TMT/Internet

• The Sep 23 review results for the Hang Seng Tech Index were announced on Friday 18 August after the close.
• East Buy Holding (1797 HK) (formerly Koolearn) was an ADD. AAC Technologies Holdings (2018 HK) is a DELETE. 
• AAC is a significant flow event, and worth looking at. There are a few odds and ends too.

• We have seen a general easing in ADR premiums since end-July, coming down as global markets have fallen.
• TSMC’s premium is easing down from the highs of June.
• UMC and ChipMos ADR discounts appear to be bottoming given their historical range.

• The TSE and Government are pressuring low-PBR companies to DO SOMETHING to raise their PBR to >1.0x. The easiest way to do that is raise ROE.
• Raising R requires customers “agree” (buying more, paying a higher price, etc). Lowering E means buying back shares or paying big special dividends. That’s easier for a company.
• So buybacks have been increasing in number, and breadth, and to some degree in size. This insight describes the mechanics/details of how buybacks work in Japan.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• The IPO space saw a few pops this week, some were somewhat justifiable in SBFC Finance Limited and Concord Biotech while one was reminisent of the 2020-21 frenzy,  Vinfast. 
• In the placement space, the selldown for InterGlobe Aviation Ltd (INDIGO IN) materialised as expected but despite that the deal didn’t do much.

• BILI reported 2Q23 top-line in-line and non-GAAP net profit 7% better than consensus.  However, gaming revenue was weak, causing BILI to revise down its full-year revenue guidance.
• We believe e-commerce ads could become a new near-term driving force, but the rapid growth of game-related ads might fade post-Q3. 
• Also, the significant consolidation of ACG games could affect BILI’s future game performance. We maintain our US$ 12.3 TP and SELL rating.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Sino-Ocean Group
2. Adani Ports & Special Economic Zone
3. Road King Infrastructure
4. China Jinmao Holdings
5. Geely Auto

and more…

• Airalo, an e-SIM marketplace, has secured US$60 million in a Series B investment round from a clutch of investors, its Co-Founder Ahmet Bahadir Ozdemir said in a LinkedIn post.
• The investors participating in the round are Etisalat’s e& capital, Liberty Global, Singtel Innov8, Orange Ventures, Deutsche Telekom’s T.Capital, KPN Ventures, and Telefonica.
• Existing investors Antler, Rakuten Ventures, Peak XV Partners’s Surge, and I2BF Global Ventures also joined.

• Indosat (ISAT IJ) 2Q2023 saw the benefit of surging seasonal demand driving data usage coupled with its stronger network post the 3 integration. 
• The company saw a further increase in subscribers in 2Q2023 to over 100m, along with higher ARPUs, which rose by +8.6% YoY in 2Q2023 helping to improve returns.
• Indosat (ISAT IJ) continues to invest in maintaining the quality of its network as well as offering new value-added products to customers, boosting retention and profitability.

• MaxLinear’s acquisition of Silicon Motion has been abandoned, with both sides threatening arbitration. 
• It is difficult to understand why the acquisition would have resulted in the synergies projected by management.  The businesses are very different.
• Assuming the companies go different ways, expect for SiMo to perform as it has in the past.

• ADP delivered an all-around beat in the previous quarter.
• The HCM demand environment remained healthy, and the company’s worldwide sales and marketing team delivered exceptional results, exceeding expectations with double-digit overall growth in Employer Services and new business Bookings.
• With a focus on innovation, client service, and expanding its reach, ADP aims to capitalize on the growth opportunities in the HCM industry.

• STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
• Recently, I discussed the historical price and volume performance of STAR 50 rebalance events in Quiddity Primer for STAR 50 Index Rebalance Events. 
• In this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the December 2023 Rebalance event.

