Sambit Mohanty – Page 7 – WILLIAM O'NEIL+CO

O’Neil Capital Equipment Sector Weekly

Key points from this report:

Shares broke out of a stage-six cup-with-handle base on heavy volume (+78%). We recommend holding positions due to the late stage.
Eve Energy surged 13.3% due to one of its major client Xiaopeng’s (XPEV) secondary listing on the Hong Kong stock exchange.
Eve is the seventh largest EV battery producer in China, with a 1.9% market share as of December 2020.
Strong Q1 FY21 results: revenue and earnings were up 126% and 156.2% y/y to RMB 2.9B and RMB 647M, respectively, in Q1 FY21.

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In this report, we discuss the performance of the global chemical sector across the U.S., developed markets, and emerging markets.
Chemical stocks comprise about 40% of global stocks in the Basic Material sector. Based on median price performance, small- and mid-cap stocks are outperforming in emerging markets.
We have seen strength in stocks from India that have gained 89% in the past 52 weeks, closely followed by South Korean stocks, which have gained 87% over the same period.
South Korean stocks have the highest revenue CAGR estimates for FY20-23E, while Indian stocks are expected to continue their mid-teens revenue growth in FY20-23E.
Indian stocks are expected to continue their historical double-digit EBITDA CAGR in FY17-20 over FY20-23E, while the EBITDA CAGR in other markets is expected to accelerate to double digits from single digits over the same period.
The underlying factors benefiting emerging markets are the ‘China plus one’ strategy, shift to low-cost manufacturing base, favorable policy push, and increasing capex for capacity expansion.

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We reiterate our buy recommendation on Trigano as the stock gained more than 5% today, hitting a new all-time high after the company reported stellar Q3 sales growth of 131% y/y, beating consensus by 14.5%. Management did not release any guidance but stayed bullish as demand remained strong, with dealers’ inventories at a historically low level.
We continue to view Trigano’s growth story as very compelling, supported by its vertical integration strategy through M&A, its increasing production capacity to meet pent-up demand, its operating leverage, and its sound financial position, which brings firepower for further M&A.
We see upside risk to consensus expectations of high-single-digit operating profit and EPS CAGR between 2021 and 2023 given the current momentum. The stock trades at a reasonable 10x EV/Ebit FY22.

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We recommend that investors accumulate Accton as the stock is breaking out of a 24-week consolidation base on above average volume.
Strong fundamental profile: EPS Rank of 84 and SMR Rating of B.
Over the last five years, the company has registered strong double-digit revenue and earnings CAGR of 17% and 33%, respectively, driven by the increasing 100G switch adoption by hyperscalers. Looking forward, it should benefit from the 400G upgrade cycle and is expected to register revenue and earnings CAGR (2020-2023) of 17% and 25%, respectively.
Good technical ratings: RS Rating of 75, A/D Rating of A-, and Up/Down Volume ratio of 2.0.
Datacenter demand is reaccelerating in Q2 and should inflect solidly in the H2. Intel (INTC), the largest provider of server CPUs, said that Q1 was likely the bottom, and it expects enterprise and cloud customer demand to improve from Q2, driving y/y revenue growth in H2.
Taiwanese datacenter stocks benefiting from this trend that screen well through the O’Neil lens include Accton (ACC.TW), Parade Technology (PDE.TW), Aspeed Technology (ASP.TW), and Wiwynn (WIW.TW).

Key points from this report:

The stock is breaking out of a nine-week cup base; add to positions here (pivot: INR 1,477). Support is at the 10-DMA, followed by the 21-DMA.
Digital is 52% of total revenue, which is the highest among peers: The pandemic has compressed the digital transformation cycle and boosted demand for technologies like cloud migration, cybersecurity, AI-based automation, and overall IT outsourcing and consulting. Infosys is poised to be a key beneficiary of this secular trend through its digital offerings.
Fastest growing large-cap name in the Indian IT industry: In terms of constant currency growth, the company has outperformed peer Tata Consultancy Services over the past eight quarters.
Infosys’s six-month $1.2B (INR 92B) share buyback program opens on June 25: The company is planning to purchase 52M shares (1.2% of paid-up capital) through the open market route at a maximum buyback price of INR 1,750, which was a price premium of 25% when the buyback was announced.