TMT/Internet

• AI software company SenseTime’s share price dropped more than 50% over the last one week with the expiry of lock-up period as pre-investors of the company took some profits.  
• The company was placed in an investment blacklist by the US government prior to the IPO which forced to launch the IPO without investors from the US.
• The company also priced the IPO at the bottom of the price range and despite all of this, shares quickly went up to HK$8.20 from IPO price of US$3.85.

• It is time to throw off the old valuation models. Fujifilm is no longer a dusty old camera maker
• The healthcare business is already the biggest earnings driver and with aggressive capex…. 
• Fujifilm will become the biggest biopharma contract manufacturing company in the world. Valuations don’t reflect that. 

• The price review period for the FTSE All-World/All-Cap September 2022 SAIR ended on 30 June. The changes are expected to be announced on 19 August and implemented on 16 September.
• For Asia ex-Japan ex-China, we see 7 inclusions to All-World, 58 inclusions to All-Cap, 9 migrations from All-Cap to All-World, 5 migrations from All-World to All-Cap, and 20 deletions.
• There are quite a few names in Australia that could have same way flows from the S&P/ASX 200 and S&P/ASX 300 Index trackers on the same day as the FTSE trackers.

• The GPIF reported its annual investment results for the FY to March 2022 last Friday. The investment report makes for interesting reading.
• The GPIF made 5.42% but alpha was negative 6bp vs time-weighted and money-weighted benchmarks.
• The re-allocations amongst asset classes now means more money tracks TOPIX, and it means active managers have their work cut out for them going forward.

• Alibaba CEO’s article appeared on a government journal, which can be a positive signal to non-state-owned companies.
• Prosus sells shareholdings in Tencent and JD.com to repurchase its own shares.
• Tencent is trying to use game technologies in other fields.

• Citing the Australian Competition and Consumer Commission’s concerns and challenging markets,  Dye & Durham (D&D) reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share.
• Link has now announced it “does not believe it is able to recommend” the revised Offer.
• That tentative rejection, and the fact it remains in discussion with D&D, suggest a board-backed price is probably somewhere between the original bid price and the reduced Offer terms. 

• The Link Administration (LNK AU) Board will not recommend Dye & Durham/DND’s proposed lower offer of A$4.30 per share due to shareholder feedback, the underlying value and alternative options.
• The statement suggests that the Board is willing to consider a lower but improved offer. Acquiring Link at a lower valuation through its attractive financing package continues to motivate DND.
• A price of A$4.70, which is the middle of the buyer’s and seller’s valuations will get a deal done. Downside risk is low as shares trade close to low-end valuation.   

• Last autumn, Advantage Partners launched an MBO on Pipedo HD Inc (3919 JP) where an activist/y presence threatened to be able to block it. Partway through, shares popped.
• The MBO was unsuccessful. Now they are back, at the same price, and now they have arranged a side deal with the activist-y holder. So now it is stitched up. 
• There could easily be people unhappy with the structure of this deal, especially as book value is up 16%, and projected cashflows 8-10% higher than last time. 

• The Nikkei reported today that the GPIF would be investing in a startup fund for the first time. 
• The move is significant more for its signalling effect than the actual size of the investment which will do little to address the startup funding shortage in Japan. 
• Nevertheless it is important as it marks a change in direction and while it may go quietly unnoticed now, the follow-through is likely to be moderate but consistent and lasting.

• Kakao Entertainment is one of the biggest entertainment companies in Korea. The company has a strong IP for webtoons, web novels, music, drama, movies, and other digital contents.
• Kakao Entertainment is a company that was formed from a merger of Kakao Page and Kakao M in March 2021. 
• Kakao Corp (035720 KS) is the largest shareholder of Kakao Entertainment, followed by Anchor Equity Partners, and Tencent.

• Zigbang is a leading property search platform in Korea. Zigbang’s strategy is to capitalize on the digitalization of living space, real estate transactions and smart home devices. 
• In January 2022, Zigbang agreed to acquire Samsung SDS’ home internet of things (IoT) unit for about $85 million to further penetrate the smart home industry.
• In late June 2022, Zigbang received 100 billion won in investment from IMM Investment, KDB Bank, and Hana Financial Investment, valuing the company at 2.5 trillion won.

