2019: $2,350,200).

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Conclusion

The Company has shown a significant declined in financial performance in the first nine months of the financial year 2020. Both the top-line and the bottom-line performance declined, while profitability margins remained in the negative zone. Despite the improved cash position, the Company reported poor balance sheet. AeroCentury witnessed deferrals in lease payments from airlines due to the impact of the covid-19 pandemic. The Company expects this trend to continue in the foreseeable future. ACY is in active discussions with Drake regarding repayment terms for Indebtedness. The stock made a 52-week low and high of USD 0.7116 and USD 38.04, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on AeroCentury Corp at the closing price of USD 11.47 (as on 5 April 2021), and with support from few catalysts needs to be evaluated at a later stage such as actions taken to raise additional funds.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.