• Sea (SE US) 2Q2023 results reflected some underlying slowdown but beneath the surface, the company’s core marketplace business saw accelerated growth, as it stepped up investment, and margins improved concurrently. 
• The company invested in live streaming, bringing on 1m influencers in 2Q2023, likely stemming the impact of TikTok. The gaming business showed meaningful signs of recovery QoQ in 2Q2023.
• Sea (SE US) grew its cash reserves in 2Q2023 to US$7.7bn signifying the success of its business model. The short-term sell-off looks overdone possibly triggered by talk of quarterly losses.

• Back on the 13 June, cybersecurity firm Tesserent Ltd (TNT AU) announced a Scheme with France’s Thales SA (HO FP). Thales is offering A$0.13/share, a 165% premium to last close. 
• The Scheme Doc has been despatched with Tesserent shareholders voting on the 18 September. Tesserent’s board (holding 9.23%) and the IE are supportive. Implementation expected on the 4 October.
• The Offer is also subject to FIRB signing off. New Zealand’s OIO gave the green light on the 18 July.

• State investors including China’s biggest government-backed chip investment fund agreed to pour 12.6 billion yuan ($1.7 billion) into a wafer production project in Shenzhen as the country strives to boost its domestic chipmaking capacity.

• Shanghai-listed China Resources Microelectronics Ltd. (CR Micro) said in an exchange filing Tuesday that its board has approved a plan for its Shenzhen subsidiary Runpeng Semiconductors to sell shares to several investors.

• The deal, still pending approval by shareholders, will expand Runpeng’s registered capital from 2.4 billion yuan to 15 billion yuan, with a capital injection from the National Integrated Circuit Industry Investment Fund Co. Ltd., known as the “Big Fund,” and four other government-backed investment funds.

• The growth rate of advertising revenue rose to 36% YoY in 2Q23 from 22% YoY in 1Q23.
• Bilibili continued to cut costs and expenses by dismissing employees in a game studio.
• The share price has fallen enough, and we believe it is time to Buy.

• Tencent reported 2Q23 revenue/non-IFRS net income (2.5%)/2.3% vs cons. Gaming was weaker than the street expected, while online advertising beat.
• We expect gaming growth will improve slightly while advertising growth will decelerate in 3Q. 
• We maintain BUY but cut TP to HK$ 402 to reflect online gaming weakness.

• BintanGo, which provides tools for digital content creators in Indonesia, has raised US$2.2 million in a seed extension round joined by Investible, Contents Technologies, and other investors.
• This brings its total funds raised to US$4.8 million so far. The startup closed a US$500,000 pre-seed round in June 2021 and a US$2.1 million seed round in April 2022.
• With the latest investment, BintanGo plans to extend its services to live commerce platforms, said CEO and co-founder Jason Lee in a statement.

CentralNic’s H123 results showed continuing revenue growth and margin expansion, with growth now being driven more organically and across both operating segments. Partnerships could be key to unlocking growth from underutilised brands, with management winning several notable deals during the period. Our operational forecasts remain unchanged, with increases in EPS and net debt reflecting the recent £30m uplift to the share buyback programme. We believe that the current rating does not reflect the company’s cash generative mode and diverse growth prospects.

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.

• Continuum Green Energy
• Lenovo

• While our outlook for Sea (SE US)‘s 2Q23 was bearish, we didn’t anticipate such a substantial price reaction post-earnings, considering the existing low consensus.
• However, the market appears to have given more importance to the revenue miss and the deterioration of fundamentals in e-commerce, as indicated by the post-earnings price reaction of -28.7%.
• Shopee’s modest profitability, restrained growth fail to warrant an EV surpassing $7.0bn. The Gaming business is best valued around $3.0bn, while the Fintech arm should be valued at around $5.0bn.

• Sea reported CY2Q23 top-line that missed consensus by 3.4%, while non-GAAP net income beat  by 16%. Sea guided for the net margin to turn negative again in future quarters.
• We see deterioration of Sea’s competitive landscape as a long-term trend, hence we cut TP to US$35. The next swing factor is Temu’s ASEAN launch.
• Yet, we need to remind investors that Sea’s 3Q earning might have some upside, including user growth of Shopee, as well as stabilization of gaming metrics.

