TMT/Internet

• The Nikkei Index Team has suggested a methodology change to the Nikkei 225 Average.
• It involves capping stocks, creating a method for re-weighting once capped then stocks fall, and they recommend changing to a semi-annual Periodic Review – twice a year rather than once.
• More interestingly, they also change the “High Liquidity” definition to be related to traded value not volume, which starts to favour higher-market cap stocks with more shares out.

• The Hang Seng index constituents have moved away from just local Hong Kong shares to being dominated by China H and China-centric shares
• Focusing on these constituents adds much value, especially with shifting liquidity away from US-listed ADS to HKEX listed shares.
• It brings together a more diverse investor base ranging from local Hong Kong, mainland China and the rest of the world.

• AI data service provider Appen (APX AU) has announced an unsolicited, conditional, and non-binding indicative proposal from Canada’s Telus International, by way of a Scheme of Arrangement, at A$9.50/share.  
• That’s around a 48% premium. Appen’s board is seeking an improvement in terms through offering a limited course of due diligence.
• The Offer backs out an equity value of A$1.2bn, significantly down from Appen’s 2020 pandemic peak of A$5.4bn.

• In response to media reports, Appen Ltd (APX AU) disclosed a non-binding indicative proposal from Telus International (TIXT US) at A$9.50, a 48.4% premium to the undisturbed price of A$6.40.
• Appen also announced a weak trading update. The 1HFY22 EBITDA is expected to be materially lower than the comparable period due to the lower revenue and the ongoing investment. 
• Subsequently, Appen noted that Telus revoked its indicative proposal. No reason was given for the decision. Nevertheless, Appen’s depressed share price will continue to attract suitors. 

• MediaTek’s revised downward forecast for 650-680nm smartphone delivery in 1Q22 earnings conference, but we think that number could be revised down again by the end of July.
• MediaTek announced new WiFi products, Filogic 880 and 380, in COMPUTEX2022 on May 24-27. Besides, MediaTek invests in new opportunities for AI in the US.
• The mainland China fights fiercely against COVID-19 and stays at the Zero Policy. 

• There is a strong possibility of the launch of corporate growth fund private companies ETFs in Korea in 2023. 
• Once government gives final approval to launch the unlisted Korean companies ETFs in 2023, there is likely to be much greater interest in investing and researching in private Korean companies.
• Starting next year, there is a strong probability that we will spend a lot more time on researching and writing about these promising, private companies in Korea. 

• Tidefall is a concentrated, unconstrained investment fund that attempts to compound its capital at an attractive rate of return. Our investment advantage comes from our in-depth research, long-term time horizon and appreciation of biases.
• With Netflix stock down by more than 50% since its high in November (and 10% below Reed Hastings’ $20m purchase in January) we re-entered the position in April.
• We believe the current price of Netflix shares creates a compelling long term investment opportunity.

• Wedgewood Partners is a money manager founded in 1988 with the goal of providing investors with a superior approach to managing investment portfolios.
• For the first quarter 2022, our Composite (net)i declined -10.6%.
• We expect to be busy this year as all financial markets come to grips with the Federal Reserve’s unprecedented task of reigning in 40-year highs in inflation with two monetary tightening tools.

• Ignore the slight macro weakness from consumer facing internet companies in April. It is irrelevant for the LT model. 
• Snowflake upped its LT (FY2029) targets: $10B in revenues, growing 30%, 78% product margins, 20% operating margins, and 25% adjusted FCF margins.
• At 12x forward revenues, Snowflake’s valuation is…dare we say… cheap?

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone
• Bharti Airtel
• Lenovo
• Vedanta Resources

• Telus International (TIXT US) has made an unsolicited, conditional and non-binding indicative proposal to acquire 100% of Appen Ltd (APX AU) at A$9.5/share, valuing the company at A$1.17bn.
• The offer is a 48% premium to the last close but a discount to longer-term VWAPs. It should require a bump for the Appen Board to unanimously recommend to shareholders.
• Appen Ltd (APX AU) is a potential deletion from the S&P/ASX 200 (AS51 INDEX) at the June rebalance. Short interest is 10% of shares out. There will be covering.

• Total revenue grew by 15% YoY and operating margin improved YoY in 1Q22.
• The authorities began to grant licenses and new games will be launched in China and overseas.
• We set an upside of 25% and a price target at US$120. Buy.

• We believe UMC’s 3Q22 order is full, but the growth could be within 3% QoQ.
• Asian clients are turning weak, and US clients are getting stronger.
• The mainland China demand could be making an impact because of the COVID-19 pandemic.

