TMT/Internet

• The Kishida administration is looking for funding sources for its two big objectives – 1) raising the birthrate, 2) raising defense spending by 60% in 5yrs to 2% of GDP.
• The second is not new. It was in an “order” PM Kishida gave to FinMin Suzuki and MinDef Hamada last November. They need ¥48trln by end 2027. 
• Yesterday, in an LDP meeting, the idea of changing the NTT Law so the government could sell more NTT shares was mooted. It’s worth thinking about.

• Mobvoi (2185047D CH) is looking to raise about US$200m in its upcoming Hong Kong IPO. The deal will be run by CICC and CMBI.
• Mobvoi is an AI company with a focus on generative AI and voice interaction technologies.
• As per CIC, the firm is the largest revenue-generating AI company focusing on AI-generated content (AIGC) technologies in terms of 2022 revenue from AIGC solutions.

• Airbnb 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 significantly high bookings, with over 120 million Nights and Experiences Booked in Q1.
• Revenue grew significantly year-over-year, and the quarter was the most profitable GAAP-based.

• Electronic Arts managed to surpass the revenue expectations as well as the earnings expectations of Wall Street in its recent quarterly result.
• The fiscal year 2023 saw EA SPORTS FIFA thrive, with double-digit growth in net bookings and FIFA 23 becoming the best-selling title in franchise history.
• We give Electronic Arts Inc. a ‘Hold’ rating with a revised target price.

• Global Blue is the leader in tax refunds for tourism shopping.
• The company provides the backend for refund processing, which includes software installed at merchants and service locations like kiosks and counters at airports, among other services.
• Global Blue helps to streamline the refund process, reducing the burden for merchants and shoppers.

• Palantir Technologies delivered an all-around beat in the most recent quarterly result with solid revenue growth driven by the U.S. commercial business and disciplined spending management.
• Their commercial segment saw significant revenue growth, while the government showed strength.
• Their expanding adjusted operating margins and strong cash flow generation highlight their ability to manage costs while driving revenue growth effectively.

• It was a decent second quarter for Skyworks as the results were on par with the analyst consensus estimates.
• The market trends, such as the growth of WiFi and electric vehicles, present significant growth potential for Skyworks.
• With its successful second-quarter performance, Skyworks’ expanding customer relationships, global scale, and efficient cash flow engine position them well for future growth opportunities in the rapidly evolving connectivity landscape.

Vection Technologies (VR1) recently announced that its ChatGPT-powered mixed reality solution, 3D Frame, will now be available on Apple’s macOS. The release further highlights the interoperability of VR1’s technology with global powerhouses in the virtual (VR) and augmented (AR) reality space, positioning it well to capitalise on the latest breakthrough advancements, such as Apple’s Vision Pro AR headset. 3D Frame’s cross-platform compatibility with Windows and macOS should ensure wider availability across devices and reaffirms VR1’s position as a major player in the field. Management also announced the proposed acquisition of Invrsion, which it expects to be immediately earnings accretive and brings with it a portfolio of tier 1 customers, including Walgreens, Coca-Cola and Diageo.

• Chindata Group (CD US) disclosed a preliminary non-binding proposal from Bain Capital at US$8.00 per ADS, a 27.4% premium to the undisturbed price of US$6.28 per ADS.
• For privatisation to succeed, shareholders representing two-thirds of the shares present and voting need to approve the deal. The offeror represents 87.39% of the total voting power. 
• While the offer is unattractive, Bain Capital’s voting rights ensure that the vote will pass. The key risks are regulatory approvals and timing. 

• In this insight, we provided the most recent ranking of the top 100 most popular YouTube channels in Korea (according to Socialblade website).
• The top 100 YouTube channels in Korea have received 390.7 billion in total views as of June 2023. Of these total views, K-Pop channels views accounted for 46.4% share.
• YouTube has been meaningfully taking away market share from Kakao and Naver in the past three years. KakaoTalk’s MAU was 41.5 million in May 2023. YouTube was a close second.