• Splitit Ltd (SPT AU) will seek approval from shareholders to delist the Buy Now, Pay Later micro-play from the ASX and redomicile to the Cayman Islands.
• Concurrent with the voluntary delisting proposal, PE outfit Motive Partners will pump in US$50mn in exchange for preference shares – assuming the delisting occurs and certain earnings targets are met. 
• This is not an Offer for shares. If delisted, Splitit shareholders will hold scrip in an unlisted private vehicle. 

• Alibaba Group Holding Ltd.’s workplace collaboration platform DingTalk will split from the company’s cloud division and pursue its own IPO, a source familiar with the matter told Caixin, as the tech giant ramps up efforts to unlock growth following its major restructuring.
• DingTalk’s separation is expected to be completed before the Alibaba cloud unit’s own IPO, the source close to the e-commerce firm said.
• Alibaba announced in May that it would spin off its Cloud Intelligence Group via a stock dividend distribution to its shareholders over the next year with an eventual listing.

• In 2Q23, online advertising and FinTech revenues continued to grow rapidly.
• Game revenue was slow, but two existing games were still at the top of the game market.
• The operating margin improve significantly, benefiting from the layoff last year.

• Tesserent Ltd (TNT AU)‘s IE considers Thales SA (HO FP)’s A$0.13 offer fair and reasonable as it is above its valuation range of A$0.098 to A$0.109 per share. 
• The offer is subject to FIRB and shareholder approval. New Zealand’s OIO approval suggests that Australia’s FIRB approval should be forthcoming. Pearson’s recent selldown lowers the vote risk.
• At the last close price and for the 4 October payment, the gross and annualised spread is 4.0% and 32.0%, respectively.

• Tower to collect a cool $353 million termination fee from Intel
• Intel claims its foundry ambition to become the global #2 by end of the decade remains unchanged
• The key thing Intel needed from Tower was access to its broad, diverse portfolio of specialty process technologies. These will take Intel years to develop on their own.  

• Tencent (700 HK) reported 2Q2023 results today. Revenue grew 11.3% YoY to RMB149.2bn (vs consensus RMB151.1bn) while reported OP increased 34% YoY to RMB40.3bn (vs consensus RMB44.6bn).
• Rapid growth in ad business, video account monetisation and cost controls have contributed to Tencent’s 2Q2023 earnings despite domestic gaming business has slowed down.
• Though Tencent’s 2Q2023 results show a recovery in earnings, we would interpret the company’s earnings with caution given the slowdown in domestic gaming and social networks businesses.

• SSE 50 and SSE180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on Shanghai Stock Exchange. 
• Earlier this month, I discussed the historical price and volume performance of SSE 50 and SSE 180 Rebalance events in Quiddity Primer for SSE 50/180/380 Index Rebalance Events. 
• In this insight, we take a look at our expectations for potential index changes for SSE 50 and SSE 180 during the December 2023 Rebalance event.

• Omron’s stock price has collapsed 20% after missing Q1 earnings estimates. 
• The recovery in demand has been pushed back – the company may cut its full year guidance at the interim stage
• On near-term earnings, the stock is around fair value. There is +20% upside for longer-term investors based on our DCF 

• PayPal managed to surpass the revenue and earnings expectations of Wall Street.
• The company’s strategic priorities, including branded checkout, merchant solutions, and digital wallets, drive innovation and growth, supported by AI and data utilization investments.
• In addition, PayPal introduced the development of a stablecoin pegged to the U.S. dollar called PayPal USD.

• Qualcomm delivered a mixed result in the recent quarter, with revenues below market expectations, but it managed to surpass the analyst consensus in terms of earnings.
• Its chipset and licensing business’s strong performance supported the company’s revenues.
• Qualcomm’s success in delivering premium mobile experiences, advancing 5G adoption, and expanding its presence in areas like automotive and IoT underscores its commitment to innovation and market leadership.

