Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

Taiwan Semiconductor (TSMC) / Equity Bottom-Up

Huawei is one of the largest telecom equipment companies in the world and it is also one of the top customers of <a href="https://www.smartkarma.com/entities/11230" target="_blank" data-smartkarma-citation="entities:11230:1">Taiwan Semiconductor Manufacturing Company (TSMC) (2330 TT)</a>. There has been a war waged on Huawei by the US government administration. Most recently in January 2019, the US Justice Department announced <a href="https://www.cnet.com/news/the-huawei-controversy-everything-you-need-to-know/" target="_blank">23 counts of indictments</a> on Huawei related to the intellectual property theft, obstruction of justice, and fraud related to its evasion of US sanctions against Iran. The following are the major reasons why the US government has become so aggressive in targeting Huawei to prevent this company from selling its telecom equipment products in the US and in other allied countries:<ul>
<li>Serious concerns about Huawei's equipment which can be used to conduct espionage</li>
<li>The quest for 5G </li>
<li>Beyond 5G &amp; Global technology leadership</li>
</ul><a href="http://www.digitimes.com/news/a20170815PD214.html" target="_blank">HiSilicon Technologies</a>, which is a fully owned company of Huawei, is one of the top five customers of TSMC. Of TSMC's top five customers, both Apple and Huawei face significant headwinds which could reduce their sales growth rates. Although we do not have an exact figure of what percentage of TSMC's sales that Apple and Huawei represent, we believe that is closer to about 25-30%. The current US administration is trying to slow down this excessive outsourcing of manufacturing out of the US. The US government's war on Huawei is a reflection of the US government's desire to slow down the progress of Huawei and China's dominance of 5G services combined with threats of potential espionage. In the midst of all these intricate battles and concerns involving Huawei, TSMC is becoming negatively impacted as one of the main companies that produce chips for Huawei's Hisilicon.

Huawei is one of the largest telecom equipment companies in the world and it is also one of the top customers of Taiwan Semiconductor Manufacturing Company (TSMC) (2330 TT). There has been a war waged on Huawei by the US government administration. Most recently in January 2019, the US Justice Department announced 23 counts of indictments on Huawei related to the intellectual property theft, obstruction of justice, and fraud related to its evasion of US sanctions against Iran. The following are the major reasons why the US government has become so aggressive in targeting Huawei to prevent this company from selling its telecom equipment products in the US and in other allied countries:
Serious concerns about Huawei's equipment which can be used to conduct espionage
The quest for 5G 
Beyond 5G &amp; Global technology leadership
HiSilicon Technologies, which is a fully owned company of Huawei, is one of the top five customers of TSMC. Of TSMC's top five customers, both Apple and Huawei face significant headwinds which could reduce their sales growth rates. Although we do not have an exact figure of what percentage of TSMC's sales that Apple and Huawei represent, we believe that is closer to about 25-30%. The current US administration is trying to slow down this excessive outsourcing of manufacturing out of the US. The US government's war on Huawei is a reflection of the US government's desire to slow down the progress of Huawei and China's dominance of 5G services combined with threats of potential espionage. In the midst of all these intricate battles and concerns involving Huawei, TSMC is becoming negatively impacted as one of the main companies that produce chips for Huawei's Hisilicon. 

The War on Huawei, Its Impact on TSMC, and the Invincible Spanish Armada

Differentiated global TMT & Internet Research

New Street Research Insights

New Street Research

Research is provided by our team of experienced analysts. Our work is idea driven, based on independence of thought, sector expertise, and firmly focused on fundamentals and valuation of telecoms and internet names globally. New Street is headquartered in London with offices in New York, Singapore and Australia. 

New Street Research is an independent, partner-owned, research firm specialising in equity and debt research. Our equity research embraces the following sectors:

Pan European Telecom Services and Cable
US Telecoms, Cable, Satellite and Towers
Global Emerging Market Telecoms
Japan Telecoms
Asian Internet
Pan European Healthcare
US Healthcare
Japanese Healthcare

We also provide debt research on:
Pan European Telecom Services and Cable

<a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI's (9433 JP)</a> 3Q results were a small miss (2% vs our forecasts), at both the revenue and profit lines, but not enough to change our positive stance. A key part of our view is derived from our negative view on <a href="https://www.smartkarma.com/entities/666" target="_blank" data-smartkarma-citation="entities:666:1">Apple (AAPL US)</a> from August 2018 where we see an "air-pocket" of demand loss coming through. This is particularly important to Japan where the iPhone accounts for around 75% of smartphones. Apple has downgraded guidance and we believe is in a secular downtrend as refresh cycles elongate and that has been accentuated by the pull forward of demadn for the iPhone X. This is playing out in Japan, with KDDI reporting handset revenues down 13% YoY, and the key cause of the revenue miss. KDDI increased discounting to offset falling sales in 3Q adding a ¥9.9bn increase in handset costs in the quarter. Without that, EBIT would have beaten expectations. KPIs were generally strong, and service revenue trends improved to -0.1% YoY from -0.8%. Given the nature of the miss, and the fact the company is reiterating guidance we do not expect material changes to forecasts. Our price target is ¥4,100, and our recommendation remains Buy.

