Alibaba Group Holding Limited

BABA Details

Alibaba Group Holding Limited (NYSE: BABA) is a holding company that provides a technical framework and advertising reach to merchants, brands, and other organizations, allowing them to utilize the power of new technology to engage with customers and operate more efficiently. Its operating segments are 1) Core Commerce, 2) Cloud Computing, 3) Digital Media and Entertainment, and 4) Innovation Projects and Others. As of November 22, 2021, BABA's market capitalization stood at USD 371.36 billion, with 2.72 billion American Depositary Shares (ADS) listed and outstanding (each ADS representing eight ordinary shares).

Latest News:

• Availability of KORITE on Tmall: On November 17, 2021, KORITE, an operator of ammolite mine and designer and manufacturer of fine jewellery and art, launched its e-commerce platform on BABA's Tmall platform, which enables local and international businesses to sell their products to consumers. This platform, which is managed by Export Now, will now allow Chinese consumers to purchase rare Ammolite gemstone and fossils, mined almost exclusively by KORITE in Alberta.

Q2FY22 Results:

• Surge in Topline: The company reported a YoY increase of 29.43% in total revenue to RMB 200.69 billion in Q2FY22 (ended September 30, 2021) compared to RMB 155.06 billion in Q2FY21, driven by 30.74% growth in Commerce segment.
• Decline in Profitability: BABA reported a decrease in net income to RMB 5.37 billion during Q2FY22 vs. RMB 28.77 billion in Q2FY21, owing to the decline in market prices of its investments in publicly quoted entities.
• Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of RMB 459.21 billion and total debt of RMB 151.75 billion.

Key Risks:

• Reliance on Alipay: BABA depends on Alipay for most of its payment processing and escrow related solutions. In FY21, ~70% of the China retail marketplace's Gross Merchandise Value (GMV) was settled through Alipay. As a result, any deterioration in its quality, usability, convenience, or attractiveness could harm its operations.
• Political and Regulatory Risk: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges (if the US authorities cannot satisfactorily audit the company for three consecutive years).

Outlook:

• Revenue Guidance: In FY22, BABA expects to achieve YoY growth of 20-23% in its revenue.

Valuation Methodology: Price/Cash Flow Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BABA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

BABA' share price has declined 46.21% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 138.43 to USD 280.61. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 28.34. We have valued the stock using the Price/Cash Flow-based relative valuation methodology and arrived at a target price of USD 176.28.

Considering the correction in the stock price in the past nine months, strong top-line performance, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 136.62, down 2.65% as of November 22, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Southern Copper Corporation

SCCO Details 

Southern Copper Corporation (NYSE: SCCO) is a major integrated copper producer with the industry's largest copper reserves. It owns and runs mining and metallurgical plants in Mexico and Peru and conducts exploration in Argentina, Chile, Ecuador, Mexico, and Peru. Grupo Mexico SAB de CV, the Mexican conglomerate, owns an 88.9% stake in the company. As of November 22, 2021, the company's market capitalization stood at USD 44.83 billion.

Latest News:

• Quarterly Dividend: On October 21, 2021, the company declared a dividend of USD 1.00 per common share, payable on November 23, 2021, to shareholders of record on November 10, 2021.

Q3FY21 Results:

• Surge in Topline: The company reported YoY growth of 25.92% in total revenue to USD 2.68 billion in Q3FY21 (ended September 30, 2021) compared to USD 2.13 billion in Q3FY20, attributable to higher market metal prices for all its products.
• Improvement in Profitability: SCCO reported an increase in net income to USD 867.6 million during Q3FY21 vs. USD 506.0 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 3.21 billion and total debt of USD 6.55 billion.

Key Risks:

• Operates in a Capital-Intensive Industry: Exploration, exploitation, mining, smelting & refining, machinery, equipment maintenance, and so on all necessitate significant capital expenditures. As a result, if SCCO does not generate enough cash and liquidity to support its capital-intensive operations, its operations could be adversely impacted.
• Input Price Risk: SCCO requires substantial fuel oil, electricity, water, and other resources in its operations, with fuel, gas, and power expenses accounting for roughly 28% of total production costs in FY20 and FY19. As a result, any cost increases or supply constraints could harm the company's financials.

Outlook:

• Production Guidance: In its Q3FY21 release, SCCO stated that it expects to produce a total of 957,000 tons of copper in FY21.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SCCO Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

SCCO's share price has declined 28.87% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 54.92 to USD 83.29. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.80. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 70.65.

Considering the correction in the stock price in the past nine months, strong top and bottom-line performance, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 57.99, down 2.83% as of November 22, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.