• Z HD’s stock has been heavily sold with other tech stocks amid a rising interest rate environment
• However, we believe that the 3 core business segments are all performing strongly and will continue to gain share
• Using global comps, we believe that Z HD has more than 100% upside and is the top pick in the online space in Japan

• The price review period for the FTSE All-World/All-Cap September 2022 SAIR ended on 30 June. The changes are expected to be announced on 19 August and implemented on 19 September.
• There are a lot of potential inclusions to the indices for China -some changes are a result of stocks being included in Northbound Stock Connect.
• Gcl Poly Energy Holdings Limited (3800 HK) is the largest potential inclusion (in terms of passive flow) in the index following resumption of trading in November 2021.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• The highest spreads are Sezzle Inc (SZL AU), Link Administration (LNK AU), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Australian Unity Office Fund.
• The lowest gross spreads are Hwa Hong Corp (HWAH SP), Irongate Group (IAP AU), Giordano International (709 HK), Uniti Group Ltd (UWL AU), Excelpoint Technology (EXLP SP).

• 30 June was the review cutoff date for the next rebalance of the FTSE All-World/All-Cap Index, HSI INDEX, HSCEI INDEX, HSTECH INDEX, HSCI Index, PCOMP INDEX and the LQ-45 Index.
• Bilibili (9626 HK) replaces Sunac China Holdings (1918 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close of trading on 8 July.
• There were big inflows to iShares MSCI China (ETF) (MCHI US) during the week while the largest outflow was from the Tracker Fund of Hong Kong Ltd (2800 HK). 

• Viva Republica (Toss) is one of the biggest fintech companies in Korea. Toss provides bundled fintech services including payments, banking, securities, and insurance. 
• In late June 2022, Viva Republica reported that it received Series G funding with 500 billion won in new investments, valuing the company at 9.0 trillion won or more.
• From 2018 to 2021, the company’s sales increased by 142% CAGR. Operating margin improved significantly from -97.2% in 2019 to -18.6% in 2020 but worsened slightly to -23% in 2021. 

• Dunamu operates Upbit which is the largest cryptocurrency exchange in Korea. As of April 2022, Upbit had more than 70% market share in the cryptocurrency trading market in Korea.
• Dunamu’s sales surged by 1996% to 3.7 trillion won in 2021 and operating profit surged from 86.6 billion won in 2020 to 3.3 trillion won in 2021.
• In January 2022, Dunamu was last valued Dunamu at nearly 15 trillion won. However, due to major decline in crypto prices in 2022, Dunamu’s valuation has declined significantly. 

• Prosus (PRX NA) selling its JD.com (9618 HK) shares was expected. The beginning of an open-ended share repurchase programme of Prosus and Naspers (NPN SJ) shares was a welcome surprise.
• Dye & Durham has reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share. It still may get board support.
• A 40-45% discount is about the narrowest Bank of Kyoto (8369 JP) should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.

• Yanolja is the largest travel app in Korea and it is also considered to be the second largest property management software provider in the world after Oracle.
• In July 2021, Softbank Group Corp’s Vision Fund II agreed to invest $1.7 billion in Yanolja, for a 25% stake in the company.
• Yanoljia is a well known app for booking hotels in Korea. The company’s business model has expanded to providing property management software products and services.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• There was a marked pickup in IPO activity with a number of smaller deals, along with two large deals being launched.
• There were no major placements last week. In addition, Prosus single handedly took out two prospective large placements.

• Prosus (PRX NA)’s announced open-ended share repurchase programme, funded by on-market sale of its Tencent shares, is a significant positive catalyst to reduce its discount to NAV.
• Continued operating losses will likely require funding through capital events, in the form of either asset sales or debt issuance.
• Cash flow requirements and continued concerns around capital allocation should limit the reduction in the discount to NAV.

