TMT/Internet

• The Hang Seng Tech Index (HSTECH INDEX) represents the 30 largest technology companies listed in Hong Kong which have high business exposure to certain technology themes.
• This index was launched in 2020 and has gained significant passive tracking over the last two years.
• In this insight, we take a brief look at the selection criteria and the historical price performance of past Rebalance Events.

• We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (10 February) that are being highlighted by the locals. 
• The potential candidates for inclusion in the MSCI Korea Index emphasized by locals in February 2023 include Kakao Pay and Hanwha Aerospace. 
• The potential exclusion candidates in the MSCI Korea Index emphasized by locals include S-1 Corp, Celltrion Pharm, and Cheil Worldwide. 

• China’s gaming regulator granted publishing licenses to 88 video games including three licenses to Tencent (for Undawn, Alchemy Stars and Yuan Meng Zhi Xing) and one for NetEase (for Badlanders).
• In December, NPPA gave approvals to 84 new domestic games and 44 imported games suggesting the 18-month long crackdown on the sector is nearing an end.
• Tencent’s online games revenue declined YoY for three consecutive quarters with regulatory hurdles and drop in ranking of key titles but we expect an improvement going into 2023.

• Agriculture – including forestry and fisheries – is one of the most important sectors in the Philippines.
• In 2021, it accounted for US$32.4 billion or 9.6% of the country’s gross domestic product and 24% of its working population.

• In 2019, Mayani was established by several serial entrepreneurs to digitalize the system. The company provides a marketplace to connect farmers with individual and enterprise customers.

• Singapore-based cybersecurity firm Blackpanda, which specialises in incident response and digital forensics, has secured US$15 million in its Series A funding round.
• The company will use the capital to expand its technology-enabled cybersecurity services, including digital forensics and incident response.
• It will also develop its underlying Artificial Intelligence and Machine Learning cybersecurity insurtech platform.

Esker’s Q422 revenue update confirmed that the company hit the mid-point of its revenue guidance for FY22, despite the already flagged slowdown in volumes processed. The company continued to see strong bookings intake, with the annual recurring value (ARR) of contracts for Q422 up 21% y-o-y in constant currency (cc) and up 19% cc for FY22. This provides support for management’s FY23 guidance; our FY23 estimates are within the guidance range and we maintain our forecasts pending FY22 results on 23 March.

• In this note, we will take a look at broker performance for HK IPOs from 2019-2022. 
• The following dataset includes all HK IPOs above US$100m for the period of Calendar Years 2019-2022, which amounted to a total of 173 deals. 
• The deals you see in this note are based on our historical IPO tracker. Feel free to drop us a message for additional information on any of these IPOs.

• ChatGPT is a mind boggling advancement in AI-human communication. I recommend EVERY reader of this insight to try out this service.
• This insight on ChatGPT has three parts: First, I discuss the basics of ChatGPT and valuations. Second, I provide 13 examples of questions or requests that I made to ChatGPT.
• Third, I discuss some key investment opportunities that could capitalize on all the “buzz” surrounding ChatGPT at this moment. 

• Some shareholders of Anycolor (5032 JP) are looking to raise US$151.5m via an International Only Follow-on offering. 
• The deal is a relatively small one to digest in terms of ADV, representing only 4 days of three-month ADV.  Although, it is still 10% of current mcap. 
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• China just announced game approval for January batch. The number of games approved is slightly higher than the previous three months.
• Pace of China game approval stays flattish, at a much slower pace than pre-tightening.
• Both Tencent and Netease received approval for one game each. Overall Tencent is still behind its peers since the approval resumed.

• IQiyi announced a follow-on equity offering of 76.5m ADS priced at $5.90 per ADS (at a 11% discount to previous close) and will raise approx. $442.3m through the issuance.
• Each ADS represents seven Class A ordinary shares and the new equity offering of 76.5m ADS will account for approx. 8.5% of iQiyi’s extended share capital post offering.
• Following the announcement, the company’s shares fell 16.4% and we think the upside is limited here.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the June 2023 Rebalance.
• Adani Enterprises (ADE IN) could be added and Wipro Ltd (WPRO IN) could be deleted from the SENSEX Index. There could be multiple changes for BSE 100, 200, and 500.
• Below is a look at our estimated rankings for potential ADDs/DELs, their recent price performance vs peers, and potential trading opportunities.

