TMT/Internet

• Telecom companies are traditionally “easy” to value. They have assets, debt, depreciation, earnings, cashflow. Lots of people like to use EV/EBITDA to measure.
• In comparing Japan’s telcos, I believe when Softbank Corp (9434 JP) is in the mix, one has to use forward PERs. EV/EBITDA is too fraught with complications.
• Softbank is currently at its most expensive multiple since listing on a Price to Forward Earnings basis, and relative to its major Peers. And KDDI has a big buyback now.

• Kakao has begun talks with potential buyers for Kakao Games, with Krafton leading discussions directly using its own investment team.
• Despite official denials, it’s viewed as procedural. Local markets anticipate the deal due to no direct refutation beyond formal announcements.
• A three-month compliance period from disclosure makes this quarter challenging, but completion announcement potential exists by Q4 this year.

• The review period for the LQ45 Index July rebalance ended 30 June. The changes should be announced the last week of July, becoming effective after the close on 31 July.
• Based on the index methodology, there could be up to 5 changes at the rebalance. Plus there will be capping changes for Bank Rakyat (BBRI) and Bank Central Asia (BBCA).
• For a change, the impact on the potential inclusions will be higher since they will join the index with higher weights compared to the potential deletions.

• After hitting a low point in Q4 2023, Research on Hong Kong companies has been slow to pick up reflecting the ongoing skepticism from investors. 
• Reports on the large China tech companies dominated the top ten companies covered over the last couple of years and in the first half of 2024.
• As China continues to dominate and make news in the global EV market, research in that sector has picked up.

• This writeup was inspired by David Orr’s tweet about the U.S. listed Chinese company DouYu (Nasdaq: DOYU) paying out a $9.76 special dividend.
• The stock closed at $12.59 the day before and was $6.59 earlier in the year.
• Among Chinese ADRs with significant cash balances, SOHU is my favorite. 

• The company’s annual revenue was $35,820 million in 2023 compared to $44,200 million in 2022, seeing a decrease of 18.96%.
• We estimate that for FY2024 the annual revenue will range at around $37,671 million and for 2025 at around $39,934 million.
• Gross profit for FY2023 was $19,951 million, decreased by 21.96% compared to $25,565 million for the corresponding period of 2022. 

• Rapid7, under the leadership of CEO Corey Thomas and CFO Tim Adams, remains at the forefront of cybersecurity solutions focused on delivering integrated risk and security operations.
• The company concluded the first quarter of 2024 with $807 million in Annual Recurring Revenue (ARR), which indicates an 11% year-over year growth.
• The quarter saw steady performance in its Direct Complete offerings but noted a shortfall in ARR expectations primarily due to slower transitions in the vulnerability management (VM) base to its integrated Cloud Risk Complete offering.

• A series of new product introductions earlier this year should contribute to Ubiquiti  experiencing follow through sales momentum in the June quarter. 
• In the June quarter we are anticipating both enterprise and service provider revenue to increase sequentially.
• The March 2024 quarter included a charge. We are not expecting Ubiquiti to incur a similar expense in the June quarter. 

• Cumulative Q3 FY08/24 results: Revenue JPY235.5bn (+16.5% YoY), Operating profit JPY23.5bn (+51.2% YoY), Recurring profit JPY23.0bn (+56.9% YoY).
• Segment performance: Communications revenue up 10.2% YoY, Business Systems revenue up 48.0% YoY, Energy revenue down 7.0% YoY.
• Subscriber growth: U-NEXT service subscribers at 4.34mn, ARR JPY101.2bn (+22.0% YoY), advertising expenses JPY9.3bn (+32.1% YoY).

• Flex Ltd. reported solid performance for fiscal Q3, demonstrating strong execution across its operations.
• The company, which provides a wide array of manufacturing services, generated $7.1 billion in revenue, achieving an adjusted operating margin of 6.7% and an adjusted EPS of $0.71.
• When excluding Nextracker, Core Flex revenue was $6.4 billion with a record operating margin of 4.9%, delivering $0.54 of EPS.

• We are surprised that Silergy Corp (6415 TT) is using Vanguard Intl Semiconductor (5347 TT) to trial-run products.
• The outlook for 2024 remains unchanged at over 20% YoY, and we still see a path to recovery ahead.
• We consider the recent drop from NTD$526 on June 14th to NTD$429 on July 5th as an opportunity to consider entering the stock.

