TMT/Internet

Nexon is our top pick within the Japanese Gaming Sector
We see continued strong growth in revenue driven by existing game franchises in addition to new pipeline opportunities
Nexon is cash rich, debt free and is returning more and more money back to shareholders

Nexon Q3 In-Line-Ish, Underperformance Achievement Unlocked, Buyback Language Odd

By Travis Lundy

Nexon (3659 JP) reported Q3 earnings and full-year forecasts today. Revenue came in at the bottom end of August guidance, despite the higher-than-forecast USD/yen rate.
The forecast for full-year is below consensus. This may be seen as disappointing. The stock may fall on this.
But a buyback announcement and relative valuation suggests time to cover the short.

Intel Vs. TSMC & ADR Monitor: TSMC to Build New High-End Fab In Arizona, Premium Bounce Potential

TSMC is planning to build a second Arizona fab that could produce its highest-end 3nm chips, according to the WSJ.
TSMC ADR Premium Impact: The TSMC ADR premium is near zero, and increased U.S. investor enthusiasm could lead to a significant bounce for the premium.
INTC vs. TSMC Impact: News flow could favor TSMC over Intel over the next few days, at least until a November 14th conference Intel will be attending.

Tencent (700 HK) Earning Preview: To Stop Decreasing in 3Q22, and an Upside of 67%

By Ming Lu

We believe Tencent’s revenue will stop declining in 3Q22 and bounce back thereafter.
We believe FinTech will grow fast, but online game will still be stagnant.
We expect Tencent will have an upside of 67% for year end 2023.

ARLO: Service in a Tough Market, PT to $8

ARLO affirmed the slowdown in consumer purchasing that began in September and is expecting the market to remain soft through the middle of 2023
While ARLO had reduced channel inventory in the second quarter, it had started to ship more product into the channel by the time there was a shift in the market
Number of paid subscribers continues to rise in Q3 with ARLO adding 195 thousand. ARLO is expecting paid subscriber growth to continue as the channel sells units to the consumer

XPER: New Launches Reduce Execution Risk

XPER reported third quarter results after becoming a separate operating business at the beginning of October
XPER is progressing in adding new customers for its different product lines with revenue expected to ramp in subsequent quarters
The third quarter did not have much in the form of surprises with XPER maintaining its full year guidance.

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Nov 09

Daily Brief TMT/Internet: Softbank Group, Socionext, NTT (Nippon Telegraph & Telephone), Intouch Holdings, Nintendo, SK Telecom, Nasdaq-100 Stock Index, First Solar Inc, Pinterest Inc and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Softbank Group – Accelerated Buyback in October Drove Share Price Surge
TOPIX Inclusion: Socionext (6526 JP) – Momentum Is Fading, Exit Now.
NTT Q2 Results and a New Buyback
Singtel Holds The Key To Gulf Energy’s Takeunder For Thaicom
Nintendo (7974) | No Christmas Present This Year
NTT (Buy) – Q2 22 Results Reaction: Expanded Buyback Is Second Largest Ever
A Pair Trade Between SK Telecom & LG Uplus
EQD | SPX Vs NDX : Could CPI Spark a Reversal of Tech Performance Versus the Broader Market?
First Solar Inc: Major Drivers
Pinterest Inc: New Marketing Campaign & Other Developments

Softbank Group – Accelerated Buyback in October Drove Share Price Surge

Softbank Group (9984 JP) massively ramped up share buybacks in October driving a 31% increase in the share price
Average Daily Volume (ADV) was 28% higher in October and 46% higher for the last half of the month. October buyback volumes were the second highest for a month ever
Whether Softbank announces additional buyback plans likely depends on the timing of the ARM IPO and that partly depends on Q2 performance

TOPIX Inclusion: Socionext (6526 JP) – Momentum Is Fading, Exit Now.

By Janaghan Jeyakumar, CFA

Japan-Based System-On-Chip designer and IP purveyor Socionext (6526 JP) was listed in the “Prime” section of the Tokyo Stock Exchange (TSE) on 12th October 2022.
When a company gets listed in the Prime section, it subsequently gets included in the TOPIX Index requiring TOPIX-tracking funds to purchase the stock during an Inclusion Event.
Usually, this presents interesting trading opportunities to generate sharp market-neutral returns in the space of few trading days. Below is a look at the details for Socionext’s TOPIX Inclusion Event.

NTT Q2 Results and a New Buyback

By Travis Lundy

NTT (Nippon Telegraph & Telephone) (9432 JP) announced Q2 results today during market hours. The stock had been trading up 1.1% on the day, but fell 1% in 5 minutes.
It then spent the rest of the day grinding higher to end just higher than just before results.
NTT announced another buyback – this one on-market. It is only a little bit of a surprise.