• Visa continues to outperform the market and fully capitalize on the prolonged business cycle.
• The company’s share price appears fairly valued both relative to peers and to its historical business fundamentals, according to the company’s stock price.
• The share price seems fairly valued and to the historical business fundamental, says the company.

• Big declines in NAVER Corp holdings among active Asia Ex-Japan investors in 2022
• Allocation drop part of broader rotation out of South Korea, but NAVER Corp the most aggressively sold.
• Current exposure close to the lowest on record, but past trends suggests this could represent a turning point.

• IQIYI Inc (IQ US) aims to raise net proceeds of US$442.3 million through the placement of 76.5 million ADS at US$5.90 per ADS.
• The net proceeds will be used for working capital purposes, including serving its existing debt obligations. The placement closes on 19 January. 
• The placement price is fair vs peers and is an opportunity to play iQiyi’s expected topline recovery which is supported by ongoing margin improvement and declining cash burn. 

• Hewlett Packard Enterprise’s quantitative operating features are a mess, with its EBITDA margin, inventory turnover, and NOPAT all in decline.
• Yet, we might witness a slowdown in 2023 as corporate earnings could stagnate.
• The stock provides a desirable dividend, but its price return prospects are glum.

• On the 9th of January, 2023, the Republic of Djibouti signed an MOU with Hong Kong Aerospace Technology (1725 HK) (HKAT) to develop a (reported) US$1bn international commercial “spaceport”.
• In the middle of last year, Djibouti announced plans to launch two nanosatellites to facilitate farming and other related activities.
• HKAT, a recent back-door listing, has a market cap of US$258mn. Wholly-owned subsidiary Gang Hang Ke (Shenzhen) Space Technology, has been successfully involved in the launch of ten satellites. 

• IQIYI aims to raise around US$500m via a follow-on ADS offering.
• While the company hasn’t stated its use of proceeds, it will probably use most of it to redeem convertible notes
• In this note, we will talk about the deal dynamics and  run the deal through our ECM framework.

• As for the one using the creation/redemption mechanism, the tracking error (market value – NAV) is still too tight to call this an arbitrage opening.
• Then, at this point, we need to pay attention to ETF arbitrage from a pair trade perspective. There are a total of 3 pairs we can consider for this.
• The mean reversion cycle is still not short. However, the diversion range is not extensive, so we can aim for a relatively stable setup in a market with increased volatility.

• Money Forward (3994 JP) reported 4QFY11/2022 results yesterday. Revenue increased 42.5% YoY to JPY6.2bn (vs consensus JPY6.0bn) driven by growth in both MF Business and MF Home.
• Operating losses for the quarter widened to JPY2.2bn (34.8% of revenue) from JPY661m (15.2% of revenue) in the same quarter last year (vs consensus JPY2.0bn).
• Though MF’s top line continues to grow, we have not yet seen a meaningful improvement in its profitability, and we think, MF’s shares are overvalued compared to its counterpart freee.

• The Hang Seng China Enterprises Index (HSCEI INDEX) is one of the most widely discussed indices in the Hang Seng Indices family.
• The HSCEI serves as a benchmark to reflect the overall performance of “Mainland” Securities listed in Hong Kong.
• In this insight, we take a brief look at the selection criteria and the historical price performance of past Rebalance Events.

• Alibaba (ADR) (BABA US), along with several other Chinese tech names have rallied more than 100% over the past 2.5 months with the Chinese government indicating regulatory crackdowns are over.
• However, we think this could just be a temporary respite for tech names as there’s a lot more to be done in terms of a data security and privacy standpoint.
• Nevertheless, Alibaba Group (9988 HK) is still quite expensive, given that government interventions have pretty much curtailed Alibaba’s avenues for growth in the domestic market.

• The Chinese government may possibly buy minor shares in Alibaba and Tencent.
• JD.com’s long-term competitor, Dangdang, opened a bookstore in JD.com’s app.
• In 2022, both Tencent Video Account’s active user base and time on site reached 80% of We Chat.

