TMT/Internet

• Alibaba (ADR) (BABA US) aims to complete the IPO of Cainiao Smart Logistics (1437124D HK) in the next 12 to 18 months. Alibaba holds a 67% stake in Cainiao. 
• Cainiao’s revenue growth, while on a declining trend, remains in double digits. Encouragingly. narrowing losses set a path to profitability.
• On 30 March, Bloomberg reported that Cainiao is currently valued at more than US$20 billion. Our valuation analysis suggests that such a valuation is justifiable.

• Keep Inc (KEEP HK) is looking to raise around US$100m in its upcoming Hong Kong IPO.
• Keep is an online fitness platform, offering online fitness content, smart fitness devices and fitness products.
• In this note, we discuss the updates since our last note.

• Mercari Inc (4385 JP) is potentially a leading candidate for inclusion in the Nikkei 225 in September. 
• There are other technical reasons to think it is not. 
• This insight looks at the issue of why it might be a leading candidate and why it might not be. 

• Tata Technologies (TATATECH IN) (TT) is looking to raise around US$600m in its upcoming India IPO.
• Tata Technologies is a global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEMs) and their tier 1 suppliers. 
• We have looked at the company’s past performance and undertaken a peer comparison in our earlier notes. In this note we talk about valuations.

• Elastic managed to exceed analyst expectations in terms of revenue as well as earnings.
• In Q4, total revenue increased by 19% year over year in constant currency, while Elastic Cloud increased by 30% year over year in constant currency.
• The subscription revenue was $256 million, increasing 16% year over year or 18% in constant currency, and made up 91% of the overall revenue.

• Large portion of the business is in secular decline and facing pricing pressure
• Ricoh Company Ltd (7752 JP) appears to be losing share in a shrinking market
• Estimates are above overly optimistic guidance making shares look optically inexpensive

• Dell Technologies managed to exceed analyst expectations in terms of revenue as well as earnings.
• They also made significant strides in their innovation agenda, introducing new cloud platforms, edge solutions, AI collaborations, and security initiatives.
• We give Dell Technologies a ‘Hold’ rating with a revised target price.

• Guidewire Software delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
• Their third quarter result was highlighted by continuous demand for InsuranceSuite Cloud and ARR and profitability, which exceeded expectations.
• We give Guidewire Software a ‘Hold’ rating with a revised target price.

• Broadcom delivered a positive result and managed an all-around beat in the last quarter.
• Semiconductor Solutions’ revenue showed an increase, driven by stable growth in core software despite some challenges in the Brocade business.
• They remain confident about their prospects and anticipate continued growth in semiconductor revenue for the upcoming quarter.

• Workday managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• In the quarter, subscription revenue increased by 20% year over year to $1.53 billion.
• Outside of the United States, overall revenue was $420 million, which represents 25% of total sales.

• Zscaler managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company’s disciplined approach, high gross retention rates, and high operating income contributed to its success.
• We give Zscaler a ‘Hold’ rating with a revised target price.

• MongoDB managed to exceed analyst expectations in terms of revenue as well as earnings.
• They continued to execute well and generated impressive revenue growth.
• MongoDB’s flagship product, Atlas, experienced significant year-over-year growth and contributed substantially to the company’s overall revenue.

• After the market close on 16 June, it was reported in the local media that LG Chem is close to selling about 2 trillion won worth of LG Energy Solution.
• This block deal sale is likely to pose overhang on more stake sales of LG Energy Solution (about 10% stake) in the next 3-5 years.
• Our NAV valuation analysis of LG Chem suggests an implied price of 1,057,770 won per share, which is 41% higher than current share price.

• Canon Inc (7751 JP) has, as discussed in these pages, conducted 18 buybacks since the GFC. Every single one is ¥50bn. They are short and sharp. The longest? 23 days.
• The most recent took 18 days, and was only 15% of ADV, significantly lower than the average of the last dozen at 23-24%.
• This time, 3 days after the finished they launched another. The stock popped 5% the first day. There’s a reason for that. Shareholder structure STILL matters a lot. 

