TMT/Internet

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Shinko Electric Industries (6967 JP), JSR Corp (4185 JP), Lithium Power International (LPI AU), Benefit One Inc (2412 JP). 
• Lowest spreads  Tietto Minerals Ltd (TIE AU), Azure Minerals (AZS AU), IJTT Co., Ltd. (7315 JP), T&K Toka Co Ltd (4636 JP), Tokyo Rakutenchi (8842 JP), Shidax Corp (4837 JP).

• Marvell reported earnings recently, and I wanted to mention that at least before I continued onwards because that is a good context-setting event for the industry day.

• Revenue exceeded expectations, but the mix beneath the results was illustrative.

• Datacenter revenue grew 20% QoQ, cloud over 30% QoQ; while networking was strong, they guided for a 40% QoQ decline, consistent with networking OEM results.

• Overall, it was a strong week for Taiwan Tech. TSMC and Mediatek showed strong performances, as well as key names we like such as Yageo and Himax.
• AI-Related Taiwan plays showed relative weakness. This weakness interestingly happened during a week when NVIDIA Corp (NVDA US) performed well.
• According to insight provider Patrick Liao, MediaTek WiFi 7 chip competition is likely to become fierce in 2024.

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• XPER is streamlining its operations by divesting its AutoSense and image sensing product lines to strategically refocus on the burgeoning entertainment sector
• XPER is selling AutoSense and the image sensor business to Tobii for $42.7 million plus a performance fee
• XPER estimates revenue loss from the divesture would be approximately $30 million with adjusted EBITDA moving up

• The JIC Deal for Shinko Electric Industries (6967 JP) has been announced and is, as expected, trading wide. 
• There is FUD. There are Flows. Just like JSR (4185). Some of that FUD can be explained by “gap risk” on deal break…. or can it? We look at risks.
• There’s more positioning risk than fundamental risk at this point. And the FUD and Flows have specific timing in this case which makes thing different than JSR. Worth thinking about.

• There have been several developments in the Southeast Asian e-commerce space over the past few days that we believe will have a negative impact on Sea (SE US)’s financial performance.
• A few days ago, TikTok, owned by ByteDance (1439927D CH), announced a $1.5bn investment in Tokopedia.
• Today, Nikkei reported that Alibaba (ADR) (BABA US) has infused an additional $634m into Lazada, its Southeast Asia e-commerce unit, to enhance its competitive position in the face of escalating competition.

• Zozo may lead in online fashion malls but its customer base, while young, is getting older.
• In 2020, it acquired a majority stake in Yutori, a fledgling fashion mall targeting the young, which will now list this month.
• Yutori has grown sales to ¥2.47 billion since launching five years ago. As well as Japan, it sees a major opportunity across Asia given Japanese street fashion popularity there.

• TSMC: 10.4% Premium — Decent Level to Short the Spread At
• ASE: 6.2% Premium — Wait for 5% as the Level to Go Long the Spread
• UMC: Trading at 0.8% — Wait for 1.5% or Higher

• AMD’s resurgence against a dominant Intel saw the company grow annual revenues >4x between 2017 and 2022
• FY 2023 revenue is likely to be down roughly $1 billion or ~4% YoY.
• We expect a combination of renewed Data Center market share growth plus a grand entrance into the AI acceleration segment will restart the party all over again in 2024. 

• Strong execution on multiple fronts – Q1-2 FY4/2024 results were ahead of expectations, with sales growth of 205.2% YoY and operating profit growth of 572.1% YoY.
• Whilst acquisitive growth was to be expected, HEROZ has also demonstrated 1) organic growth in its AI/DX Service with underlying sales growth of 14.6% YoY,
• 2) increased the proportion of recurring revenue to 62.4% of total sales and thereby continuing to improve earnings visibility

• Qoo10 has been quietly growing its share of the Japanese e-commerce market. 
• Despite relentless competition from the big 3, Qoo10 has managed to increase members from 10 million in 2018 to 23 million through event marketing and close attention to customer demands.
• While cosmetics and fashion are the current focus, Qoo10 is also strengthening other categories like food, stationery and electronics.

