TMT/Internet

• Broadcom’s Strong Q2 Performance: Broadcom’s Q2 revenue surged 43% year-over-year to USD 12.5 billion, driven by AI demand and VMware contributions.
• Dominance in AI ASIC Market: Broadcom holds a 60% market share in AI-specific integrated circuits, serving major clients like Alphabet and Meta.
• Lead up to Stock Split Upside Potential: Mega caps have seen an average 17% outperformance relative to S&P 500 from announcement to actual stock split, signaling sharp upside for Broadcom.

• South Korean battery makers stand to benefit from Tesla’s production issues with 46800 cells, boosting profitability in May 2024.
• STMicro and Panasonic Cycle Tech team up to introduce AI technology in e-bikes, making safety enhancements more affordable and accessible.
• Axelera AI secures US$68 million for global expansion in AI, recognizing computing as the new currency and focusing on growth in the tech industry.

• Our bullish outlook (since early-November 2023) remains intact. We continue to recommend buying dips as long as MSCI $ACWI and $EEM remain above important supports at $110 and $41-$42, respectively.
• We are reiterating Japan as an Overweight — Add Exposure; Nikkei 225, TOPIX, TOPIX Small All Breaking Out. And 2+ year RS uptrends remain intact on TOPIX and Nikkei 225
• We take a break from recommending Technology (though we are still bullish) and highlight buys within global Energy, Health Care, Telecommunications, and Utilities

• On June 27, Keywords Studios (KWS LN) received an updated cash offer of 2,450p/share from EQT (3.9% lower than initial 2,550p), 66.7% premium, implied EV €2,405 million, 13.2x EV/fwd NTM EBITDA,
• 22.4x Fwd P/E. The likelihood of a strategic buyer making an offer is low, while the offer from EQT is opportunistic, which will seek to merge Keywords with Virtuos.
• The revised lower offer and the small extension to the PUSU deadline do not inspire optimism. Nevertheless, EQT remains a credible bidde. Gross spread stands at 5.9%. Maintain long.

• Nvidia surpasses $3 trillion valuation, a first in semiconductor industry
• Company’s rapid growth raises concerns about stock market dynamics
• Debate on Nvidia’s dominance in AI computing and comparisons to past tech industry booms.

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• Delta Taiwan has outperformed Delta Taiwan recently. The parent vs. subsidiary market cap ratio is now trading consistently over 1.0x. and can go higher in our view.
• Nvidia opportunities and other similar cutting edge technologies will first go to Delta Electronics Taiwan (2308 TT) and not to Delta Electronics Thailand (DELTA TB).
• Conclusion — Expect further Delta Taiwan outperformance over the long-term vs. Delta Thailand.

• Data Centers — Traditional Data Center Recovery Starting; In Addition to HBM Demand, SSD Memory Seeing Strength for AI Applications
• PCs — Upcycle to Accelerate “Late CY2024E”, Driven by Windows 12 and End of Windows 10
• Mobile Devices — Moderate Growth in CY2024E; Potential for Smartphone Upgrade Cycle Acceleration

• Anthropic is releasing a new, highly intelligent and powerful model in the near future
• Developments in interpretability of AI models are progressing, allowing for greater understanding of decision-making processes
• Progress in understanding AI models is happening rapidly, but keeping pace with the complexity of new models remains a challenge

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• Humanoid robot development is rapidly advancing with improvements in AI, mobility, and interaction capabilities, exciting progress being made.
• China’s cloud service spending expected to surge 20% by 2024, with the country leading the hydrogen race through policies and demand.
• Former TSMC R&D director sheds light on Taiwan chip industry facing geopolitical shifts, reaching a crucial crossroads amidst declining semiconductor market.