• We expect Vanguard’s utilization to improve from around 65% in 2Q24 to over 70% in 3Q24.  
• Qualcomm Inc (QCOM US) and Monolithic Power Systems, Inc (MPWR US) are gradually increasing demand volume in 2Q24 and 3Q24.  
• Currently, Vanguard is experiencing a correction from above NTD$142 on July 2nd.  

• The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
• The reference period for the September 2024 index rebal event is now complete. In this insight, we take a look at our final expectations for index changes.
• Our current estimates suggest one-way flows due to index changes and capping could be around US$733mn but that could change by early September 2024.

• Notably, local hedge funds receive significant allocation, nearly 10%, unusual for KOSPI IPOs this size, differing from HD Hyundai Marine Solution.
• KOSPI 200’s initial float rate is 14%, rising to 58% in six months. MSCI starts at 8%, reaching 12% in six months and 25% in a year.
• Differences from HD Hyundai Marine Solution include high short-term strategies among institutions. Unlike before, local pension funds receive substantial allocation, potentially affecting stock price post-listing.

• In the Q1 2024 earnings, Wix.com Ltd.’s management shared a very positive outlook based on the company’s recent financial results, strategic initiatives, and product advancements.
• Key achievements included stronger-than-expected Q1 growth, with booking growing to over $457 million and revenue reaching $420 million, exceeding the company’s previous guidance.
• This performance led to free cash flow growth to more than $111 million.

• Credo’s fiscal 2024 earnings presented a blend of robust achievements and markers for future growth, tied along with inherent business risks associated with developing and scaling high-speed connectivity solutions.
• The company highlighted record annual revenue alongside a notable uplift in revenue derived from AI-powered workloads, indicating successful alignment with leading-edge technological demands.
• Revenue for fiscal year 2024 stood at $193 million, up by 5% year-over-year, with a marked improvement in non GAAP gross margins to 62.5%.

• Ambarella Inc. recently reported a first quarter fiscal year 2025 earnings.
• The company stated their first quarter revenue was 1% above estimated figures with an increase of 6% on a sequential basis.
• Artificial Intelligence (AI) products constituted two-thirds of this revenue.

Nano Dimension has entered into a definitive agreement to acquire Desktop Metal (DM) in an all-cash deal worth $185m ($5.50 per DM share), with potential adjustments that could reduce it to $135m ($4.07 per share). The deal is subject to regulatory approvals and DM shareholder approval and is expected to close in Q424. With complementary product lines, the combined entity will offer a broad range of additive manufacturing solutions covering multiple verticals and materials, supporting the entire value chain from prototyping through to mass manufacturing.

• Lions Gate’s recent business developments and strategic outlook present a mixture of opportunities and challenges.
• Over the past decade, Lions Gate has transitioned from primarily a Hollywood Studio, heavily reliant on theatrical releases like ‘Twilight’ and ‘Hunger Games’, to being a major player in the streaming space through its acquisition of STARZ in 2016.
• This pivot has expanded its revenue streams and fortified its position against industry shifts toward digital consumption.

• IHRT is expected to experience positive growth in the upcoming quarters, driven by its podcasting business
• CEO and CFO have been buying stocks, indicating confidence in the company’s future prospects
• Potential debt restructuring and positive growth could lead to a significant increase in IHRT’s equity value by the end of 2025.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Xerox is considered a short position due to being in a declining industry and losing market share, having a leveraged capital structure with rising costs, and facing hidden liabilities
• The company’s free cash flow is believed to be overstated from receivables financing, making it more expensive than it appears
• Xerox has been criticized for poor capital allocation, corporate governance issues, and an Icahn greenmail exit, making it a risky investment in a struggling market.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• In a particularly altruistic move, live-streaming game platform play Douyu International Holdings (DOYU US)  announced a special cash dividend of US$9.76/share, vs. a last price of US$12.59.
• The cash outlay is roughly US$308mn, and Douyu had cash (as at 1Q24) of US$936.6mn. And no debt.  Founder/chairman/CEO Shaojie Chen (17.2% shareholder) will pocket a tidy ~US$53mn.
• An outlier; or should we expect more of the same for other cash-rich US-listed China plays?