Singtel Holds The Key To Gulf Energy’s Takeunder For Thaicom

In April 2021, Gulf Energy (GULF TB)‘s surprising VTO for Intouch (INTUCH TB) was conditional, inter alia, on a waiver NOT to make a downstream offer for Thaicom (THCOM TB).
Now Gulf has announced an intention to acquire Intouch’s 41.13% stake in Thaicom for Bt 9.92/share, a 19.3% discount last close, the completion of which triggers an MTO.
The acquisition of shares from Intouch requires approval from Intouch shareholders. Gulf, with 46.44% of shares out, is required to abstain.

Nintendo (7974) | No Christmas Present This Year

The share price is roughly flat since we turned Bearish on Nintendo citing concerns that the cycle had peaked
Q2 results released today suggest that the hardware cycle has indeed peaked – Switch hardware guidance cut
We see a lack of catalysts for the stock price over the next several months and remain bearish

NTT (Buy) – Q2 22 Results Reaction: Expanded Buyback Is Second Largest Ever

Results were mostly positive with strong forex-boosted revenue growth and mobile outperformance
An expansion of the buyback program helps sentiment as an additional Y150bn program takes FY22 buybacks to the highest single-year total since 2005
Comments at the analyst meeting focused on underlying costs but management seems positive that it can manage with cost efficiencies

A Pair Trade Between SK Telecom & LG Uplus

At current prices, we like a pair trade between SK Telecom (go long) and LG Uplus (go short).
We believe the share price gap has widened too much in the past month in favor of LG Uplus and this gap is likely to close in the coming weeks.
While LG Uplus tries to expand its non-telecom businesses, this may involve greater spending on marketing and promotions (as % of sales), which could be a drag on its earnings.

EQD | SPX Vs NDX : Could CPI Spark a Reversal of Tech Performance Versus the Broader Market?

By Simon Harris

All eyes are on inflation data this week with CPI due out on Thursday
Shorts in tech have been working but could be looking to take profits after big gains last week
Use options for a cheap play on NDX outperformance over SPX

First Solar Inc: Major Drivers

First Solar’s bull run was halted by a below par result in the last quarter as the company failed to meet Wall Street expectations with respect to revenues as well as earnings.
The company’s manufacturing plants produced 2.4 gigawatts of modules in the third quarter and sold 2.8 gigawatts.
Besides, their current fleet’s manufacturing performance metrics remain consistent, and plans for the third manufacturing plant in Ohio are still on track.

Pinterest Inc: New Marketing Campaign & Other Developments

Pinterest’s performance as a stock has been fairly decent in what can be termed as a tumultuous environment for the technology industry.
The company’s global MAUs of 445 million were higher than in Q3 2021 because it largely overcame the pandemic’s difficulties and increased user engagement.
During the quarter, they collaborated with Merlin, BMG, Warner Music Group, and Warner Chappell Music to enhance the music experience on Pinterest.

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Nov 08

Daily Brief TMT/Internet: AEM, Blibli, HPSP, Taiwan Semiconductor (TSMC) – ADR, Coupang, Internet Initiative Japan, Hon Hai Precision Industry, Ethereum, Apple, Mastercard and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

AEM: Another Solid Earnings Report, but Mr. Market Remains Worried on Outlook
BliBli IPO Trading – Upsized, Priced near Top-End but Should Be Trading at Least 50% Lower
Shorting Setup on Additions to KS200/KQ150 with KODEX Battery ETF Flow
Taiwan Semiconductor Manufacturing Co Ltd (TSM US): TSS < 10 - Target Tactical 6-8% Upswing
Coupang: Market Share Loss Likely Due to Launch of Naver’s 24 Hours Next Day Delivery Service
Internet Initiative Japan (Buy) – Q2 22 Results Reaction: Mobile Recovery Boosts Corporate DX Growth
Taiwan Tech Weekly: Hon Hai U.S. Listco EV Deal, Germany Likely to Block China Co’s Factory Purchase
FTT Liquidity Faces Key Test
Apple Inc.: Latest Updates
Mastercard Inc.: The Crypto Source Program & Other Drivers

AEM: Another Solid Earnings Report, but Mr. Market Remains Worried on Outlook

By Nicolas Van Broekhoven

AEM reported its best PBT 3Q and 9M22 results ever, yet investors remain skeptical of its FY23 outlook
Management reiterated guidance and provided a bullish statement about the coming years
AEM EPS likely to reach at least 0.42 SGD leaving the stock trading at only 7.8x P/E FY22

BliBli IPO Trading – Upsized, Priced near Top-End but Should Be Trading at Least 50% Lower

By Sumeet Singh

PT Global Digital (BliBli) raised around US$517m in its Indonesian IPO, after using the upsize option and pricing its deal just below the top-end.
BliBli provides e-commerce services across Indonesia to both retail consumers and institutions.
In our previous notes, we have looked at the company’s past performance. In this note, we will talk about the trading dynamics.