Softbank Group (SBG) has launched a four-part benchmark-sized bond offering comprising USD and EUR notes. The proceeds will mainly be used for debt repayment, including the redemption of foreign currency-denominated bonds, as well as for general corporate purposes, including the maintenance of a cash position for the redemption of outstanding notes due over the next two years along with new investments. In particular, SBG will redeem its USD 766.8 mn 4.75% 2024 bonds (due September) early at par.

• Confluent (CFLT) is an infrastructure software company offering managed data streaming and processing services
• The company went public in 2019 and has experienced a decrease in stock price, presenting a potential opportunity for rerating
• Confluent’s strong product story around Apache Flink and usage by companies like FedEx and Uber position it for future growth

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• We update Klarna’s and Stripe’s IPO valuations based on recent share transactions; Indian payments company Pine Labs is also reported to be looking to IPO
• Our 2Q24 recommended shares performance was very mixed, with it being a mainly challenging quarter for long investors in payment companies
• We retain Visa as a core holding and also keep PagSeguro and Shift4 as buys, replacing PayPal with European value play Nexi; we keep our sell rating on Affirm

• Jabil recently disclosed its financial outcomes for the third quarter of the fiscal year 2024, delivering robust figures that reflect its strategic maneuvers and adjustment to changing market dynamics.
• The company posted revenues of approximately $6.8 billion, surpassing expectations by $265 million.
• This was aided by significant contributions from the connected devices and networking and storage sectors, which outperformed anticipations.

• Delivery Hero is a food and grocery delivery service founded in Berlin in 2011 with a leading position in 56 countries
• Despite being publicly traded and having a market cap of around €7.5bn, the company faces challenges such as being lossmaking and having significant net debt
• With concerns about liquidity, cash burn, regulatory issues, and intense competition in the market, Delivery Hero may be at risk of a significant price correction

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• China announced game approval for the June batch. The number of games approved remained at a higher level than 2023.
• The pace of China game approval appears to have accelerated to the same level as pre-tightening, though the number of approvals appears to be slower than March.
• Of companies that we are monitoring, Tencent and iDreamSky clinched one approval each.

• Generative AI is driving hardware advancements and creating new industrial prospects, with Synopsys offering automation and analytics tools for chipmaking facilities in India.
• Cultivating global cash cows like CHPT and Chief Telecom to enhance revenue streams, Volkswagen is investing $5 billion in Rivian to create an EV software joint venture, while Poland’s CEZAMAT boosts photonics and chip goals in Europe.
• Indian electronic component production value is set to increase 5x by 2030, but slow data center expansion may affect chip sales, according to Nvidia CEO. SiFive also unveils 4th-gen essential product line to drive innovation in embedded applications.

• Broadcom Inc. presented its second quarter fiscal year 2024 financial results, underscoring notable growth and strategic advancements, particularly through its semiconductor and software segments.
• The revenue recorded was $12.5 billion, a substantial 43% increase year-on-year, buoyed significantly by the inclusion of a full quarter’s financial contribution from VMware.
• Excluding this factor, revenue was up 12% from the previous year.

• Warner Bros. Discovery commenced the first quarter of 2024 with a focus on adjusting its operations for future sustainability in an industry marked by rapid disruption due to technological advancements.
• The company acknowledges the transformative necessities dictated by changing consumer behaviors and the technological landscape.
• On a positive note, Warner Bros. Discovery reported an encouraging increase in subscriber growth for its streaming service, Max, which saw an addition of 2 million subscribers across various regions, pushing its total Direct-to-Consumer (D2C) subscriber count towards 100 million.

• The Calix’s financial performance for the first quarter of 2024 underscores the company’s resilience amid shifting market conditions.
• Calix recorded a revenue of $226.3 million, settling within the provided guidance.
• This positioning affirms the continued relevance and efficacy of its platform, cloud, and managed services in driving its business agenda despite current industry challenges.

• The King Yuan Electronics Co, Ltd. (2449 TT) outlook for 3Q24 could see a 5-10% quarter-on-quarter growth at present.  
• NVIDIA Corp (NVDA US)  is currently the second-largest client of KYEC, and its business is rapidly expanding.
• STMicroelectronics NV (STM US) and Will Semiconductor Shan (603501 CH) are currently the third and fourth largest clients, respectively.