• The review period for the September rebalance ends on 31 July, the changes will be announced towards end August and implemented at the close of trading on 7 September.
• There is one change currently for each of the Secondary Battery, Bio, Internet and Game indices. Large stock price moves mean no changes for the BBIG Index currently.
• Douzone Bizon (012510 KS) has flipped from a passive sell to a passive buy over the last month and the stock could move higher from here.

• Further evidence of BILI’s user base peaking reinforces our bearish view on its growth outlook.
• BILI’s business model is broken and we believe significant downsizing is unavoidable in the next 12- 18 months to achieve profitability.
• The company will survive as a leaner and slightly profitable business valued at high single-digit P/E. We still see tremendous downside from here and advise investors to avoid the stock.

• Chinese data centre outfit Chindata (CD US) has no end of alleged suitors, rumoured to include SOE-backed China Merchants, GDS (GDS US), PE outfit PAG, and EQT (EQT SS)-backed EdgeConneX.
• Now Bain Capital, Chindata’s largest shareholder with 42.17% (and 87.39% of the voting power) has made a non-binding proposal of $8/share per ADS, a 33% premium to last close.
• Chindata’s board has made no decision on the proposal. It’s hardly a knockout Offer. But the key question is whether Bain will get regular approval to take Chindata private. 

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Vincent Fernando, CFA. Vincent will be sharing with us his top picks in the Taiwanese Tech space. From trends in the industry, its opportunities, and insights into his top picks, join us as we hear more from Vincent.

The webinar will be hosted on Wednesday, 21 June 2023, 17:00 SGT/HKT.

Vincent Fernando, CFA has 20 years of experience researching capital markets in Asia and the USA. He is currently the Managing Director and founder of Zero One Partners. He has more than 15 years of investment research & capital raising experience working at both boutique firms and larger investment banks such as Citi and Macquarie. He has traveled extensively during his career, having been based in New York, Hong Kong, Thailand, and finally Singapore where he was Director of Equity Research covering Southeast Asia where he originated and marketed multiple investment banking deals.

• On 28th Mar 2023, Alibaba (ADR) (BABA US) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
• Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
• In this note, we will talk about some of the company’s investments and how the overall Holdco would look post restructuring.

• TSMC reduced capex guidance to the bottom of its guidance range but maintained revenue expectations and still expects substantial growth in 2024E.
• Dell, HP, and Qualcomm comments signal an AI-Driven PC refresh cycle ahead and 2024E PC Growth. Windows 11 upgrades could be accelerated as new PC AI applications roll out.
• Hon Hai reported that it gained market share globally in 2022, and that it has 40% global market share for servers. Hon Hai’s AI servers expected to experience triple-digit growth.

• Freshippo (Hema) is set to be the first Alibaba (ADR) (BABA US) company to have an IPO after the business split into six units.
• Two key concerns for Freshippo’s IPO are its failure to secure outside funding in two attempts last year and the potential conflict of interest arising from competition with Tmall Supermarket.
• While it is still premature to make a definitive assessment of Freshippo’s IPO prospects, we maintain a level of skepticism towards the company.

• Sanken benefits from the structural growth in EVs, which should underpin revenue growth and margin accretion. 
• DCF valuation suggests the stock is slightly undervalued. However, better-than-expected revenue trends could easily drive significant upside. 
• Almost 30% of shares are held by activist investors – there is an attractive 57% upside to a SOTP valuation that could be realised over time.

• Domestic telecom company faced significant fines for false advertising of 5G, the second-largest penalty ever imposed. 
• Investigations into the telecom market, dominated by a long-term duopoly, are expanding. 
• Within KT Group’s subcontracting process, allegations of favoritism and manipulation in project allocation are currently under investigation by the prosecution.

• HP and Dell’s industry outlook after their results last week indicate a PC market stabilizing and set for growth in 2024E. Qualcomm provided AI comments at a recent conference.
• Both HP and Dell managed to beat earnings expectations despite experiencing 20%+ YoY revenue declines. Neither stock’s price has made a significant move since results.
• AI incorporated into Windows 11 and PC’s themselves could be a major reason for companies and consumers to buy new PC’s. PC’s are being designed to run AI capabilities locally.