Shorting Setup on Additions to KS200/KQ150 with KODEX Battery ETF Flow

By Sanghyun Park

Korea’s partial short-selling system, implemented in May last year, created a new trading pattern, a surge in short selling for new additions, immediately after index rebalancing.
Canaria Bio, HPSP, and SungEel Hitech are highly likely to be the primary targets for short selling, but there is one more thing we need to consider.
KODEX will likely begin rebalancing buying on HPSP and SungEel on December 9, the same day the short-selling starts for them. So, we need a more flexible setup.

Taiwan Semiconductor Manufacturing Co Ltd (TSM US): TSS < 10 - Target Tactical 6-8% Upswing

By David Coloretti, CMT

TSM US has declined 35% since mid-August 2022 and 59% from its January 2022 peak.
A new 2022 low of 59.43 was produced on Thursday 3 November amid extreme bullish ST momentum failure.
Our TSS methodology triggered a TSS < 10 at the low and justifies a further 6-8% upside in the coming 1-2 weeks.

Coupang: Market Share Loss Likely Due to Launch of Naver’s 24 Hours Next Day Delivery Service

In December 2022, Naver plans to launch its long awaited 24 hours delivery service (Naver Arrival Guarantee Solution), competing directly against Coupang’s “rocket delivery” services in Korea.
Coupang’s valuations are not attractive at current levels and the heightened competition in the 24 hour delivery service market from Naver/CJ Logistics is likely to negatively impact Coupang.
By providing 24 hours quick delivery service, Naver is expected to take away market share from Coupang from the fast delivery services in Korea.

Internet Initiative Japan (Buy) – Q2 22 Results Reaction: Mobile Recovery Boosts Corporate DX Growth

Internet Initiative Japan (3774 JP) posted solid Q2 results with the best quarterly revenue growth since 2016 and a 12th consecutive quarter of margin expansion
Results were driven by growth tailwinds for corporate digitization which was also visible in KDDI/Softbank results as well as a recovery in mobile which was not
The company did not raise its full-year financial guidance despite an H1 beat but forecasts looks increasingly conservative

Taiwan Tech Weekly: Hon Hai U.S. Listco EV Deal, Germany Likely to Block China Co’s Factory Purchase

Hon Hai Precision Industry (2317 TT) announced today that it will invest up to US$170m into Lordstown Motors Corp (RIDE US).
The deal represents favorable terms for Hon Hai in our view, given the conversion price of preferred shares involved in the deal and the after-market price for Lordstown shares.
Germany is expected to block a chip facility acquisition by Navtech Inc/China (300456 CH); Alibaba and Biren are slowing chip speeds due to U.S. curbs; Lithuan-Taiwan chip partnership.

FTT Liquidity Faces Key Test

By Kaiko

Price Movements: For the first time since April, Lido staked ether (stETH) now trades at parity with ETH.
Market Liquidity: Coinbase reported lower than expected earnings due to a continued rout in trade volume.
Derivatives: ETH perpetual futures volume is now higher than BTC volumes as traders pounce at renewed volatility.

Apple Inc.: Latest Updates

Apple has been correcting along with broader markets and the company’s performance has also been hit by the Covid-19 outbreak in the Foxconn unit in China that produces iPhones.
The company’s results were fairly good and it surpassed Wall Street expectations in terms of revenues as well as earnings with a good performance from iPhone, accessories, home, and wearables.
Apple continues to grow its platform quite well in emerging markets with quite strong growth in Latin America, Southeast Asia, and India.

Mastercard Inc.: The Crypto Source Program & Other Drivers

With the backdrop of cross-border travel continuing to improve and consumer expenditure remaining resilient, Mastercard delivered strong earnings and revenue growth in its latest result.
Mastercard has expanded with gaming payouts, thus launching its Gaming Fast payout program.
For addressing domestic, cross-border, and account-to-account payments, it has signed an agreement with leading worldwide B2B solutions and networks, Pagero.

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Nov 07

Daily Brief TMT/Internet: Blibli, Tokyo Stock Exchange Tokyo Price Index Topix, Tencent, Datadog Inc and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Blibli IPO: Trading Debut
Huge Gap in Awareness of Human Rights Between Japanese Companies and Investors
China Internet Weekly (7Nov2022): Tencent, Alibaba, Kuaishou, JD.com, Autohome, China Unicom
Grounding Myself in this Market Cycle

Blibli IPO: Trading Debut

By Arun George

Blibli (1437710D IJ) priced its IPO at IDR450 per share to raise net proceeds of US$508 million. The shares will start trading on 8 November.
We have previously discussed the IPO in Blibli IPO: The Bull Case, Blibli IPO: The Bear Case, Blibli Vs Tokopedia Vs Bukalapak Vs Lazada Vs Shopee, Blibli IPO: Valuation Insights.
Despite peer multiple derating, the IPO price remains unattractive compared to global and Asian-focused e-commerce peers.

Huge Gap in Awareness of Human Rights Between Japanese Companies and Investors

By Aki Matsumoto

While 80% of Japanese institutional investors place a high value on corporate respect for human rights, only 10% of companies have conducted human rights due diligence.
Japanese institutional investors should make it “visible” to their beneficiaries how they require companies to respect human rights in their engagement and how they encourage effective responses.
To ensure that the guidelines don’t end up as mere figure of speech, the government should make concrete policies to ensure that respect for human rights takes root in society.