• On 24 June, NCSoft announced a corporate split-off of two divisions called named NC QA Company and NC IDS Company.
• NCSoft plans to hold a shareholders meeting where to vote on the split off decision on 14 August. Effective date of the company split is scheduled for 1 October 2024.
• The consensus estimates sales of 2.0 trillion won (up 19.2% YoY) and operating profit of 272 billion won (up 155.2% YoY) in 2025.

• Cover Corp, a leading talent management company in the rapidly growing VTuber industry.
• They’re considered the most prestigious agency and should attract the best talent.
• Superior Underlying Performance Metrics: Cover boasts superior key performance indicators (KPIs) compared to their main competitor Anycolor, including higher engagement metrics like subscribers, hours watched, and viewership.

• Taiwan Shares Fall With Nvidia… SK Hynix HBM DRAM with Global Unichip? Taiwan’s Vietnam Shift Continues… Broadcom Developing an AI Chip with Bytedance
• TechChain Insights: Call with Elan Micro; AI PC Significant Uptake 4Q24/1H25; Supply Chain Preparing 
• UMC (2303.TT; UMC.US): The Outlook for 3Q24 Has Reached a Slightly Upside QoQ. 

• Taiwan is utilizing AI supercomputers for medical and life science innovations, showcasing a commitment to technological advancement in those fields.
• Wistron is making a significant investment of $24.5M for a new factory in Vietnam, indicating a desire to expand production capabilities in the region for potential economic growth.
• Samsung is poised to overtake Apple in Taiwan’s mobile market by June, highlighting the company’s competitive edge and potential dominance in the industry.

• Expect Micron to report strength in AI, highlight the company’s HBM efforts, and quote McKinsey’s trillion-dollar forecast in their earnings call tomorrow
• Although Nvidia’s growth has really helped the DRAM market, along with 2023 CapEx cuts, there are important concerns of double-ordering which could lead to a collapse soon
• Semiconductor market revenues have leveled off since December 2023, hinting a return to more normal growth for the rest of the year

• Xiao-I (NASDAQ: AIXI) is leveraging its existing relationships and signing new clients at an impressive pace.
• The company has announced nearly a dozen new products or relationships utilizing its AI platforms in the past two months.
• Competition remains intense in the AI market and we think investors are questioning if Xiao-I has the financial capacity to remain competitive across multiple industries as private and public companies continue to invest heavily in its core markets.

• FormFactor delivered mixed first-quarter results for the fiscal year 2024, with its revenue closely aligning with the upper end of forecasts due to robust demand in the DRAM probe card sector, corroborated by significant advancements in setting standards for testing high-bandwidth memory (HBM).
• However, the company encountered challenges as non-GAAP earnings per share (EPS) dipped below the anticipated range primarily due to a less favorable product mix across its segments and heightened warranty costs in the Probe Cards segment.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Celestica launched the first quarter of 2023 on a robust note, demonstrating a significant enhancement in its financial metrics and strategic position.
• The firm reported revenues of $2.21 billion, surpassing their high-end guidance and representing a year-over-year increase of 20%.
• Notably, the adjusted earnings per share (EPS) reached $0.86, exceeding expectations by $0.39 compared to the prior year period.

• CarGurus Inc. recently disclosed its first-quarter 2024 financial results, presenting a mixed outcome with several highlights and areas of concern.
• In terms of positives, the company reported an increase in non-GAAP consolidated adjusted EBITDA by 24% year-over-year, marking the highest first-quarter EBITDA margin in three years.
• This growth was primarily fueled by a continued expansion in the subscription base and revenue generated from its Marketplace business, which witnessed an acceleration of 12% year-over-year growth in revenue.