• Heo Jae-Myeong, the CEO of Iljin Materials, is planning to sell his 53.3% stake in the company.
• Potential buyers of Iljin Materials include Lotte, SK, LG, and POSCO.
• The CEO Heo Jae-Myung could potentially receive greater amounts of money if he sells the company now, rather than waiting when the compulsory tender offer could be made into law.

• Sixth Street and BGH Capital entered into a cooperation agreement with the aim to acquire Pushpay Holdings (PPH NZ) through a scheme of arrangement. They have a combined 20.3% stake. 
• In addition to Sixth Street/BGH, Pushpay also noted expressions of interest from multiple parties. The high recurring revenue, profitability and cash generation make it a target. 
• As the Australian takeover premium ranges from 20% to 40%, we think that a bid of at least A$1.46 (30% takeover premium) will be necessary for due diligence access. 

• Launched in late 2020, inPlay.ph is the first pure play online real money gambling platform aimed at attacking revenue of illegal sites.
• DFNN is also licensed for electronic gaming machines, a sports betting exchange and pari-mutuel betting for the government run Pagcor sector.
• Income from interactive tech platforms including the online gaming unit increased 116.6% for the quarter to 229.3m php.

• Grab‘s latest results sent a mixed message and if looked at YoY the picture looks gloomy but there is a strong sequential recovery with declining incentives for deliveries.
• Mobility is seeing recovery with higher incentives to bring on drivers and consumers but these should start to decline in 2H2022, with company guidance for revenues reflecting this. 
• Grab continues to build its financial services offering through digital payments coupled with BNPL, and growing a digital banking footprint. Valuations are attractive and it has US$8.2bn in cash liquidity.

• Snapchat’s guidedown resulting in a 30% drawdown is fantastical.  6x sales is now 4x sales, near alltime lows.
• Was guide down worth 30% drawdown given already valuation compression and  volatility of Snap guidance? Sour grapes here.
• Of course macro deteriorated. Who is doing Snap’s forecasting? We think forecasting easier to fix than LT competitive moat. We’d buy SNAP…but buy FB first!

In our next Webinar, we welcome Analyst Patrick Liao, who will go over his picks among Greater China semiconductor companies, exploring the outlook for the rest of 2022 and beyond.

The webinar will be hosted on Wednesday, 1 June 2022, 17:00 SGT/HKT.

• There are 12 inclusions and 12 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 9 June.
• Most of the inclusions were expected, but there are quite a few surprises among the deletions. The impact on the deletions will be higher than that on the inclusions.
• The adds have outperformed the deletes and there has been another leg up in the last couple of weeks. Expect the trend to continue till implementation week.

• Grab raised around US$4.5bn in its de-SPAC listing in Dec 2021. The shares are now trading around 68% below the listing price.
• At the time of listing, all of its top investors were locked up for six months. The lock-up expires on 30th May 2022.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• The additions are primarily in line with the predictions. But, the deletions contain many surprises. Webzen is the biggest surprise. Echo Marketing should also surprise a lot of fund trackers.
• Creas F&C will face the most substantial passive inflow at 4.08x ADTV, closely followed by Unitest. But factoring in liquidity, WYSIWYG Studios will likely draw the most attention
• JNTC will suffer the most among the deletions. However, Webzen will likely be in the limelight as its outflow is by far the largest at ₩8.6B, equivalent to 3.84x ADTV.

• Kuaishou reported 1Q2022 results on Tuesday. Revenue grew 23.8% YoY to RMB21.1bn while reported operating losses declined to RMB5.6bn (27% of revenue) from RMB7.3bn (43% of revenues) in 1Q2021.
• Adjusted operating losses for the quarter further dropped to 24% of revenues from 48% of revenues in 1Q2021 despite drop in livestreaming ARPPU in 1Q2022.
• Kuaishou’s shares have lost almost 80% since its IPO in February last year due to the regulatory crackdown.

• Revenue increased by 24% YoY with online marketing, the main business, up 33% YoY.
• KS operating loss decreased to RMB5.1 bn in 1Q22 from RMB8.2 bn.
• We set an upside of 19% and a price target of HK$75.00. Buy.

• One of the curious share price movements this year has been the outperformance of Samsung Electronics versus other global tech peers including Apple, TSMC, Intel, and Xiaomi.
• Three reasons why Samsung is outperforming global peers such as Apple and TSMC may due to a potential war in Taiwan, COVID lockdown in Shanghai, and new pro-business Korean President.
• Caution is warranted on playing long/short on Samsung, Apple, and TSMC in the coming months as their tides appear to be driven too much by the whims of global politics. 

