TMT/Internet

• After the market close today, Ecopro BM announced a rights offering worth 500 billion won as well as a bonus issue of three new shares for one existing share.
• The tentative rights offering price is 310,300 won, which is 27% lower than current price of 423,800 won.
• Ecopro BM’s valuations remain stretched with its shares trading at high multiples and we believe there could be some further weakness in its share price in the coming weeks. 

• It will be difficult to reach a valuation consensus in the short term, suggesting the likelihood of substantially higher price volatility after listing. The IPO valuation itself is quite excessive.
• There are not enough stories to instill growth expectations in investors. Expectations for regulatory benefits are uncertain. The inclusion to K-New Deal and WISE Media Contents are worth a look.
• In conclusion, I do not recommend an aggressive approach to this IPO. Similar to SK Shieldus, we even need to consider a post-listing entry.

• Vltava is a global equity investment fund.
• Its objective is to achieve long-term capital growth of the assets under management while investing primarily into publicly traded companies.
• If Putin has succeeded in anything, it is to completely dismantle a functioning domestic economy virtually overnight.
• We probably never have seen anything like this before.

• Every year in April there are two TOPIX rebalance changes – the FFW review for July-September FY-end companies, and the annual liquidity factor adjustments.
• This year, the former is replaced by the TOPIX FFW Methodology Change for the new Market Structure. This is a big change, but it will not necessarily overwhelm the latter.
• Janaghan Jeyakumar, CFA‘s piece of 5 weeks ago discussing the Liquidity Factor basket has seen generally good performance. There are two days to go. 

• Since Elon Musk bought his 9.2% stake in Twitter, the stock is up 30%
• We are doubtful Musk can alter the trajectory of Twitter’s slow product development and weak monetization of direct response advertising and SMB customers.  
• Twitter trades 6.5x forward sales / 61x forward earnings / 28x forward EV/EBITDA while Facebook trades 4.5x / 19x / 10x those same metrics…essentially 1/3rd the valuation on earnings.

• All of the Hon Hai’s 4 product-lines were growing double digits in March. 
• In 1Q22, Hon Hai’s revenue was NT$1,408.2bn, which was -25.5% QoQ and 4.83% YoY respectively. The 1Q22 revenue was a bit better than the original expectation.
• Although Hon Hai is confident, we think the visibility is still a bit of ambiguous in 2Q22.

• This morning I had two of my larger holdings, Starbucks and Twitter, become embroiled in headlines. It was announced this morning that Twitter has a new shareholder, Elon Musk
• And Starbucks would be axing their $20B buyback program as Howard Schultz looks to make a stamp on his welcoming party.
• Shares of Twitter were trading as high as +26% in the early pre-market hours this morning, after an SEC filing from Twitter shows that Elon Musk, founder and current CEO of Tesla has acquired a “passive” but sizeable 9.2% ownership stake of Twitter (~73.5M shares).

• The company sells software tools that that allow businesses to automate cloud infrastructure
• Next gen VMware… onboarding technology for cloud transitions. Impressive parallel.
• Terraform and Vault are 85% of revenues today, but big TAM for the future.

• On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.
• On 8th Mar 2022, Securities Exchange Commission (SEC) had added five China ADR names to its provisional list of issuers under HFCAA, which set the clock ticking for their delisting.
• In this note, we’ll talk about the latest developments and its implications.

• Vision Fund’s public portfolio dropped $18.6bn (-24%) in Q4. China concerns grabbed headlines but it was Asian names (Coupang, Grab) that drove losses
• Public investments held at the parent level fell 41% (-$1.3bn), led by SoFi (-$862mn), Lemonade (-$189mn) and THG (-$147mn) 
• We expect that Softbank will also need to write down private investments although it is not clear just how far private valuations have tracked public changes

• The shares have rebounded by nearly 30% since the 1st of February. Consolidation seems likely while waiting for evidence that management’s sales and profit targets can be met.
• As Japan’s No. 1 IT services company, Fujitsu should benefit from the ongoing digitalization of Japan’s public and private sectors, the roll-out of 5G and the development of 6G.
• Risks for investors include the weakening yen and economic slowdown. A history of IT system failures also raises a red flag.

• Our updated NAV valuation of SK Square suggests an implied price of 82,167 won per share, which represents a 46% upside from current levels.
• For SK Shieldus and OneStore, we took the mid-points of the IPO price ranges and applied SK Square’s post IPO ownership stakes, respectively. 
• SK Square’s CEO Park Jung-Ho announced that the SK Group is interested in investing in Arm Holdings. SK Group is well positioned to participate in the investment of ARM Holdings. 

• JCET has reported 2021 annual results, and there was RMB$8.59bn/9.5% of revenue/NM percentage in 4Q21. JCET 2021 grew 6.0% QoQ and 11.5% YoY respectively.
• Despite US-China trade war, the revenue from US clients are taking 50.2% in 2021, which is growing 23% from 2020 to 2021. 
• Given the 5G and China Automotive are developing actively, we believe these two applications shall be keeping the energetic momentum.