• Belden Inc., a global leader in signal transmission solutions, reported their first quarter 2024 financial results, demonstrating a performance that exceeded expectations amidst a challenging market environment.
• Revenue for the quarter stood at $536 million with earnings per share (EPS) of $1.24, surpassing the high end of their guidance.
• This achievement was undergirded by a sequential increase in orders by 5%, resulting in a book-to-bill ratio of 1.03, suggesting a shift toward more stable conditions.

• Mega cap stocks like Nvidia, Alphabet, and Microsoft surpass lofty market expectations, in the latest earnings season leading to continued rallies. 
• Profits from AI innovations are accumulating predominantly at the bottom of the supply chain, benefiting large hardware and cloud service providers. 
• Smaller tech companies, including Salesforce, MongoDB, and Dell, have experienced sharp corrections due to lofty expectations and their limited capacity to generate significant AI revenue.

• Former TSMC R&D director Konrad Young advocates for a partnership between Taiwan and the UK in quantum technology.
• Chinese car brands attract young Thai consumers with innovative smart cockpit features, winning over the market.
• Xiaomi implements strategic changes in India after a decade of entering the market, adapting to new trends and demands.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Softbank Group

• While current underlying demand has yet to show signs of a strong recovery, progress has been made in inventory adjustments in the distribution supply chain, and TOREX expects a recovery in sales from the 2H of 2024, and the top priority for this term is strengthening sales expansion initiatives.
• Regarding the initial FY25/3 consolidated OP forecast, in addition to a contribution of ¥1,150mn from the +8.7% YoY increase in net sales, the decrease of ¥2,370mn in inventory write-downs in manufacturing cost of sales will drive a strong recovery in OP.
• Although capex is set to decline -31.9% YoY to ¥3,600mn (mainly for equipment being installed in the new Phenitec Kagoshima Fab clean room), having peaked out last term, depreciation will increase +27.7% YoY to ¥3,000mn as the new clean room has started operations. 

• Aviat Networks has successfully turned around its business in the telecom equipment sector despite challenges
• The company has outperformed larger competitors by focusing on execution during the COVID boom-bust cycle
• Despite investor caution due to competitive landscape and poor sector valuations, Aviat Networks’ fundamentals are strong and outpacing its stock performance, positioning it well for future growth

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• TSMC: +16.1% Premium, After Sharp Drop, Will Be Interesting to See If Spread Will Remain Within the Recent ~15-25% Range
• ASE: +7.4% Premium; Can Consider Going Long the Spread Given Recent Trading Range
• ChipMOS: -2.4% Discount Repesents Extreme Low of End of Range; Can Consider Going Long the Spread

• Erajaya Swasembada (ERAA IJ) is back on track with its handset business, with stronger volume growth driven by more affordable models from Infinix and Techno brands.
• The company’s buildout of its electrical retailer Erablue, a JV with Mobile World, is gaining momentum and should become a significant growth driver along with Grand Lucky supermarket.
• Erajaya will slow its store buildout this year as it focuses on productivity ny it still expected to add 200 new stores over in Indonesia. Valuation is attractive.

• I tally 48  – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals discussed this week: the Capitol Health (CAJ AU) / Integral Diagnostics (IDX AU) merger; and Infocom Corp (4348 JP)‘s Tender Offer.
• Key updates took place on: MMA Offshore (MRM AU), L’Occitane (973 HK), Mimasu Semiconductor Industry (8155 JP), Tatsuta Electric Wire & Cable (5809 JP), and Great Eastern Holdings (GE SP).

• Never a pioneer, instead a perfectionist in delivering mind bending experience. That’s what Apple has stood for traditionally. Can it repeat the act in the Gen AI era? 
• Siri to have advanced language comprehension and Writing Tools to deliver useful features to drive convenience and productivity. 
• Private Cloud Compute ensures user data remains encrypted and secure. Reflects Apple’s commitment to privacy amidst growing concerns surrounding data misuse.

