TMT/Internet

• The stock price declined to a very low level before the market fell.
• The Chinese e-commerce market is still promising despite of the high comparison base last year.
• We believe the stock has an upside of 68% for March 2023.

• The spotlight is back on Sea Ltd (SE US) after its game FreeFire was named as one of 54 apps of Chinese origin to be banned in India.
• The ban on FreeFire comes despite Sea Ltd‘s recent move to reduce the influence from Tencent by scaling back its ownership of voting shares 
• We see the recent price weakness as an opportunity to accumulate Sea Ltd given the growth story remains intact although investors may not pay the same multiple premium over peers.

• Sea Ltd dropped 18% yesterday following India’s decision to ban its battle royale game, Free Fire and 53 other Chinese apps from the Google Play and App Store in India.
• India’s Free Fire ban could deliver a double whammy to Sea Ltd (SE US) with lower Digital Entertainment profitability limiting Sea’s ability to bankroll Shopee’s expansion.
• With the macro-outlook for growth stocks not looking great, we wouldn’t be surprised to see “Sea” breaking the bottom end of the EV/Sales range towards the end of the year.

• A 266% premium to last close. That is what Murata Manufacturing (6981 JP) is Offering for 4.2%-held Resonant (RESN US).
• The $4.50/share Offer price was last exceeded a little under a year ago. Shares have rolled over 84% since last February following an exuberant, meteoric spike over Resonant’s RF capabilities. 
• The Offer is conditional on attaining ownership of 50% of shares out, including Murata’s stake.  

• Indian IT giant Tata Consultancy Svcs (TCS IN) released their public announcement document for their latest buyback after market close on 14th February 2022. 
• The company is planning to spend up to INR180bn (~US$2.4bn) which is one of the largest amounts spent in Tender Offer-style Buybacks in India.
• Below is a closer look at the details of this Buyback.

• Among Korea’s local metaverse ETFs, the Big Three have significant AUMs. At yesterday’s closing prices, their AUMs are ₩0.41T, ₩0.40T, and ₩0.20T, respectively. Their total is now 1 trillion won.
• Those on which we can perform stable momentum trading are the 14 stocks included in all three ETFs. Passive funds account for +3% of MC in half of these names.
• Weighting adjustment uses keyword relevance. So, estimation is not easy. Nevertheless, since the absolute value does not change significantly, we can reduce the error by using the previous rebalancing weighting.

• Novatek had reported a flattish sales outlook in 1Q22, and all of revenue, GM and OPM were expected to NT$35.8~36.8bn, 48~51% and 34~37% respectively, while revenue was at -1.92~+0.82% QoQ. 
• We think the high inventory days of supply chain is giving a good chance to expand into China foundry for production, especially SMIC.
• We think Novatek would maintain its solid dividend policy for EPS NT$63.87 in 2021, and it’s pay-out ratio is 80% in the past.

• There are 17 adds and 8 deletes for the Asia Pacific region. Most of the changes were expected, but there are a few surprises.
• China Resources Microelectronics-A (688396 CH), Grab (GRAB US) and Lufax Holdings (LU US) have been added, while Qinghai Salt Lake (000792 CH) and Pop Mart International (9992 HK) have not.
• The last tranche of Sea‘s inclusion in the SIMSCI INDEX will take place at the QIR. With the inclusion of GRAB, there will be two foreign listings in the SIMSCI.

• Despite increasing popularity and market cap, most crypto tokens are not supported by mainstream terminals like Bloomberg, which makes data analysis inaccessible to many
• However, with a bit of coding knowledge, it’s very easy to generate extensive analytics on any cryptocurrency 
• With only 10 lines of code, we show how anyone can perform analytics like volatility, Sharpe, drawdowns on any token. We used Terra (LUNA CURNCY) as an example here.

• This MBO is designed to for the 77-year-old Founder to take the company private.
• The evolution of the balance sheet the last 12-18 months has been a little strange, and may not be benign. It has certainly changed the fair value lower. 
• The question, as always, is whether someone will take this up.

• Renesas’ 4Q results were strong as revenue came in well above guidance as we predicted, beating even our ¥310bn estimate at ¥314.4bn. 
• EBITDA of ¥119.4bn was up 15.7% QoQ and should rise further thanks to a hefty backlog. 
• We said previously that 2022 EBITDA could be on the order of ¥500-550bn rather than the ¥391bn which consensus projects… for reasons which escape us.