• Tencent has been busy distributing shares in some of its investments over the past two years, with JD.com’s distribution announced in 2021 and Meituan’s in 2022.
• In our earlier note in 2022, Tencent Investee Selldown – The US$120bn Global Overhang, we had looked at its overall investment portfolio.
• With two of its large investments spun-out, we now re-look at Tencent’s shareholding in various companies to try and gauge which ones it could sell out of and how. 

• Broadcom Inc. has been the best-performing semiconductor stock over the past 3-month period.
• Robust demand partially justifies the recent share price increase, but not all the way to a near double-digit revenue multiple.
• Just three months ago, I analyzed Broadcom Inc.’s (NASDAQ:AVGO) strong business model through the lens of profitability, competitive advantages and capital allocation.

• Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
• Zuiko Corp (6279 JP), Anycolor (5032 JP), and Lifedrink (2585 JP) will have TOPIX Inclusion events at the end of June (Zuiko) or July 2023 (the other two).
• One of our pre-event TOPIX Inclusion candidates CELSYS (3663 JP) has experienced sharp price moves over the last few weeks.

• Most Brazilian e-commerce platforms evade taxes by treating orders as individual transactions instead of business operations, despite the 60% tax on international e-commerce shipments by companies.
• The Brazillian government plans to address this tax loophole by strengthening oversight and implementing administrative measures.
• If Sea (SE US) cannot find a viable solution to navigate this tax, there is a strong possibility that Shopee will exit the Brazilian market.

• GoTo (GOTO IJ) is seeking shareholder approval to raise new capital through a private placement of shares (118.4bn A shares). Shareholder meeting will be held on 30th June.
• The company’s strategy to prioritise profits have put pressure on growth rates and it seems that the company is in need of more funds to refuel its decelerating growth rates.
• Though profit matrices have improved, some important growth matrices such as GTV have shown a downward trend and the company is still burning cash.

• We believe shares of Douzone Bizon are deeply oversold and ready for a turnaround.
• The company is increasingly buying back shares. Treasury shares as a percentage of total outstanding shares increased from 0% at end of 2021 to 9.3% at end of 1Q 2023. 
• Korean government’s plans to boost the domestic software industry by spending more than 560 billion won in the software industry is also likely to positively benefit the company this year. 

• Apple’s stock reached an all-time high ahead of the 2023 Worldwide Developer Conference.
• The company unveiled its mixed-reality headset, Apple Vision Pro, which could revolutionize communications and be a game-changer for the metaverse.
• McKinsey predicts that the headset could be a $5 trillion opportunity by 2030.

• Against a backdrop of slowing revenue/active users growth, a return to profit in FY2023, while welcome, is shaky.We think Alibaba Health’s growth would continue to slow down in the future.
• The low gross profit and strong regulatory characteristics of drug sales indicate that Alibaba Health Information Technology (241 HK) is difficult to replicate the scale effect brought by traditional internet platforms. 
• The current business model and revenue structure have already made Alibaba Health lack imagination space.From a comprehensive perspective, its valuation should be lower than JD Health but higher than PAGD.

• AViC announced its 2HFY9/23 earnings on May 15.
• For 1H,Oct.–Mar., AViC posted net sales of ¥730 mn, +30.1% YoY, and operating profit of ¥140 mn, a slight year-on-year decline of 5.1%.
• On account of a deterioration in the funding environment for start-up companies, AViC lost some of its start-up clients, which account for a percentage of clients that is not insignificant, and saw others cut their budget.

• In the first quarter, GoDaddy drove double-digit growth in its Commerce and Applications segment, supported by 10% ARR growth in its Create and Grow products.
• The Core Platform revenue of GoDaddy was $698 million, with a strong normalized EBITDA margin.
• The newly managed WooCommerce store offering of GoDaddy replaced its old managed WordPress Commerce offering.

