TMT/Internet

• This is our first report on the material science behemoth, Corning.
• Both the gross margin and operating margin have been increasing since the start of 2022.
• The company also collaborated with 5E Advanced Materials to supply boron specialty materials.

• Corning is a major material science player that has been experiencing a rapidly improving margin profile since the past few results.
• Both the gross margin and operating margin have been increasing since the start of 2022.
• The management appears confident in their ability to promote long-term profitable growth combined with their steps to increase margins.

• Sungeel Hitech announced its IPO book building results. The IPO price has been determined at 50,000 won, higher than the high end of IPO price of 47,500 won.
• The demand ratio for Sungeel Hitech IPO was 2,269.7 to 1 which broke all time records in terms of highest ever demand ratio for a Korean IPO.
• Our base case valuation is implied price per won of 70,992 won per share, which represents 42% higher than the IPO price of 50,000 won.

• Bridgetown Holdings, a SPAC backed by Peter Thiel and Richard Li, is considering a potential merger with Singapore’s virtual telco Circles.Life (merger valuation could range US$1.5 billion to US$2.5 billion). 
• All in all, the valuation range of the proposed M&A merger of Bridgetown Holdings and Circles.Life needs to be reduced substantially, in order to generate more interest in this deal. 
• Otherwise, there is likely to be weak demand for this merger deal. In addition, the market environment for SPAC related M&A deals have deteriorated significantly in the past 6-12 months.

• Glory Star New Media Group H (GSMG US) (GSMG), a leading digital media platform and content-driven e-commerce company in China, has entered a definitive privatisation transaction with Cheers Inc.
• Cheers is offering US$1.55/share, in cash, a 76% premium to GSMG’s undisturbed price, and a 22% premium to the US$1.27/share proposal from GSMG’s CEO Bing Zhang. 
• The buyer consortium owns ~72.8% of shares out and this Offer requires a two-thirds vote from shareholders. This looks done with expected completion this year. But it’s a low-balled Offer.

• The Holding Foreign Companies Accountable Act (HFCAA) could result in China ADRs being delisted in 2024. The Accelerated HFCAA, if passed, will bring that date ahead to 2023.
• FTSE has announced its implementation plan to migrate the China ADRs in its indices to the local listings using an accelerated schedule.
• Expect a lot more secondary listings/ dual primary listing in Hong Kong over the next few months. The increase free float market cap could keep a lid on prices.

• Softbank sale of Fortress removes an asset that is surplus to requirements at a price that is not as bad as headlines suggest
• A sale to Mubadala at ~$1bn seems low versus the $3.3bn it paid in 2017 but dividend payments and a strong yen mean a c. 70% loss is actually ~10%
• The discount has modestly narrowed recently but VF valuations likely to remain volatile whilst worries on China tech regulation persist

• Money Forward has one of the largest SaaS/Fintech platforms in Japan and is a key beneficiary of corporate digital transformation 
• The stock has fallen 48% year to date as valuations crashed with global SaaS multiples
• We think MF will emerge from downturn in good shape. At 10x EV/Rev, we see 22% upside (maybe even 55%….)

• Q2 financial results were in-line or better than management targets but lagged consensus expectations
• Guidance for Q3 is slightly disappointing with the target range for revenue mostly below expectations whilst promotional and marketing spend continues to expand
• The secular growth story is attractive and operating KPI growth remains robust but investors probably needed more from a stock that trades at 7.5x EV/FY22 rev in a risk-off environment

• Money Forward (3994 JP) reported 2QFY11/2022 results yesterday. Revenue grew 27.2% YoY to JPY5.08bn (vs consensus JPY5.13bn). Operating losses for the quarter was JPY2.2bn (vs consensus JPY1.9bn).
• MF’s top line growth has been slowing down, and the company continues to spend heavily on advertising to acquire users for its SaaS business.
• Though MF continues to grow its user base, it comes at the cost of profits.

• 2022 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each. 
• Even if you do not “play” index changes, understanding impact is important. Japan Exchange Group (8697 JP) entered Nikkei 225 in July 2020 after rising 30%. That was the top.
• Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks. 

• China just announced game approval for July batch. More games were approved in July compared to June and May.
• Pace of China game approval has picked up albeit at a much slower pace than pre-tightening.
• Tencent and Netease will be under pressure as they continue to score zero in July domestic game approval. 

