TMT/Internet

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Chongqing Hongjiu Fruit (CHF HK) is pre-marketing a US$200-300m IPO.
Event-Driven developments at Atlas Arteria (ALX AU), Genex Power Ltd (GNX AU), Infomedia Ltd (IFM AU), Link Administration (LNK AU), Ramsay Health Care (RHC AU), ResApp, DTAC/True, Dongzheng AFC.

DeFi Options Protocols Series (#2): The Story of David and Goliath?

By Alec Tseung

DeFi options protocol’s TVL dropped significantly over the past three months since the collapse of Terra/Luna and amid a series of crypto platforms’ liquidations and withdrawal freezes.
Albeit this, the three protocols we highlighted in our first note have shown no signs of slowing down in terms of launching new updates and products.
DeFi options protocols are still at the beginning of their development and need to see to some of their own issues before being able to challenge CeFi/Deribit.

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Aug 07

Daily Brief TMT/Internet: Softbank Corp, Microsoft Corp and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

JPX Nikkei 400 Index Rebalance: Some Biggish Impact Stocks
Index Rebalance & ETF Flow Recap: NKY, JPXNK400, FTSE CH50/A50/TW50, SenseTime, Orica
Microsoft Corporation: The Continuing Cloud Momentum

JPX Nikkei 400 Index Rebalance: Some Biggish Impact Stocks

There are 36 adds and 34 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. Some of the changes are interesting.
Based on the adds, deletes and capping changes, we estimate one way turnover of 4.75% and a two-way trade of JPY 444.45bn (US$3.3bn).
Oriental Land (4661 JP) is a delete from the JPX Nikkei 400 Index but a high probability inclusion to the Nikkei 225 (NKY INDEX) at the September rebalance.

Index Rebalance & ETF Flow Recap: NKY, JPXNK400, FTSE CH50/A50/TW50, SenseTime, Orica

The rebalances of the Philippines Stock Exchange PSEi Index (PCOMP INDEX) and NIFTY100 Index were implemented at the close on Friday.
MSCI will announce the results of the August QIR pre-market on 12 August (Asia time). This is the last QIR to use the current methodology before we move to QCIRs.
There were large outflows from KraneShares CSI China Internet ETF (KWEB US) during the week as investors pulled US$267m from the ETF.

Microsoft Corporation: The Continuing Cloud Momentum

Despite the massive size of its revenues, Microsoft has proven to be a remarkable story in terms of percentage-basis top-line growth over the past few years.
The Microsoft Cloud achieved a quarterly revenue milestone of $25 billion for the first time, up 28% and 33% in constant currency.
Additionally, Microsoft acquired the cyber threat research and analysis company Miburo to advance threat intelligence gathering on fresh foreign cyber threats.

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Aug 05

Daily Brief TMT/Internet: Hoya Corp, AMTD Digital, Microstrategy Inc Cl A, Softbank Corp, Phonepe Pvt Ltd, Bukalapak, Xiaomi Corp, Confluent, Shopify Inc and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Hoya (7741) – Record Revenues/Earnings, a Small Buyback, but Nikkei 225 Flows May Dominate
CK Group Wants to Sell Its Stake in AMTD Group
MicroStrategy (MSTR US): Saylor Mirrors Bitcoin’s Fall
Softbank Corp (Buy) – Q1 22 Results Reaction: Largely In-Line with Reduced Expectations
PhonePe Tearsheet – India’s SuperApp Ambition
Bukalapak (BUKA IJ) – Onwards and Upwards on Higher Take Rates
Xiaomi, China Unicom, and Bank Of China
Better Than Expected 2Q22 Results, Cloud Growth of 139% YoY, FY22 Revenue Guidance Moves Higher
Breaking Growth Short Candidates: Shopify, Snowflake, Intuitive Surgical, ServiceNow

Hoya (7741) – Record Revenues/Earnings, a Small Buyback, but Nikkei 225 Flows May Dominate

By Travis Lundy

Hoya Corp (7741 JP) today announced great Q1 earnings and a bullish above-consensus revenue forecast for this fiscal year. It also announced a small share buyback.
However, the dominant factor in flows near-term will be pre-positioning for a possible Nikkei 225 inclusion in September. That is what will push the stock around. In or not.
Hoya has recently outperformed a Peer Basket despite forward expected EPS and EBIT not seeing relative improvement. That suggests some relative risk if it doesn’t get selected for Nikkei 225.

CK Group Wants to Sell Its Stake in AMTD Group

AMTD Digital’s stock price has started to sink and now there are news that the Cheung Kong (CK) Group (HK) wants to sell its stake in AMTD Group Co.
The discussion of the CK Group disposing its stake in AMTD Group altogether is likely to further negatively impact AMTD Digital’s share price.
Li Ka-Shing and his family probably want to distance themselves from all the unnecessary media attention given to AMTD Digital (HKD US) and AMTD Idea Group (AMTD US).