• Freshworks (FRSH US)  upgraded its revenue guidance to ~$502M at the top end for FY22 and reported a 42% year-over-year revenue growth rate in 1QFY22. 
• We were impressed with subscription revenue growth, lower-than-expected loss, customer expansion, and efficient SaaS metrics. 
• We analyzed multiples of 50 publicly listed software companies with various growth profiles and split SaaS/Fintech companies into four growth groups.

• The collapse of UST/LUNA wiped out nearly USD50bn of market capitalization last week due to a poorly structured stable-coin design and threw the crypto markets into chaos
• A potentially bigger risk looms on the horizon as USDT’s collateral is questioned as market test its ability to meet redemption requests
• USDT is a USD70bn stablecoin, 5x as large as UST, and underpins the entire crypto infrastructure. This is the critical space to watch for the future of crypto. 

• We expect China Railway Group Ltd H (390 HK) and Yanzhou Coal Mining (1171 HK) to replace Smoore International (6969 HK) and Sunny Optical (2382 HK) in the FTSE China50 Index.
• There are capping changes that have a reasonable large impact on a couple of stocks. One-way turnover is estimated at 3.97% and will result in a one-way trade of HK$1,912m.
• FTSE has increased the investability weight for Li Auto (2015 HK) / Li Auto Inc. (LI US) and this leads to the stock failing the median liquidity test.

• Delhivery raised around US$680m in its India IPO, the company is backed by a host of financial investors, the largest being Softbank.
• Delhivery is an online logistics service provider which covers express parcel delivery, heavy goods delivery, part truckload (PTL) freight, truckload (TL) freight, supply chain solutions, cross border solutions etc.
• We have covered various aspects of the deal in our earlier notes. In this note, we talk about the demand and trading dynamics. 

• Next Chip (396270 KS) is getting ready for an IPO in Korea in June. The IPO price range is from 9,900 won to 11,600 won.
• Next Chip is a Korean system semiconductor company for automobiles and autonomous vehicles. Next Chip was split from NC& Co Ltd (092600 KS) in January 2019.
• The bankers used four companies including Abov Semiconductor (102120 KS), MCNEX Co Ltd (097520 KS), Chips & Media, and Telechips as comps for Next Chip Co.

• Relative underperformance of Intel Corp (INTC US)  versus Advanced Micro Devices (AMD US)  over the last decade should reverse.  We discuss what it would take in the note.
• Intel leads in number and quality of innovations versus AMD in core areas of Design and Manufacturing, but AMD’s use of TSMC has been a huge part of AMD’s outperformance
• If Intel adapts to new realities and uses TSMC (2330 TT)  for next-gen products, outperformance versus AMD is highly likely otherwise given TSMC’s very significant lead in manufacturing very doubtful. 

• After market close on Friday 20th May 2022, the constituency changes for S&P BSE 100, SENSEX 50, and SENSEX Next 50 Indices were announced. 
• There will be no changes for S&P BSE SENSEX and S&P BSE BANKEX Indices in the June 2022 Rebalance. 
• These changes will become effective at the open of Monday 20th June 2022. Below is a closer look at each of the names involved in the June 2022 Rebalance.

• Analyst meeting came out with negative tone. We maintain BUY rating at Bt57.50, based on 21.3xPE’22 (+1SD of 10-yr trading average). Our TP and 22E downwards earnings revisal by 6% 
• 2Q22 should be lowest of the year due to declining sales from decrease by 25% in output in Chinese factories.Recommend accumulating shares,due to attractive valuations, prior to 2H22 earnings recovery.
• 2H22 earnings will recover from GPM expansion from revenue contribution from new SiC segment (consistently gross loss until now)and better product mix in IC Thai factory.Sales should also grow moderately 

• Superapp GoTo (GOTO IJ) on Friday announced that it plans to issue 118.4bn shares through a private placement subject to shareholder approval.
• This fresh issue accounts for 9.9% of the total outstanding shares of the company and the announcement comes 2-months after the company’s US$1.1bn IPO in March this year.
• GoTo’s shares are down 20.4% since its IPO and the shares are trading IDR304 a piece, well below its IPO price of IDR338 per share.

• On May 20, Hang Seng Tech Index (HSTECH INDEX) took out ASMP (522.HK) and replaced by NIO Inc (9866 HK).
• Apparently, the EV has a better future outlook, and NIO is riding on the right wind even it’s still lost making.
• Meanwhile, we think ASMP’s should see another hike in 3Q22, and its revenue was forecasted between US$670 million and US$740 million in 2Q22.