• BABA US is up 85% from October lows and continues to trade well in 2023 up 32% in January
• Stock has benefitted from not only improved economic sentiment but also an end to the 2-year crack down on the Internet Sector
• We suggest using call ratios to increase upside leverage prior to earnings release

• Money Forward Q4 sales rose +42% YoY to Y6.2bn driven by corporate ARR (+55% YoY)
• Full year revenue guidance for FY11/23 is in line with consensus 
• We still see over 20% upside in the stock if the company hits the top end of revenue guidance

• Tencent faces formidable resistance at 385 that may not be seen for a while. 385 is where old lows and old highs coincide.
• RSI is extended (ST sell and bounce). Buy volumes are descent but have been drifting since late 2022.
• 385 a good zone to sell cash positions or short to challenge pivot supports outlined. 320 is an intermediate level to hold to keep things glued together.

• Short video continued to accumulate active users in China and the company’s light-version grew the most rapidly.
• We believe the revenue growth rate will rise from 2Q23 and the company will have positive operating profit from 2024.
• We set the price target at HK$103, which is 44% over the market price.

• Qingdao Ainnovation Technology Group (2121 HK) was listed on 27th Jan 2022, with its one-year lockup expiring on 27th January 2023.
• Qingdao AInnovation Technology Group is an AI solutions provider offering full-stack AI-based products and solutions.
• Coming up for one-year lockup expiry are the pre-IPO shareholders. Bulk of them are in the money as some have invested as early as 2018.

• UMC vs. TSMC results review comparison: Vastly different tones of results shows the large gap in industry performance for the most advanced chips products vs. the lesser advanced.
• Japan gives mixed signals about rapidly joining U.S. chip restrictions vs. China.
• TSMC and UMC were some of the most net-bought stocks in Taiwan by foreigners last week.

• Q4 revenue growth of 43% was driven by growth in sales to corporates (+54%) on new user growth, customer mix, and upside from cross-selling
• EBITDA erosion improved from the peak losses of Q3 and whilst it has not issued full-year FY23 guidance, it says it expects steady improvements as the year goes on
• This was a good quarter but we expect that is largely reflected in the share price after a 61% run over the last six months

• After a gap of over fifteen years from formal coverage of Venture Corp (VMS SP), I took a look again this week, not much seems to have changed.
• Venture Corp’s management hankering for “charm” in its contracts, with respect to NOT just return on investment but also return on effort will be the primary risk for growth
• Excellent anchor customers have boosted margins. The tech slowdown might entice larger EMS to be more aggressive and chase these businesses placing margins at risk.

• TSMC’s comments during its 4Q22 analyst call indicate the company expects an industry recovery in 2H23E, adding further confirmation to this view expressed by other firms.
• TSMC grew faster than the industry in 2022 and expects to grow faster than the industry in 2023E again.
• Based on our cycle-adjusted PE valuation metric, TSMC my not be super cheap vs. history, but it is also inexpensive.

• AvidXchange is one of the leading providers of AP automation software and payment solutions for mid-market businesses and their suppliers. The company was founded in 2000 in the United States. 
• With a large $20B+ TAM and valuation at ~5x FY23 revenue estimate of $392M – significantly below the average for software and payment peers – we believe shares are undervalued. 
• Management raised the FY22 revenue outlook and expected a strong FY23. AvidXchange is two years from GAAP profitability, likely making the stock volatile in the coming years.  

• Given the likelihood of more buybacks and pressure on capital allocation and structuring of the renewable energy business, Cosmo Energy (5021 JP) is more of a buy than a sell.
• Olam Group (OLG SP) is a tricky beast to analyze. A key issue for investors is valuing Olam, ex- Olam Agri, ex- OFI.
• Unloved as it is, Yamada Denki (9831 JP) is still cheap. 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs
• Things remain quiet on the IPO front and are likely to remain that way till CNY. Korea was once again the one that set the IPO ball rolling.
• Placements were a different matter with deal flow pickup up where it left off last week.

• DearU’s acquisition of NCSoft’s Universe K-Pop fandom platform will expand DearU Bubble’s number one position in the K-Pop fandom platform in Korea.
• The sale of Universe by NCSoft is a win-win situation for both DearU and NCsoft.
• Applying a 25x P/E to an estimated net profit of 50 billion won in 2024 would suggest an market cap of 1.25 trillion won for DearU, representing a 52% upside. 