China Internet Weekly (7Nov2022): Tencent, Alibaba, Kuaishou, JD.com, Autohome, China Unicom

By Ming Lu

Tencent and Alibaba are rumored to be acquired by state-owned companies.
Tencent charges for originally free function and JD.com re-organized to cut cost.
Autohome’s revenue stopped declining in 3Q22 and it is time to accumulate.

Grounding Myself in this Market Cycle

By BluSuit

At the moment of writing this, it’s 2:30 pm on a Sunday and I am in a ground blind. Every year at about this time of the year I take a few days off of work to unplug, have a few drinks with other family members and run off to the middle of the woods.
I get some of my best thinking done out here while I wait for a White Tail Buck to come by. It’s blissful.
Regardless of where I am or what I am doing, I am and always have been committed to maintaining my transparency, my thoughts and my investing story/process to all of you.

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Nov 06

Daily Brief TMT/Internet: Tencent and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

ECM Weekly (6th Nov 2022) – Giant Biogene, Blibli, Betagro, Bionote, Fusion, Medanta, Bikaji, Axis

ECM Weekly (6th Nov 2022) – Giant Biogene, Blibli, Betagro, Bionote, Fusion, Medanta, Bikaji, Axis

By Sumeet Singh

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
On the IPO front, a number of companies in India have launched thier IPOs recently, even as HK and rest of Asia remains dormant.
The only notable placement this week was the selldown in Axis Bank Ltd (AXSB IN) by Bain Capital.

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Nov 04

Daily Brief TMT/Internet: ROHM Co Ltd, Tencent, Meta Platforms (Facebook), Samsung Electronics, Tokyo Stock Exchange Tokyo Price Index Topix, Fishlog, Microsoft Corp, A10 Networks, Lazada Group, Alphabet Inc and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Rohm (6963): Costs Up, FX Gains Up More, Small Buyback, Cheap (And N225 Inclusion In the Distance)
Tencent and China Unicom Tie Up in New Joint Venture
Meta Platforms: Is The Hyper Growth Story Over? (11/22)
Launching Single-Stock ETFs in Korea: Market Flow Impact Analysis
Reason Behind the Difference in Management Between Family Companies and Others Is the Shareholding
FishLog Raises US$3.5M to Empower Cold Storage Warehouses in Indonesia to Improve Utility
Microsoft Inc: The Designer Visual Design App & Other Developments
ATEN: Steady Growth, PT to $24
Lazada Group Publishes First ESG Report
Alphabet Inc: The Alter Acquisition & Other Drivers

Rohm (6963): Costs Up, FX Gains Up More, Small Buyback, Cheap (And N225 Inclusion In the Distance)

By Travis Lundy

ROHM Co Ltd (6963 JP) announced salutary H1 results on Nov 1. The numbers were good, the innards suggested cost pressures. The revised forecasts suggested conservativeness, or risk of weakness.
The company also announced a stock buyback. It’s only about 2% of shares out, which is 5-10% of Real World Float, but the stock has a low-beta risk character.
And it is quite cheap on a capital construct basis. EV/EBITDA to Mar23 on conservative guidance is 4.6x. Adj EV/EBITDA Mar23e deducing securities and net receivables? 3.7x.

Tencent and China Unicom Tie Up in New Joint Venture

By Caixin Global

Chinese social media giant Tencent Holdings Ltd. and state telecom operator China Unicom were cleared by the country’s antitrust regulator to set up a joint venture to develop data and cloud-related businesses.
The new business, one of 15 investment deals that cleared antitrust review Tuesday, will focus on content delivery networks and edge computing.
The partnership is another tie-up between Tencent and China Unicom after a 2017 investment in which the social media giant acquired a 5.18% stake in the telecom company.

Meta Platforms: Is The Hyper Growth Story Over? (11/22)

Meta Platforms delivered a highly disappointing set of results with a huge earnings miss.
The company’s ballooning costs to fund its virtual reality vision have resulted in a drop in profitability.
We provide the stock of Meta Platforms with a ‘Hold’ rating and a revision in the target price.

Launching Single-Stock ETFs in Korea: Market Flow Impact Analysis

By Sanghyun Park

The target market size that will be affected by the Default Option is estimated to be ₩92T. Up to 30% of them (₩30T) can flow into single-stock ETFs.
Competing against TDFs, half of this ₩30T is a conservative estimate for single-stock ETFs. Then, up to 40% of the ₩15T becomes the flow size entering the local stock market.
KODEX’s Samsung Electronics single-stock ETF may dominate the market. In this case, at least ₩3-4T can flow into Samsung Electronics Ord.

