Baidu Inc

Founded in 2000, Baidu Inc (Nasdaq: BIDU) is an artificial intelligence (AI) entity with a strong internet foundation.

Investment Rationale – SPECULATIVE BUY at USD 149.89

• Strong Growth: Baidu surpassed its estimates for revenue in Q3 FY21, on the back of strong cloud business.
• Growth Prospects: It is focusing on consumer, enterprise, and public sectors with a commitment to artificial intelligence. It is building Baidu Apollo smart transportation and intelligent driving to manage traffic congestion.
• Improved Dynamics: As the Omicron variant has only shown mild symptoms so far, it is not likely to dent the economy significantly, and subsequently, global equities got a boost.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~44.75) is still hovering close to the oversold zone, while it is close to lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are undervalued against the median of the Technology sector.

Risk Assessments

• Regulatory Risk: China's regulatory crackdown could adversely impact the advertising sales in Q4 FY21.
• Macroeconomic Uncertainty: The resurgence of Covid-19 cases with Omicron variant can create operational difficulties and cause a shortage of labour and raw materials.

Q3 FY21 Financial Highlights (for the third quarter ended 30 September 2021, as on 17 November 2021)

(Source: Company Website)

• Solid Momentum: Baidu Core delivered another solid quarter, while the AI cloud revenue grew 73% year over year in Q3 FY21.
• Operating Income: There was a significant decline in operating income during Q3 FY21, reflecting the impact of the increase in the cost of revenue and operating expenses.
• Liquidity: Baidu reported RMB 194.6 billion in cash, cash equivalents, restricted cash, and short-term investments.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

As the Covid-19 situation is still evolving, there is limited business visibility. Nevertheless, Baidu is well-placed for long-term growth with its diversified artificial intelligence portfolio. It has reported a 13% year-on-year increase in revenue during Q3 FY21. In terms of guidance, Baidu expects to report revenues between RMB 31.0 billion and RMB 34.0 billion, for Q4 FY21, representing a growth rate of 2% to 12% year over year. The stock price made a 52-week High and Low of 354.82 and 132.14, respectively.

Based on the revenue growth, diversified portfolio, undervalued valuation multiples, favourable technical indicators, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Baidu Inc at the closing market price of around USD 149.89 (as on 7 December 2021), with lower double-digit upside potential based on 21.18x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

SOS Limited

SOS Limited (NYSE: SOS) is a blockchain provider of data-driven solutions and data centre escrow services via. Cloud computing.

Investment Highlights – Watch at USD 1.14

• Weak Profitability: The net loss increased by almost 150% and remained negative USD 20.4 million for H1 FY21. In comparison, it was negative 8.80 million for H1 FY20.
• H1 FY21 Results: Net revenue came out to be USD 184.5 million for H1 FY21, up 17 times over the prior period. Moreover, the Company started generating revenue from the cryptocurrency mining operations in February 2021.
• Fund Raising: The Company had recently raised USD 90.1 million to be utilized towards business development in North America and working capital improvement.
• Sizeable Correction in Stock Price: The stock price dropped almost 47% over the last one year.
• Unfavourable Technical Indicators: From a technical standpoint, the 20-days exponential moving average of USD 1.40 indicates a correction in the stock price.

One Day Share Price Chart  (Source: Refinitiv; Analysis done by Kalkine Group)

Considering the weak profitability during H1 FY21 and unfavourable technical indicators, we have given a "WATCH" stance on SOS Limited at the closing market price of USD 1.14 (as on 07 December 2021). However, for any profit booking scenario, buy and holding levels should be looked at as per the risk appetite of investors.

Eqonex Limited

Eqonex Limited (Nasdaq: EQOS) is engaged in the provision of digital asset management and digital financial services. It also mines cryptocurrencies, with a focus on the blockchain ecosystem.

Investment Highlights – WATCH at USD 3.60

• Weak Fundamentals: In the last financial update for FY21 (for the year ended 31 March 2021, as on 30 June 2021), EQOS reported
  • A revenue growth but operational losses continued.
  • For FY21, Adjusted EBITDA loss stood at US$33.5 million.
  • The Company reported no interest-bearing debt and reported cash and cash equivalents of US$52.1 million, at the end of FY21.
• Cryptocurrency Volatility: The crypto market is still at a very nascent stage compared to other investment tools and currencies.
• Macroeconomic Uncertainties: The prolonged inflationary pressure, supply chain snags, subdued factory activity, slowdown in the US Job growth, and the likelihood of the early asset tapering.
• Technical Indicator: From a technical standpoint, the current market price is sustaining below the 20-day EMA (USD 4.23), reflecting a bearish price momentum. Adjacently, the MACD line has given bearish crossover against the signal line and trading below the centreline.
• Underperformance Against Index: In the last six months, EQOS’s stock price has fallen around 49.42%, reflecting significant underperformance against the Nasdaq index benchmark.

Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion

Based on the weak fundamentals, macroeconomic instabilities, unfavourable technical stance, and operating losses, we have given a “WATCH” stance on Eqonex Limited at the closing price of USD 3.60 (as on 7 December 2021). However, for any profit booking scenario, buy and holding levels should be looked at as per the risk appetite of investors.

Taoping Inc

Taoping Inc (Nasdaq: TAOP) is a provider of cloud-app technologies. The Company was formerly known as China Information Technology.

Investment Highlights – Watch at USD 2.87

• Weak Bottom-Line Business: TAOP had shown a substantial increase in net loss from a negative USD 7.7 million during H1 FY20 to a negative USD 14.1 million for H1 FY21.
• New Subsidiary: TAOP established a new subsidiary in Kazakhstan to invest in Cryptocurrency Mining Data Center construction.
• Weak Cryptocurrency Margins: The lower margin of cryptocurrency mining and advertising because of new business developments had adversely impacted the gross margins.
• Key Strategic Decisions: The Company had taken several key strategic decisions, such as the investment in digital asset business and the acquisition of Taoping New Media during FY21.
• Technical: From a technical standpoint, the MACD line remained lower than the signal line, indicating a bearish price momentum. Moreover, 20-day EMA (USD 2.98) indicates a correction in the stock price.

One Year Share Price Chart

 (Source: Refinitiv; Analysis done by Kalkine Group)

Considering the weak bottom-line business during H1 FY21 and unfavourable technical indicators, we have given a "Watch" stance on Taoping Inc at the closing market price of USD 2.87 (as on 07 December 2021). However, for any profit booking scenario, buy and holding levels should be looked at as per the risk appetite of investors. 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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