MicroStrategy (MSTR US): Saylor Mirrors Bitcoin’s Fall

By David Blennerhassett

Microstrategy Inc (MSTR US)‘s Michael Saylor will now assume the new role of Executive Chairman and Phong Le, MSTR’s President, will serve as the company’s new CEO.
As Executive Chairman, Saylor will focus more on MSTR’s bitcoin acquisition strategy and related bitcoin advocacy initiatives.
With one of the most bullish and influential players in the industry now focusing on crypto, this should be considered bullish, according to some media reports. That’s a desperate takeaway.

Softbank Corp (Buy) – Q1 22 Results Reaction: Largely In-Line with Reduced Expectations

Softbank Corp (9434 JP) results were weak as expected as mobile price reductions carved into the consumer revenue base
Management released some further details on PayPay including a revenue number that implies continued improvement in take rates and plans to carve out a new segment for financial services
Both KDDI and Softbank net adds were weaker sequentially v Q4 which bodes well for NTT and possibly Rakuten

PhonePe Tearsheet – India’s SuperApp Ambition

Phonepe Pvt Ltd (1732974D IN) runs a digital payment and technology App in India and is currently the leader in terms of UPI transactions processed.
Our channel feedback suggests the possible disruption from initiatives like ONDC to be positive for payment apps like PhonePe, with the possible acceleration towards the SuperApp Journey.
Revenues are always growing, and so are losses. With ONDC, there is a possibility this may change faster than anticipated and hence warrants close attention.

Bukalapak (BUKA IJ) – Onwards and Upwards on Higher Take Rates

By Angus Mackintosh

Bukalapak‘s recent 1Q2022 results provided further evidence that the company is moving along the road to profitability with growth in TPV being outpaced significantly by revenue growth.
The company saw very significant improvements in take-rates for its marketplace and Mitra businesses plus a better contribution margin and we expect this to continue into the 3Q.
Bukalapak (BUKA IJ) looks cheap, especially when considering its stake in Allo Bank Indonesia and its IDR20tn cash pile, which means you are paying only US$50m for its core businesses.

Xiaomi, China Unicom, and Bank Of China

By Untying The Gordian Knot

The Hong Kong Indices have been much weaker than Taiwan & China due to liquidity and open capital account.
It is a canary for global indices and should be analyzed accordingly.
There is no change in views of real estate and technology sector stocks mentioned in previous updates on Hang Seng constituents.

Better Than Expected 2Q22 Results, Cloud Growth of 139% YoY, FY22 Revenue Guidance Moves Higher

By Andrei Zakharov

Confluent (CFLT US) reported solid 2Q22 results, and most metrics were above sell-side expectations, including subscription revenue, gross margins, and operating margins.
We are impressed with Confluent Cloud’s revenue growth of +139% y/y and strong subscription gross margins. Management raised FY22 revenue and profitability guidance.
Our price target of $28 is slightly below the current share price. However, we see room for further multiple expansion due to revenue acceleration above consensus.

Breaking Growth Short Candidates: Shopify, Snowflake, Intuitive Surgical, ServiceNow

By Eric Fernandez, CFA

This model looks for slowing growth, margin declines, sales and/or earnings disappointments, troubling working capital trends, poor estimate trends or lowered guidance, among other characteristics.
The key judgement is whether a slowdown is temporary or the beginning of a trend. These shorts tend to have high valuations and betas. Multiple compression accelerates the stock’s decline.
Today we are flagging: Shopify, Snowflake, Intuitive Surgical, and ServiceNow

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Aug 03

Daily Brief TMT/Internet: AMTD Digital, EVOC Intelligent Technology Company Limited H, Tencent, Apna, International Business Machines and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

AMTD Digital: Irrational Frenzy 2.0
AMTD Digital: The Biggest Bubble in 2022
EVOC Subject to a Third Privatisation Attempt?
Tencent: Excluded from 4th Batch of Game Approvals; Domestic Game Revenue to Drop Further
Apna Tearsheet – LinkedIn for the Masses
International Business Machines (IBM): The Databand Acquisition & Other Drivers

AMTD Digital: Irrational Frenzy 2.0

AMTD Digital (HKD US) shares are up 230x since its listing at US$7.80 per ADS on 15 July. Its market cap is a staggering US$334 billion.
AMTD Idea Group (AMTD US) accounts for 99.4% of the voting power. In January 2022, it increased its AMTD Digital shareholding to 97.1% of outstanding shares at US$1.2 billion valuation.
AMTD Digital’s financials are uninspiring and cannot justify the share price ramp. No sane valuation methodology can support the share price.

AMTD Digital: The Biggest Bubble in 2022

AMTD Digital is the biggest bubble of 2022, which is ready to pop. AMTD Digital provides digital solutions platform in Asia.
AMTD Digital currently has a market cap of US$371 billion (US$2,002 per ADS share) (as of 1:40PM NYC time). The company’s market cap is more than JPMorgan Chase & Co.
No doubt, AMTD Digital is the biggest bubble in 2022 and the bursting of this huge bubble will also devastate (mostly) retail investors in the US.

EVOC Subject to a Third Privatisation Attempt?