Reason Behind the Difference in Management Between Family Companies and Others Is the Shareholding

By Aki Matsumoto

Correlation analysis of the major shareholder factor with ROE, ROA, and Tobin’s Q shows that founding family companies tend to have relatively high profitability (ROA) and high stock price valuations.
On board practices, companies with more than 50% ownership are generally less concerned about improving their practices, because they don’t have to worry as much about voices of minority shareholders.
With regard to key actions, companies with shareholders holding more than 50% interest are presumed to be proactive in growth investments.

FishLog Raises US$3.5M to Empower Cold Storage Warehouses in Indonesia to Improve Utility

By e27

FishLog, an ecosystem enabler for the fisheries cold chain industry in Indonesia, has closed its US$3.5 million pre-Series A round
FishLog was established in 2020 by Bayu Anggara, Reza Fahlepi, and Abdul Halim to solve the fragmentation in cold chain fisheries in Indonesia
The agritech startup improves cold storage, processor, and distribution in Indonesia’s fisheries to enable the industry to meet global supply and demand better

Microsoft Inc: The Designer Visual Design App & Other Developments

Microsoft delivered a good result in the last quarter surpassing Wall Street expectations on all counts.
Microsoft Cloud revenue surpassed $25 billion, increasing by 24% and 31% in constant currency.
Microsoft is getting more customers that want to grow and innovate with its existing infrastructure.

ATEN: Steady Growth, PT to $24

ATEN continues to demonstrate its growth ability by focusing on its security first approach. ATEN reported third quarter revenue slightly more than we were projecting
The steady growth ATEN has experienced this year has come through the diversification of its customer base
ATEN’s management asserted demand has been consistent and dependent on performance. ATEN has added more customers throughout the year, which should serve as a baseline for incremental revenue in 2023

Lazada Group Publishes First ESG Report

By Tech in Asia

Singapore-based ecommerce giant Lazada has released its first environmental, social, and governance (ESG) report.
As a largely unexplored concept in Southeast Asia, the firm enlisted the help of an independent consultant to map out its ESG priorities.
The core tenets of the firm’s ESG framework are “empowering communities, developing a future-ready workforce, ensuring responsible stewardship, and effective governance.”

Alphabet Inc: The Alter Acquisition & Other Drivers

Alphabet’s stock price has undergone a strong correction after the company delivered a disappointing third-quarter financial result, failing to meet Wall Street expectations in terms of revenues as well as earnings.
Alphabet did have a decent underlying growth in Search and momentum in Cloud but the impact of currency conversion is reflected in their results.
Lapping the high growth levels from the previous year and the difficult macroeconomic environment also influenced the growth in their advertising revenues.

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Nov 03

Daily Brief TMT/Internet: SK Square, KDDI Corp and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Sweden’s EQT Partners to Invest Big in SK Shieldus: Impact on SK Square
KDDI (Buy) – Q2 22 Results Reaction: Mixed Quarter as Power Costs Accelerate

Sweden’s EQT Partners to Invest Big in SK Shieldus: Impact on SK Square

On 2 November, it was reported that Sweden’s EQT Partners is to acquire a 36.87% stake in SK Shieldus.
EQT Partners is expected to invest more than 2 trillion won in SK Shieldus which is expected to be valued at about 4.5 trillion won to 5.2 trillion won.
Our base case valuation of SK Square is NAV per share of 59,272, which is 59% higher than current price.

KDDI (Buy) – Q2 22 Results Reaction: Mixed Quarter as Power Costs Accelerate

KDDI posted its best revenue growth since 2019 but an acceleration in power costs and expenses associated with the July network outage kept a lid on margins
On balance, the print is positive and management remains confident on full-year targets
There are sector reads from corporate sales (good), higher power costs (bad), and stable competitive intensity whilst modest erosion in roaming revenue indicates Rakuten’s rebound from peak losses is modest

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Nov 02

Daily Brief TMT/Internet: ReadyTech Holdings Ltd, Tata Elxsi Ltd, ARK Innovation ETF, LG Energy Solution, Pushpay Holdings, KPIT Technologies, Tokyo Stock Exchange Tokyo Price Index Topix, Ethereum and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Readytech (RDY AU): Microequities Baulks At PEP’s A$4.50/Share Indicative Offer
S&P BSE/Sensex Quiddity Leaderboard Dec 22: Potential ADDs Could Outperform the Index
EQD | ARK Innovation (ARKK US): Is It Time to Get Back into Growth?
ReadyTech’s Indicative Offer of A$4.50 from Pacific Equity Partners Good Enough?
Close Out the Pair Trade Between LG Chem & LG Energy Solution
(Mostly) Asia M&A: October 2022 Roundup
KPIT: Strong Execution and Bullish Outlook
Changes in Voting Practices of Japan’s Major Investment Managements Will Take Time to Take Hold
DeFi Options Protocols Series (#3): Where Can the Next Phase of Growth Come From?