• Index Committee’s discretion decreases the predictability of index changes. Even when a company passes all eligibility criteria and thresholds, it might still not be selected.
• Understanding triggers for index changes, types of additions/deletions and selection patterns, narrows down the pool of candidates and increases conviction of forecasts.
• Dell Technologies (DELL US) is currently the main candidate to be added by transition to the S&P 500 in September 2024 Quarterly Rebalance.

• Digital Arts (2326 JP) , based in Japan offers internet security software and appliances  globally. The company also provides consulting services related to information security.
• The company’s share price has moved up by more than 30% over the last 30-days driven by DA’s decision to deconsolidate its DAC business.
• Given the high-cost nature, we welcome Digital Arts’ move to deconsolidate the DAC business as it should help improve the company’s profitability.

• South Korea is prioritizing enhancing its EDA competitiveness to stay ahead in the technological race.
• China is focusing on consolidating promising chip firms while doubling the terminations of IPOs to control the market.
• Commodity DRAM and NAND chip prices are stalling due to slow demand recovery, affecting Taiwanese companies and PanelSemi’s development of mini LEDs. Vietnam PM strengthens South Korea relations and secures investments in display production and clean energy. Taiwan is aiming to lead in floating wind technology with a projected global investment of EUR250 billion by 2035.

• When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
• Nearly 6mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 16+wks ago, recommended taking profits.
• Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Gross spread is now 4.6% but time is shorter so annualised is 10+% even out to December launch.

• Apple Increasing Chip Orders with TSMC — Expecting iPhone 16 Sales to be Much Stronger Than iPhone 15 Thanks to AI
• Google Said to be Shifting to TSMC from Samsung for Next Generation AI Mobile Phone Chips
• This June 28th piece appears to be timely — Memory Monitor: Micron’s Shares May Be Falling But Results’ Industry Implications Are Positive

• Taiwan plans to release offshore wind regulations by 3Q24, boosting the renewable energy sector’s growth and investment opportunities.
• Chinese investment in 8.6G OLED technology is boosting the South Korean display equipment industry, leading to potential economic growth.
• VinFast’s Indian factory may open earlier than expected, while mobile device suppliers show interest in using edge AI to enhance the market.

• Taiwan set to release offshore wind regulations by 3Q24, opening doors for growth and innovation in the industry.
• China’s significant investment in OLED technology boosts South Korean display equipment sector, creating opportunities for growth.
• Telecoms facing challenges with slow 5G adoption, pushing them to adapt and transform strategies to overcome obstacles.

• On 3 July, PUSU deadline, Bidco and Keywords Studios (KWS LN) have agreed to an acquisition to be carried out through a scheme of arrangement. 
• Shareholders will receive 2,450p/share in cash, cum dividend, 66.7% premium, for 22.4x Fwd P/E. There’s a minimal number of irrevocables and just 7.57% of capital in letters of intent. 
• I think the price is reasonable considering the recent challenges affecting the value of the stock, and deal will close. Spread is 2.45%/6.3% (gross/annualised, assuming settlement by 29 November). Long.

• Soundthinking (SSTI) is a SaaS company providing technology to law enforcement agencies for enhanced effectiveness
• Market cap of $200 million and trading at 2x sales, considered cheap compared to growth potential
• Company has history of 15% annual growth, 60% gross margins expected to increase with expansion, projected revenue growth of 15% over next three years, EBITDA margins expected to reach 32% by 2026, stock predicted to trade at $74 per share with 360% upside from current prices

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• NVIDIA’s data center revenues tripled YoY in CY 2023 and are on track to more than double in CY 2024
• When Intel dominated the data centre and minted tens of billions annually, its customers benefited even more, minting hundreds of billions. 
• If NVIDIA’s business model succeeds, its customers will succeed even more. This will make it extremely difficult for NVIDIA to remain the #1 global market cap stock. 

• ASM Pacific Technology (522 HK) is expected to replace Ping An Healthcare and Technol (1833 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the September rebalance.
• Constituent changes and capping changes will result in a one-way turnover of 3.7% and that will result in a round-trip trade of HK$7.8bn (US$1bn).
• Short interest is near the lows on both stocks but there has been a recent tick higher for ASM Pacific Technology (522 HK).

• Chenqi Technology Limited (CT HK) is looking to raise up to US$174m in its Hong Kong IPO, after downsizing from an earlier reported float of US$300m.
• Chenqi Technology (Chenqi) is a mobility technology and service company in China, founded by the GAC Group and Tencent.
• In our previous notes, we talked about the company’s historical performance and PHIP updates. In this note, we undertake a quick peer comparison and share our thoughts on valuation.