• We expect June quarter results to beat consensus and demonstrate a balanced growth across topline and bottom-line.
• During a time when headlines drive BABA share price, it is more important to stay grounded in numbers, see what is in price and make trades accordingly.
• We maintain US$500 billion target market cap on 20x RMB180 billion non-GAAP net profit by FY25.

• Far Eastone Telecomm (4904 TT)’s (FE) parent aims to raise around US$165m via selling 1.9% of its stake.
• As far as we could see this appears to be the first selldown by the parent and doesn’t seem to have been well flagged.
• In this note, we will run the deal through our ECM framework and comment on other deal dynamics.

• Mobvoi, the innovative Chinese AI company backed by Google, Volkswagen Group, and top-tier VC firms, filed for a Hong Kong IPO. The company plans to raise between $200M and $300M. 
• Mobvoi is a rapidly growing AI unicorn. Revenue from AI software solutions skyrocketed 400%+ y/y in 2022. The company will launch AI painting assistant and AI writing assistant 2.0. soon.
• China-Based startup chose CICC and CMB international to tap capital markets to develop universal LLM, market expansion, strategic alliances, acquisitions, and working capital. 

• During the weekend, I asked my twitter followers: What do you think Facebook’s DAU to MAU ratio was in 2009?
• The number that got the highest votes was ~80% even though I mentioned the most recent number was ~68%.
• I asked this question a couple of friends in real life too and they too picked the ~80% number.

1Spatial has won its first two contracts for 1Streetworks, the company’s SaaS-based Traffic Management Plan Automation product. This is an important development for the company in that the potential addressable market for this product is large; management estimates around £250m for low speed roads in the UK alone and 1Spatial looks well positioned to gain a significant market share. 1Streetworks also runs on the company’s newly launched cloud-based platform, representing an important milestone in 1Spatial’s migration to a scalable, SaaS-based model. Both contracts are for a three-month term initially, with the intention to move to annual or multi-year contracts upon successful completion. We are not changing our estimates at this stage. Further deal flow for 1Streetworks (or other SaaS products), together with the continuation of these initial deals to longer engagements, could be the catalyst for stronger growth and margin expansion to become priced in.

• On 8 May I wrote JAPAN FLOW: Foreign Investor Inflows May Increase.  Since the data used in that insight, TSE data shows net foreign buying of ¥3.5trln+. 
• Investor flows appear to work in patterns which are correlated to TOPIX gains and outperformance vs S&P500. 
• The history of autocorrelation of net buying suggests while the current streak may end, a four week average of net buys could remain positive for a while. 

• Recently, there has been more discussion about TikTok’s e-commerce business in Southeast Asia on Chinese media and social networks.
• Many service providers and entrepreneurs in China have also been inspired and hope to take the lead in the market with their domestic experience.
• We estimate that TikTok’s 2023 GMV in Southeast Asia will reach 20%~ of Shopee, and this is one of the key reasons why we are bearish to SE.

• Delta Thailand surged 20% since our last trade monitor piece. This was without any significant news and the company received another query from the stock exchange as a result.
• Delta Taiwan increased by a higher 22%, thus the extreme valuation mismatch between the two has corrected slightly. Delta Taiwan is still only 0.78x the market cap of Delta Thailand.
• Delta Taiwan last week announced the acquisition of a German company that makes components for vehicles. This will strengthen Delta’s battery management product portfolio and add client relationships.

• More Nvidia Takeaways from two conferences the company spoke at — The company highlighted support for Intel’s new Foundry business, Mediatek, and why automakers will absolutely need AI to compete.
• Memory Chip Stocks — Nanya jumps 10% on hopes that AI servers will need 7x the value of DRAM. Micron warns that half of China revenue could be at risk.
• Delta Taiwan and Thailand Surge 20%+, Taiwan outperforms. Delta Taiwan has acquired a German automotive components company to boost its EV powertrain products lead.