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• Stocks mentioned include WWPKG Holdings Co Ltd (8069 HK), Tianyun International Holdings (6836 HK), Yeahka Limited (9923 HK), GHKGBA (1396 HK), and Flat Glass (6865 HK).

• Our base case valuation of Oasis Corp is EV of 605 billion won, implied market cap of 788 billion won, and target price of 24,847 won per share. 
• This is 18.5% lower than the low end of the IPO price range. Given the lack of upside, we have a Negative View of the Oasis Corp IPO.
• The end of COVID pandemic and relaxed regulations for hypermarkets in early morning delivery services are likely to have greater negative impact on Oasis Corp. 

• Taiwan’s government has passed new major tax subsidies to support semiconductor firms’ R&D and capex spending.
• TSMC results will be out this afternoon; Interestingly, TSMC’s CEO has been buying shares during October, November, and December.
• Hon Hai has begun iPhone 15 trial production, and Zhengzhou is back to 100%.

• Oasis Corp is getting ready to complete its IPO on KOSDAQ in February 2023. Oasis Corp is a leading online/offline provider of organic foods and other groceries in Korea.
• IPO price range is from 30,500 won to 39,500 won, with a total offering amount of 160 billion won to 207 billion won. 
• Other than Coupang, the other three companies (bankers’ valuation) may not be appropriate comps, mainly because they operate in different markets around the world and are much bigger in size.

• Shift Inc (3697 JP) reported 1QFY08/2023 results today. Revenue increased 35.6% YoY to JPY19.3bn (vs consensus JPY19.8bn) while OP decreased 7.4% YoY to JPY1.8bn (vs consensus JPY2.2bn).
• Both GPM and OPM have dropped compared to 1QFY08/2022 but shows significant improvement over last two quarters suggesting unprofitable development projects are coming to an end.
• Though 1Q earnings fell a touch below consensus, we would not be too concerned as the company’s new services and being the market leader should drive long-term growth.

• Init-6, East Ventures, 500 Southeast Asia, and a number of investors participated in this funding round for Imajin

• Founded by Chendy Jaya, Imajin is a platform that connected local manufacturers with potential customers.
• By July 2022, the startup has secured more than 400 local factory partners and 80 customers, including Japanese companies operating in Indonesia

• Singapore-based parenting network Supermom has closed its “oversubscribed” SG$8 (US$6) million Series A fundraising round, led by Qualgro, with participation from AC Ventures
• The startup will use the money to enhance its data and product capabilities and accelerate regional expansion

• Supermom provides data and consumer insights for over 200 consumer brands, including mother & child, education, FMCG, fashion, and beauty

• Three years ago I wrote Fujitsu Subsidiary Selldowns or Buy-Ins? My choice then was Fujitsu Frontech which was bought out 8 months later. 
• A Bloomberg article today with quotes from an interview with the CEO of Fujitsu fuelled some movement today. 
• The “obvious” trade is Shinko Electric Industries (6967 JP) but you have to buy the new dream.

• The January 2023 TOPIX FFW Trade was announced today. The two-way trade is worth about ¥325bn. 
• There are four ADDs previously discussed: Sun* (4053 JP), Appier Group (4180 JP), Chubu Steel Plate (5461 JP), and Chubu Steel Plate (5461 JP). 
• There are 57 downweights, 11 upweights (but only seven FFW buys). The rest is reverse funding to buy. There are 10 names with >$10mm AND >3 days ADV to sell.

• This insight provides a trading strategy on LG Energy Solution (373220 KS) with a focus on the end of the ESOP shares lockup period on 27 January.
• Currently, LG Energy Solution is trading at P/E of 46.5x in 2024 which is more than 100% higher than the P/E multiples of CATL (20.4x) and Tesla (19.2x) in 2024.
• Our view is that in the long-term, LG Energy Solution should not trade at such high valuation premium to Tesla given the latter company’s higher return on capital.

• We expect BABA’s  revenue in C4Q22 to be in line with cons., non-GAAP net income to beat cons. by 6%, supported by cost reduction in Freshippo, Taocaicai and Taobao Deal. 
• Affected by logistics disruption and rising infections, we estimate BABA’s GMV and local consumer service in C4Q22 to decelerate compared to C3Q22. Both segments are to recover in C1Q23.
• We raise TP from US$110 to US$130 to reflect upsides from rebound of discretionary demand, slowing Douyin eCommerce growth, and easing regulatory environment. Our TP implies 13x PE in FY2024.