• Reports emerged in the past week that social media & content creation platform OnlyFans was holding talks with prospective SPACs for a potential deal.
• Despite numerous attempts at fundraising in the past, investors remain skeptical about the adult-oriented nature of the content shared on the platform
• The company is in a delicate position, needing banks & payment providers to process payments while relying on explicit content to drive future avenues of growth

• Lenovo (992 HK) could replace Hansoh Pharmaceutical (3692 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance to be implemented on 10 June.
• If Sunac China Holdings (1918 HK) remains suspended, it could be deleted from the index and Great Wall Motor (2333 HK) could be added to the index.
• Passive Hang Seng China Enterprises Index (HSCEI INDEX) trackers will need to buy around 2.45% of Lenovo (992 HK)‘s real float. Short interest is over 17 days of ADV.

• The PCAOB has not, despite a cooperation agreement with the CSRC signed in 2013, been able to conduct on-site investigations of a HK or mainland-based company since 2010.
• On Friday, the CSRC published a new Strengthening Confidentiality and File Management Related to Overseas Issuance to replace 2009 rules. 
• Importantly, the revised Provisions deletes the stipulation that “on-site inspections shall be dominated by domestic regulators or depend on the conclusions of inspections by domestic regulators.” Will it be enough?

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore and the US (Chinese ADRs only).
• This week, the highest gross spreads are Yashili International Holdings (1230 HK), Razer Inc (1337 HK), Sezzle Inc (SZL AU), Link Administration Holdings (LNK AU), Uniti Group Ltd (UWL AU) 
• The lowest gross spreads CIMIC Group Ltd (CIM AU), China Logistics Property Holdings (1589 HK), Dragon Crown Group (935 HK), 51 Job Inc Adr (JOBS US), Jin Jiang Capital.     

• Razer Inc (1337 HK)‘s Scheme Document flags the abolishment of the headcount test may become law ahead of the shareholder meeting. That is a game-changer. If true.
• Daiho Corp (1822 JP) has announced a deal which is not quite what it looks like. This situation is kind of a governance disaster.
• Uniti Group Ltd (UWL AU) backs the revised Morrison/Brookfield tilt and severs ties with Macquarie

• The lows have likely been established for this correction, but a bottoming process would likely take weeks or potentially months and could come with more tests of the lows.
• Japan’s TOPIX and Nikkei 225 are each testing their respective downtrends. The EURO STOXX 50 is testing resistance in the 4040-4090 range. Germany’s DAX is testing major resistance at 14,815-14,950.
• It is likely that this initial 2-3 week bounce has run its course; stick with cyclical value and defensives, areas we have been focused on for most of 2022.

• SMIC will spend ~US$5bn in Capex in 2022, of which only the Beijing Fab is 12”, and Shenzhen and Tianjin are 8” Fabs.
• SMIC has three major trends: 1) the local demand is booming rapidly, 2) Auto, industry and others have developed actively, and 3) Huawei’s event had made a great impact.
• We note SMIC’s capacity of each Fab is an estimation because 1) the local governments’ subsidies are somewhat complicated, and 2) it is involved with three local governments in 2022.

• OneStore is getting ready to complete its IPO in May with IPO price range of 34,300 won to 41,700 won. It is one of the largest app operators in Korea.
• The IPO base deal size is from $187 million to $227 million. The expected market cap after the IPO is from 0.9 trillion won to 1.1 trillion won. 
• OneStore generated sales of 214.2 billion won (up 38% YoY), operating loss of 5.8 billion won, and EBITDA of 8 billion won in 2021. 

• Pc Partner posted record results with revenue and profits increasing by 99%% and 1,047% respectively. The final 1.61 HKD dividend was below my 2 HKD estimate but still solid.
• Cash grew to 3.1 b HKD vs a market cap of 4.37 b HKD, or 70% of market cap. By end of FY22 cash could be 100% of market cap.
• The outlook is mixed with short-term ASP pressure into 2Q22 but longer-term optimism into 2H22. As always visibility is low but offset by a cheap valuation and large cash buffer.

• Shopee India will lay off over 300 staff after it decided to shut down operations in the South Asian country.
• The news came as a shocker to its employees, who were unaware until Monday that the company was wrapping up its business in India, sources told Tech in Asia.
• While the ecommerce firm’s India unit had about 300 employees in December 2021, that number has since gone up to 350 workers, an employee told Tech in Asia on condition of anonymity.

• Startup enabler Y Combinator has unveiled the 33 Southeast Asian startups that have been included in its latest winter 2022 cohort.

• The number is almost doubled from the last batch and amounted to around 8% of the 414 startups that were funded by the accelerator in this cohort.