• Q1-4 FY4/2023 results were ahead of revised company guidance and our earnings estimates, highlighting the company’s success in 1) driving demand at both existing and newly acquired customers, and 2) implementing Marketing Technology services that are improving the overall sales mix and driving margin growth.
• On this fundamentally robust basis, the company acquired Net Marketing in April 2023, an advertising agency that will allow access to new customers in which to sell-in profitable Marketing Technology services and replicate its effective model, as well as gain exposure to a more diversified range of market sectors.
• Strong outlook for FY4/2024 – we revise our earnings estimates for FY4/2024 and beyond, reflecting the following: 1) stronger topline growth in Analytics Consulting, 2) a more enhanced trajectory of profitability improvement in the medium term, given the success of Marketing Technology services to date.

• 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

• Revenue: Digital Media net new ARR $470 Mn ($50 mn higher than guide).

• Gross Margin: Digital Media gross margin remains steady at ~96%, but Digital Experience posted its highest ever gross margin of 67.3% in 2Q’23.

• Cost Structure: 2Q’23 GAAP operating margin was 33.7%, down from 34.9% in 2Q’22.

• Applied Materials managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• Despite weaknesses in consumer electronics, the company sees robust demand driven by technology inflections and regional supply chain investments.
• Applied Materials noted that leading-edge foundry logic customers have adjusted their spending plans but remain committed to their long-term roadmaps.

• The last quarter was decent for Autodesk as it managed to meet the revenue expectations as well as the earnings expectations of Wall Street.
• Key indicators remained consistent with the previous quarter, with modest growth in product usage, record bid activity on BuildingConnected, and improved renewal rates.
• Autodesk is driving innovation and transformation, shifting from products to capabilities, exemplified by the successful launch of the AEC industry cloud, Forma.

• Marvell managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company sees significant opportunities in the AI sector, as AI data centers require high-capacity, low-latency connectivity, driving demand for Marvell’s PAM4 optical DSP platform.
• Marvell expects the AI trend to continue growing, with plans to double revenue in fiscal 2024 and at least double it again in fiscal 2025.

• NetEase delivered a mixed result in the recent quarter with revenues above market expectations but it failed to surpass the analyst consensus in terms of earnings.
• The company experienced positive momentum with increased net revenues and significant growth in net income attributable to NetEase shareholders.
• The company’s strong growth in Q3, with increased revenues, robust net income, and sustained Chinese audience engagement, positions them for future success.

• Zee Entertainment Enterprises (Z IN) ‘s tussle with the regulators and legalities seem to be perpetual in nature.
• SEBI’s interim order highlights the abuse of promoters’ position in the company in order to siphon-off funds, ultimately benefiting the promoter family. SEBI has directed promoters to resign as directors.
• Since the irregularities are now being made public, eyes now would be on the proposed Zee-Sony merger, which could further be delayed.

• Hello from Kyoto! If there was a single big story from VLSI this year, it had to be Backside Power Delivery (BSPDN). VLSI is one of the premier conferences for semiconductor design and has been held since the 1980s.
• Today it’s one of the best places to present cutting-edge research in circuit technology.
• The key revolutionary announcement at VLSI this year was BSPDN. Let’s discuss.

• Recently, there has been an increase in discussions about Wechat Video Accounts (known as “ShiPinHao”) on local Chinese media and social networks. 
• Overall, merchants acknowledge the potential of Video Accounts and are willing to give it a try, but the results vary significantly among different businesses.
• We expect that Wechat Video Account will remain to have a high speed growth in the next several quarters, but the market expectation is also high.

• New Twitter CEO is only days into her new job and there already are warning signs she and Musk are bound to clash.
• Musk demonstrates he’s not interested in anyone else actually running Twitter or making it safe for key advertisers or even breakeven.
• Bad news for all of Twitter’s stakeholders, including its wary bankers still unable to offload to investors a refi of its crushing debt.

• Intouch Holdings (INTUCH TB) is coming up cheap versus Advanced Info Service (ADVANC TB). Yet the longer-term view suggests otherwise. 
• Preceding my comments on Intouch are the weekly setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn on a 90-day moving average, and a % market capitalisation threshold of at least 20%.