• Kurly is the number one player in Korea focusing on e-commerce of fresh foods. Kurly’s most recent valuation was about 4 trillion won in December 2021.
• Coupang is trading at P/S and P/GP multiples of 1.2x and 7.4x (2021), respectively. Using these valuation multiples, Kurly’s valuation would be from 1.9 trillion won to 2.2 trillion won.
• These valuations would represent nearly half of the 4 trillion won in private market valuation it received in December 2021.

• Vision Fund’s public portfolio lost $10bn in Q1 marking the third time in four quarters that valuation losses were in the tens of billions
• Global tech weaness remains the main challenge as portfolio losses are matched with concerns on the private portfolio, especially ARM
• And worries about ARM also feed into leverage concerns as Softbank’s QoQ decline in reported LTV was driven by an ARM upgrade.  Meanwhile, CDS prices are near all-time highs

• Qualtrics International (XM US)  is the largest XM provider and pioneer in Experience Management. The company was founded in 2002 by Ryan Smith, Jared Smith, and their dad, Scott Smith.
• In 2018, SAP acquired Qualtrics for ~$8B in an all-cash deal, one of the largest-ever acquisitions of a SaaS company.
• We view Qualtrics International (XM US)  as well-positioned to continue to take market share with additional growth drivers such as new products and international expansion. 

• Just as the December quarter was flattered by the last minute IPO of SenseTime Group (20 HK), expiration of the lockup six months later has delivered a corresonding valuation hit
• Vision Fund is still up on that investment but the public portfolio is flirting with a $10bn loss for the quarter depending on how US shares trade later
• The discount has improved modestly to 49% from 51% but remains at the high end of the recent range as worries on tech valuations cast a long shadow 

• JPX-Nikkei 400 is composed of stocks listed on the Tokyo Stock Exchange selected based on multiple metrics relating to size, liquidity, financial performance, and corporate governance.
• The annual rebalance of the JPX-Nikkei 400 Index takes place in August every year and the cut-off date for the data used for this rebalance is the end of June.
• In this insight, we take a look at Quiddity’s final predictions for Potential ADDs/DELs for the August 2022 review.

• We discuss end of the mandatory lock-up periods for 40 stocks in Korea in July 2022, among which 7 are in KOSPI and 33 are in KOSDAQ.
• These 40 stocks on average could be subject to further selling pressures in July and could underperform relative to the market. 
• Among these 40 stocks, LG Energy Solution (373220 KS) and Heung A Shipping (003280 KS) could face further selling pressures in the coming weeks.

• Tencent exhibits a compelling bear case in the form of triangle slated to break down to press on macro 310 support. A wave 5 new low near 280/263 is targeted.
• MACD turning down from macro resistance stand out as a compelling direction signal that aligns with the bearish triangle a-b-c bounce count.
• This new low would (terminal wave 5 cycle trough) represent a macro buy entry to challenge the 420 macro bull/bear line.

• Tencent’s share price is down 6.5% over the last five days as largest shareholder Prosus sais that it would sell down Tencent shares to fund the buyback of Prosus/Naspers shares.
• Though Chinese regulators removed the ban on new game approval in April this year, none of Tencent’s new game titles received approvals in over the last two months.
• Tencent’s 1Q2022 earnings were weak and we expect 2Q2022E earnings to further decelerate with resurgence of Covid cases in China alongside weak macroeconomy.

• Bukalapak (BUKA IJ) held its AGM this week, which effectively repeated the messages from its 1Q2022 results including guidance for FY2022 but there is more excitement beneath the headline numbers.
• One key metric tracked by management is the contribution margin, which is moving towards positive territory put take rates will improve for both Mitra and through its specialty store strategy. 
• AlloFresh has launched and is testing the offline line efficiencies before being applied to Mitra partners and AlloBank has also started its digital journey. Bukalapak looks cheap. 

• Bilibili (9626 HK) will replace Sunac China Holdings (1918 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close of trading on 8 July.
• While Bilibili (9626 HK)‘s index inclusion is a surprise, the impact from passive fund trading is not a lot. Nothing much one can do on Sunac China Holdings (1918 HK). 
• The Hang Seng China Enterprises Index (HSCEI INDEX) will drop 16.12 points at the close on 8 July. Something for traders to watch out for over the next week.