• As part of the accelerator program, Y Combinator will invest US$125,000 in seed capital for a 7% stake in each startup.

• Analyst meeting came out with positive tone. Cloud and cybersecurity businesses should grow rapidly over the next few years.Current inventory stock provides 4 to 6 months buffer from Chinese lockdown 
• We believe that cloud and cybersecurity will drive earnings at a CAGR of 18.5% between 2021-24E, led sales growth at 8.6% CAGR and slightly improved margins. Management maintains strong outlook 
• We expect 1Q22E earnings at Bt201m(+6%QoQ, +6%YoY)driven QoQ by GPM expansion. We recommend accumulating shares now as earnings in 1H22 should be the lowest of the year due to seasonality.

• Nintendo is up 25.2% since we turned genuinely bullish on the name at the end of Nov. 
• The weakening yen has helped significantly and should lead to a small overshoot on the dividend as well. 
• However, they just announced a delay of the Breath of the Wild sequel and we think this is a good time to take profit.

• The EGM to approve the 51 Job Inc Adr (JOBS US)’s privatisation offer of $61.00 in cash per ADS will be held at 9 am (Shanghai time) on 27 April.
• The transaction is expected to close during the second quarter of 2022. The continuing shareholders represent 56.2% of the voting rights according to the proxy statement.
• Based on 67.5 million ADS entitled to vote at the EGM, around 21% of disinterested shareholders are required to vote in favour to meet the two-thirds voting threshold.

• The S&P BSE family of indices represents the performance of stocks listed on the Bombay Stock Exchange (BSE) across various sizes, themes, industries, and strategies.
• This series will mainly focus on the following indices of the S&P BSE family: S&P BSE 500, S&P BSE 200, S&P BSE 100, and S&P BSE SENSEX.
• In this insight, we take a look at the leading candidates who could become Adds/Deletes during the June 2022 Semi-annual Rebalance.

• TSMC is still focusing on their delivery targets for 3nm and 2nm for the next goals.
• Nvidia CEO Mr. Jensen Huang said he wants to diversify his company’s suppliers as much as possible, and he will consider working with Intel. 
• We have to leave a big question mark that Intel declares to deliver 3~4 technologies within 2024.

• Razer Inc (1337 HK)‘s Scheme Document is now out. The Court Meeting will be held on the 26 April. The IFA declares the Offer to be fair and reasonable. 
• More importantly, the Document flags the abolishment of the headcount test may become law ahead of the shareholder meeting. That is a game-changer.
• Trading at a wide spread of 14.2%. This will narrow on this latest development.

• Razer Inc (1337 HK)‘s scheme document is out with the scheme meeting scheduled for 26 April. The IFA considers the offer to be fair and reasonable. 
• The headcount test, the key risk, applies unless the amended Cayman Islands Act becomes law before the court meeting date on 26 April. The legislative timetable has not been set. 
• Current deal probability implies a 65% chance of success, which fairly reflects the deal risk in our view. At last close, the gross spread is 14.2%. 

• The S&P BSE family of indices represents the performance of stocks listed on the Bombay Stock Exchange (BSE) across various sizes, themes, industries, and strategies.
• This series will mainly focus on the following indices of the S&P BSE family: S&P BSE 500, S&P BSE 200, S&P BSE 100, and S&P BSE SENSEX.
• In this insight, we take a brief look at the constituent selection methodology and the historical price performance of Index Rebalance Events for the above-mentioned indices.

• Shares are now up 1% in the quarter despite investment losses as 87% of assets are US$-linked
• A recovery for Alibaba, reports of ARM monetization and the $2bn sale of its stake in Cruise has eased leverage concerns with LTV back to 22% and CDS prices falling
• This report includes detail on Softbank dollar exposure, calculations for LTV on a quarterly and daily basis and updates to our usual NAV discount/VF performance tables

• Sea Ltd’s (SE US) decision to exit India came as a surprise but looks like a prudent move given the heightened risk for Shopee there post the FreeFire ban.
• The move will allow Sea Ltd (SE US) to focus its attention and resources on a more profitable markets such as Brazil, which is already seen as a core market.
• Sea Ltd’s growth model is intact with losses in its core e-commerce markets declining fast on a per order basis. Valuations are less challenging on 3.4x FY2023E EV/Sales.

• The long-awaited GoTo IPO is upon us with a listing scheduled for 4th April after the deal was priced sensibly in the middle of the range at IDR338 per share. 
• Since this was only offered to local investors and the IPO only represents 4.35% of shares in issue pre-Green Shoe, we see the potential for strong support from local institutions.
• Valuations are challenging but GoTo represents the best proxy for the Indonesian digital economy given its broad and unique exposure to key verticals of on-demand, digital finance, and e-commerce. 