• Bukalapak (BUKA IJ) continues to expand the range of products it offers to its Mitras including logistics services and financial products but it is now extending more service to merchants.
• The platform’s Storefront offering aims to enable merchants which often operate through social commerce channels to improve their ability to attract and maintain customers and to facilitate payments and logistics.
• The Allo Bank stake was bought at 1.7x PBV and will grow through an ecosystem of 100m potential customers. Bukalapak (BUKA IJ) looks like value with positive newsflow. 

• GOGOX is China’s second largest online intra-city logistics platform with operations in Hong kong, Singapore, Korea and India.
• The company’s application for a HK listing has been approved and according to news media outlets, will raise US$200-300m through the IPO.
• GOGOX’s overseas business has continued growth despite the pandemic, however, China business has been deteriorating due to intense competition.

• Sumco’s 4Q results were on the strong side with revenue beating by 2.3% and OP beating by 2.0%. 
• 1Q guidance was also bullish with revenue guidance of ¥99bn 5.3% higher than consensus while OP guidance of ¥21bn was 12.8% higher. 
• Guidance is still a touch conservative in our view, particularly on the margin side.

• Hope we could be wrong, but the outlook of 1Q22 could be a bit bearish since we believe ASE Holding (ASEH) revenue/GM will reach ~NT$165bn/19.4% and ~NT$150bn/19.5% in 4Q21/1Q22 respectively. 
• China has massive local efforts on OSAT business because of low entry barrier. In our views, China can exist very well in lower profit margin to compete.
• The worldwide OSAT (Outsourced Semiconductor Assembly and Testing) companies of scale are majorly centered in Asia Pacific area.

• Analyst meeting came out with negative tone regarding 22E outlook.We cut our TP by 7% to Bt95.8,derived from 38.4xPE’22E (+1SD of 5Y trading average), to factor in earnings downgrade. But
• Recent drop in share price factored in concern on rising material costs and delay in launching new factory which should be a short-term issue and should provide opportunity share accumulation
• We cut our 22E earnings forecast down by 7% to factor in lower margin due to rising copper material costs and lower revenue due to delay in launching new factory.

• Toshiba Tec is one of our favourite small caps in Japan with a strong fundamental story and upside event risks from the Toshiba soap opera. 
• The name was up 14.3% today despite middling earnings released mid-day on its designation as non-core by parent Toshiba. 
• That puts it at an all-time high and within a whisker of ¥5,000 with the event risk now clearly visible.

• There are finally signs of stabilization as crypto price action is turning positive, despite the negative headlines that we’ve witnessed over the past weeks. We investigate the events below.
• Negative Event One – Convicted felon 0xSifu held control over USD800mn of Wonderland user treasury
• Negative Event Two – A bridge protocol, Wormhole, suffered the second-largest Defi hack and lost $320mn

• Adtran lowered the minimum acceptance threshold from 70% to 60%; the condition was thus fulfilled by the end of the initial acceptance period. Additional acceptance period runs until 14 February. 
• The consummation of the offer continues to be subject to closing conditions not yet fulfilled, especially foreign direct investment approval in Germany.
• A 15% increase in the ADVA share price since the threshold condition was fulfilled has caused the spread to become negative (-3.4%). If you were already long, recommendation is tender.

• The SPAC market has been down and out in 2022, with few high-quality deals.
• However, things appear to be changing, with rumours surfacing that three SPACs are fighting to take the words largest EdTech startup public.
• If the company makes a debut at a $50 billion valuation, there will be very little room for error, leaving room for far more downside than upside.

• We initiate coverage of Money Forward, Inc. (3994, Money Forward, the company) with a target price of 5,650 yen and a Hold rating.

• We forecast sales of 20.6bn yen for FY11/22 (+32.1% YoY) and 26.4bn yen for FY11/23 (+27.7% YoY)

• Our target price is based on a target EV/Sales multiple of 10.5x for FY11/23

• UI continues to face supply chain challenges in meeting demand. Ubiquiti reported fiscal second quarter (December) results missing our estimates while inventory continued to increase
• First, service provider revenue declined further after what we thought was a depressed level in the September quarter. Second, freight expenses caused gross margin to decline faster 
• Even though enterprise revenue rose sequentially in the quarter, it was not enough to offset the erosion in service provider revenue

• eClerx Services (eClerx) provides business process management, automation and analytics services.
• It caters to financial services, communications, retail, media, manufacturing, travel and technology companies
• We continue to remain positive and retain our BUY rating on the stock Target Price and Valuation: We value eClerx at Rs 3,000 i.e. 20x P/E on FY24E EPS.