Datatec reported solid results for FY23 with revenue and adjusted EBITDA ahead of our forecasts. As supply chain issues eased in H2, all divisions accelerated revenue growth as they started to work down order backlogs, and working capital was tightly managed to reduce net debt by 18% at year-end. Further unwind of the backlog combined with sustained strong demand drives our revenue and adjusted EBITDA upgrades for FY24 and FY25. After factoring in higher interest rates, our underlying EPS reduces by 8% in FY24 and 4% in FY25.

MGI – Media and Games Invest (MGI) is building a strong position in the programmatic adtech sector, under the Verve name. Its supply (publishing) side is expanding its customer base in a difficult market, with Verve now the largest mobile in-app provider for Google in North America and EMEA and fourth largest on iOS. Verve’s demand (advertising) side is growing strongly, from a lower base. The group’s Q123 revenues were up by 1% (organic, +4% with currency), while lower costs from the slimmed-down games portfolio and the operational benefit of the combined tech stacks have lifted margins faster than we anticipated. The share price is at a sizable discount to peers. In our view, this does not reflect the value inherent in MGI’s large first-party data resource, AI-driven targeting or the scale of its opportunity.

• The late Nexon founder Kim Jung-Ju’s family recently paid nearly 4.7 trillion won worth of inheritance taxes to the Korean government by handing over 29.3% stake (paid-in-kind) in NXC Corp.
• We view this handing over the 29.3% stake to the Korean government to be positive overall on Nexon in the near term.
• However, we do not expect this could bring about change in controlling ownership of the Nexon Group in the near term to result in re-rating of the Nexon Group shares. 

• As reported by a local news outlet (YTN), the Korean government will soon list the NXC stake on Onbid, the government’s online auction system (www.onbid.co.kr).
• If the right buyer acquires the 30% stake in NXC, the family members may also sell their stake, leading to an unexpected price impact for Nexon (3659 JP).
• Timing is critical, and the Korean government must aim to list the stake on Onbid as soon as possible, given its current revenue shortfall issue.

• 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

• 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, Indonesia appears to be the only market where sizeable deals are being done as Growatt and Olam Agri  laucnhes got pushed back.
• On the placement front, there were only a few smaller deals that were lauched, apart from the selldown in Coal India Ltd (COAL IN). 

• BILI reported 1Q23 revenue/non-GAAP net income (4.2%)/in-line vs. our estimate, but BILI’s suggested 2Q23 revenue and gross margin are (10%) and (3.5ppts) lower vs. our prior est.; 
• Gaming will be BILI’s major swing factor.  Although BILI indicated that 2Q23 gaming revenue could decline 10% YoY, we expect that gaming revenue will still grow 6%~ YoY in 2023.; 
• We maintain SELL rating and cut TP to US$ 14.1. 1Q23’s earning indicates that BILI’s cost saving measures have led to declining MAU.

• IWI held an in-person briefing for 3Q FY23/6 results on Friday, May 12 at the Securities Analysts Association of Japan Kabutocho Heiwa Bldg. Annex 3F, which was also livestreamed via IR.
• Stock Investment Information portal site Bridge Salon.
• In SIR’s opinion, this 3Q results presentation hosted by IWI’s CEO and Representative Director Kunimitsu Sato was the most upbeat since he assumed office in Sep-2020. 

• Intel’s CFO boosted the current quarter outlook to the higher end of the guided range of $12 billion +/- $500 million
• Intel’s share price was up 4.8% in overnight trading, presumably a result of the forecast boost
• While Intel’s CFO thinks Intel is set to ride an AI wave, we think it will be more like riding a ripple across a rising tide that lifts all boats. 

• BILI’s revenue grew by zero YoY in 1Q22, but operating losses shrank significantly.
• The company reduced the subsidies to video uploaders, so that uploaders have been leaving the app.
• We believe the stock has an upside of 13% for yearend 2023. Downgrade to Hold.