• Both monthly active users and time on site grew strongly in 4Q21.
• Live streaming revenue recovered quarter over quarter in 3Q21 and 4Q21.
• Operating loss decreased in 4Q21, compared to the first three quarters in 2021.

We view AAC Technologies as “Low Risk” on the LARA scale, mainly due to the company’s market position in the acoustics segment, healthy financial profile and diversified product range. AAC is a supplier to reputable brands such as Apple, Samsung, Lenovo, LG Electronics, Huawei Technologies and Xiaomi Corp. The acoustics business is the company’s key profit centre. That said, AAC will need to further diversify its products to keep up with clients’ needs, as well as expand the customer base to boost revenue. The company’s operations and expansion plans could be disrupted by the resurgence of COVID-19 cases.

Our Credit Bias on AAC is “Stable”, given the company’s leading position in the acoustics segment, solid business fundamentals and healthy financial profile. That said, AAC may face supply disruptions due to the resurgence of COVID-19 cases, especially since Greater China is one of the company’s largest markets.

• Micron’s 2QF22 results were above the high end of guidance
• The company’s outlook for the current quarter is very strong
• Market data supports the company’s bullish outlook, and Micron’s performance speaks for itself

• Shopee, the e-commerce arm of Singapore-based Sea Ltd (SE US), announced today that they are shutting down operations in India due to global market uncertainties.
• We feel this could turn even the most hopeful followers of Sea Ltd as they must be running out of angles to justify their bullish calls on the company.
• We think, Sea Ltd shares could easily fall below the pre-COVID level once it starts losing these ardent followers.

• Meituan (3690 HK) reported 4Q2021 results on Friday. Revenue grew 30.6% YoY to RMB49.5bn (vs consensus RMB49.0bn) and reported operating losses of RMB5.0bn vs RMB2.9bn in 4Q2020 (vs consensus RMB7.0bn).
• Since 2Q2022, Meituan’s revenue growth has started decelerating with demand for online and food and grocery deliveries has been slowing down.
• Meituan’s 4Q2021 results were better than expected but we expect the company’s earnings to remain under pressure with new regulation on food delivery commission and resurgence of Covid-19.

We view Xiaomi Corp as “Low Risk” on the LARA scale, driven by: [1] the company’s leading market position in smartphones and smart hardware; [2] its increasing market share, scale and brand name; and [3] the company’s strong financial metrics with large positive FCF, solid balance sheet with net cash, as well as sound liquidity position. Xiaomi has a strong track record of execution and innovation, along with the entrance into and success in new verticals (e.g. cleaning robots, smart speakers, smart TVs and smart routers). The company also has fast-growing revenue streams from Internet services and gaming. On the other hand, the mobile phone industry is very competitive with low switching costs, particularly for Android phones (Blackberry and Nokia have gone out of business despite having been leading players). The credit is further weighed down by: [1] potential trade sanctions from the US; and [2] execution risk related to Xiaomi’s entry into the increasingly competitive electric vehicle market.

Our Credit Bias is “Stable”, given the company’s robust business risk profile and strong balance sheet.

• Adobe’s high quality business model does not matter much in a sector where topline growth is the main driver of valuations.
• In the meantime, the company’s organic growth is showing signs of slowing down which could result in more risk taking by the management.

• The British competition regulator questions the acquisition of cybersecurity company Avast PLC (AVST LN) by NortonLifeLock (NLOK US). and refers the transaction for an in-depth phase 2 investigation.
• The combination would not hold more than c.31% of the UK antivirus market and probably less than 30% in malware protection. The CMA investigation should take 20-24 weeks.
• Deal closing could happen during Q4 2022. Spread on the majority cash option is 11.9%, spread on the majority stock option is 3.9%.

• AKM Industrial (1639 HK)’s privatisation offer from Alpha Luck and AKM Meadville of HK$1.8345 consists of a base offer (HK$1.82) and a final dividend (HK1.45 cents). 
• Approval from the State Administration of Foreign Exchange is the remaining pre-condition. The Court hearing of the petition for the sanction of the scheme is set for 19 July.
• At last close and for a July end effective date, the gross and annualised spread to the total offer of HK$1.8345 is 3.6% and 11.2%, respectively.

• The stock is down 54% over the past year despite 41% revenue growth. We see 3 key drivers in 2022.   
• Appier is growing rapidly in the US, a much bigger market than its home market of North Asia. 
• Appier is at the forefront of digital transformation, benefitting from structural DX of marketing functions and increased use of 1st party data.

• Meituan’s total revenue continued to rise strongly by 31% in 4Q21.
• Initiatives businesses are losing money, but two of them are in leading positions.
• We believe the stock has a 20% upside for this year.

• D/G to HOLD with lower TP of RM1.07 (-38%)
• Labour and components shortages dragged earnings
• QoQ core profit improvement may not be sustainable
• Rising costs and inflation headwinds ahead