• IMMR reported second quarter results where the income from the Company’s securities portfolio led to earnings exceeding our expectations. 
• IMMR’s revenue declined more than expected as softer unit volumes resulted in lower royalty revenue. We would expect a recovery in smartphone units to result in higher revenue in 2024
• The utilization of haptics within automobiles remains the most promising source of revenue growth for IMMR. The market is broadening to lower priced models

• Shopify Inc. managed to exceed analyst expectations in terms of revenue as well as earnings with strong financial results.
• The company’s focus on improving the merchant experience, including pricing changes and innovative product offerings, contributed to strong top-line growth and attachment rates across the Merchant Solutions product suite.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Fidelity National Information Services exceeded Wall Street’s revenue and earnings expectations in the last quarter.
• In the quarter, revenue, adjusted EBITDA, and adjusted EPS exceeded expectations, driven by strong execution across their three business divisions and a continued emphasis on expenditure restraint.
• Fidelity National Information is seeing strong traction, with increased penetration in atypical sectors like large corporates, insurance, and auto loan organizations.

• Cognizant Technology Solutions managed to exceed the revenue expectations as well as the earnings expectations of Wall Street.
• The company exceeded expectations in the second quarter for adjusted operating margins and revenue at the high end of its target range.
• We give Cognizant Technology Solutions Corporation a ‘Hold’ rating with a revised target price.

• Due to decades of underinvestment, North American infrastructure has aged and deteriorated significantly to a point where governments are beginning to rapidly increase spending in the sector.
• The declining stability of the electrical grid as well as electrification trends only exacerbate the issues at hand.
• This report highlights five small-cap Canadian equities with torque to thematic trends in infrastructure spending. 

• Strong Q2 results with revenue +42% yoy versus +33% in Q1
• Gross margin expansion to 51.3% on improving AI algorithm performance
• Stock down around 20% over past couple of months, No change to bullish growth forecasts.

• Sindoh Co Ltd (029530 KS) is the 24th company in our Korea Small Cap Gems series. 
• Sindoh has one of the highest net cash/market cap ratios in the entire Korean stock market. Net cash at end of 1Q 2023 was 226% of its market cap. 
• Sindoh’s operations turned around in 1Q 2023. It had sales of 105.5 billion won (up 26.6% YoY) and operating profit of 9.8 billion won (turned black) in 1Q 2023.

• We remain bearish on Sea (SE US) leading upto Q2 results on 15th August 2023.
• Our analysis suggests Sea Ltd could hit around $3.25bn revenue in 2Q23, in line with consensus. However, profitability could fall short of consensus expectations.
• Nonetheless, any downside stemming from a minor earnings shortfall could be rather limited given the existing low consensus and the lackluster price performance leading up to the Q2 earnings announcement.

• Samsung SDI is currently facing legal challenges in the United States stemming from a scooter fire during charging and a separate incident involving a lithium-ion battery fire. 
• These incidents are part of a series of recurring battery fire controversies involving Samsung SDI dating back to 2016. 
• Notably, the ESG (Environmental, Social, and Governance) risk level for Samsung SDI has been assessed as ‘High,’ supported by an ESG risk score of 2.7.

We view Lenovo as “Low Risk” on the LARA scale, mainly due to the business’ large size, track record and strong balance sheet. Lenovo is the world’s largest PC maker, with the PC segment being the company’s key profit centre. The Mobile segment has been scaled back to certain markets, and has turned profitable. The Data Centre/Server business is promising and has grown impressively, albeit still suffering losses.

Negatively, all three of the company’s market segments are becoming commoditised. The PC markets, having previously experienced a structural decline due to changes in user behaviour as well as substitutes (smartphones and tablets), has enjoyed strong demand as more people have been working from home amid the pandemic.

Our Credit Bias on Lenovo remains “Stable”, as the growth outlook is subdued due to weak post-COVID-19 PC demand. We do not expect the credit to improve further. That said, the strong balance sheet, sound liquidity and solid working-capital management would cushion Lenovo from the PC segment’s inventory adjustment period.