Readytech (RDY AU): Microequities Baulks At PEP’s A$4.50/Share Indicative Offer

Software outfit ReadyTech (RDY AU) has announced an indicative proposal from Pacific Equity Partners and affiliates, to acquire ReadyTech by way of a Scheme of Arrangement at $4.50/share.
Pemba Capital, with 32.01% of shares out, are in discussion with PEP as to what appears to be the PE firm rolling over shares.
ReadyTech’s independent board has granted PEP non-exclusive due diligence to flesh out a firm Offer. According to media reports, Microequities, with ~13%, is not on board whatsoever.

S&P BSE/Sensex Quiddity Leaderboard Dec 22: Potential ADDs Could Outperform the Index

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the December 2022 Rebalance.
The reference period for the trading data used for the index selection ended on 31st October 2022.
There have been a couple of key revisions to the index selection methodologies for SENSEX and SENSEX Next 50 which could have important consequences.

EQD | ARK Innovation (ARKK US): Is It Time to Get Back into Growth?

By Simon Harris

Growth Stocks have been hammered in the rising rate environment
Inflation may have peaked and central banks could be reaching the end of the hiking cycle
We look at derivative strategies on ARKK US to gain a broad exposure to the growth and tech

ReadyTech’s Indicative Offer of A$4.50 from Pacific Equity Partners Good Enough?

By Arun George

ReadyTech Holdings Ltd (RDY AU) confirmed that it received a conditional, non-binding indicative proposal from Pacific Equity Partners (PEP) at A$4.50 per share, a 38.9% premium to the undisturbed price.
PEP aims to jointly work with Pemba, the largest shareholder with a 32.01% stake, on the proposal. Microequities, the second-largest shareholder, is said to oppose the offer.
The offer represents an all-time price high but struck at a discount to peer multiples, suggesting room for a bump. At last close, the spread to the offer is 8.4%.

Close Out the Pair Trade Between LG Chem & LG Energy Solution

On 25 October, we recommended a pair trade between LG Chem (go long) and LGES (go short). Since then, this trade has resulted in a net gain of 15.7%.
It is very unusual to get this kind of alpha sized gains on Korean large caps in such a short time period.
Given the sharp net appreciation on this pair trade in the past week, we would close out this trade.

(Mostly) Asia M&A: October 2022 Roundup

For the month of October, 6 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$4bn.
The average premium for the new deals announced (or first discussed) in October was ~56%, and a year-to-date average of 40%.
This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.

KPIT: Strong Execution and Bullish Outlook

By Ankit Agrawal, CFA

KPIT Technologies (KPIT) reported decent Q2FY23 earnings. Sales grew 8.3% QoQ and 27% YoY in Constant Currency (CC) terms. EBITDA and Net Profit grew 33% and 28% YoY, respectively.
Led by an all-time high order pipeline, KPIT Technologies (KPITTECH IN) gave a bullish outlook and upgraded its FY23 growth guidance. KPIT’s Technica acquisition also looks very promising.
In terms of order pipeline, KPIT has a couple of mega deals ($100mm+) in the offing, which if realized, would be the first-ever in its history.

Changes in Voting Practices of Japan’s Major Investment Managements Will Take Time to Take Hold

By Aki Matsumoto

Because there’s nothing about addressing environmental issues that the company itself opposes because they are global issues, it’s relatively easy to vote in favor of shareholder proposals on environmental issues.
Governance proposal is the most sensitive because it’s directly related to election of directors. It’s challenging for domestic investment managers to vote in favor of shareholder proposals during proxy fights.
FSA’s tightening of oversight of ESG investment trusts has triggered shift by major Japanese investment managers toward establishing ESG-related-voting policies and exercising their voting rights in accordance with these policies.

DeFi Options Protocols Series (#3): Where Can the Next Phase of Growth Come From?

By Alec Tseung

DeFi options protocols’ TVL did not change much in the past three months despite the bear market we are now in.
Many (TradFi) institutions and institutional investors we spoke to believed the next bull market/major innovations in DeFi might be coming from protocols that offer yields from real-world assets.
To drive the next phase of growth, options protocols should leverage their composability to tap into it by offering those protocols additional use cases related to options.

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Nov 01

Daily Brief TMT/Internet: HPSP, Nitro Software Ltd, Hon Hai Precision Industry, Visa, AXT Inc, Netgear Inc, ATN International, Cadence Design Sys, Taiwan Semiconductor (TSMC), Tyler Technologies and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks
Nitro Attracts a Competing Offer from KKR’s Alludo
Foxconn / Hon Hai: Quick-Take On The Zhengzhou Outbreak; Accumulate on Weakness
Visa Inc: Collaboration With FTX & Other Drivers
AXTI: Inventory Balloon Pop
NTGR: Retail Headwinds Is Not the Story
ATNI: The Treat from Growth
Cadence Design Systems: Acquisition of OpenEye Scientific Software & Other Drivers
Taiwan Tech Weekly: Earnings Insights Emerging for Memory, Mobiles, PCs, and Autos
Tyler Technologies: Acquisition of Rapid Financial Solutions & Other Drivers

KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks

By Brian Freitas

With the review period complete, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
Most of the potential changes are high probability ones, but there are some stocks that are very close to market cap and liquidity cutoffs.
The impact of passive trading will be much higher on the potential deletes as compared to the potential inclusions, though trade notionals are higher for the potential adds.