EVOC Intelligent Technology Company Limited H (2308 HK) entered a trading halt pending the release of an announcement under the Hong Kong Code on Takeovers and Mergers on 1 August.
It is likely that after two failed attempts, Mr Chen Zhi Lie, the ultimate controlling shareholder, will try a third time to privatise EVOC.
The previous offer of HK$1.50 per H Share in 2020 marginally missed the 90% minimum acceptance condition. Expect a similar structure with a likely slightly higher offer price.

Tencent: Excluded from 4th Batch of Game Approvals; Domestic Game Revenue to Drop Further

China’s gaming regulator has granted publishing licenses to 69 online games, which excludes Tencent (700 HK) and NetEase (9999 HK) again for the fourth time.
Though 9-month long game approval freeze was lifted in April, both Tencent and NetEase failed to make it into the approved list of more than 200 titles so far.
Chinese gaming companies have been seeking for overseas expansion as domestic gaming market is struggling with ban on new approvals and new restrictions.

Apna Tearsheet – LinkedIn for the Masses

Apna (1826169D IN) ‘s is India leading networking and jobs platform primarily targeted towards the +250 million grey and blue collared workers, who usually are not on Linkedin.
Channel feedback is mixed, Apna is not the only platform of choice. Community initiatives and vernacular interface are key differentiators along with simplicity.
Profitability could remain a challenge, Monetisation is work in progress. The model is interesting, but making money off the bottom of the pyramid has never been easy.

International Business Machines (IBM): The Databand Acquisition & Other Drivers

As a legacy tech company, IBM may have seen a slowdown in its growth trajectory but its acquisition-led growth approach continues to work.
With this performance, the company is maintaining its model of mid-single-digit revenue growth and a double-digit performance in IBM Consulting.
In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

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Aug 02

Daily Brief TMT/Internet: PCCW Ltd, Meituan, Tencent, Krafton Inc, KT Corp, DB Hitek Co., Ltd., Amazon.com Inc, Groww, Texas Instruments, Kingsoft Cloud and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Cayman Islands: Headcount To Be Decapitated On 31 August
Hong Kong CEO & Director Dealings – 1st August 2022
Tencent/Netease: Increasing Pressure with Zero Approval in August Batch & Thoughts on Trading
A Pair Trade Between Krafton & NCsoft (India’s Crackdown on Krafton’s BGMI)
KT Corp: Close to Selling Its Subsidiary KT Submarine to LS Cable & System
Minority Shareholders Go Activist on DB Hitek
Amazon 2Q22: Delivering an Inflection Point
Groww Tearsheet – Simplifying Investments and Savings
Texas Instruments: New Semiconductor Plants & Other Developments
Kingsoft Cloud: Thoughts on HK Dual Primary Listing

Cayman Islands: Headcount To Be Decapitated On 31 August

By David Blennerhassett

The Companies (Amendment) Act 2021 of the Cayman Islands (Amendment Act), which will come into force on 31 August 2022, will abolish the current ‘headcount test’.
Those companies incorporated in the Cayman Islands, and subject to a members’ Scheme of Arrangement, were previously required to satisfy the headcount test under section 86 of the Companies Act.
This development clarifies previous uncertainty/ambiguity which could arise, with ‘take private’ deals of Cayman-incorporated, Hong Kong-listed companies, where a Scheme is the favoured privatisation path.

Hong Kong CEO & Director Dealings – 1st August 2022

By David Blennerhassett

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. However, such disclosures are by no means an absolute.
These insights also flag those companies where shares have been pledged, both recently and ongoing.

Tencent/Netease: Increasing Pressure with Zero Approval in August Batch & Thoughts on Trading

By Ke Yan, CFA, FRM

China just announced game approval for August batch. More games were approved in August compared to July and June.
Pace of China game approval continued to pick up albeit at a much slower pace than pre-tightening.
Both Tencent and Netease will be under increasing pressure as the duo continue to score zero in August, making it the fourth time with no games approved since resumption .

A Pair Trade Between Krafton & NCsoft (India’s Crackdown on Krafton’s BGMI)

In the past several days, there have been numerous news accounts about the Indian government cracking down on Krafton’s Battlegrounds Mobile India (BGMI) game.
We believe there are several reasons why Indian government is cracking down on BGMI including concerns about this game potentially leading to greater violence among children and ties to Tencent.
At current valuation levels, we like a pair trade between Krafton (go short) and NCSOFT Corp (036570 KS) (go long).

KT Corp: Close to Selling Its Subsidiary KT Submarine to LS Cable & System

Hankyung Business Daily reported today that KT Corp (030200 KS) is close to selling its 36.9% controlling stake in Kt Submarine (060370 KS) to LS Cable & System.
Once the KT Submarine deal is completed, this could positively impact KT Corp’s dividends.
KT Corp’s selling of its controlling stake in KT Submarine would fit along its restructuring plans to sell off some businesses that are considered non-core.

Minority Shareholders Go Activist on DB Hitek

The minority shareholders of DB Hitek have started to go activist on the company. They are initially requesting the company to get access to its shareholder list.
Many minority shareholders are suspicious that DB Inc may be trying to intentionally lower the share price of DB Hitek through a physical division split off.
DB Hitek’s share price has declined nearly 48% since its 52 week highs in January 2022. The valuation multiples of the company have declined to more attractive levels.

