NETGEAR, Inc.

NTGR Details

NETGEAR, Inc. (NASDAQ: NTGR) provides high-performance networking technologies and internet-connected products to consumers, corporates, and service providers. Its operating segments are 1) Connected Home, offering WiFi internet networking services, including WiFi mesh systems, routers, smart devices, subscription services, etc., and 2) Small and Medium Businesses (SMB), delivering business networking, LAN, security solutions, and cloud-based services at affordable prices.

Latest News:

• Launch of WiFi 6 Mesh System: On November 02, 2021, NTGR unveiled the first 5G tri-band WiFi 6 mesh solution for homes and businesses. It is the latest addition to the company's high-performance Orbi product range, which provides high-speed 5G Internet, especially to individuals with limited or unreliable access to wired broadband connections.
• Secure VPN for Remote Workers: On October 13, 2021, NTGR launched Insight Business VPN as an add-on service to the Orbi Pro Series of WiFi 5 (SRK 60) and WiFi 6 (SXK 80) business router mesh systems, thus making WFH as easy and secure as working in the office.

Q3FY21 Results:

• Decline in Topline: The company reported a decrease of 23.36% in net revenue to USD 290.15 million in Q3FY21 (ended October 03, 2021) compared to USD 378.11 million in Q3FY20 (ended September 27, 2020), attributable to a 34.16% reduction in revenue from Connected Home segment.
• Contraction of Net Income: Net income for Q3FY21 declined 62.47% YoY and stood at USD 9.58 million compared to USD 25.54 million in Q3FY20.
• Cash and Debt Position: As of October 03, 2021, the company had cash & cash equivalents (including short-term investments) of USD 292.20 million and no outstanding debt.

Key Risks:

• Supplier Concentration Risk: NTGR relies on a small number of vendors for its crucial manufacturing component. Furthermore, the majority of the semiconductors used in its products are sourced from a single manufacturer. Therefore, any delay in obtaining the required quantity or unfavorable pricing could hamper its production and hence its financials.
• Customer Concentration Risk: NTGR derives a significant portion of its revenue from a limited number of customers, with sales through traditional and online retailers (Best Buy Co., Inc., Amazon.com, Inc., Ingram Micro, Inc., Tech Data Corporation) and service providers (AT&T) representing the majority of its revenue. Hence, the loss of any of its key customers could harm its financials.

Outlook:

• Q4FY21 Outlook: In Q4FY21, NTGR expects to generate total revenue in the range of USD 250 – 265 million, along with an operating margin of -0.5% to 0.5% and 2.0% to 3.0% on GAAP and non-GAAP basis, respectively. It also forecasts its GAAP tax rate of ~80.0% in Q4FY21.

Valuation Methodology: Price/Earnings 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.

NTGR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

NTGR's stock price has declined 34.75% in the past nine months and is currently leaning towards the lower band of its 52-week range of USD 27.25 to USD 46.38. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 31.44. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 35.35.

Considering the significant correction in the stock price in the past nine months, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 28.48, up 1.28% as of November 12, 2021, 2:14 PM ET.

* 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.

China Yuchai International Limited

CYD Details

China Yuchai International Limited (NYSE: CYD) is a China-based manufacturer of engines for trucks, buses, passenger vehicles, construction equipment, marine and agriculture applications. CYD also produces diesel generators and provides maintenance and retrofitting services for them. It markets its products to auto Original Equipment Manufacturers (OEMs) and retailers directly. The company's primary operating subsidiary is Guangxi Yuchai Machinery Company Limited (GYMCL). As of November 12, 2021, the company's market capitalization stood at USD 522.17 million.

Latest News:

• Recent Product Launches: On November 09, 2021, CYD launched two new smart powertrain systems for heavy-duty agricultural equipment: IE-Power and YCK16. IE-Power demonstrates CYD's innovative Continuously Variable Transmission (CVT) Hybrid Powertrain for heavy-duty tractors in the 200-260 horsepower range, which increases the tractor's performance by 10% - 30% with higher fuel efficiency. On the other hand, the YCK16, designed in collaboration with AVL, has 580-775 horsepower and a National VI-compliant fuel injection system, making it ideal for large agricultural equipment like forage harvesters and cotton harvesters.
• Key Collaboration: On October 20, 2021, CYD's subsidiary Yuchai Xin-Lan partnered with Beijing Xing Shun Da Bus Co., Ltd. to develop and manufacture fuel cell powertrain systems for on and off-road applications in Beijing. Both the partners will also pool their resources and capabilities to accelerate the development of critical components for fuel cell power systems.

H1FY21 Results:

• Growth in Topline: The company reported a YoY increase of 26.81% in total revenue to RMB 12.63 billion in H1FY21 (ending June 30, 2021) from RMB 9.96 billion in H1FY20. CYD sold 285,342 engines in H1FY21, 33.85% higher than 213,182 units sold in H1FY20, attributable to higher engine sales in the heavy-duty truck and off-road segments.
• Decline in Profitability: Net income (attributable to equity holders) for H1FY21 was RMB 253.71 million, compared to RMB 305.73 million reported in H1FY20, owing to higher operating expenses during the current period.
• Cash and Debt Position: As of June 30, 2021, the company's cash balance stood at USD 5.66 million, with a total debt of USD 2.37 billion.

Key Risks:

• Customer Concentration Risk: In FY20, CYD's largest customer Dongfeng Group accounted for 29.2% of its net sales. Further, the top five customers, including Dongfeng Group, represented 46.6% of CYD's revenue during the fiscal. Hence, the loss of any of these key customers could hurt its financials.

Valuation Methodology: Price/Earnings 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.

CYD Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

CYD's stock price has declined 25.76% in the past nine months and is currently leaning towards the lower band of its 52-week range of USD 12.30 to USD 19.59. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.71. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 15.92.

Considering the significant correction in the stock price in the past nine months, key collaborations, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 12.77, down 0.08% as of November 12, 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.