• The review period for the September rebalance ends 31 July. We expect the changes to be announced 25 August with the implementation taking place after the close on 8 September.
• We expect the index committee to continue using a 6-month minimum listing history resulting in two changes to the index.
• One way turnover is estimated at 3.45% resulting in a one-way trade of CNY 3,675m. The impact on the deletions will be larger than that on the inclusions.

• Our aggregate analysis of the 1Q23 earnings season showed a more balanced beat/miss ratio than 4Q22 likely due to already-downgraded forecasts presenting a lower expectations hurdle.
• Semiconductor’s inventory situation overall appeared to get worse in 1Q23… Excess inventory digestion is still a few quarters away for many semiconductor companies. Margins fell to the last cycle lows.
• Hardware showed small signs of overall inventory improvement. Margins fell further but remained pretty high relative to the previous cycle.

• Tata Technologies (TATATECH IN)  (TT) is looking to raise around US$600m in its upcoming India IPO.
• Tata Technologies is a global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEMs) and their tier 1 suppliers. 
• We have looked at the company’s past performance in our earlier notes, in this note we will undertake a peer comparison.

• Following Bh Co Ltd (090460 KS) moving from the KOSDAQ to KOSPI Market, the stock will be deleted from the KOSDAQ 150 Index and replaced with HFR Inc (230240 KS).
• The change will be implemented at the close on 19 June and passive trackers will need to trade over 1x ADV on both stocks.
• We had HFR Inc (230240 KS) as a potential replacement candidate and there could be pre-positions built up on the stock.

• Cybersecurity firm Tesserent Ltd (TNT AU) has announced it has entered into a Scheme with France’s Thales SA (HO FP).
• Thales is offering A$0.13/share, a whopping 165% premium to last close. Although, TNT is down 87% from its January 2021 high. 
• The Offer is conditional on TNT shareholder approval and FIRB/OIO approvals. Those regulatory approvals will not be straightforward.

• Tesserent Ltd (TNT AU) has entered into a scheme implementation deed with Thales SA (HO FP) at A$0.13 per share, a juicy 165.3% premium to the undisturbed price (9 June).
• The offer is subject to several conditions such as shareholder, FIRB and OIO approval. FIRB approval is likely due to Australia and France being part of the Nine Eyes alliance.
• Despite the substantial premium, shareholders’ acceptance of the offer could be a risk due to their higher buy-in prices. At the last close, the gross spread is 8.3%.

• GSI Technology (GSIT US) share price is up ~5x in the past month fuelled by the fact that they have an AI Accelerator (APU) called Gemini-I
• Launched in 2020, Gemini-I was 3 years late, has never been properly benchmarked and has thus far attracted just one customer, the Israeli military
• We remain wholly unconvinced that GSIT is on the cusp of a breakthrough in the world of Accelerated AI

• In 1Q FY23/12, CARTA Holdings posted a 23.3% YoY increase in transaction volume for programmatic TV commercial service TELECY, and a 2.8-fold increase in gross sales in the retail domain, showing steady performance in the mass retail domain, which the company has positioned as a priority area in its medium-term management plan.
• On the other hand, the weak macro environment continued to weigh on double-digit sales declines in reservation-based ads, resulting in a 7.7% YoY drop in sales and a 59.3% drop in operating profit overall. 
• YoY comparisons will ease off from the next quarter, but with 2Q usually being a slow period for advertising and the lack of activity from advertisers in the new fiscal year from April onward, earnings are expected to recovery smoothly rather than sharply.

• Carly Holdings Limited (ASX:CL8) operates a vehicle subscription business, which it launched in March 2019.
• Car subscription allows business and retail customers to pay a single monthly fee to access a car for 30 days or more and is an alternative to purchasing or financing a vehicle.
• Carly has attracted larger automotive industry businesses as shareholders, with a model that facilitates sales volumes of new vehicles and delivers a new recurring revenue stream for automotive manufacturers and dealers. 

• Adobe’s share price is experiencing significant momentum, which is likely to be sustained for the time being.
• Better than expected quarterly results could easily prompt a new wave of rating upgrades by the sell-side analysts.
• Investors interested in holding Adobe for a longer period of time should not ignore some important red flags.