Amazon 2Q22: Delivering an Inflection Point

By Aaron Gabin

Profitability ready to kick in again as Amazon grows into the overbuilt warehouse capacity and headcount from the past few quarters. 3Q22’s guidance clearly conservative based on 2Q22’s outperformance.
Revenue reacceleration beginning to play out. 2Q22’s 7% leading to 3Q22’s 15%, and back to the 20%s by 2023.
AWS continues its indomitable run. $79B TTM revenues are growing 37% with 31% margins.

Groww Tearsheet – Simplifying Investments and Savings

Groww (1573648D IN) is a wealth management and investment platform designed to simplify investing especially for first-time investors.
Channel feedback indicates Groww’s simple UI, and lower cost/fees as the primary reasons for them investing via the platform.
Revenues have seen a COVID-led sharp jump, and growth with low marketing expenses and operational profitability offer a compelling narrative.

Texas Instruments: New Semiconductor Plants & Other Developments

Texas Instruments delivered its third consecutive all-around beat in the recent result with a reported revenue of $5.21 billion this quarter.
Among major developments, Texas Instruments has recently broken the ground on the new semiconductor plants of 300-mm for water fabrication in Sherman, Texas.
Texas Instruments has a strong balance sheet and the management continues investing in building capacity.

Kingsoft Cloud: Thoughts on HK Dual Primary Listing

Kingsoft Cloud (KC US) is the largest independent cloud service provider in China in terms of revenue in 2021 and its clientele includes the likes of ByteDance and Xiaomi.
KC is listed in NASDAQ and has filed for a dual primary listing on HKEx and has not disclosed the amount that it plans to raise from the stock issuance.
We are broadly positive on the company’s growth prospects and discuss the details below.

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Aug 01

Daily Brief TMT/Internet: SenseTime Group, Meituan, Tencent, Honda Tsushin Kogyo, iShares MSCI ACWI ETF, Route Mobile, Lasertec Corp and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

SenseTime (20 HK): Lock-Up Expiry Done; Stock Connect Done; Passive Inflows Next
Meituan – Regulators Now Probing on Food Safety; Anti-Monopoly Crackdown Is Not Over Yet
China Internet Weekly (1Aug2022): Tencent, Alibaba, Meituan, JD Logistics, MissFresh
Minebea Mitsumi Tender for Honda Tsushin Kogyo (6826)
Europe, MSCI ACWI Bullish Downtrend Reversals as Japan Tests Resistance; Tech, Health Care Buys
Route Mobile Ltd: Forensic Analysis
Lasertec (6920) | Mind the Guidance Gap

SenseTime (20 HK): Lock-Up Expiry Done; Stock Connect Done; Passive Inflows Next

SenseTime Group (20 HK) stock has been crushed following the lock-up expiry at the end of June with the stock now trading 40% below the IPO price.
The company has recently bought back stock providing some support. More importantly, SenseTime Group (20 HK) was included in Southbound Stock Connect on 29 July.
We expect a big increase in the free float adjustment factor (FAF) in the Hang Seng Indexes at the September rebalance that will provide some much needed passive inflows.

Meituan – Regulators Now Probing on Food Safety; Anti-Monopoly Crackdown Is Not Over Yet

Several news media outlets reported that Meituan (3690 HK) Ele.me and other food delivery platforms were summoned over food safety problems as well as price war among them.
Food delivery platforms are ordered to strictly follow food safety management responsibilities and also prevent price wars that disrupt the market order.
Though the anti-trust fine of RMB3.44bn was thought to be the end of an almost year long regulatory crackdown on Meituan, it seems that this is far from over.

China Internet Weekly (1Aug2022): Tencent, Alibaba, Meituan, JD Logistics, MissFresh

By Ming Lu

Tencent and Huawei launched beta tests for car-hailing platform almost simultaneously.
Alibaba begins to disconnect Ant Group to avoid implicating each other.
Missfresh dismissed almost all employees in its headquarters in Beijing.

Minebea Mitsumi Tender for Honda Tsushin Kogyo (6826)

By Travis Lundy

Electronics Parts and Devices manufacturer Minebea Mitsumi (6479 JP) has announced a 25% premium Tender Offer to take over connector-maker Honda Tsushin Kogyo (6826 JP).
It is not an overwhelming bid, but is supported by Panasonic Corp (6752 JP) which owns an equity affiliate stake, and crossholders and friendly shareholders hold a lot.
This looks like it will complete, despite being a little light on price.

Europe, MSCI ACWI Bullish Downtrend Reversals as Japan Tests Resistance; Tech, Health Care Buys

By Joe Jasper

In last week’s Int’l Compass (July 21) we discussed positive signals that suggested the lows for this bear market may have already been established, or that downside is limited.
But we also noted that various downtrends remained firmly intact, and that we needed to see indexes reverse their downtrends in order to get more constructive at the index level.
It appears the bullish reversals have begun, as the SPX, MSCI ACWI (ACWI-US), and STOXX 600 are the first three major indexes to reverse topside their 4-month and YTD downtrends.