Nitro Attracts a Competing Offer from KKR’s Alludo

By Arun George

Nitro Software Ltd (NTO AU) has received a competing proposal from Alludo. The offer is A$2.00 via a scheme or an off-market takeover at A$2.00, with a 50.1% minimum acceptance condition.
Unsurprisingly, the Board rejected Potentia’s A$1.80 per share off-market takeover offer. Potentia has three options – lift its offer, do nothing or sell into Alludo’s offer.
While Alludo’s offer is 11.1% above Potentia’s offer, it is far from a knockout bid. Therefore, there is a good chance that Potentia returns with improved terms.

Foxconn / Hon Hai: Quick-Take On The Zhengzhou Outbreak; Accumulate on Weakness

Some workers have been fleeing Hon Hai’s largest iPhone production facility in Zhengzhou, China over the weekend, due to COVID-19 outbreak lock-downs.
Even a significant hit to 4Q22E earnings is unlikely to change the 2023E and 2024E financial outlook or valuation multiples for the company, in our view.
Even after considering that Q4 is a high production period, if we assume November is about 1/10th of annual production, then only an estimated 2% annual reduction is at risk.

Visa Inc: Collaboration With FTX & Other Drivers

Despite the uncertainty brought on by the pandemic, the timing of the cross-border travel rebound, inflation, the Ukraine crisis, and potential recession, Visa’s performance in 2022 has been quite solid.
The company delivered yet another all-around beat as it established over 400 business collaborations with fintechs worldwide this year, ranging from start-ups to established businesses.
Cross-border volumes in Q4 increased by 7 points from Q3 and were up 49% year over year and 130% compared to three years earlier, excluding intra-Europe.

AXTI: Inventory Balloon Pop

AXTI slightly beat its downward adjusted third quarter guidance but issued fourth quarter forecast showing further deterioration in the business
During the third quarter AXTI experienced a significant delay in orders from customers causing revenue to decline by approximately 11 percent sequentially
The spill over of weakness into the fourth quarter should not be a surprise given the pace of decline in revenue in the third quarter

NTGR: Retail Headwinds Is Not the Story

NTGR reported third quarter results showcasing continued growth in its SMB and service provider product lines while the retail channel remained challenged.
NTGR has been transitioning away from the lower end of the Wi-Fi router market, but a contracting market has extended out the timeframe of depleting channel inventory
NTGR’s growth driver are primarily its Pro AV switches and 5G hotspots, which continue to outperform our expectations

ATNI: The Treat from Growth

ATNI has grown the number of subscribers within its portfolio businesses resulting in revenue rising faster than expected
ATNI’s steady progress with its network expansion is expected to help cash flow from operations in future quarters
Each of the operating businesses are growing revenue and at a state where management believes there would be positive free cash flow if it was not for investing for growth

Cadence Design Systems: Acquisition of OpenEye Scientific Software & Other Drivers

Cadence deliver a good result in Q3 surpassing Wall Street expectations on all fronts, driven by its technological leadership, solid execution, diverse customer base, and robust business model.
Despite the current macroeconomic uncertainty, it is evident that long-term sustained design activity is being driven by generational drivers like 5G, hyperscale computing, and AI/ML where Cadence is a key player.
Cadence also added the revolutionary Verisium AI verification tool and the JedAI data platform to their portfolio in Q3.

Taiwan Tech Weekly: Earnings Insights Emerging for Memory, Mobiles, PCs, and Autos

Last week saw a wave of major tech companies report earnings with significance toward the semiconductor and technology space in Taiwan.
Memory chip takeaways – SK Hynix, Samsung see better supply/demand in 2023E. PC market — Recent results discuss slight decline, potential stabilization in 2023E.
Mobile phones — Relative strength in high-end vs. low-end. Auto & Industrial — Relative strength seen continuing. AMD, Qualcom, Elan, CHIPMos, Acer, Globalwafers results ahead.

Tyler Technologies: Acquisition of Rapid Financial Solutions & Other Drivers

Tyler Technologies delivered yet another all-around beat that was a result of its 3% organic growth in this quarter, excluding COVID-related revenues of approximately 9%.
It reflects both company’s accelerating shift to the cloud and growth in transaction-based revenues.
Overall, we provide the stock of Tyler Technologies with a ‘Hold’ rating and a revision in the target price.

