TMT/Internet

• My read of Bain’s Offer last month, was a tactic to flesh out a competing Offer.  It seemed unlikely Bain would get the regulatory approval to take Chindata (CD US) private. 
• Now state-backed China Merchants Capital Holdings International Ltd. has made a non-binding offer of $9.20/ADS, compared to $8/ADS from Bain.
• This Offer is indicative. But an SOE taking over data centres makes a lot of sense. 

• Ant Group Co. Ltd. has offered to buy back some shares at a whopping 70% discount to the unrealized valuation for its ill-fated IPO, shortly after regulators hit the fintech giant with an almost $1 billion fine.
• Ant Group announced Saturday that it had proposed to repurchase as much as 7.6% at a price that values the company at approximately 567 billion yuan ($78 billion).
• The offer represents a roughly 40% discount to the approximate 960 billion yuan figure achieved in Ant Group’s last fundraising round in 2018, and is around 70% cheaper than the 2.1 trillion yuan valuation touted in its planned 2020 IPO.

• On 10 July, it was reported in the Hankyung Business Daily that Posco DX (022100 KS) could switch its listing from KOSDAQ to KOSPI by the end of 2023.
• One of the key reasons for the change in the listing venue from KOSDAQ to KOSPI is that POSCO Group believes this could lead to improved valuations for the company.
• We believe the valuations of Posco DX have become too high. Therefore, we have a Negative View of Posco DX at current prices. 

• Rorze’s stock price has risen 35% since we became bullish on the stock in August
• Q1 sales and operating profits big miss versus analyst consensus due to slowing semicon capex cycle
• We would be buying into any stock weakness with an eye on recovery in 2H23 into 2024

• Fadu (440110 KS) is looking to raise up to US$147m in its Korean IPO.
• Fadu is a South Korean fabless semiconductor maker mainly engaged in flash storage technology innovation. Its core products are Enterprise Solid State Drive (SSD) and Enterprise SSDs.
• In our previous notes, we looked at the company’s past performance. In this note, we talk about peer comparison.

• NTGR has spent the last two years adjusting to a consumer spending environment post pandemic and should begin to show greater benefits of the new business strategy 
• The inventory rebalancing at NTGR’s main retailers is mostly sorted out and NTGR has been putting greater emphasis on its super premium wireless systems
• NTGR’s ability to generate free cash flow this year should improve investor sentiment in owning the stock.

• We expect that Tencent’s 2Q23’s rev./non-IFRS net income to be 0.2%/5.2% vs cons. 
• We raise Tencent’s ads growth in 2Q23 from 18.2% to 28.4% YoY per our recent checks with ads agencies. 
• There is an increasing possibility that “DNF Mobile” could be launched in the next several quarters. We raise the TP to $450, which implies 20.1X PE in 2023.

• SS&C Technologies delivered a mixed set of results for the previous quarter with revenues above analyst expectations but below-par earnings.
• With a focus on innovation and investment in key areas, SS&C Technologies saw growth in various segments, including alternatives, global investor and distribution services, retirement, and the Institutional and Investment Manager segment.
• SS&C Technologies’ strong financial performance and customer satisfaction are anticipated to position the company as a trusted partner in the financial services sector.

• SunPower delivered a mixed set of results for the previous quarter with revenues above the analyst consensus estimates.
• Despite challenges like unfavorable weather conditions in California and increased costs, its management remains confident in achieving its financial goals.
• SunPower added many new customers, with revenue experiencing notable growth driven by price increases.

• Since the announcement of the US$1.9 billion secondary placement, Socionext (6526 JP)’s shares are down -25.0% from the undisturbed price of JPY21,950 per share (5 July).
• So far, Socionext’s shares have mostly followed the pattern of previous large placements. Investors participating in previous large Japanese placements tend to secure positive returns.
• The offering will likely be priced on 11 July. Due to the steep share price decline, Socionext is trading at an undemanding multiple compared to global SoC peers.  

• One third of the way through the review period, we forecast 10 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
• Passive trackers are estimated to trade around +/-0.5 days ADV on most of the potential adds/deletes, though there are some deletes that will have over 1 day ADV to sell.
• The potential inclusion to one or both indices have outperformed the potential deletes by a huge margin in the 5 months. We’d wait for a pullback to re-enter positions.

• China Merchants Capital (CMC) disclosed a competing preliminary non-binding proposal to acquire Chindata Group (CD US) at US$9.20 per ADS, a 15.0% premium to Bain Capital’s US$8.00 per ADS offer.
• Astonishingly, Chindata did not publicly disclose the CMC offer, which was sent to the special committee on 9 June, i.e., 34 days ago.
• CMC must get Bain Capital’s support due to its 92.34% voting rights. The presence of a credible competing proposal will require Bain Capital to match CMC’s offer.