• We presume Silergy is likely to see demand recovery or inventory rebuilding starting from 2Q24.
• Silergy’s wafer demand is projected to increase by 30-40% QoQ from 2Q24 onwards.  
• Silergy’s primary focus remains on China, Taiwan, and Korea, but the US market is promising for potential growth.  

• United Microelectron Sp Adr (UMC US) 3Q24 outlook could be showing a slightly upside quarter over quarter and the gross margin is approaching to ~30%.
• We estimate that UMC’s overall utilization in 3Q24 will be around 65-70%, with 12” at 70-75% and 8” at 60%.
• UMC is benefiting from Novatek shipping OLED DDIC to Apple (AAPL US) in 3Q24.

• We expect Novatek Microelectronics Corp (3034 TT) to achieve approximately a 5% QoQ growth in revenue and relatively flat gross margin (GM) QoQ in 3Q24.
• Semiconductor Manufacturing International Corp (SMIC) (981 HK) and HLMC are capable of producing DDICs at 40nm and below.
• Novatek is experiencing a decline in demand for 55nm Touch with Display Driver (TDDI) in 3Q24.

• On June 24, Crowdstrike Holdings (CRWD US) will officially join the S&P 500, which follows strong financial results and guidance. Investors anticipated this inclusion, driven by improved profitability and operational efficiency.
• The volume traded has so far been on average 2x the 3-month daily average prior to the news. The enduring effect will be on liquidity (hedging basket for index exposure).
• CrowdStrike’s inclusion in the S&P 500 index increases the representation of pure cybersecurity stocks. Median IBES consensus PT is $400 (7.5% upside).

• Tianju Dihe Technology, a provider of integrated API-enabled data exchange services in China, set terms for an IPO and plans to raise ~HK$400M in June.
• The initial public offering is expected to be priced at HK$83.33 per H share, valuing the technology company at ~HK$4.2B or $535M based on 50.1M outstanding shares.  
• Cornerstone investors have agreed to acquire ~3.8M H shares, representing 80% of the offer shares or ~8% of the total outstanding shares.

• BCG is the leading online classified group in the Baltics with 14 portals across three countries
• Management team focused on improving monetization for high revenue growth
• Expected significant value per share growth with exposure to high-growth Baltic markets and plans to increase take-rates, presenting an intriguing opportunity for investors

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• Not much has changed since our latest Int’l Compass from May 31, 2024 titled “Buy the Pullback.” 
• We were buyers of the pullback in global equities (MSCI ACWI, ACWI ex-US, EAFE, EM, Europe, Japan, Taiwan, etc.) with important supports holding, combined with ongoing healthy market dynamics.
• Supports are holding, and our bullish outlook (since early-November 2023) remains intact. Continue to buy dips.

• Shin Etsu Chemical (4063 JP), owner of a 44% stake in Mimasu Semiconductor Industry (8155 JP), will launch the TOB to buy out Mimasu minority holders, as pre-announced 2mos ago.
• Not surprising. They bought in 19yrs ago, raised to 40+% 18yrs ago, then waited. Finally, we have a deal. It’s too cheap but in 18yrs, I recall zero activism here.
• Shin-Etsu starts with ~45%, and crossholders and the chairman get it to 53%. Then they need a bit to get them to 67% but it should be straightforward.

• SenseTime Group (20 HK)  aims to raise up to US$263m via selling around 4.5% stake.
• Sensetime hasn’t had the best of times since listing, however, the shares have rebounded recently on generative AI buzz around the stock.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Mimasu Semiconductor Industry (8155 JP) notes that the pre-condition for Shin Etsu Chemical (4063 JP)’s JPY3,700 tender offer has been satisfied. The tender runs from 21 June to 5 August.
• The share price has traded at or above the offer on 15 out of 38 trading days, partly due to expectations of a counteroffer. 
• While the offer is below the midpoint of the IFA DCF valuation range, it represents an all-time high. The lack of activists or competing offers suggests a done deal.