• As expected, Lenovo (992 HK) will replace Hansoh Pharmaceutical (3692 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) after the close of trading on 10 June.
• Sunac China Holdings (1918 HK) has been kept in the index for now, though suspension till 30 June will see it deleted early July.
• Changes to the stocks, number of shares, float and capping results in an estimated one-way turnover of 3.7% and will result in a one-way trade of HK$2,977m.

• Amid recent market carnage, one of the strong turnaround stocks in Korea is NCSOFT Corp (036570 KS) which is down 54% from its highs in February 2021.
• Three major reasons why NCsoft’s share price will turnaround include attractive valuations, better control of labor costs, and strong pipeline of new games. 
• Short sale value/market cap ratio for NCsoft has declined materially in the past several weeks, reflecting increased optimism in the company’s future prospects. 

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. China Jinmao Holdings
2. Guangzhou R&F Properties
3. Sunac China Holdings
4. Greenland Hong Kong Holdings
5. Evergrande

and more…

• Seiko Epson (6724 JP) announces the first special div for the 2023 Nikkei 225 dividend futures.
• And it also announces a VERY big buyback. The headlines say 9.5%. The reality is more like 4.0-4.4%, but that is still going to be 15-20% of Real World Float. 
• Given mildly positive backdrop, a net cash position, low multiples, and lack of major Real World Float active investor, this could go up.

• Tencent bear/short call from 395 remains valid with risk we pierce the 310-320 support. Bear triangulation stands out as the key bear driver.
• Flat/Triangulation in price and the RSI rising wedge is a set up for a major new chart low.
• This wave 4 triangle will be followed by a hard wave 5 decline into a terminal low this summer.

• Grab (GRAB US) reported 1Q2022 results. IFRS revenue increased 6% YoY to $228m (vs consensus $142m) and negative adjusted EBITDA of $287m ( consensus $291m) compared to $111m in 1Q2021.
• The company’s deliveries biz saw a strong recovery in revenues post disappointing performance in 4Q2021 and the acquisition of Jaya Grocers partially contributed to this growth.
• Grab’s Mobilities biz has not yet recovered to pre-pandemic levels due to Omicron-related restrictions in the first two months of the quarter, but set to benefit from recovery in travel.

• In 1Q22, Xiaomi’s revenue decreased by 5% YoY in 1Q22 and the main business, smartphone, decreased by 11% YoY.
• Both global and domestic markets shrank and the competitor “Honor” came back.
• We conclude a downside of 26% and price target of HK$8.10.

• Safie’s 1Q results disappointed the market as revenue came in 5% lower than the average of two consensus estimates and R&D expense surged. 
• Nevertheless, 1Q should be the worst quarter of the year as downside from the specific distributor issue is now quantifiable and the stock is now on 2.5x 2022 EV/Sales. 
• Valuations are already highly compelling and if the sentiment driven sell off continues we would be looking for 5-10x returns over a 3-4 year timeframe.

• Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry. 
• Overall, the total value increased US$12.5bn in the past week, with Shanghai accounting for US$5.7bn and Shenzhen US$6.8bn. Tencent (700 HK) is the dominant holding across both programs
• Glory Sun Financial Group Limited (1282 HK) saw the biggest upward movement as the chairman sold to pay off debt. China South City (1668 HK) was reduced by both programs. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Xiaomi Corp

• GoTo (GOTO IJ) completes 20 trading days today. Based on the average price over the period and the last close, the stock meets the Fast Entry criteria for IDX30/LQ45/IDX80 inclusion.
• Using a free float of 66%, we estimate passive trackers buying 5.42bn shares (US$74m) of GoTo (GOTO IJ). Announcement could come in a few days with implementation at month-end. 
• With the real float close to 4%, passive trackers will need to buy 11.6% of the real float and the stock could move higher in the short-term.

• Sea Ltd released a solid set of 1Q2022 results, with very strong YoY growth in e-commerce GAAP revenues, and a predictable softening of gaming revenues given greater mobility in 1Q2022. 
• A key highlight was improving profitability with the adjusted EBITDA loss per order falling 70% in South-East Asia and Taiwan. Management also signalled that gaming revenues started stabilising end 1Q2022.
• Sea Ltd (SE US) saw a strong rally post these results given guidance was maintained albeit with a wider range. Sea Ltd is now trading at a discount to peers.

• Authorities encourage platform economy and restarted approving the licenses for new games.
• Fintech just met a high comparison base in 1Q21 and we believe the growth rate will rise.
• We believe the stock has an upside of 39% for the year end 2022.