• China’s NPPA issued a list of 67 new games approved for July 2022, and once again, Tencent (700 HK)  and its smaller rival NetEase were excluded from the list.
• The nine-month long freeze on new game approval was lifted in April, however, none of Tencent’s new games were included in the approved lists in April, June and July.
• This further affirms our view that the anti-monopoly crackdown on tech firms hasn’t slowed down, but regulators are probing on dominant players such as Tencent to level the playing field.

• Mercari Inc (4385 JP) will be added to the Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) at the close on 28 July.
• There are a lot of FFW changes, mainly reductions. This leads to large funding inflows on the large index stocks.
• We estimate the inclusion of Mercari and the FFW changes will lead to a one-way turnover of 0.56% leading to a one-way trade of JPY 442.23bn (US$3.25bn).

• In mid-January, I wrote about Mercari’s likely TOPIX inclusion 4-5 months later. 4.5mos later, it had been included (Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks) .
• The publicly-visible announcement data often does not show TOPIX inclusion parameters. A little sleuthing gets you there. 
• It’s still bigger than it looks, but some large holders have recently been selling.

• The Link Administration (LNK AU) Board will not recommend Dye&Durham/DND’s revised lower offer of A$4.57 per share due to shareholder feedback, the underlying value and alternative options.
• The slightly above guidance is designed to show that Link’s contribution to DND’s build a billion objective remains on track and there is little chance of triggering the MAC clause.
• DND needs to secure a deal this week to use its attractive deal financing, according to AFR. This could be the cue for DND to give a little more.

• The Samsung Electronics single-stock futures trading volume has increased significantly. In the most recent F 202207, the futures/cash TV ratio soared to 80%, considerably higher than the usual 40% level.
• Local pension funds are doing spot/futures arbitrage quite aggressively on Samsung Electronics, resulting in unintended consequences, including the 1P discount distortion we witnessed on June 16.
• This 1P discount distortion provides a higher spread than futures/spot arbitrage. So, we need to preemptively set up pref arbitrage while closely monitoring Samsung Electronics’ basis.

• After the market close today, Seoul Economic Daily reported that Socar is likely to delay its IPO to later on. 
• Although Socar has not formally announced that it will delay the IPO, we believe that there is a high probability that the IPO will be postponed. 
• The overall sentiment on the Socar IPO appears to be negative by many institutional investors, unless the company reduces the IPO price range substantially. 

• On 10th July, SAMR published 28 administrative penalties for violating anti-monopoly law related to disclosing past transactions on firms including Tencent, Alibaba, Didi, Weibo and Bilibili.
• A fine of RMB17.2m (US$2.56m) was imposed in total and were fined for not properly reporting past deals between March 2011 to July 2021.
• The market has come to believe that the anti-monopoly investigation in China is easing off, however, the recent development suggests that the anti-monopoly normalisation will continue.

• One third of the way through the review period for the June rebalance, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX). 
• One-Way turnover is estimated at 3.88% and the impact on the expected deletions is a lot higher than the impact on the expected inclusions.
• The potential adds have outperformed the potential deletes over the last few months. With the potential adds not short sell eligible, there could be more to go here.

• Richie Capital Group invests on behalf of clients using an established investment process leveraging decades of investment experience. Our investment goal is to provide superior returns over time through the active management of long-only investment strategies.
• In our view, the Fed is “letting the air out of the tires” to keep our economy from skidding off the runway.
• Another “positive” sign that we are heading in the right direction is rising unemployment.

• Richie Capital Group invests on behalf of clients using an established investment process leveraging decades of investment experience. Our investment goal is to provide superior returns over time through the active management of long-only investment strategies.
• In our view, the Fed is “letting the air out of the tires” to keep our economy from skidding off the runway.
• Another “positive” sign that we are heading in the right direction is rising unemployment.

• We came away from our recent plant visit to INARI’s P13 and P55 plants in Bayan Lepas, Penang with a renewed conviction on the company after learning about its customer requesting the group to add in more RF testers for the upcoming US smartphone launch in September.
• A positive change we noticed in the facility is the integration of its proprietary EMI machines with each RF tester which further widens the gap between the company and their competitors, increasing customer’s dependency on INARI.
• Maintain OUTPERFORM with an unchanged Target Price of RM3.30 based on 28.5x FY23E EPS.

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