• On the 18th June, personal computer (PC) parts and accessories play PC Partner (1263 HK) announced a profit alert for 1H24. 
• That’s positive. What is also interesting is that the board is considering an SGX listing, by way of introduction, and applying for the withdrawal of the HKEx listing.
• Precedents are thin on the ground. And for good reason. The process is not straightforward.

• We hosted a conference call with Elan Microelectronics management; We view the company as a Structural Long position for the AI PC upgrade cycle.
• From the company’s perspective, significant impact from AI PC demand will come but not until 4Q24E or 1H25E. However, supply chain excess inventory improved and prepping for upcycle.
• An estimated 90% of AI PC models launched at CES 2024 use Elan’s products in their design; Elan well positioned for the upcycle and entrenching its position. Maintain Structural Long.

• Approaching a transformational phase – MIXI Inc. is a digital content company generating earnings from its ‘MONSTER STRIKE’ mobile gaming franchise.
• Operating in a mature domestic gaming market, the company has successfully diversified into lifestyle and sports, but to date has experienced limited earnings contribution.
• We believe this is about to change, driven by the new monetization strategy for the ‘FamilyAlbum’ video and photo- sharing service app in FY3/25. 

• TYC Brother Industrial is set to dominate the NEV market with a US plant scheduled to be operational by the first quarter of 2025.
• Despite sanctions, a Russian company has introduced the MP21 SBC to rival the Raspberry Pi 5, showcasing the competitiveness of the technology market.
• Cerebras and Dell have joined forces to challenge Nvidia in the AI market, highlighting the growth of AI accelerator technology for servers. Taiwan’s carbon market is advancing with new initiatives and regulations, while the UK collaborates with Taiwan to lead in semiconductors at Semi-Impact forum. India is ramping up cobalt supply efforts to meet growing demand.

• Perfect Corp. provides an AI and machine learning based B2B SaaS platform for virtual try on and marketing of beauty and fashion products as well as six mobile apps sold B2C for makeup suggestions, try-on, tutorials, photo and video editing and most recently, Gen AI creation and editing.
• It is expanding its offering to new verticals and has strong IP as well as the largest database for AI training in the industry.
• It has a dominant market share and serves almost all the major beauty brands worldwide.

• Apple announced Apple intelligence, integrating AI in a feature-centric way for on-device use
• The approach focused on useful features rather than spotlighting AI technology
• Apple’s implementation of AI on iPhone 15 Pro and newer devices showcases their focus on personal intelligence and user-centric design

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• Fujitsu launches GenAI platform for advanced AI capabilities, enhancing customization options for users.
• CuspAI receives US$30M funding, partners with Geoffrey Hinton to address climate change using advanced materials.
• Global IC fab capacity expected to grow by 6% in 2024 and 7% in 2025, with Taiwan playing a key role in AI innovation.

• Money Forward’s share price has declined by around 16% since reporting Q1 results.
• The company will report Q2 results in early July. We expect continued solid momentum
• We believe the stock price has around 30% upside potential to our target price of ¥6,600

• Black Sesame Technologies (BLACKSES HK) is looking to raise around US$300m in its upcoming Hong Kong IPO.
• Black Sesame International Holdings (BSIH) is an automotive-grade computing SoC and SoC-based intelligent vehicle solution provider.
• In our previous note we looked at the company’s past performance. In this note, we discuss Black Sesame’s PHIP updates.

• Power Integrations (POWI) is facing persistently low earnings quality over the past five quarters due to a channel inventory adjustment, which they claim is almost complete
• Revenues have dropped by 37% since 2021, casting doubt on whether the adjustment fully explains the decline
• Financial performance in 2024 could lead to a shift in the investment narrative towards normalized revenues below recent peaks and increased competition from Chinese semiconductor vendors, potentially affecting earnings and forward multiples

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.