Stocks’ Details

Advanced Micro Devices, Inc.

AMD Unveils Next-Generation PC Gaming with AMD Radeon™: Advanced Micro Devices, Inc. (NASDAQ: AMD) is engaged in the development of computer processors & related technologies for business and consumer markets. As on 28 October 2020, the market capitalization of the company stood at ~$89.67 billion. The company has recently unveiled the AMD Radeon™ RX 6000 Series graphics cards, setting a new standard for PC gaming experiences. This represents the evolution of PC gaming. 

AMD to Acquire Xilinx: The company has entered a definitive agreement to acquire Xilinx in an all-stock transaction valued at $35 billion. Per the deal, AMD will provide 1.7234 shares to the Xilinx shareholders for every stock of Xilinx common share. This indicates ~$143 per share of Xilinx common stock. Post-closing, AMD stockholders will own ~74% of the combined company while Xilinx stockholders will own ~26%. However, the buyout is subject to approval of shareholders of AMD and Xilinx along with customary closing conditions. The acquisition deal is expected to be finalized by the end of CY21. The acquisition is likely to expand the reach of AMD’s product portfolio and may broaden the customer set across diverse growth markets and is expected to be margin, EPS, and free cash flow accretive and deliver industry-leading growth. 

Quarterly Performance: During the third quarter, the company reported record revenue of $2.80 billion, reflecting an increase of 56% on the pcp. This was driven by an increase in revenue in both the enterprise embedded and semi-custom and computing and graphics segments. In the same time span, operating income was $449 million compared to $186 million in the pcp.

Quarterly Financial Highlights (Source: Company Reports)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: For the fourth quarter of 2020, AMD expects revenue to be ~$3 billion, on the back of the ramp of new Ryzen, EPYC and semi-custom products and growing customer momentum. As per NASDAQ, the stock of AMD is inclined towards its 52-weeks’ high level of $94.28. The stock of AMD gave a return of 0.407% in the past three months but a negative return of 3.87% in past one month. On a technical front, the stock of AMD has a support level of ~$70.23 and a resistance level of ~$80.67. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a downside of middle single-digit (in % terms). Considering the current trading levels, guidance for the fourth quarter, key risks and softer market conditions, we suggest investors to wait for a better entry level and recommend an ‘Expensive’ rating on the stock at the current market price of $76.4, down by 3.14% on 28 October 2020.

Alibaba Group Holding Ltd

BMW and Alibaba Sign a MoU for Strategic Partnership: Alibaba Group Holding Ltd (NYSE: BABA) is a multinational technology company that specializes in e-commerce, retail, Internet, and technology. As on 28 October 2020, the market capitalization of the company stood at ~$833.17 billion. The company has recently signed a Memorandum of Understanding with BMW for strategic partnership in Beijing. This partnership is likely to accelerate the digital operations across business segments of BMW and may provide customer-centric services across the product lifecycle and high-quality growth by expanding the customer base.

Quarterly Performance (For the Period Ended 30 June 2020): During the quarter ended 30 June 2020, the company delivered decent results with an increase of 34% in revenue to RMB153,751 million and saw a growth inactive customers to 42 million, an increase of 16 million from the pcp. During the quarter, net income attributable to ordinary shareholders was RMB47,591 million.

Quarterly Financial Highlights (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company seems well-positioned to capture growth from the ongoing digital transformation. The company is likely to release its financial results for the quarter ended 30 September 2020 on 5 November 2020. The stock of BABA is trading close to its 52-weeks’ high level of $319.32 and seems to have reached its market potential. The stock of BABA gave a return of 21.98% in the past three months and a return of 11.56% in the past one month. On a technical front, the stock of BABA has a support level of ~$302.17 and a resistance level of ~$314.43. We have valued the stock using the P/CF multiple based illustrative relative valuation and have arrived at a downside of lower double-digit (in % terms). Considering the current trading levels, upcoming financial results, key risks and softer market conditions, we suggest investors to wait for a better entry level and give an ‘Expensive’ rating on stock at the closing price of $307.94, down by 2.9% on 28 October 2020.

HUYA Inc.

Merger Agreement with DouYu: HUYA Inc. (NYSE: HUYA) is one of a leading game live streaming platform in China that retains a large and active game live streaming community. As on 28 October 2020, the market capitalization of the company stood at ~$4.62 billion. The company has entered a merger agreement with DouYu International Holdings Limited, wherein Huya will acquire all the outstanding shares of DouYu, including ordinary shares represented by American depositary shares, through a stock-for-stock merger. On the completion of the Merger, the shareholders of both HUYA and DouYu will hold ~50% shares of the combined company on a fully diluted basis. The merger is likely to be completed during the first half of 2021.

Quarterly Performance (For the Period Ended 30 June 2020): During the second quarter ended 30 June 2020, total revenues for the company went up by 34.2% to RMB2,697.2 million, up from RMB2,010.5 million in the pcp. In the same time span, net income attributable to HUYA Inc. was RMB226.8 million. As of June 30, 2020, the company reported a cash balance of RMB10,745.1 million as compared with RMB10,316.7 million as of 31 March 2020.

Quarterly Financial Highlights (Source: Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is likely to release its results for the third quarter ended 30 September 2020 on 11 November 2020. As per NYSE, the stock of HUYA is trading below the average 52-weeks’ levels. The stock of HUYA gave a negative return of 11.38% in the past three months and a negative return of 16.16% in the past one month. On a technical front, the stock of HUYA has a support level of ~$14.78 and a resistance level of ~$24.87. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a price offering an upside of lower double-digit (in % terms). Considering the current trading levels, potential merger with DouYu, and decent financial performance, we recommend a ‘Buy’ rating on the stock at the closing price of $20.79, down by 5.46% on 28 October 2020.

Daily Comparative Chart (Source: Refinitiv, Thomson Reuters)

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