• TSMC winning with Nvidia’s business, beating Samsung due to TSMC’s advanced packaging technology; this highlights the rising importance and complexity of chip packaging.
• China export restrictions for rare earths used in semiconductors highlight opportunity for U.S. and Australian rare earths producers. We identify two potential plays.
• Nanya Technology Earnings: DRAM market has bottomed, sees industry improvement ahead. We see a trading Long opportunity.

• Posco DX has begun the selection process for its lead underwriter for its transfer to the KOSPI market and plans to complete the transfer listing within this year.
• Considering the recent retail insanity witnessed in most local large-cap battery stocks, Posco DX will likely experience further intensified short-term price fluctuations with this new development as a catalyst.
• The likely replacement for Posco DX’s KOSDAQ 150 spot is Konan Technology, which has become a top reserved issue in Posco DX’s GICS sector (Information Technology) in the previous review.

• PhilEnergy IPO will start trading this Friday on 14 July. We believe that PhilEnergy’s share price will surge higher on the first day of trading.
• We believe PhilEnergy’s shares could OVERSHOOT by more than 200% versus the IPO price on the first day of trading, which would be more than 102,00 won or more.
• Our trading strategy on PhilEnergy on the first day of trading would be to take partial profits (30-50%) if its price overshoots higher (by 200% or more than IPO price).

• We expect BABA to report C2Q23 (F1Q24) top-line and non-IFRS net income 2% and 21.5% vs. consensus. For C2Q23, we raised (1) Taobao/Tmall GMV/CMR estimates due to return of merchants, 
• (2) International Commerce and Cainiao revenue estimates, and (3) EBITA margin estimates for all groups except cloud. We maintain our BUY rating and raise TP to US$ 116 TP, 
• Due to 1) merchants return to Taobao/Tmall;  2) independent listing of groups; and 3) improved incentive structure after the organizational change.

• Oddity Tech, the owner of popular and fastest-growing global brands IL MAKIAGE and SpoiledChild, set terms for an upcoming IPO. The company offers ~10.5M Class A shares. 
• Selling shareholders (private equity firm L. Catterton and Oran Holtzman, Co-founder & CEO) offer ~8.77M Class A shares, while Oddity Tech offers ~1.75M Class A shares.
• The net proceeds from the sale of Class A shares will be ~$41M. Oddity Tech will not receive any proceeds from the sale of shares by the selling shareholders. 

• HEROZ is an AI technology company that provides advanced AI development expertise to both B2C and B2B sectors.
• With a strategic focus on AI SaaS, it has embarked on a ‘buy-to-build’ strategy to develop profitable recurring revenue streams and accelerate earnings growth.
• In September 2022, it consolidated VarioSecure (4494), a subsidiary offering network security services, and in August 2022 acquired Strategit, a SaaS integration development support business.

• Jabil delivered a strong result and managed an all-around beat in the last quarter.
• The company’s growth was driven by improved profitability in electric vehicles, healthcare, renewable energy infrastructure, and cloud sectors.
• The healthcare sector also presents opportunities for Jabil, with increasing interest from OEMs seeking outsourcing manufacturing solutions.

• Three shareholders of Socionext (6526 JP) aim to raise around US$1.4bn via selling all of their shares in Socionext.
• We have covered the background of the deal in our earlier note, Socionext Placement – A US$1.8bn Cleanup, Will Have to Give up Some of Its 6x Listing Gains.
• In this note, we talk about the updates and look at the performance of some of the past Japan deals.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Tryt Inc (9164 JP), Alibaba (ADR) (BABA US)‘s Cainiao & Cloud Intelligence Group, J&T Global Express (1936374D CH) IPOs & Socionext (6526 JP)‘s secondary placement.
• Event-Driven developments – Costa Group Holdings (CGC AU), Musgrave Minerals (MGV AU), Yachiyo Industry (7298 JP), Metro Pacific Investments Co (MPI PM), Healthway Medical Corp (HMED SP). 

• Meituan’s food delivery has taken 20% of the Hong Kong market share in its first month’s operations.
• The authorities suggests that they will not further restrict financial apps such as AliPay of Ant Group.
• Tencent’s WeChat Pay charged a money transfer commission, but it exempted university campus the next day.

• 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

• Last year was pivotal for Yahoo Japan: despite record group performance, GTVs in e-commerce actually fell despite continued strong growth in the sector 
• In a recent survey, Amazon was the most frequently used e-commerce mall at 49.6%, followed by Rakuten (32%), but Yahoo was far, far below at just 9.8%.
• Yahoo Shopping is now not only less popular with consumers, even merchants are dissatisfied – which is saying something when the service is essentially free.