• Mega-Cap growth names such as AMZN, TSLA, MSFT, GOOGL, and META have picked up the slack as semiconductors (SMH, SOXX, NVDA, AVGO, etc.) are simply consolidating after getting extended.
• This was a possibility we discussed in last week’s Compass (6/25/24), which means we are not seeing any lasting rotation away from large-cap growth.
• We remain bullish on all names listed (including the semiconductors), and we continue to recommend an overweight to large-cap growth (relative to value) as initially discussed in our 5/29/24 Compass

1Spatial’s announcement of contract wins in the US, spanning a number of products across several states, highlights the company’s progress and opportunity in the world’s largest market for software. It also gives an early indication that management’s investment in strengthening the US business development team could yield good results. In the US 1Spatial now has contracts or framework agreements with 21 states, up from 18 at year-end, with management setting a longer-term ambition of generating $1m in annual recurring revenues from each state.

• Shift Up reported solid IPO book building results. Shift Up’s IPO price has been determined at 60,000 won won, which is at the high end of the IPO price range.
• According to Hankyung Business Daily, the demand ratio was 223 to 1. Shift Up will start trading on 11 July.
• Our base case valuation of Shift Up is market cap of 5.7 trillion won or target price of 95,510 won (59% higher than the IPO price of 60,000 won).

• Six months after announcing a binding proposal, Ascendent has obtained all the Chinese regulatory approvals for its US$26.50 Hollysys Automation Technologies (HOLI US) offer. 
• The gross spread was wide due to the information vacuum, which has resulted in various conspiracy theories and rumours circulating.
• The two remaining conditions required for close are the maximum dissenting cap (should be waived) and minimum net cash condition (satisfied). At the last close, the gross spread was 22.5%.

• SenseTime Group (20 HK) and JD Logistics (2618 HK) are potential deletions while PICC Property & Casualty (2328 HK) and New Oriental Education & Techn (9901 HK) are potential adds.
• Estimated one-way turnover at the rebalance is 1.8% resulting in a one-way trade of HK$950m. Official capping will be based off the close of trading on 3 September.
• There will be 1-2x ADV to buy on the adds and over 2x ADV to sell in JD Logistics. The impact on SenseTime is lower given the recent surge in volume.

• Shift Up (462870 KS) will raise KRW 435bn (US$315m) in its IPO, valuing the company at KRW 3,482bn (US$2.52bn). Listing is expected later this month.
• Competition for the shares has been fierce with institutional investors indicating demand for 226x the number of shares on offer at prices higher than the top end of the range.
• Inclusion in the KOSPI 200 looks likely in June 2025, while inclusion in global indices is likely in December. But there could be some passive inflows in September.

• Despite achieving significant milestones, Elon Musk’s $56 billion compensation package was voided in January 2024 due to a flawed approval process, ruled a Delaware judge.
• Tesla’s shareholders voted to reinstate Musk’s package in June 2024, but the lawsuit continues, and the contract’s future remains uncertain.
• Tesla faces challenges with slow EV sales growth, rising competition, and the need for lower-cost models, which may impact stock performance despite Musk’s ongoing leadership.

• Chenqi Technology Limited (CT HK) is looking to raise US$130m in its upcoming Hong Kong IPO, after downsizing from an earlier reported float of US$300m.
• Chenqi Technology (Chenqi) is a mobility technology and service company in China, founded by the GAC Group and Tencent.
• In our previous note, we talked about the company’s historical performance. In this note, we talk about its PHIP updates.

• Toyo Corporation is a trading company specializing in measurement technologies.
• With several initiatives and strong structural demand in the electric vehicles space in particular, we expect the company to achieve higher revenue and profitability.
• Higher recurring revenue and proprietary product ratios will support a margin improvement in the future. 

• Indian smartphone exports boosted by iPhone makers as Xiphera introduces quantum security improvements in crypto solutions
• Ola Electric pioneers solid-state batteries for electric vehicles, while SK Hynix invests $75 billion to dominate HBM Market for AI Chips
• China nationalizes rare earth resources as airlines struggle with high costs to achieve sustainable fuel goals, Foxconn denies mistreating married women in India

• Shanghai Voicecomm Information Technology Co., an IT solution provider for enterprise-level users in China, plans to price its IPO by July 10, 2024 and raise ~HK$664M.
• CICC is leading the offering in Hong Kong and the IPO is expected to be priced at HK$152.10 per H share, implying a market cap of ~HK$5.4B or ~$690M.
• Cornerstone investors have agreed to acquire ~1.8M H shares, representing 41% of the offer shares or ~5% of the total outstanding shares.