Route Mobile Ltd: Forensic Analysis

By Nitin Mangal

Route Mobile operates as a cloud communication provider to enterprises, OTT players and mobile network operators. The company got listed on the bourse in September 2021.
Route is a growing company, and derives a significant chunk of its business internationally.
Route Mobile is a story centralized by grey areas, be it accounting or management’s stance on contingent liability, or impairment in investments.

Lasertec (6920) | Mind the Guidance Gap

By Mark Chadwick

We turn tactically bearish on Lasertec as we expect the stock to dip on weak order guidance
After an exceptionally strong past year, we expect the order outlook to normalise
Risks include weaker macro, Intel capex delays and restrictions on equipment sales in China

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Jul 31

Daily Brief TMT/Internet: SK Telecom, Xerox Corp, Box Inc Class A, Fortinet Inc, New Relic Inc and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Index Rebalance & ETF Flow Recap: MSCI, S&P/ASX, Alibaba, SK Tel, Thai Life Insurance
Xerox Holdings Corporation: Detailed Credit Analysis & Financial Strength Evaluation Report
Box Inc.: Initiation of Coverage – Business Strategy
Fortinet Inc: Initiation of Coverage – Business Strategy
Will Jana Partners Have Success In Pushing New Relic For A Sale?
Xerox Holdings Corporation: Initiation of Coverage – New Products Launches

Index Rebalance & ETF Flow Recap: MSCI, S&P/ASX, Alibaba, SK Tel, Thai Life Insurance

Last Friday saw the end of the review period for the upcoming rebalance of the MSCI, NIFTY, NKY and STAR50 indices, among others.
The coming week has the implementation of the Philippines Stock Exchange PSEi Index (PCOMP INDEX) and NIFTY100 Index rebalances at the close on 5 August.
There were big inflows to the Tracker Fund of Hong Kong Ltd (2800 HK) last week with over US$500m flowing in.

Xerox Holdings Corporation: Detailed Credit Analysis & Financial Strength Evaluation Report

Xerox Holdings Corporation is one of the global leaders in printing, document management systems, and other workplace technologies.
With increasing digitization in workplaces, the company is facing a challenging macro-economic landscape and has become a loss making company over the past few quarters.
The management also recently announced the launch of a complete range of solutions for the productivity of the workplace.

Box Inc.: Initiation of Coverage – Business Strategy

This is our first report on cloud content management platform provider, Box Inc.
The company operates on a SaaS model and has achieved accelerating revenue growth, RPO growth, and operating margin since the start of 2022.
The strong customer matrices are the main indicators of the success of the platform strategy and product as customers are turning to Box for securing content management.

Fortinet Inc: Initiation of Coverage – Business Strategy

This is our first report on one of the leading players in integrated and automated cybersecurity solutions – Fortinet.
The company has been performing well in 2022 so far with a reported increase in billing and product revenue growth.
The company has also acquired a controlling stake in a Japan-based networking company ALAXALA Network for around $64 million.

Will Jana Partners Have Success In Pushing New Relic For A Sale?

By Andrei Zakharov

Activist hedge fund Jana Partners bought ~2.66M New Relic Inc (NEWR US) shares in 2Q22 and upped its stake in the tech company to 5.3%.
According to Reuters, New Relic may explore a potential sale following interest from private equity firms. Mr. Galligan, a partner of Jana Partners, joined the New Relic Board in June.
New Relic shares trade at ~4x EV/Rev on our FY23 revenue estimate, and we think Splunk may set a ceiling on the multiple at which New Relic may be acquired.

Xerox Holdings Corporation: Initiation of Coverage – New Products Launches

This is our first report on legacy workspace technology major, Xerox Holdings Corporation.
With increasing digitization in workplaces, the company is facing a challenging macro-economic landscape and has become a loss making company over the past few quarters.
Among major acquisitions, Xerox has recently acquired Go Inspire for growing the presence of digital services in the UK.

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Jul 30

Daily Brief TMT/Internet: Advantest Corp, Russell 2000 Index, Softbank Group, Wemade Co., Ltd., DailyHunt, KDDI Corp, MongoDB Inc, Dropbox Inc, Akamai Technologies and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Advantest (6857) – Strong SoC Sales, Record Profits, Bullish Guidance, and a Buyback (+ Index Flow)
Defining US Risk Inflection
Softbank Group – BABA Pressure Has Didi Read Across but a 41% NAV Discount Provides Cushion
End of Mandatory Lock-Up Periods for 49 Companies in Korea in August 2022
Dailyhunt Tearsheet – News For “Bharat”
KDDI (Buy) – Q1 22 Results Reaction: Mixed Quarter as Consumer Predictably Weak
MongoDB Inc.: Initiation of Coverage – Business Model & The Database Industry Boom
Dropbox Inc.: Initiation of Coverage – The DocSend Acquisition & Other Drivers
Akamai Technologies Inc.: Initiation of Coverage – Business Strategy
Akamai Technologies Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

Advantest (6857) – Strong SoC Sales, Record Profits, Bullish Guidance, and a Buyback (+ Index Flow)

By Travis Lundy

Advantest Corp (6857 JP) yesterday announced Q1 results, with Revenues/OP/NP at record levels, a H1 div hike of 30%, guidance well ahead of consensus, and a buyback.
They also announced a Mid-Term Plan revision which shows forward guidance better than consensus.
The buyback is smaller than the last one BUT float is not what you think it is. Understanding float dynamics here is key.