• We cut our revenue estimations for 2H23, mainly due to increased uncertainty surrounding the launch of “Uma Musume.” 
• We also lower our estimations for live streaming due to concerns about macro factors. We slightly raise our estimations for BILI’s advertising business…
• …as we anticipate that it will benefit from gaming and e-commerce. Our rev./non-GAAP net income are 1.0% and (6.4%) vs cons in 2Q23. Cut TP to $12.3, maintaining “Sell” rating.

• Our base case valuation of ALT is 33,365 won per share, which represents 63% higher than the high end of the IPO price range of 20,500 won.
• We estimate the company to generate sales of 69.7 billion won (up 57.3% YoY) in 2023 and 92.2 billion won (up 32.3% YoY) in 2024.
• ALT’s main business is in the testing of non-memory semiconductor value chain products including Display Drive IC, CMOS image sensor, and Power Management IC.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, Tryt Inc (9164 JP) announced a somewhat reasonable pricing range, while Fadu (440110 KS) looks to open up the Korean market for larger IPOs again.
• On the placement front,  Socionext (6526 JP) found itself in the eye of a storm after its stupendous 6x increase since listing.

• Chinese autonomous driving chip maker (SoCs) Black Sesame Technologies (BLACKSES HK) has filed for HKEx IPO and plans to raise around US$200m which will be spent on R&D and  commercialisation.
• According to Frost & Sullivan, Black Sesame was ranked the third largest provider of automotive- grade high computing power SoCs, based on shipment in 2022.
• The company is in early stages of commercialisation, and the top line has expanded significantly in 2022 with launch of SoCs in 2021. Black Sesame’s earnings show significant growth potential.

• RoboSense Technology, one of the leading providers of LiDAR sensor systems and AI perception software, filed for a Hong Kong IPO with J.P. Morgan and China Renaissance leading the offering.
• RoboSense Technology is a high-growth mass producer of LiDAR products with mounting operating losses. The company is growing revenue in double digits and still has heavy losses.  
• I believe RoboSense Technology IPO is risky due to the company’s high cash burn rate, fierce competition, pricing pressure and unhealthy fundamentals. Moreover, LiDAR stocks continue to underperform.

• Amazon has significantly underperformed the broader equity market, in spite of the recent rally.
• The narrative for generative AI is strong, but the share price is currently driven by other factors.
• Margin improvements are being priced-in, which significantly limits any potential upside, without monetary conditions becoming supportive.

• The Korean government announced today that it will allow a fourth telco in Korea in order to reduce the oligopoly structure dominated by the three existing telcos.
• This decision to allow another telco in Korea will have a major negative impact on the existing three telcos in Korea.
• On a relative basis, we think that this could have a worse impact than LG Uplus as compared to SK Telecom due to greater price sensitivity of LG Uplus’ customers.

• Fadu (440110 KS) is looking to raise up to US$147m in its Korean IPO.
• Fadu is a South Korean fabless semiconductor maker mainly engaged in flash storage technology innovation. Its core products are Enterprise Solid State Drive (SSD) and Enterprise SSDs. 
• Fadu’s revenue growth has been stupendous, to say the least. However, the firm’s revenues are derived mainly from two customers, which exposes it to a large degree of concentration risk.

• Three risks in the short term: 1) Decreased gross billings from former legacies due to macro. 2) Lifecycle issues with new games. 3) Market over-optimism regarding new games and AI.
• NetEase still has some positive catalysts in the long term, including: 1) New games and content expansions. 2) Overseas game publishing. 3) Continual improvement in margins.
• We expect NetEase’s revenue in 2Q23 to be slightly lower than the consensus estimates of 2.5%, with a 13.3% beat in profits. Cut TP to $102, but maintain BUY rating.

• Today after the close, SoC and market darling Socionext (6526 JP) announced that DBJ, Fujitsu, and Panasonic would offer the remaining shares they in a US$1.8bn secondary offering.
• Pshaw…. that’s only 2.5 days of 20-day ADV… Not a lot. But in fact, that is a LOT of stock. 
• I harp on understanding shareholder structure. I think it worthwhile. Here it matters too.

• Three shareholders of Socionext (6526 JP) aim to raise around US$1.8bn via selling all of their shares in Socionext.
• Socionext was listed on 12th Oct 2022, when it raised US$457m in its upsized Japan IPO. Its six-month lockup expired in Apr 2023. Its shares are up 6x since listing.
• In this note, we talk about the deal dynamics and run the deal through our ECM framework.