• Tenancy sharing growth is supported by 5G where Cellnex is well positioned to benefit from its leading market position within the European 5G ecosystem.
• New CEO starting on June 4th. Target: to deliver on organic growth, reach investment grade, improve free cash flow generation
• Remains a takeover target. Trades on a discount to peers

• Bilibili Inc (BILI US) ’s 1Q2023 top line growth remained flat (+0.3%) while cost control measures helped reduce losses. This marks the lowest quarterly revenue growth for the company since 2017.
• Mobile games revenue further decreased while Value Added Services (VAS) revenue growth dropped to 5.1% during the quarter, lowest ever for the segment.
• There was no disclosure on paying user numbers and we do not expect any significant recovery in top line growth over the next 2-3 quarters.

• Datadog had a good Q1 as they exceeded analyst expectations on all fronts, with revenue of $482 million, a 33% YoY increase, and added approximately 1,400 net new customers.
• The company observed growth from existing customers and continued to see customers optimizing their cloud spend.
• In addition, Datadog made significant advancements in its product offerings, introducing new security capabilities such as Application Vulnerability Management and enhancing its Cloud Security Management product.

• Builder.ai, an AI-powered composable software platform, has raised US$250 million in a Series D funding round led by Qatar Investment Authority (QIA), the sovereign wealth fund of the State of Qatar.
• Existing and new investors, including Iconiq Capital, Jungle Ventures, and Insight Partners, joined.
• This round takes Builder.AI’s total fund raised so far to US$450 million.

• Most of the red flags that I have outlined before are now being taken care of, but I remain cautious for the time being.
• The market continues to react negatively to what was in my view a very good quarter, says Salesforce’s chief executive.
• A lot has changed since I first covered Salesforce (NYSE:CRM), back in December of 2020.

• ZUZU Hospitality, a revenue platform provider for independent hotels, today announced an oversubscribed US$9 million (SG$12 million) Series B funding round led by SoftBank Ventures Asia, with participation from Atinum Partners and existing investors Wooshin Venture Investment, Visor Ventures and JG Digital Equity Ventures.
• The startup plans to double its hotel partner count across the region with a keen focus on India and reach an impressive milestone of 5,000 partners by the end of 2024.
• Furthermore, it also plans to make strategic investments in AI tools to improve pricing, automate guest management, and improve partner experience.

• BILL Holdings, Inc. (formerly known as Bill.com) had a solid third quarter, with a 63% year-over-year growth in revenue and an all-around beat.
• Over 450,000 businesses used Bill to automate their financial operations, generating $65 billion in payment volume.
• We give BILL Holdings, Inc. a ‘Hold’ rating with a revised target price.

• Indonesia-based digital mortgage startup Ringkas has secured US$3.5 million in a seed funding round led by East Ventures and Crestone Venture Capital.
• 500 Global, Teja Ventures, Orvel Ventures, and Hustle Fund also participated.
• Ringkas will use the fresh funds to advance and scale its platform across multiple cities in Indonesia and the secondary market.

• Tencent is nearing our 302 support target with undershoot risk to sub 300, support at 290. HSI continues to trade heavy but reaching oversold levels.
• The break below 331 acted as the most recent sell trigger and will turn into resistance on the way back up. We turned bearish Tencent back in February. 
• Need to see lower price with weakening sell volumes for better buy conviction. Lower wedge support the buy zone, sync with an HSI low.

• KRX Semicon has experienced a considerable increase in AUM due to the recent AI rally. Two ETFs tracking SEMICON have a combined AUM of ₩0.6T.
• The following five stocks are screened as potential additions: ITM Semiconductor, Hyundai Energy Solutions, TEMC, Fine Semitech, and AT Technology.  
• While it may not be a major flow event, it still presents a trading opportunity worth considering, especially in September, which is relatively less eventful in terms of flows.

• Asia-Based leading personal finance aggregation and comparison platform MoneyHero has filed to go public in the US by merging with Bridgetown Holdings and raise proceeds of up to US$154m.
• This would give MoneyHero a pre-money enterprise value of US$200m and an equity value of US$198m with post-money EV of US$342m assuming no redemption by Bridgetown’s public shareholders.
• MoneyHero Global (1534965D HK)  plans to use proceeds from the deal to further accelerate growth and capture market opportunity in the region.