Defining US Risk Inflection

By Thomas Schroeder

Russell and NDX are knocking on resistance levels that have capped previous rally attempts as we enter the early August cycle timeline.
Tech rally reacting to backward earnings. E’s will buckle into a recession. The July risk on rally cycle is closing.
NDX 13k and RTY 1,930 are key inflection levels that will drive the global risk cycle ahead of a more turbulent late August to October period.

Softbank Group – BABA Pressure Has Didi Read Across but a 41% NAV Discount Provides Cushion

Alibaba is under pressure again with a direct read-across to Softbank
Worries on China regulation are bad news for another Softbank holding DIdi Global as it stands alongside Alibaba as a high-profile regulatory target
Alibaba weakness could drive risk pricing (CDS) and the discount to NAV higher. A silver lining is that discount makes Softbank attractive for investors looking for indirect China exposure

End of Mandatory Lock-Up Periods for 49 Companies in Korea in August 2022

We discuss end of the mandatory lock-up periods for 49 stocks in Korea in August 2022, among which 3 are in KOSPI and 46 are in KOSDAQ.
These 49 stocks on average could be subject to further selling pressures in August and could underperform relative to the market.
Among these 49 stocks, the top five market cap stocks include Wemade, HPSP, Sungeel Hitech, Wemade Max, and Eoflow. These companies could be exposed to greater selling pressures in August.

Dailyhunt Tearsheet – News For “Bharat”

DailyHunt (1449267D IN) is one of India’s leading vernacular content curation and engagement platforms and also one of the most funded content startups.
Channel interactions indicate a challenging competitive position that requires constant cash burn.
In terms of financials, there is no sight of profitability in the near term. Unless that changes, it is best to remain cautious.

KDDI (Buy) – Q1 22 Results Reaction: Mixed Quarter as Consumer Predictably Weak

Results for the quarter were mixed with a slight miss for profitability despite one-time gains for financial services taken in the quarter
Revenue erosion from a reduction in the Rakuten roaming service area was relatively modest whilst there are signs of improvement in erosion from mobile price cuts
KDDI will reimburse users ¥7bn (v Redex forecast of ¥10bn) for its network outage earlier this month; the operational impact won’t be clear until Q2 churn is reported

MongoDB Inc.: Initiation of Coverage – Business Model & The Database Industry Boom

This is our first report on database major, MongoDB.
The company delivered yet another all round beat in the previous result with a staggering 57% growth year over year.
The revenue generated by Atlas alone increased by 82% year over year and accounted for 60% of MongoDB’s total revenue.

Dropbox Inc.: Initiation of Coverage – The DocSend Acquisition & Other Drivers

This is our first report on Dropbox, a major player within the cloud storage, file transfer, and e-signature domain.
Dropbox is continuing to evolve its core FSS business to drive monetization and improve attention.
This quarter, Dropbox has launched its newest version of Dropbox backup that has upgraded management settings and restoration flow.

Akamai Technologies Inc.: Initiation of Coverage – Business Strategy

This is our first report on Akamai Technologies, a renowned content delivery network and cloud service provider. the growth in security and computing has been the main driver of revenues for Akamai in the past years but it has been adversely impacted by the U.S. dollar’s sharp increase in value and the slowing of traffic growth in the company’s delivery business.
The consistent double-digit growth in security revenue has been driven by Guardicore’s continued outstanding performance and rapid growth in their application security business.

Akamai Technologies Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

Akamai Technologies is a well-known cybersecurity company, content delivery network, and cloud service provider.
The growth in security and computing has been the main driver of revenues for Akamai in the past years but it has been adversely impacted by the U.S. dollar’s sharp increase in value and the slowing of traffic growth in the company’s delivery business.
With pandemic-related restrictions being lifted globally and the related tailwinds receding, the company has seen a slower growth rate of traffic on its network in the gaming and OTT verticals.