Controversies are “Immaterial” and the ESG Impact on Credit is “Moderately Positive”. ESG-compliant funds may find Lenovo attractive due to its strong ESG. The company has done very well in terms of environmental factors, with a strong management team as well as a long and positive track record. Lenovo is mainly exposed to geopolitical risk, albeit it has managed this very well amid the US-China trade war.

• Hon Hai beat expecations by nearly 30% but reduced 2023E sales guidance. However, the company’s AI server business is expected to take market share and its EV business is developing.
• Asustek management provided some clarity on when AI PCs might turn from dream into reality — 3Q24E is when the company believes they will contribute significantly to sales volume.
• Himax reported some improvement in demand from China beleaguered automotive industry and said it expects its dominant global market position for automotive display drivers to continue.

• Freee reported 4QFY06/23 results today. Revenue increased 39.6% YoY to ¥5.4bn (vs consensus ¥5.32bn) while operating losses increased to ¥3.0bn from ¥724m in 4QFY06/2022 (vs consensus ¥2.5bn).
• Freee KK (4478 JP) ’s full-year revenues and operating losses were in line with the company’s guidance, and increased losses were due to investments related to growth and customer acquisition.
• The company’s medium-term plan expects revenues of more than ¥50.0bn by FY06/2027E and operating profits by FY06/2025E which seems attainable to us.

• KLA Corporation delivered a positive result and managed an all-around beat in the last quarter.
• KLA demonstrated consistent execution amid a competitive market by delivering results at the upper end of the guidance and commitment range.
• We give KLA Corporation a ‘Hold rating with a revised target price.

• Hon Hai’s 2Q23 results beat earnings street expectations by nearly 30%, thanks to AI server demand and gross margin rising.
• Tightening China tech restrictions highlight Hon Hai’s advantageous position for EV development.
• Structural Long. Any weakness over worries about Apple/consumer products demand is an opportunity to accumulate. Investors shouldn’t let cyclical expectations fluctuations blur their focus on Hon Hai’s structural story.

• SMIC reported C2Q23 top-line, EBIT, and non-IFRS net profit in-line, (10%), and (20%) vs. our est., and in-line, (35%), and (8%) vs. cons., respectively.
• SMIC guided 3Q revenues up 3-5% QoQ, but gross profit flattish QoQ. This suggests SMIC is shipping 8” wafers with low, or negative profit per wafer.
• We maintain BUY on Huawei exposure but cut our TP to HK$ 24 to reflect the low profitability of 8” wafer orders that could persist given weak demand.

• Alibaba delivered a strong June quarter that beat consensus by a wide margin and across the board, showcasing an acceleration of recovery.
• The strong results were however clouded by China’s weak macro signals and investors’ lingering concern about China consumption of which Alibaba is commonly seen as a proxy.
• Alibaba trades at 9x our revised-up FY24 earnings. The most certain thing about Alibaba amidst all the uncertainties is it is getting cheaper and it is not a value trap.

• BABA reported CY2Q23 top-line and non-GAAP net profit 10% and in-line vs. our estimate, and 12% and 20% vs. consensus, respectively. Taobao/T-mall 3P, international retail, and DME beat our estimate.
• We suspect WeChat cooperation has been a main driver for increasing DAU of a cohort of previously untapped users. This also drove merchants to return to the platform.
• We maintain BUY and raise TP to US$ 120 to reflect (1) higher growth of Taobao/Tmall, and (2) improved profitability of most business groups.