• The potential spin-off listing of Alibaba Group (9988 HK) Cloud faces significant challenges from various factors, making the timing particularly challenging for the spin-off.
• The Cloud Business is experiencing intensifying price competition, while simultaneously facing substantial regulatory risks, particularly with the Chinese Government’s plans to nationalize the cloud computing market.
• Due to the ongoing price war and the potential risk of nationalization, we believe that Alibaba (ADR) (BABA US) Cloud’s fair value is substantially below $10bn.

• Financial illiteracy has become a global problem, leading many to make uninformed, crippling decisions. This is especially true in Indonesia.
• With informal financing and predatory lending running rife, the country has a financial literacy rate of 38%.
• SkorLife, a credit builder based in the country, looks to change this. Founded by Ongki Kurniawan and Karan Khetan in 2022, the startup allows users to check their credit scores from Indonesia’s bureaus.

• Indonesian agritech startup eFishery has raised US$108 million in series D funding, pushing its post-money valuation to US$1.3 billion, according to VentureCap Insights, which tracks regulatory filings.
• The latest round is led by 42xfund and it saw participation from existing investors Northstar Group and SoftBank Vision Fund II.
• EFishery last raised US$90 million in a series C funding round in January 2022.

• Q1 Revenue growth and gains in profitability both strong, but Q2 guidance unexciting
• FTA is making good progress on promoting its automated freight matching service
• But other changes will require more time, and investors are impatient

• Canon was late to market with its 193-nm immersion litho tool developed in 2007 causing it to cede the leading-edge litho race to ASML and, to a lesser extent, Nikon
• The company has been working on NanoImprint Lithography as an alternative to EUV since 2004 & was supposedly fast tracked by the acquisition of Molecular Imprints in 2014
• Commercial launch was originally slated for 2015. We’re still waiting. Why?

• On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
• Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
• In our previous notes, we highlighted which divisions could list and looked at some of the divisions in more detail. In this note, we will talk about the international operations.

• Schrole Group Ltd (ASX:SCL) is an Australian software company focused on providing human resource technology solutions to the international education and training sector.
• Schrole has developed a suite of five HR Software-as-a-Service (SaaS) offerings including the core product, Schrole Connect, a SaaS-based staff recruitment platform.
• Schrole Group has held its CY22 annual general meeting in Perth, noting that it has an ambition of reaching a 25% share of the international schools’ HR SaaS market in the medium term. 

• Chewy will report 1QFY23 financial results after the market close on Wednesday, May 31, 2023. Management expects 1QFY23 net sales of between $2.72B and $2.74B, representing 12%-13% y/y growth.
• I calculate that insiders such as CEO & Director Mr. Singh, CFO Mr. Marte, and other management team sold ~$28M worth of Chewy shares during the last six months.
• My bear case scenario suggests downside on the continued slowdown in consumables, hard goods sales, intense competition in the pet insurance and pet health care segments, and uncertain macro environment.

As previously flagged, Nano Dimension has launched a tender offer at $18/share to buy up to 40.8% of Stratasys shares, with the aim of taking its stake to 55%. This would cost up to $502.7m in cash; we note that Nano Dimension had cash and short-term deposits of $957m at 21 May. On the same day the tender offer was launched, Stratasys announced plans to merge with Desktop Metal.

• The board’s renewal and the arrival of a new CEO (both should be a positive catalyst) are on track and will be completed in the coming weeks.
• Gone the takeover angle, Cellnex’s new strategy focuses on organic growth and deleveraging, aiming an investment grade rating and reducing net debt by end of FY2024 (already 5.6x net debt/2023e EBITDA).
• Cellnex trades at 15.3x EV/Fwd EBITDA, vs. 28.8x American Towers and 24.4x Inwit. TCI may still look for ways to increase the value of its investment.

• Recently, a controversy surrounding substantial crypto investments in the political sphere has exerted downward pressure on the stock prices of major listed game companies in South Korea. 
• In the past five years, there has been a shift in the gaming industry’s risk landscape, with social risks giving way to governance risks.
• Some game companies have started publishing sustainability reports, but challenges arise due to the inconsistency in environmental data and the difficulties in comparing companies.