• Chinese equity vol has been high over the last few months with extreme market moves on a number of headlines but is starting to calm down
• US equity volatility continues to screen cheap despite calls for a challenging year and likely recession
• We consider 2 relative vol trades to play a narrowing of the spread

• On 11 January, it was announced that Kakao Entertainment (103260 KS) has attracted large scale investments from Saudi Arabia’s Sovereign Fund (Public Investment Fund – PIF) and GIC (Singapore).
• Maekyung Business Daily reported that PIF and GIC combined invested about 1.1 trillion won to 1.2 trillion won in Kakao Entertainment, valuing the company at about 10 trillion won.
• This major investment in Kakao Entertainment by PIF and GIC should have a positive impact on Kakao Corp (035720 KS), the controlling shareholder of the company.

• We expect FUTU to post C4Q22 revenue and non-GAAP net income 6.4% and 16.0% above consensus, driven by the improved turnover rate in HKEX and the rising interest rate. 
• We believe the recent regulation measures has little impact on FUTU’s adjusted expectations now widely held by investors. We expect revenue growth to reaccelerate at 37%/31% YoY in 4Q22/2023.
• Maintain BUY to FUTU and raise TP by US$1 to US$51.

• In C4Q22, we expect JD’s total revenue to grow 8% YoY, largely in line with cons. Non-GAAP net margin is expected to reach 2.0%, up 0.7ppt YoY.
• We estimate JD’s GMV growth in C4Q22 to be ~7% YoY, slightly slower than C3Q22 due to logistics disruption in October and November.
• Maintain BUY rating and raise TP to US$70.0 due to for acceleration in top line as well as margin improvement. Our TP implies 23x P/2023E.

• We forecast iQIYI 4Q22 top line would be in line, while bottom line would beat cons by 6.4%, largely due to the strong content pipeline and continued cost-saving measures.  
• Although IQ conducted a series of cost saving measures, we expect these measures are not sustainable. Our top and bottom lines in 2023 are (3.4%)/3.4% vs cons.
• Reiterate with SELL and TP US$ 4.15, implying 14.9X PE in 2023.

• As M&A activity has cooled down, some risks for shareholders have been reduced and management has prioritized higher returns to shareholders.
• Although I am turning cautiously positive on Mastercard, there are still risks that need to be considered, according to Mastercard’s chief executive.
• The performance gap between Mastercard (NYSE:MA) and the S&P 500 that opened in 2021 has now been completely closed.

• KT’s foreign room has been rising since early September last year. If this trend continues, it will likely approach the inclusion borderline of 15% within a month or two.
• This trend is expected to continue for the time being as the tough relationship between the KT CEO and the government seems unlikely to be resolved in the short term.
• The February inclusion is pretty tight, but May seems like we could be looking out for it.

• In this note, we will take a look at the Asia Pacific IPO pipeline for 2023, starting with Hong Kong. 
• This list has been compiled on a best effort basis from tracking the company filings and through various other sources.
• The deals you see in this note are only a part of our full IPO pipeline tracker. Feel free to drop us a message for additional information on these IPOs.

• Darktrace is a cyber security and AI unicorn backed by leading VC firms. The company was founded in Cambridge, UK, in 2013 and crossed the $500M ARR mark in 2022.  
• Darktrace (DARK LN)  currently trades at ~4x EV/CY22E revenues, a steep discount relative to other US-based cybersecurity peers that trade at an average of ~9x EV/CY22E revenues.
• The cyber defense company achieved GAAP Op Margin and FCF Margin break-even in FY21 and FY22, with an opportunity to deliver profitable stellar growth in the coming years.

• US CPI data is due on Thursday 12th January and is likley to be another important data point
• SPX Index is down nearly 5% since November and NDX Index is down nearly 8% over the same period
• We look for short-term trading opportunities in the options market

• Sim Wong Hoo, founder, and CEO of Creative Technology (CREAF SP), passed away last week.
• Sim Wong Hoo controls 33% of Creative. He has two children but they are not involved in the company. What will happen to his stake is a big unknown. 
• The IP portfolio of Creative Technology (CREAF SP) could be appealing to other technology companies. Given its large cash position, the Enterprise Value is only 34M USD.