• Network International Holdings (NETW LN) and a Brookfield Asset Management Lt (BAM US)-led consortium agreed on a 400p/share cash offer (64% premium, 12.9x EV/Fwd EBITDA) to be implemented via a scheme of arrangement. 
• Network is no longer grossly undervalued. The 9 June closing share price of 383p represents an 89% chance of completing the deal (based on the 245p close price). 
• Synergies have not been quantified, but may explain why Brookfield’s consortium has been able to trump CVC. Spread is 4.25%/8.92% (gross/annualised, assuming settlement by 15 December). Long.

• Mobvoi is getting ready to complete its IPO in Hong Kong in the coming weeks. Mobvoi is aiming to raise US$200 million to US$300 million in this IPO.
• Given the exceptional interest in AI  related companies such as ChatGPT and NVIDIA, the current environment should be an opportune time for Mobvoi to complete its IPO. 
• Furthermore, Mobvoi has achieved a strong growth in sales and operating profits in 2022 which is also likely to drive higher interest in this IPO.

• Nikkei reported last week that NTT (Nippon Telegraph & Telephone) (9432 JP) is developing a generative AI and plans to offer services to the company’s corporate clients by Next March.
• Over the recent years, NTT has been extensively investing on AI, robotics and other data-driven products and services to boost its top line growth as its core business is saturating.
• AI and semiconductors are two key policy areas of Japanese government for development as the country is dealing with population and other demographic changes.

• Hon Hai shares have broken out to near-term highs after news flow regarding its investment agreement in Lordstown Motors.
• PC makers Acer & Asustek’s share prices remain subdued since Nvidia results despite AI’s potential to accelerate the PC upgrade cycle.
• TSMC’s ADR premium went even higher just today; Also, Realtek is suing Mediatek in the U.S., adding to our Long/Short watchlists.

• Synopsys delivered an all-around beat in the most recent quarterly result.
• Despite weaker demand for semiconductors overall, Synopsys has been prioritizing research and development to emerge stronger when demand accelerates.
• Collaborations with industry leaders like NVIDIA, TSMC, MediaTek, Renesas, and IBM Research have resulted in impressive results, showcasing the criticality of Synopsys.ai in delivering breakthrough outcomes.

• Take-Two Interactive Software delivered a mixed set of results in its most recent result, with revenues above Wall Street expectations but below-par earnings.
• Moving forward into fiscal 2024, Take Two expects full-year net bookings from $5.45 billion to $5.55 billion, considering the challenging consumer backdrop.
• We give Take-Two Interactive Software a ‘Hold’ rating with a revised target price.

• Cisco Systems delivered a solid result and managed an all-around beat in the last quarter.
• Cisco also delivered significant quarterly performance, with high revenue and non-GAAP earnings per share, reflecting their solid operating discipline.
• We give Cisco Systems, Inc. a ‘Hold’ rating with a revised target price.

• Zoom Video delivered an all-around beat in the most recent quarterly result.
• Total revenue was up, online revenue was up, the enterprise business grew, and online business improved meaningfully.
• Last quarter, Zoom Video reiterated its strong positioning of AI and highlighted its expanded vision to elevate progress across its portfolio and see generative AI permeate.

• Confluent (CFLT US), a high-growth data streaming vendor, will host Investor Day 2023 in New York City on June 13, 2023. 
• Management will provide an update on the company’s vision and strategy. Confluent (CFLT US) shares traded up ~64% in 2023, outperforming the Nasdaq Composite, up ~27%.
• I expect CY24 revenue to exceed $1B, driven by efficient growth at a large scale, strong growth in the cloud segment, and rapid adoption of Apache Kafka.

• Microchip Technology had a strong quarter.
• Non-GAAP gross margin exceeded the company’s forecast by 171 basis points to an all-time high of 68.3% in the most recent quarter.
• Additionally, the non-GAAP operating margin, which increased by 292 basis points from the same quarter last year to an all-time high of 47.65%, came in just below the high end of their forecast.