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Jul 29

Daily Brief TMT/Internet: SK Hynix, Powerchip Semiconductor Manufacturing Corp, Microsoft Corp, Servicenow Inc, KPIT Technologies, Arista Networks, Netgear Inc, Renesas Electronics, Iridium Communications, CloudFlare and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Revised Rules on Short Selling Restriction in Korea: Effective 3Q This Year
PSMC Placement – Well Flagged and SI on the Rise, but Momentum Has Been Very Weak
Microsoft: Growth Bulls Versus Value Bears
TMT Earnings Quick Hits: Spotify and ServiceNow
KPIT Tech: Strong Execution; Margins Exceed Expectation
Arista Networks Inc.: Initiation of Coverage – Market Position
NTGR: Catalysts for Growth, Buy
Renesas (6723) | Buy the Dip
IRDM: Calling Home with Free Cash Flow
Cloudflare Inc.: Initiation of Coverage – Market Presence & Scope For Expansion. Other Key Drivers

Revised Rules on Short Selling Restriction in Korea: Effective 3Q This Year

By Sanghyun Park

If short-selling accounts for more than 30% of total daily trade volume, it will be newly designated as an overheated short-selling stock, resulting in a one-day short-selling ban.
If the stock price falls by more than 5% on the day of the short-selling restriction, the restriction period is automatically extended by one more day.
We should pay attention to a possible increase in the trading volume of single-stock futures (SSF) due to short-selling bans, which can result in a more significant basis distortion.

PSMC Placement – Well Flagged and SI on the Rise, but Momentum Has Been Very Weak

By Clarence Chu

Powerchip Semiconductor Manufacturing Corp (6770 TT) (PSMC) is looking to raise US$420m via its GDS offering.
The firm is offering 23.3m GDSs (350m common shares at a 1 GDS to 15 common shares ratio) at a 6-9% discount to last close.
The deal is well flagged via both media reports and the company’s announcements. Short interest has been growing in tandem as well.

Microsoft: Growth Bulls Versus Value Bears

By Steven Holden

Microsoft Corporation is the most widely held stock among active US equity investors. Of the 297 active strategies in our analysis, 80.1% own Microsoft at an average weight of 5.10%
There is a growing dispersion between Value and Growth managers in MSFT. Growth managers are at record levels of ownership, whereas Value managers are running their largest underweight on record.
US Growth managers are relying on Microsoft to deliver an increasing proportion of the Growth within their portfolios. The cost of that growth is coming under scrutiny by Value managers

TMT Earnings Quick Hits: Spotify and ServiceNow

By Aaron Gabin

Spotify’s earnings were not as impressive as they seemed. Revenue beats driven by huge FX tailwinds, while MAU beats are coming from low ARPU regions.
ServiceNow’s earnings were not as weak as seemed. Uberbullish CEO Bill McDermott had already guided to elongated sales cycles, but we think reiterated margin targets and 130% NRR matter more.
Inverse results…Spotify jumped without any evidence of progress towards an unbelievable LT operating model, while ServiceNow fell without evidence that its (superb) LT model is in question.

KPIT Tech: Strong Execution; Margins Exceed Expectation

By Ankit Agrawal, CFA

KPIT Technologies (KPITTECH IN) [“KPIT Tech”; “KPIT”] reported a robust Q1FY23 earnings with CC revenue growth of 6% QoQ (26% annualized), well above the 18-21% guided for FY23.
The biggest positive surprise was on the margins front with EBITDA margins coming in at 19.4%, exceeding the 18-19% band guided for FY23, despite the supply-side headwinds.
More importantly, the demand outlook continues to be promising despite macro-economic concerns around US and Europe.

Arista Networks Inc.: Initiation of Coverage – Market Position

This is our first report on cloud networking solutions provider, Arista Networks.
The company had a strong quarter and generated record quarterly revenues of $877.1 million backed by a strong performance in software support renewals and services.
Cloud titans were their strongest and largest vertical for the last quarter, followed by enterprise, cloud specialty providers and financials tied for second place, and service providers in fourth.

NTGR: Catalysts for Growth, Buy

By Hamed Khorsand

NTGR is reaching the inflection point of rebalancing its channel inventory after deciding to transition away from lower priced wireless routers
Upgrading to Buy Rating from Neutral with inventory rebalancing near the end, strong SMB sales trends momentum, and growth within service provider
The higher sales performance from the SMB segment was not expected and should contribute to NTGR growing revenue in 2023 with upcoming release of WiFi 7 on deck

Renesas (6723) | Buy the Dip

By Mark Chadwick

Renesas stock is down around 8% following quarterly earnings and a very conservative Q3 outlook
We think the market is over reacting and believe that Renesas is a key beneficiary of secular growth in auto and industrial electronics
The stock trades at a discount to global peers, despite a strong story for improving shareholder returns

IRDM: Calling Home with Free Cash Flow

By Hamed Khorsand

IRDM continues to benefit from the momentum in consumer adoption of personal communications devices embedded with capabilities to use IRDM’s satellite network
The quarterly results were overshadowed by IRDM’s disclosure of entering into a technology sharing relationship for using IRDM’s satellite network as backup connectivity to smartphones
During the second quarter 2022, IRDM added approximately 80 thousand new commercial IOT subscribers to bring the total to over 1.3 million

Cloudflare Inc.: Initiation of Coverage – Market Presence & Scope For Expansion. Other Key Drivers

This is our first report on Cloudflare, one of the leading cloud-based security solutions providers in the world.
Cloudflare has recently equipped partners to deliver a comprehensive Zero Trust solution with the Cloudflare One Partner program.
Moreover, the company recently expanded its platform zero trust for becoming the only provider of cloud-native with Network scale.