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Oct 31

Daily Brief TMT/Internet: Keyence Corp, Seiko Epson, LX Semicon, Intel Corp, Nitro Software Ltd, Delta Electronics, Mediatek Inc, Servicenow Inc, Texas Instruments and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Keyence(6861 JP) | The Rise of the Phoenix – A Company like No Other
Seiko Epson(6724 JP)| Neutral 2Q Earnings; Negative Outlook – Remain Bearish
LX Semicon KOSPI Migration & KOSDAQ 150 Special Change
Intel Vs. TSMC/UMC Long/Short Monitor: Intel Results Drive Share Spike, Still Can Re-Rate
Nitro Software Rejects Potentia, Again, And Engages With KKR
Delta Taiwan Vs. Thailand Monitor: Delta Taiwan Reports Better Margin Trend, Rel Valuation Reverts
Mediatek Results Takeaways — Inventory Correction Bottom Potential 4Q22, Mobile, TV Recovery 1H23?
ServiceNow Inc: Acquisition of Era Software
Texas Instruments: Production At New Facility & Other Drivers

Keyence(6861 JP) | The Rise of the Phoenix – A Company like No Other

Keyence reported record 2Q Sales and OP, thoroughly beating street expectations. The company recorded high double-digit growth in all regions – even in Europe.
Pricing power is on display 10-35% price hikes to shore up the dip in GPM to 81.3%, depressed on higher raw material costs. Sets up for future earnings growth.
The share price has underperformed the TOPIX -26%YTD. Valuations at the bottom of the recent range. We expect a share price recovery and are bullish.

Seiko Epson(6724 JP)| Neutral 2Q Earnings; Negative Outlook – Remain Bearish

2Q Earnings Neutral; Mainly FX driven. The company sidestepped the worse of what we are seeing in broader printer market (See XEROX; Canon)
The outlook remains Negative. Macro conditions set to be worse in H2 vs H1. Core Home & Office Printing Business key IJP unit sales struggling with severe margin pressures.
Ongoing share buyback mildly supportive but unlikely to be a game changer with falling earnings. Target-based 0.8x PBR implying ¥1700 TP.

LX Semicon KOSPI Migration & KOSDAQ 150 Special Change

By Sanghyun Park

LX Semicon (108320 KS) will be traded on KOSPI from November 3rd. This event has no trade suspension. So, it will be traded on KOSDAQ until November 2nd.
Nextin (348210 KS) will replace LX Semicon for KOSDAQ 150. Again, the effective date is November 3rd. So, the index trackers will rebalance-trade at the close on November 2nd.
LX Semicon will see an outflow of -1.91x ADTV, whereas Nextin will enjoy an inflow of 3.93x ADTV. This Special Change will likely save AptaBio Therapeutics (293780 KS) from deletion.

Intel Vs. TSMC/UMC Long/Short Monitor: Intel Results Drive Share Spike, Still Can Re-Rate

Intel’s 3Q22 earnings beat expectations, and the shares reacted positively, rising 10.7%.
The company announced $3bn of cost savings for 2023E and $8-10bn in annual cost savings by 2025E. 2023E earnings guidance will be provided at the company’s February Investor Day.
Intel has outperformed TSMC and UMC since our pre-Intel Innovation Conference catalyst piece. Intel could still re-rate further relative to the companies into its next earnings.

Nitro Software Rejects Potentia, Again, And Engages With KKR

On the 28 October, Potentia announced an improved (and final) off-market Offer of A$1.80/share for Nitro (NTO AU), a 13.9% improvement over its initial proposal on the 30 August.
Nitro has now concluded the Potentia Takeover Bid undervalues Nitro. The Offer, however, is still proceeding, and will open in two weeks.
Separately, KKR’s Alludo has pitched a non-binding – subject to due diligence – Offer by way of a Scheme (or off-market takeover) at A$2.00/share. Nitro is supportive of this Offer.

Delta Taiwan Vs. Thailand Monitor: Delta Taiwan Reports Better Margin Trend, Rel Valuation Reverts

Delta Electronics (2308 TT) reported its earnings on October 28th, after its subsidiary Delta Electronics Thai (DELTA TB) had reported on October 25th.
Sales grew 33% YoY and gross margin expanded sequentially, which outperformed Delta Thailand’s margin performance.
Delta Taiwan shares have outperformed Delta Thailand since having dropped to a historically-extreme relative market cap below 1.0x. However, Delta Taiwan remains historically cheap on a relative basis.

Mediatek Results Takeaways — Inventory Correction Bottom Potential 4Q22, Mobile, TV Recovery 1H23?

Mediatek’s business continues to grow YoY, albeit slower than earlier expected. Management comments provided insight into the inventory cycle.
Management expects to see the worst impact of the inventory correction cycle in 4Q22E, but then in 1H23E sees potential for a turn around.
We are still developing a conviction view, however we see the latest results as net-positive for the shares given signs of a turn around ahead and the stock’s laggard status.

ServiceNow Inc: Acquisition of Era Software

Service Now had a solid third quarter and the company delivered another all-around beat.
Considering the solid organic growth and market demand of the company, it is expected that there will be 750 million new applications built by 2025.
The company focused on improving customer service experience and expanding its market by acquiring other software companies which is why it closed the acquisition of Era Software.

Texas Instruments: Production At New Facility & Other Drivers