• Socionext (6526 JP) announced a pure secondary offering of 12.6 million or 37.50% of outstanding shares. At the last close, the placement is worth JPY277 billion (US$1.9 billion)
• The selling shareholders’ primary motivation for exiting their shareholding is to capitalise on the extraordinary share price. Socionext shares are up 6x from the IPO price of JPY3,650 per share.
• We think looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 11 to 13 July (likely 11 July).

• Robosense Technology (ROBO HK) (RT) is looking to raise around US$300m (estimated) in its upcoming Hong Kong IPO. The deal will be run by JPM and China Renaissance.
• As of Mar 23, it had earned design wins for mass production of LiDAR for 52 vehicles with 21OEMs and Tier 1 suppliers, ranking No. 1 globally, according to CIC.
• As of Mar 23, it had served the largest number of automotive OEMs and Tier 1 suppliers, according to CIC.

• Today’s post will be an interview with Tony Pialis, founder and CEO of Alphawave.

• Alphawave recently got the all-clear from their KPMG auditor, and shares have been unsuspended.

• This interview is lightly edited for readability. I have some thoughts at the end as well.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Telecom Italia’s ESG as “Adequate”, in line with its “Adequate” Social and Governance scores. While the company has a “Strong” Environmental score, this pillar has the lowest weightage in our assessment of companies in the telecom sector. Controversies are “Immaterial” and Disclosure is “Strong”.

• Seven weeks ago, Marubeni Corp (8002 JP) and Secom Co Ltd (9735 JP) announced a joint deal to acquire the rest of ARTERIA Networks Corp (4423 JP). 
• As I wrote in the previous piece, the premium was good, but the price was not great. The Board rejected the price, then agreed when the bidders wouldn’t go further.  
• Now we have a deal and the Tender Offer starts 5 July. It was cheap to start. It’s still too cheap. But this one is tough to block.

• PhilEnergy’s IPO price has been determined a 34,000 won. The company will raise 95.6 billion won in this IPO offering. 
• A total of 1,955 institutional investors participated in the IPO offering with a competition demand ratio of 1,812 to 1. 
• Given the exceptional book building results, it is highly likely that PhilEnergy will have a strong price performance once it starts trading. 

• Samsung Electronics (005930 KS) has been a nice outperformer relative to SK Hynix (000660 KS) and Micron Technology (MU US) due to valuation, tech merit and exposure to AI
• For cyclical stocks, no matter defensive vs. peers, does it make more sense to play the pure plays?
• On the recent settlement between Elliott and Samsung C&T (028260 KS) , there was a secret payment made to just Elliott. What about the other minority shareholders?!

• Two thirds of the way through the review period, we see 10 potential adds/8 potential deletes in December. However, there can be a maximum of 5 changes at a review.
• We estimate a one-way turnover of 5.8% at the December rebalance leading to a one-way trade of CNY 4.67bn. Index arb balances could increase the impact on the stocks.
• The potential adds have outperformed the potential deletes over the last six months and there has been renewed outperformance over the last month.

• Our base case valuation analysis suggests implied market cap of 2.2 trillion won or 43,676 won per share, representing 41% higher than the high end of the IPO price range. 
• At the high end of our valuation sensitivity analysis, it suggests implied price of 62,893 won per share, representing 103% higher than the high end of the IPO price range.
• Fadu is a system semiconductor fabless company specializing in data centers, which is experiencing a strong growth due to higher data demand for cloud, AI/Big data, 5G, and autonomous driving.

• IAC managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company’s emphasis on core fundamentals and operational efficiency has yielded profitability and improved customer experiences.
• IAC is also focused on driving revenue growth through investments in customer experience and strategic revenue reallocation.

• Fadu is getting ready to complete its IPO in Korea in August. Fadu is one of the most highly anticipated IPOs in Korea in 2023. 
• The expected market cap at the top end of the IPO price range is 1.6 trillion won. The IPO price range is from 26,000 won to 31,000 won.
• Fadu is a system semiconductor fabless company specializing in data centers.

• Black Sesame International Holdings (BSIH) is looking to raise around US$300m in its upcoming Hong Kong IPO. The deal will be run by CICC and Huatai.
• BSIH is an automotive-grade computing SoC and SoC-based intelligent vehicle solution provider. 
• In terms of shipment of automotive-grade high-computing power SoCs in 2022, it was the third largest provider globally, according to Frost & Sullivan.

• Two thirds of the way through the review period for the June rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 8 December.
• There is a big sector skew in the potential changes. We estimate a one-way turnover of 10.1% at the December rebalance resulting in a one-way trade of CNY 6.75bn.
• The potential adds have outperformed the potential deletes and the CSI500 Index over the last six weeks. There could be more outperformance till nearer the end of the review period.