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✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Jul 28

Daily Brief TMT/Internet: Canon Inc, Mercari Inc, Rakus Co Ltd, 21Vianet Group, Softbank Corp, FirstCry, SK Telecom, Alibaba Health Information Technology, Digital Turbine, Tencent and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

TOPIX July Rebalance: Flows at the Close Today
Mercari (4385) | We Were Wrong…its Worse
JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?
VNET Draws the Interest of MBK Partners
Softbank Corp (Buy) – PayPay Conversion, Re-Valuation Gain Confirmed for Q3
FirstCry Tearsheet – India’s Only “Surviving” Baby Products Retailer
SK Telecom: MSCI Deletion Should Provide Entry Point Vs KT Corp
Alibaba Health: New Digital Healthcare Policy to Have Less Impact but Tumbling Margins Is Worrying
Digital Turbine Inc.: Initiation of Coverage – Partnerships With Google & AccuWeather
Tencent (700 HK): Game Industry Decreasing for First Time and Turning to Overseas Market

TOPIX July Rebalance: Flows at the Close Today

FFW changes and Mercari Inc (4385 JP)‘s inclusion in the TOPIX will lead to a one-way turnover of 0.55% and one-way trade of JPY 443bn (US$3.23bn) at the close today.
There is net buying in Consumer Discretionary, Financials and Communication Services stocks, while there will be net selling in Consumer Staples and Health Care stocks.
The upweights have outperformed the downweights since announcement of the changes and there has not been a lot of excess volume traded in the last couple of weeks.

Mercari (4385) | We Were Wrong…its Worse

By Mark Chadwick

Shopify Inc (SHOP US) ‘s share price declined by -15% in after hours trade on weaker-than-expected US E-commerce trends
Mercari Inc (4385 JP) ‘s US business is highly correlated with its US peer, as is its stock price
A normalisation of e-commerce trends could also impact its much larger Japanese GMV as consumers shift spending patterns back to normal

JPX-Nikkei 400 2022 Rebal: Final Pre-Event Phase Strategy Worked. What Next?

By Janaghan Jeyakumar, CFA

In JPX-Nikkei 400 2022 Rebal: Final Predictions, I discussed Quiddity’s final predictions for Potential ADDs/DELs for the JPX-Nikkei Index August 2022 Annual Review.
In that insight, I classified the potential ADDs/DELs by conviction levels and discussed why the high conviction ADDs and DELs deserved a higher weight than the other baskets.
Since then, the LONG High Conviction ADDs – SHORT High conviction DELs Trade has outperformed the other LONG-SHORT combinations.

VNET Draws the Interest of MBK Partners

Bloomberg reported that MBK Partners is in talks to team up with a partner on a joint offer for 21Vianet Group (VNET US). Considerations are at a preliminary stage.
A potential bid would compete against The Hina Group and Industrial Bank’s $8.00 per ADS offer. The Board has not provided an update on its stance on this offer.
Takeover interest is unsurprisingly due to VNET’s depressed share price, unchanged FY22 guidance and ongoing data centre M&A activity.

Softbank Corp (Buy) – PayPay Conversion, Re-Valuation Gain Confirmed for Q3

Softbank and Z Holdings have confirmed the conversion of PayPay preferred equity into common in-line with previous guidance for ownership levels and a revaluation gain
Z Holdings will sell the credit card business to PayPay to align transactional fintech which makes distribution, product development and branding easier
Our outlook has not changed but we are lowering our target price to reflect diminished expectations announced at Q4 results. We remain at Buy but prefer NTT/KDDI in telcos

FirstCry Tearsheet – India’s Only “Surviving” Baby Products Retailer

FirstCry (0172540D IN) is one of the leading and only surviving Omni channel retailer that specialises in baby products.
Channel feedback is positive, the strategy of opening company-owned and operated stores, and segregating online and offline operations is working well.
Increasing revenues, profitable operations and limited competition make FirstCry a compelling narrative that should be on the watchlist.

SK Telecom: MSCI Deletion Should Provide Entry Point Vs KT Corp

SK Telecom (017670 KS) has continued to underperform KT Corp (030200 KS) even as foreign investors continue buying. Local institutions have been selling the stock.
With foreign room currently at 1.68% and consistently below 3.75% recently, SK Telecom (017670 KS) should be deleted from the MSCI Korea Index at the August QIR.
There will be more selling from FTSE trackers in September. With the SK Tel/KT Corp price ratio trading at the lows, the passive selling could provide a good entry point.

Alibaba Health: New Digital Healthcare Policy to Have Less Impact but Tumbling Margins Is Worrying

On 22nd June, China released a draft rule that would prevent third-party e-commerce platforms from selling drugs directly to consumers online.
Alibaba Health’s share price is down more than 10% since the announcement of the draft rule, however, third-party e-commerce platforms accounts for about 10% of Ali Health’s revenues.
Pharmaceutical direct sales business has been generating lower GPM compared to JD Health’s direct biz, and the company’s margins have continued to deteriorate during the last 2-years.

Digital Turbine Inc.: Initiation of Coverage – Partnerships With Google & AccuWeather