• Hong Kong Stocks are more excited than the mainland about cutting the Quarantine period from 14 to 7 days.
• The 25th Anniversary of the Hong Kong handover means more stability ahead of celebrations and trading dominated by position squaring.
• Only Xiaomi shows signs of a breakout. It broke the downtrend from August 2021 with the inside days in the last two trading sessions. It looks like it will test the breakout and cover it next week.

• Enterprise storage hardware market faces numerous headwinds and increasing commoditization
• STaaS is cannibalistic, facing increasing competition, and decelerated in the MRQ
• Each of the last 2 quarters have seen some meaningful, non-recurring revenues lead to PSTG beating estimates

• Fintech is the key mid-term earnings driver for Z Holdings
• We are focused on the underlying growth drivers and KPIs 
• PayPay is at the heart of driving the fintech ecosystem and its growth

• We do not expect any inclusions or exclusions for the Hang Seng Tech Index (HSTECH INDEX) at the September rebalance.
• Float and capping changes will lead to a one-way turnover of 6.5% and that will result in a one-way trade of HK$4,913m.
• SenseTime Group (20 HK) will have the largest buying flow due a potential increase in free float. The stock is also a potential inclusion to the HSCEI INDEX in September.

• It’s been a long-time coming. Prosus (PRX NA) and parent Naspers (NPN SJ) will gradually sell down their stake in Tencent (700 HK) to fund a share purchase program.
• Preceding my comments on Prosus and Naspers, are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % of market capitalisation greater than 20%.

• Our base case valuation of Socar is target price of 27,967 won, which is 18% lower than the low end of the IPO price range of 34,000 won.
• Given the lack of upside, we would Pass on this IPO. Our valuation is also 23% lower than the valuation that Lotte Rental paid for its 13.9% stake in Socar.
• We estimate Socar to generate sales of 396.4 billion won (up 37.2% YoY) and EBITDA margins of 12.6% in 2022. 

• Business unit growth is slowing down after two years of exponential transaction growth.
• High-yield debt is in bad shape considering the economy, according to a quantitative risk analysis.
• PayPal owns a few promising subsidiaries. Yet, it could be a while before they provide significant value, says analyst.

• Today Prosus announced that it will begin an open-ended share repurchase programme of Prosus and Naspers shares which will be funded by on-market sale of Tencent shares.
• Prosus also announced that it has sold its entire shareholding in JD.com, to raise US$3.67bn, on-market in Jun 2022.
• In this note, we talk about the implication and timing of today’s announcements.

• I wanted to write this insight over the weekend but could not finish it, but now there is new news to warrant it. 
• Today, Prosus (PRX NA)  announced it had sold the 131,873,028 JD.com Inc. (9618 HK) shares it received in the Tencent (700 HK) distribution. This is as expected. Proceeds were US$3.67bn.
• Also announced this morning is “the beginning of an open-ended share repurchase programme of Prosus and Naspers (NPN SJ) shares.” The details are the key to everything. 

• The FTSE Russell September 2022 SAIR will use closing prices from 30 June to calculate the market cap cut-offs to determine the inclusions and exclusions for the All-World/All-Cap indices.
• We see 1 add for the All-World Index and 5 for the All-Cap Index. We see 3 stocks moving from All-Cap to All-World and 5 stocks moving the other way.
• There are other stocks that are close adds, upweights, downweights and deletes and price moves over the next few days will determine their status.

• Dye & Durham (D&D) has reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share.
• The revised offer followed the Australian Competition and Consumer Commission’s concerns that D&D’s acquisition of Link would lead to dominance in Australia’s conveyancing market.
• To facilitate the new Offer, D&D said it is considering providing an undertaking to ACCC – presumably, but not stated, being the sale of its GlobalX business.