• Black Sesame International Holding Ltd., a Xiaomi-backed designer of artificial intelligence-based self-driving computing chips, has filed for a Hong Kong IPO
• Black Sesame, which also counts Tencent Holdings Ltd. and SAIC Motor Corp. Ltd. among its major investors, plans to use the IPO proceeds mainly to develop system-on-a-chip (SoC) designs and software for intelligent vehicles in the next three years.
• Bloomberg in January reported that the company expects to raise $200 million through the share sale, citing people familiar with the matter.

• We recently discussed BABA’s management changes with more e-commerce practitioners, and our main conclusion is that this change will be more beneficial to BABA’s e-commerce business rather than other subsidiaries;
• BABA is expected to learn from Tencent and ByteDance by shifting from a centralized authority model to a racehorse mechanism. Some subsidiaries, especially AliCloud and Cainiao, undergo a painful transformation;
• This may be good news for BABA because its e-commerce  is the largest of its valuation. We also remind investors to exercise caution regarding the upcoming IPOs of BABA subsidiaries.

For Q123, Nano Dimension reported good progress in revenue, up 43.5% y o-y and 23.6% q-o-q to $15.0m. Continued investment in R&D resulted in an adjusted EBITDA loss of $23.7m. Revaluation of the company’s stake in Stratasys and interest income earned on cash resulted in net income of $22.2m for the quarter. With net cash of $974m at quarter end, the company is well-funded to pursue its acquisition strategy.

• Qiniu Limited (1045102D CH) is looking to raise about US$200m in its upcoming Hong Kong IPO.
• Qiniu Limited (Qiniu) is a one-stop scenario-based intelligent audiovisual service provider.
• According to iResearch, the firm is the third largest audiovisual platform as a service (PaaS) provider in China in terms of FY22 revenue, with a market share of 5.7%. 

• Keep Inc., the largest online fitness platform in China, set terms for HK IPO and plans to raise ~HK$667M at the high end of the range at HK$61.46/share. 
• CICC is leading the offering and Keep Inc (KEEP HK) will trade under the stock code “3650”. The company offers ~10.8M shares at a price range of HK$28.92-HK$61.46.
• The low end of the range implies an IPO valuation of HK$15B, which looks attractive and is equal to the last round valuation of ~$2B that was led by SoftBank.

• Netherlands expands range of semiconductor tech restricted for export; Tightening the vice further on China’s semiconductor industry.
• AI In The Family: Nvidia founder Jensen Huang a distant cousin of AMD CEO Lisa Su.
• TSMC supplier hit by cyberattack, Hon Hai expanding EV in Vietnam, plus our recent research notes on Hon Hai, Nanya Tech, Himax, Yageo, and Delta.

• Businesses across the world are rushing to adopt AI. Japan-based startup Flux is targeting companies in the country who want to do so at lower cost and higher efficiency.
• The firm developed a no-code AI platform called Flux AI. According to Flux, the platform enables businesses to leverage AI technologies such as predictive analytics, natural language processing, and large language models without needing prior coding skills or knowledge.
• The startup has just raised US$32 million in a series B round led by DNX Ventures.

• Indonesia-based fleet-tracking startup TransTRACK has secured US$2.1 million in a pre-Series A funding round.
• Ortus Star, Cocoon Capital, and YCAB Ventures led the funding round. Goldbell Investment, NP Consulting, Damson Capital, and unnamed angel investors participated.
• TransTRACK plans to use the fresh funds to expand operations to 100 cities in Indonesia and other Southeast Asian countries, including Malaysia, Singapore, Thailand, Cambodia, and Vietnam, providing an end-to-end supply chain solution for the business players in the region.

• ApartX, a startup focused on rental property management in Kazakhstan, has secured US$250,000 in a seed funding round from local VC firm Big Sky Capital and Activat VC.
• The funds will be used for talent acquisition, improving the platform functionality, and expanding into new regions, such as Southeast Asia. It will also bolster its R&D efforts.
• The company aims to broaden its market presence, forge strategic partnerships, and solidify its position in the industry.

• Singapore-based construction planning simulation and optimisation startup Frontline Industrial Software has raised US$700,000 in a seed funding round led by Cocoon Capital.
• Frontline, founded by Luis Martinez and Ruiqi Ding, enables construction companies, operators and contractors to quickly identify best-in-class construction plans with optimal activity sequencing and resource allocation.
• The software uses Artificial Intelligence to identify the most efficient and cost-effective construction plans for complex infrastructure, civil, energy, industrial and residential projects.