• Within Alibaba (ADR) (BABA US)‘s June quarter results, the numbers from logistics arm Cainiao Smart Logistics (1437124D HK) stood out: revenue up 34% Y/Y, & EBITA turned to +ive
• In this insight we attempt to place Cainiao’s stellar results into context: it grew far faster than parent Alibaba’s revenue, but also faster than Chinese e-comm and Chinese express
• As Cainiao preps for its IPO, its June results should boost investors’ confidence. The numbers also hint at what is driving Cainiao’s recent performance, and which indicators to watch

• Back on the 7 June, Chindata Group (CD US) announced Bain Capital’s NBIO to buy all shares of the Chinese data center provider it does not already own for $8/ADS.
• On the 13 July, Chindata announced that China Merchants Capital has made an NBIO at $9.20/ADS.
• Now Chindata has entered into a definitive agreement with Chindata at US$8.60/ADS. Bain holds more than 2/3s of Chindata to vote this through. And there is no PRC regulator approval.

• Chindata Group (CD US) has entered a definite agreement with Bain Capital at US$8.60 per ADS, 7.5% higher than its previous offer of US$8.00 per ADS.
• Completion is conditional on shareholder approval, dissenting shareholders representing less than 12% of outstanding shares and any applicable regulatory approvals. The completion conditions should be met.
• CMC’s offer, while higher, does not meet the “superior proposal” criterion. At the last close price and December-end completion, the gross and annualised spread is 6.0% and 16.6%, respectively.

• The data for the Nikkei 225 Rebalance is cemented as of 31 July 2023. Lasertec Corp (6920 JP) looks like a shoo-in. The DELETEs are obvious too.
• Fast Retailing (9983 JP) doesn’t get a cap (yet). But the other ADDs are a real question. It is a matter of interpreting the methodology and qualitative aspects. And FLOAT.
• One way, Socionext (6526) and Mercari (4385) are ADDs. Another way, it looks like Nitori Holdings (9843) and ZOZO Inc (3092) or Ryohin Keikaku (7453). FLOAT IS A PROBLEM ANYWAY.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In India, TVS Supply Chain Solutions (1915741D IN) launched its IPO bookbuild. Suzlon Energy (SUEL IN) had also launched its well-flagged INR20bn (US$240m) QIP.
• While Japan saw Star Asia Investment (3468 JP) launching its primary follow-on for acquiring properties as well. 

• Asustek and Acer recently reported 2Q23 results with both companies showing a rebound in margins and normalized inventory levels. The cycle trough is clearly past.
• Asustek expects to grow its server product revenue by 500% by 2027 and is also developing AI PCs that could generate a significant sales volume by 3Q24.
• The latest results and comments not just make a coming PC up-cycle clear, but also imply that it could be stronger than previous cycles thanks to AI PCs.

• Juniper Networks delivered an all-around beat in the previous quarter, achieving total revenue growth of 13% year-over-year.
• Despite some challenges in the cloud and service provider segments due to the timing of projects and digestion of prior purchases, Juniper’s Enterprise business showed remarkable momentum, accounting for over 45% of total revenue and posting nearly 40% year-over-year growth.
• While revenue growth is expected to face some pressure soon due to macro uncertainties, Juniper remains optimistic about its long-term growth prospects, especially in the cloud and SP Metro opportunities.

• Himax reported 2Q23 results — Showing a previously-guided margin drop due to the one-off impact of the exit from long-term capacity commitments.
• Positive developments — Inventory levels improved further, China’s automotive industry demand is rebounding from lows, and the company should maintain its already-dominant market share in automotive display drivers.
• Long Himax — Himax continues to represent structural exposure to dramatically increasing display content in vehicles. The stock’s previous all-time high is double the current level.

• Roku Inc. managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• The company demonstrated growth in scale, engagement, and platform revenue.
• Roku’s TV streaming platform and its innovation and scale continue to attract users, advertisers, streaming services, and content owners.

• ARLO reported another quarter of net subscriber adds above expectations and putting the Company on a faster pace to achieve 3 million paying subscribers
• At the end of the June quarter, ARLO had annualized recurring revenue of approximately $200 million even though hardware revenue has remained at levels not seen in two years
• The recurring revenue model gave ARLO the ability to generate free cash flow in the Q2. This inflection point should solidify ARLO’s valuation on a recurring revenue basis