KDDI's (9433 JP) 3Q results were a small miss (2% vs our forecasts), at both the revenue and profit lines, but not enough to change our positive stance. A key part of our view is derived from our negative view on Apple (AAPL US) from August 2018 where we see an "air-pocket" of demand loss coming through. This is particularly important to Japan where the iPhone accounts for around 75% of smartphones. Apple has downgraded guidance and we believe is in a secular downtrend as refresh cycles elongate and that has been accentuated by the pull forward of demadn for the iPhone X. This is playing out in Japan, with KDDI reporting handset revenues down 13% YoY, and the key cause of the revenue miss. KDDI increased discounting to offset falling sales in 3Q adding a ¥9.9bn increase in handset costs in the quarter. Without that, EBIT would have beaten expectations. KPIs were generally strong, and service revenue trends improved to -0.1% YoY from -0.8%. Given the nature of the miss, and the fact the company is reiterating guidance we do not expect material changes to forecasts. Our price target is ¥4,100, and our recommendation remains Buy.

KDDI: 3Q18/19 Results Miss Slightly but Stock Is Poised to Benefit From Lower Handset Subsidies

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul class="">
<li>Baidu's new methodology directs the large majority of search results to its in-house functions, especially to its blog function BJH (百家号).</li>
<li>Baidu began to hide websites of search results after the change above was widely criticized. However, as a result, users can hardly find authoritative websites.</li>
<li>Because of these changes, it is hard for users to find useful content.</li>
<li>We believe Baidu is giving up its existing advantages for users and clients.</li>
<li>We also believe that users will choose to leave if the platform tries to choose content for them. If users leave Baidu, advertisers will follow them.</li>
</ul>


Baidu's new methodology directs the large majority of search results to its in-house functions, especially to its blog function BJH (百家号).
Baidu began to hide websites of search results after the change above was widely criticized. However, as a result, users can hardly find authoritative websites.
Because of these changes, it is hard for users to find useful content.
We believe Baidu is giving up its existing advantages for users and clients.
We also believe that users will choose to leave if the platform tries to choose content for them. If users leave Baidu, advertisers will follow them.


Baidu (BIDU): The Change Amounts to Business Suicide, Disappointing Existing Users and Clients

Semiconductor & Technology Specialist, Ingenuity

William Keating

Semiconductor & Technology Specialist

Ingenuity

Our focus is exclusively on in-depth research & consulting in the broader semiconductor industry. We focus on the key players, namely Intel, Micron, Qualcomm, Apple, Samsung, NVIDIA, AMD, TSMC & Global Foundries - as well as some of the lesser known, but nonetheless critical, companies such as ASML (for EUV), Mellanox, Cavium, Xilinx etc. We specialise in their products, roadmaps, process technologies, competitive advantages & threats etc. We also help our clients understand the implications of new and emerging technologies, e.g. 3D X-Point, 3D NAND, Carbon Nanotubes, Autonomous Driving, Graphene, Silicon Photonics, Wafer-Level Optics, Artificial Intelligence, FPGA, GPU, ASIC etc. 

Semiconductor Analysis & Research

<a href="https://www.smartkarma.com/entities/16764" target="_blank" data-smartkarma-citation="entities:16764:1">Intel</a>'s fourth quarter 2018 results last week missed on earnings to the tune of $360 million. That, combined with a tepid outlook for 2019 YoY growth of just 1% spooked investors, sending the stock down over 5% on three times the normal trading volume the following day. Lagging process technology leadership, ever increasing competition from ARM, AMD and NVIDIA, lower modem sales as iPhone unit shipments decline, falling NAND prices, data center spending significantly reduced as the hyperscalers digest and optimise their record-breaking build-out will all weigh heavily on the company in the coming quarters. After a record breaking 2018 which saw the company's annual revenue grow 13% to edge north of the $70 billion mark for the first time ever, Intel now faces a growing array of headwinds which will dog the company for the Year of the Pig.

Intel's fourth quarter 2018 results last week missed on earnings to the tune of $360 million. That, combined with a tepid outlook for 2019 YoY growth of just 1% spooked investors, sending the stock down over 5% on three times the normal trading volume the following day. Lagging process technology leadership, ever increasing competition from ARM, AMD and NVIDIA, lower modem sales as iPhone unit shipments decline, falling NAND prices, data center spending significantly reduced as the hyperscalers digest and optimise their record-breaking build-out will all weigh heavily on the company in the coming quarters. After a record breaking 2018 which saw the company's annual revenue grow 13% to edge north of the $70 billion mark for the first time ever, Intel now faces a growing array of headwinds which will dog the company for the Year of the Pig. 