• CEO John Belizaire joined WTR’s Tim Regan and Graham Mattison to talk about Soluna’s impressive business turnaround in 2023, including the projects that are online today and their growing adjusted EBITDA contributions.
• Belizaire also talked about new projects under development, incremental revenue sources, and the company’s recently announced AI pilot at Project Dorothy
• 2023 – the turnaround of Soluna. Belizaire talked about the transformation of the company in 2023, coming from the depths of the crypto winter and regulatory delays, to bringing the company’s flagship Project Dorothy online, securing partners at the project level, and then being selected for the 166-MW Project Kati.

• 29 minutes after I published a long, musing piece on the possibilities of structure and announcement later this week, JIC and Shinko Electric announced 5 minutes before midnight.
• A warning for the future: The Nikkei and every other media outlet got the number wrong. It is NOT a total acquisition cost of “around ¥800bn”. It is under ¥700bn. 
• It IS a split deal. And if JIC won with that price, it tells you something about the state of the market and future deals in the space.

• Bloomberg reports that the Recco consortium is considering “a significantly higher” Hollysys Automation Technologies (HOLI US) offer than Ascendent’s US$26.50 binding offer.
• The Hollysys 6-K filling outlines the closing conditions – a simple majority YES vote, regulatory approvals, minimum net cash (waivable) and a 10% maximum dissent condition (waivable).  
• Recco is a committed suitor and will not easily give up. The merger agreement clauses point to a Recco offer floor of US$27.03 and a ceiling of US$30.48.

• The KRX has preliminarily approved Posco DX (022100 KS)‘s listing transfer from the KOSDAQ Market to the KOSPI Market.
• Posco DX (022100 KS) has announced that its stock will start trading on the KOSPI Market from the open on 2 January.
• We expect Temc (425040 KS) to replace Posco DX (022100 KS) in the KOSDAQ 150 Index (KOSDQ150 INDEX) at the close on 28 December.

• SSE 50 and SSE180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
• In this insight, we take a look at our expectations for potential index changes for SSE 50 and SSE 180 during the June 2024 index rebal event.
• There could be five changes for the SSE 50 index and 18 changes for the SSE 180 index in June 2024.

• Takachiho Koheki is a trading company highly specialized in electronics technology, introducing the world’s cutting-edge electronics products to Japan ahead of competitors, positioned as a specialized technical group with engineering employees accounting for 42.2% of its workforce.
• The company’s electronics products and IT solution services help solve modern social issues of great concern such as crime control and prevention, labor shortages and labor savings, and climate change and disasters.
• In 1H FY24/3, the company reported consolidated net sales of ¥12,729 mn (+14.5% YoY), operating profit of ¥713 mn (+22.2% YoY), ordinary profit of ¥1,057 mn (+18.2% YoY), and profit attributable to owners of parent (hereinafter, net profit) of ¥717 mn (+9.2% YoY).

• A Nikkei article today suggested that Fujitsu had granted preferential negotiating rights to buy Shinko Electric Industries (6967 JP) to a JIC-led consortium (including DNP and Mitsui Chem) for ~¥800bn.
• This happened late in the afternoon session. Shares spiked 5+%, then were halted. A gray market ensued. 
• A Bloomberg article provided more info, and the same info nuanced slightly differently. The wording in yet other articles was interesting enough that it is worth discussing. 

• After months of speculation, Shinko Electric Industries (6967 JP) has recommended the JIC alliance’s preconditional tender offer of JPY5,920 per share, an 18.9% premium to the undisturbed price (31 May). 
• The pre-condition relates to regulatory approvals in Japan, China, Korea, and possibly Vietnam. The offeror may waive the pre-condition. The offer is long-dated and expected to start in August 2024.
• The minimum acceptance condition requires a 33.3% minority acceptance rate. Despite the low 7.1% premium to the last close, the offer resulted from a competing bidding process. 