• Tencent (700 HK) reported 1Q2022 results today. Revenue grew 0.1% YoY to RMB135.5bn (vs consensus RMB140.7bn) while reported OP decreased 34% YoY to RMB37.2bn (vs consensus RMB37.3bn).
• Adjusted OP was down 36% YoY to RMB22.3bn while adjusted OPM declined to 39.2% from 56.1% in the same period a year ago.
• Tencent’s 1Q2022 revenues were below our estimates of RMB144.3bn which was mainly due to significant drop in Fintech and business services revenues.

• Sea’s share price rose 14% yesterday after beating consensus revenue by 1.4%, but this seems unwarranted as Sea lowered the lower-end of the e-commerce revenue guidance by $400m to $8.5bn.
• Nonetheless, most of this price reaction could be short covering as Sea Ltd (SE US)’s results were rather disappointing on multiple fronts.
• With Free Fire faltering fast, we think Sea could get washed back to rough seas before reaching calm waters.  

• Square Enix results were mildly above consensus (by 2.4% at the revenue line and 3.4% at the OP line). 
• The company did not provide guidance on account of the pending transfer of its overseas development studios. 
• However, we expect the sale to lift a significant burden from the bottom line enabling significant YoY OP growth.

• We believe there is an attractive pair trade of going long on LG Chem and going short on LG Energy Solution at current levels. 
• Main reasons why we like this pair trade include large shares that could be sold after 6 months lockup for LGES, LG Chem’s attractive valuation, and shift to value stocks.
• In the past one month, LG Energy Solution is down 5.3% whereas LG Chem is up 2.4%. We believe this gap could widen in the next several months. 

• Novatek reached NT$36.5bn, 50.7% and NT$18.3 for revenue, GM and ESP respectively. 
• Its revenue and GM would be NT$34.5~35.8bn and 46~49% range in 2Q22, which revenue was declined 2~5.5% QoQ and increase 1.2~4.7% YoY.
• There are hopes for China 618-shopping Festival, US back-to-school and China double 11 shopping Festival, etc.

• Trunomi (1314065D BH) is a customer consent and data rights management platform whose unique ability is proving compliance to various data protection regulations without seeing or storing customer data.
• The introduction of the EU GDPR was one of the company’s key drivers and many countries are now introducing similar data protection regulations.  
• A number of growing technologies such as Smart technologies and ad-tech would act as further drivers.

• IdentityMind (1254693D US) has a SaaS platform which builds regulatory technologies for fintech companies, crypto trading platforms and ICOs.
• Fraud is prevalent in the ICO market and the rise of regulations increasing demand for KYC/AML services will drive the company’s future growth.
• IdentityMind was acquired by Acuant (an identity verification company) in April 2020, for an undisclosed amount.

• Faith Inc (4295 JP) is a very smallcap contents management and platform business. As a business, one could give it a miss forever, but it is cash-rich. 
• The company is doing a very large buyback, and for someone who decided they’d be interested, there is a large block for sale. 
• The thing is… one would have to act quickly and aggressively.

• SMIC reported revenue/GM were US$1,869/40% for revenue/GM in 1Q22 respectively. The revenue matched to our expectation, but the GM was exceeding ~8% versus guidance.
• The outlook is a little bit lower than our expectation for revenue/GM to be US$1860-1,897/37-39% in 2Q22 guidance.
• The overall demand situation is growing up although inflation, Russia-Ukraine war, and other factors may affect. 

• Tencent Music (TME US) reported 1Q2022 results today. Revenue declined 15% YoY to RMB6.64bn (vs consensus RMB6.69n) while reported OP dropped 35.7% YoY to RMB749m (vs consensus RMB817m).
• Revenue from Online music services declined YoY for the first time since 2017 while revenue from Social Entertainment services further declined during the quarter.
• We expect TME’s earnings to remain under pressure with increased competition and regulatory restrictions on livestreaming sector.

• Fintech unicorn could report strong earnings results for FY Q3 2022. Total revenue increased by 54% year-over-year, and net loss narrowed to ~$55M for the reporting period.
• Affirm Holdings (AFRM US)  closed a $500M revolving ABS deal and added $2.5B in new funding capacity from various partners. Total funding capacity was ~$9B, marking a 55% YoY increase.  
• Sovereign wealth fund GIC Singapore acquired ~$126 million worth of Affirm Holdings (AFRM US)  shares in April at an average of $33.00 per share.

• The company has made multiple investments in Mekari since its first investment in 2018
• This investment is a large one, equivalent to approximately 6.2bn yen. We understand that the largest investment the company has made in the past was approximately 3.4bn yen in Smartcamp (a consolidated subsidiary).
• The company’s balance sheet at the end of 1Q FY11/22 showed 5.4bn yen in investment securities and 4.8bn yen in goodwill