Intel. Dogged By Headwinds In The Year Of The Pig

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

- MARKET COMPOSITE -
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/076/724/original/2019-01-26_17-35-03.png?1548496734" class="editor-image img-responsive" data-smartkarma-image-id="76724"></figure>
<div class="content-caption">Source: Japan Analytics</div>
SLOW &amp; STEADY RECOVERY - From December 25th's lows of 8% by number and 11% by value, the percentages of Japanese stocks above the weighted sum of moving averages have continued to recover to now 19% by number and 26% by value. Total Market Value has now risen by 11.2% from the Christmas Day low and is overdue a 'breather'.
<hr>
- SECTORS -
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/076/725/original/2019-01-26_17-29-21.png?1548497304" class="editor-image img-responsive" data-smartkarma-image-id="76725"></figure>
<div class="content-caption">
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.</div>
SECTOR BREAKDOWN - The top six sectors measured by their percentage above the weighted average of 5-240 Days remain domestic and defensive. REITs, Information Technology, Media, Healthcare and Utilities continue from our previous review with Restaurants replacing Transportation. Equally predictable is the bottom half-dozen - Banks, Autos, Metals, Building Materials, and Chemicals remain from two weeks ago, with Construction replacing Autos. 
<hr>
- COMPANIES -
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/076/763/original/2019-01-27_15-07-37.png?1548569281" class="editor-image img-responsive" data-smartkarma-image-id="76763"></figure>
<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/076/775/original/2019-01-27_16-34-40.png?1548574490" class="editor-image img-responsive" data-smartkarma-image-id="76775"></figure>
Source: Japan Analytics
</div>
COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 
In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. <a href="https://www.smartkarma.com/entities/26722" target="_blank" data-smartkarma-citation="entities:26722:1">UUUM (3990 JP)</a> is currently the most 'extreme' positive outlier, and <a href="https://www.smartkarma.com/entities/20895" target="_blank" data-smartkarma-citation="entities:20895:1">Welcia (3141 JP)</a> the most 'extreme' negative outlier

- MARKET COMPOSITE -

Source: Japan Analytics
SLOW &amp; STEADY RECOVERY - From December 25th's lows of 8% by number and 11% by value, the percentages of Japanese stocks above the weighted sum of moving averages have continued to recover to now 19% by number and 26% by value. Total Market Value has now risen by 11.2% from the Christmas Day low and is overdue a 'breather'.

- SECTORS -


LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.
SECTOR BREAKDOWN - The top six sectors measured by their percentage above the weighted average of 5-240 Days remain domestic and defensive. REITs, Information Technology, Media, Healthcare and Utilities continue from our previous review with Restaurants replacing Transportation. Equally predictable is the bottom half-dozen - Banks, Autos, Metals, Building Materials, and Chemicals remain from two weeks ago, with Construction replacing Autos. 

- COMPANIES -



Source: Japan Analytics

COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 
In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. UUUM (3990 JP) is currently the most 'extreme' positive outlier, and Welcia (3141 JP) the most 'extreme' negative outlier

Japan: Moving Average Outliers - Tech[nical] Rebound

United States

Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related accessories. The Company also offers payment, digital content, cloud and advertising services. Apple Inc.'s customers are primarily in consumer, small & mid-sized business, education, enterprise and government markets worldwide.

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Apple (AAPL US)

The War on Huawei, Its Impact on TSMC, and the Invincible Spanish Armada

Huawei is one of the largest telecom equipment companies in the world and it is also one of the top customers of Taiwan Semiconductor Manufacturing...

Douglas Kim

KDDI: 3Q18/19 Results Miss Slightly but Stock Is Poised to Benefit From Lower Handset Subsidies

KDDI's (9433 JP) 3Q results were a small miss (2% vs our forecasts), at both the revenue and profit lines, but not enough to change our positive...

New Street Research

Baidu (BIDU): The Change Amounts to Business Suicide, Disappointing Existing Users and Clients

Baidu's new methodology directs the large majority of search results to its in-house functions, especially to its blog function BJH (百家号). Baidu...

Ming Lu

Intel. Dogged By Headwinds In The Year Of The Pig

Intel's fourth quarter 2018 results last week missed on earnings to the tune of $360 million. That, combined with a tepid outlook for 2019 YoY...

William Keating

Japan: Moving Average Outliers - Tech[nical] Rebound

- MARKET COMPOSITE - SLOW & STEADY RECOVERY - From December 25th's lows of 8% by number and 11% by value, the percentages of Japanese stocks...

Campbell Gunn

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