• Hollysys Automation Technologies (HOLI US)‘s board persistent stonewalling was effectively terminated after the its court injunction was dismissed last month. An SGM will now take place sometime next month.  
• A firm merger agreement was expected this month, and Hollysys announced yesterday Ascendent Capital has emerged as the preferred suitor with a (revised) US$26.50/share Offer. 
• This looks to be (finally) all stitched up. Trading wide-ish to terms. Get involved. 

• Money Forward’s stock price has declined by 2% YTD versus a 23% gain for the overall market. Technically, the stock is approaching oversold levels
• We see 38% upside for Money Forward’s stock price. At 5.5x EV/revenue, the stock is trading at a 50% discount to global peer, Intuit
• We believe that investors are under pricing the size of the Japanese market for cloud accounting and operating leverage from penetration into mid-cap corporate market

• Revenue for November 2023 was NT$206.03 billion, a decrease of 15.3% MoM, and down 7.5% compared to the year ago period.
• Based on the guided midpoint, December revenue will show a further 20% MoM decline
• We estimate FY2023 revenues of $68.8 billion, down 9.4% YoY. 

• China announced game approval for November batch. The number of games approved is in-line with the pace of approval in recent months.
• The Pace of China game approval stays flattish, at a much slower pace than pre-tightening.
• Netease scored one approval while Tencent has been zeroed for five rounds.

• The WiFi technology was dominated by Broadcom Corp Cl A (BRCM US), but Mediatek Inc (2454 TT) has to break into the PC and smartphone markets in 2024F.
• There are speculations that Apple might use MediaTek’s WiFi 7 solution in 2024F or consider MediaTek as a potential chip provider.
• MediaTek will be using 6nm technology for WiFi 7, replacing the current 28nm technology used for WiFi 6.

Nano Dimension reported Q323 year-on-year revenue growth of 21.6%, an adjusted gross margin of 48.0% (+20.4pp y-o-y) and an adjusted EBITDA loss of $30.1m. Despite the Israeli/Palestinian conflict, Nano Dimension maintains its outlook for FY23 and has launched an initiative to improve company profitability. It has also made improvements to corporate governance. With a substantial net cash balance and a material stake in Stratasys, the company is focused on optimising capital allocation, balancing M&A, share buybacks and investment in R&D.

Vection Technologies’ Q124 and AGM update shows continued top-line momentum driven by an established partner strategy. Now embedded with leading players across diverse verticals, management sees an opportunity to convert low-margin, one-off transactions into large, multi-year contracts in FY24. Expanding use cases and commercialisation is driving rapid market growth, underpinning secular tailwinds. To bolster its outlook, the company introduced several efficiency measures in the period, which it expects to enhance margins and cash flows more visibly in H2.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• The key stocks mentioned in this regular insight are China HK Power (931 HK)and Meitu Inc (1357 HK)

• In 1HFY23, a weak JPY – with it having depreciated from JPY132 to JPY149 to the USD – has actively supported the group’s valuation, contributing 12% to SoftBank group’s NAV
• The BoJ is looking to tighten monetary policy, whilst all other major central banks are set to cut rates; under this scenario, it is likely for the JPY to strengthen
• Softbank shares trade at a 51%+ stated NAV discount yet we believe that there is downside risk to at least Arm’s high valuations, which could tighten the discount significantly

• Hollysys Automation Technologies (HOLI US) has agreed to be acquired by Ascendent Capital, the largest shareholder, for US$26.50, a 16.7% premium to the last close.   
• The Board’s claims of realising the highest shareholder value are not credible. The Board fails to explain why Ascendent’s offer is superior to Recco’s, although both have the same value.
• Deal fatigue (the process first started in December 2020) and the 42% premium to the undisturbed price suggests meeting the simple majority threshold for a statutory merger is achievable.

• Multiple signs are flashing that the reset phase of the silicon cycle is beginning to rebound.
• On November 28, WSTS (World Semiconductor Trade Statistics) announced its Fall forecast for 2023 and 2024, marking the first upward revision in the current down cycle, revising up both 2023 to a single-digit decline, and revising up 2024 growth to +13.1%, due to better-than-expected demand in Apr-Jun and Jul-Sep.
• Quarterly worldwide billings data shows the YoY percentage decline marked the bottom in Jan- Mar at -21.3% YoY, shrinking to only -4.5% in the Jul-Sep quarter. 