• Dye & Durham/DND has proposed to lower its offer from A$5.50 to A$4.30 per share. The Link Administration (LNK AU) Board will provide shareholders with an update next week.
• DND’s justification for a lower offer based on the potential undertaking to the ACCC and the current state of the financial markets smacks of opportunism.    
• The proposed lower bid offers no premium to our valuation range or the undisturbed price. The Board should reject the lower offer and instead reignite interest from past suitors. 

• Carsales aims to raise around US$835m (A$1.2bn) via a non-renounceable entitlement offer to part fund the purchase of remaining 51% of trader Interactive.
• While the acquisition is probably well flagged and will be earnings accretive, the last entitlement offering didn’t do well in the near term.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• Our base case valuation of Sungeel HiTech is target price of 70,992 won per share (49% higher than the high end of the IPO price).  
• Our valuation is based on 15.9x P/E (50% discount to comps’ average multiple) using our estimated net profit of 54.9 billion won in 2023. 
• Given the excellent upside, we have a Positive view of the Sungeel HiTech,  which is a leading recycling specialist in Korea that extracts valuable metals from lithium-ion secondary batteries.

• Prosus (PRX NA)/ Naspers (NPN SJ) hold 28.78% of Tencent (700 HK) and will be selling Tencent stock to fund their own buyback due to the large discount to NAV.
• At 3-5% of Tencent (700 HK)‘s ADV, the selling will last from 9-15 years, though could take much longer (or not complete) if Prosus/Naspers’ discount to NAV shrinks considerably.
• Passive trackers will buy only around 12-14% of the incremental stock and this will lead to a big overhang on Tencent (700 HK) in the near future.

• Tencent sold US$3bn worth of SEA shares in Jan 22. The rest of its stake was locked up for six months.
• The initial stake sale by Tencent didn’t go down too well and the stock is now trading over 63% below the deal price.
• In this note, we will talk about the lock-up dynamics and recent updates.

• After being suspended for 7 months for not publishing its 2020 annual results, Gcl Poly Energy Holdings Limited (3800 HK) resumed trading on 1 November 2021.
• We expect Gcl Poly Energy Holdings Limited (3800 HK) to be added to the MSCI China Index in August and to the FTSE All-World Index in September.
• Passive index trackers will need to buy over US$1.1bn of stock over the next few months. The stock has run-up inline with peers and this demand could keep it supported.

• The AFR reports that after weeks of talk, Dye & Durham (DND) is expected to lob a revised lower proposal for Link Administration (LNK AU) as soon as this week.
• Presumably, DND’s justification for a lower offer is to facilitate ACCC approval timelines. It remains to be seen if this is enough for the Board to recommend a lower offer. 
• Tweaking the IE’s valuation range for the current peer multiples and PEXA Group (PXA AU) share price points to a Link valuation range of A$3.52-4.40 per share. 

• Meituan is starting to show waning upside momentum as it near key resistance at 220/230 (sell or short zone) ahead of a harder pullback cycle that will be choppy initially.
• Meituan has outperformed its peer group but due for a pullback. Price and RSI rising wedges are maturing and nearing a bearish inflection point to short (watch poor buy volume).
• Tactical rally window in mid July with a better rally cycle slated for August head of a negative September.

• EPAM is an IT Services firm that does high end software development for Fortune 2000 customers.
• One of the great under the radar compounders of all time. Feb 2012 IPO-Feb 2022: ~27% revenue, earnings, FCF CAGR, 45% equity CAGR.
• Core engineering talent historically in Ukraine, Belarus, and Russia, this is the overhang. We think great management team can navigate relocation and return to growth.

• Z HD’s media business accounts for 80% of consolidated earnings.
• We believe that the combination of Yahoo Japan and LINE is driving new synergies and growth opportunities.
• We believe that the media business alone could justify an EV of ¥4.5t, way above ZHD’s current EV of ¥3.5t

• Our new target price 4,000 yen; Raising our rating to Buy

• We believe that market participants have become increasingly concerned about the sustainability of high growth for loss-making SaaS companies

• We raise our 2Q (Mar-May) FY11/22 sales forecast from 5.102bn yen to 5.145bn yen (+28.8% YoY, company guidance median 4.912 bn yen)

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