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
• Last week saw NORTHBOUND net SELL RMB 11.8bn of A-shares. NORTHBOUND bought utilities and raw materials and sold everything else, especially consumer names. Appliances remain on the sell side.
• It is notable that net flows as a percentage of value traded are clearly “short gamma”, which is to say, sector underperformers are being sold, not bought. 

• TSMC: +16.7% Premium, Has Remained Rangebound; Watching for Over 20% or Under 15%
• UMC: +2% Premium, Upper End of Trading Range, Can Consider Shorting
• ASE: +9.9% Premium; Spread Could Have Further Room to Bounce Higher

• There are 12 changes for the TIP Taiwan Technology Dividend Highlight Index in June/July. The Fuh Hwa Taiwan Technology Dividend Highlight ETF (00929 TW) has an AUM of US$7.16bn.
• One-Way turnover is estimated at 35% and that will result in a round-trip trade of TWD 134.7bn (US$4.1bn). There are 8 stocks that could have over 5x ADV to trade.
• The ETF started rebalancing their portfolio on Friday and will continue to trade the stock over the next 7 trading days.

• PC & Server solutions names have fallen moderately from highs in June, however enterprise server company HPE soared 20% on AI strength.
• Despite the market pullback from highs, we note that 2025E forward growth expectations have generally increased for the universe over the last month.
• Latest Taiwan PC company revenues indicate healthy growth and HPE’s management guided for Enterprise AI orders to accelerate.

• Douyin’ GMV increased by 300% YoY in the “June 18” sales season.
• The revenue of a pre-IPO restaurant chain, Green Tea, increased by 55% in 2023.
• Alibaba’s supermarket chain, Freshippo, opened 12 new stores in June.

• Integral Ad Science (IAS) had a constructive start to 2024 as highlighted in their recent financial performance discussion.
• The company reported that revenue and adjusted EBITDA for the first quarter surpassed previous forecasts, demonstrating a robust economic position and potential upward trajectory in its financial metrics.
• Revenue increased by 8% to $114.5 million, which was above the company’s guidance range of $111 million to $113 million.

• Client-Driven innovation fosters R&D via proactive, marketable solutions and an SDE framework for excellence
• In-Depth understanding of sectors and data-driven innovation drives strategic growth
• Comprehensive data analytics solutions from start to finish for business success

• We hosted a conference call with Global Unichip (GUC); GUC is 34.8% held by TSMC and a key provider of semiconductor design services to companies aiming to manufacture with TSMC.
• GUC’s Revenue Prospects are Linked to TSMC’s Growth, However the Success of Its Customers’ Chips Also a Factor — Lagged Strong Revenue Growth Likely
• Conclusion: GUC a Second-Derivative Play on TSMC’s Structural Drivers with Potential to Surprise the Market and Catch Up to TSMC’s Share Performance

MoneyHero has made a promising start to FY24, with robust levels of revenue growth in Q124 across several core markets and all product verticals. Investment in the platform has resulted in improved application conversion rates, while several senior hires have been made, including the new CFO, Hao Qian, and a head of AI. Although the EBITDA loss widened in the quarter, management expects profitability to improve to a break-even run rate by end FY24. Our estimates are unchanged, anticipating sequential quarterly revenue growth as management accelerates investment in its user base and benefits from operational leverage.

• Fastly’s first quarter 2024 results demonstrate both promising advancements and headwinds that underscore the complexity of its market environment.
• Revenue growth of 14% year-over-year to $133.5 million surpassed the midpoint of Fastly’s guidance, reflecting effective customer growth and retention initiatives.
• The customer base expanded to 3,290, marking an increase from previous quarters.

• NAR settlement presents big opportunity for CSGP’s homes.com business with rapid growth in traffic and monetization
• CSGP trading in-line with historical valuation, offering a cheap option on homes.com network for further growth
• Settlement may lead to unbundling of buy-side commissions, disrupting traditional US portal model and driving CSGP stock higher

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.