• News came out today that Hollysys (HOLI) is being acquired by Ascendant for $26.5/share . So I sold my shares for $24.74 today.
• And closing this at $24.88. Only a 7% spread, and there could be some delays before this closes.
• Was a nice trade and a 43% gain since dedicating a full write-up to it in July this year.

• Among priority measures for FY24/9, JBS management is particularly focused on rolling out global licensing business for major enterprise customers, as well as strengthening cloud AI proposal capabilities.
• The strategic business alliance concluded with Crayon Group at the end of August enables JBS to offer global support services to customers outside the coverage of JBS overseas offices.
• The two partners will also collaborate on developing AI and security solutions mainly for Microsoft Products.

• There are no constituent changes for the VanEck Vectors Semiconductor (SMH US) in December but there are a lot of float and capping changes.
• Taiwan Semiconductor (TSMC) – ADR (TSM US) is the biggest sell while NVIDIA Corp (NVDA US) is the biggest buy.
• Estimated one-way turnover is 6.6% resulting in a one-way trade of US$682m. Couple of stocks have greater than 0.2x ADV to trade.

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• There were a lot of rebalance implementations in China on Friday, plus a few upcoming index changes that were announced during the week.
• There are a lot of implementations this week, with KOSPI 200 and KOSDAQ 150 on Thursday and then others across a bunch of countries on Friday.
• There were big inflows to Tracker Fund of Hong Kong (2800 HK) during the week taking units outstanding to a new high. ETF inflows continue even as the market drops.

• I tally 42 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deals discussed this week: WashSoul‘s tilt for Perpetual (PPT AU); CPMC (906 HK)‘s SASAC Offer; Weiqiao Textile  (2698 HK)‘s Offer; and Tokyo Rakutenchi (8842 JP)‘s Tender Offer.
• Key updates took place on: Origin Energy (ORG AU), Healius (HLS AU), Toyo Construction (1890 JP), Eoflow (294090 KS), and Chindata Group (CD US).

• On December 8th, GUC reached its daily limit at the closing price, but the company did not consistently demonstrate an agreeable attitude.
• The “AI” is an explicit knowledge for today, while GUC is a company of project based. 
• GUC’s monthly revenue decreased by 22.15% YoY in November 2023.

• In this report, we review our IPO investment research in 2023, including the performance of our calls.
• The accuracy rate of our calls on IPOs this year was 76% (16 calls right, 5 calls wrong), slightly below our average accurate rate of 77% from 2017 to 2022.
• The average accuracy rate of our calls from 2017 to 2023 is 77%. We made 42 investment calls in 2020, 37 in 2021, 19 in 2022, and 21 in 2023.

• ~$900 million supercomputer deal is off the charts compared to all previous deals
• Without the deal, Cerebras would likely soon have run out of cash. With the deal, Cerebras is effectively working as a supercomputer contractor for G42 for the next several years
• Three supercomputers to be built in the US, we suspect the remaining six to be built in the UAE. That’s likely to raise some eyebrows. 

MGI – Media and Games Invest (MGI) continues to steadily gain market share in a difficult trading environment. It is the leading mobile open web supply-side platform on both Android and iOS in North America, and second on Android and fifth on iOS in EMEA. Q323 organic net revenue was 1% up on Q322, with early benefits from the €10m annualised cost savings plan helping to lift the adjusted EBITDA margin to 29% (Q322: 26%). The fundamentals for MGI are positive, with its vertical integration giving an efficient market proposition and earlier acquisitions providing a sound basis for its connected TV offering. The withdrawal of personal identifiers on Google should give further impetus, which we feel is not yet reflected in the rating.

• NTGR has brought back the goal of achieving double digit operating margin after three years of underperformance while turning the business around.
• Unlike prior years where NTGR was relying on unit volume growth to drive operating leverage, NTGR now has a growing base of subscription revenue that is contributing to earnings
• NTGR’s annual investor day highlighted the expectation of exiting 2023 with annual recurring revenue (“ARR”) of $40 million and $50 million in 2024