• In our estimate, Vanguard’s 4Q21 revenue/GM is NT$12.6bn/46.3%, and 1Q22 revenue/GM is NT$12.3bn/46.1% respectively.
• Vanguard has about 30% capacity utilized by TSMC’s foundry products. In technology deliverables, Vanguard also competes with TSMC for manufacturing excellence, which creates an internal competition.
• Vanguard has dealt with their clients to share the expansion cost. Certainly, there is almost no such trust-worthy partnership, except Vanguard who has TSMC to back up.

• On 7 January 2022, iFAST (IFAST SP) announced its planned acquisition of BFC Bank, a fully licensed UK bank, from Bahrain based group BFC Group for £40 million investment sum
• The acquisition, which enables the group to add a full service bank to its fintech eco-system, is part of IFAST’s 5 year plan to have a global business model
• We highlight the key terms of the transaction and associated balance sheet impact with respect to post acquisition capital structure and asset performance

• We said that we expected MMO Final Fantasy XIV to drive a strong beat and FY OP towards ¥70bn rather than consensus’ ¥55bn. 
• With 3Q OP of ¥21.0bn easily beating consensus at ¥14.4bn we believe we are nicely on track. 
• Oh and there were some tidbits about NFTs which should get some segments of the market interested.

• Daifuku Co Ltd (6383 JP) today (4 Feb) announced it would take out TSE-2 industrial computing/IoT subsidiary Contec Co Ltd (6639 JP) in a tender offer at 55% premium.
• That looks nice, and should have been expected at some point. But it is only half-generous.
• The shareholder structure tells you how this is likely to end up.

• In our last update, the stock was around $250, and we called for a reality check in progress which might have led to a sharp revision in the price.
• We were right! As of 1st February 2022, the stock is trading at $150 per share and is 40% down since our last update on December 10th, 2021.
• This is a clear signal that analysts were overoptimistic, and we believe they will continue adjusting estimates over the next quarters. SE is still going through a reality check which might not be yet over.

• The rise of the internet, though astounding and world-changing, has resulted in the growth of impending tail risks, phenomena where unchecked vulnerability and fragility may result in the harm of corporations and individuals alike
• Crowdstrike provides technology that primarily protects an Enterprise’s Endpoints, with additional modules aimed at shielding Companies’ Cloud Workloads
• The main area of Cybersecurity that one should familiarize themselves with in order to gain a heightened understanding of Crowdstrike’s operations is Endpoint Security

• Prime price increased, Covid expenses starting to moderate, margins set to rise.
• Fulfillment buildout moderates, 1-day shipping can now launch more widely, share gains will ensue, revenue growth will reaccelerate.
• We reiterate Amazon as our Top 2022 long idea. We think its worth $6,000.

• Tech Mahindra (TechM) has over 1.2 lakh employees across 90 countries serving 1000+ clients with higher exposure to telecom (40% of revenues)
• Apart from telecom, the company caters to BFSI, manufacturing & retail
• Target Price and Valuation: We value TechM at Rs 1850 i.e. 23x P/E on FY24E EPS

• We got this wrong, expecting a beat on margins in spite of weak GMV, whereas Mercari actually fell into the red for the first time in six quarters. 
• The culprit is extremely aggressive promotional spend which looks to have hit all time highs in both Japan and the US. 
• The shift to an investment stance is not in and of itself a bad thing but the growth relative to the spend is disappointing so far.

• Microstrategy Inc(MSTR US) reported a net loss of $90mn or $8.43/share in the fourth quarter, missing consensus estimates for a profit of US$0.89/share.
• The loss is predominantly due to the inclusion of impairment losses of US$146.6mn on its Bitcoin holdings, negating the $110.5mn in gross profit from the software ops.
• MicroStrategy remains a bet on Bitcoin. Yet almost any alternate cryptocurrency security appears a better bet, if that is your bent.

• Nintendo posted an impressive top line for 3Q at ¥696bn in revenue vs. consensus at ¥641bn for an 8.6% beat. 
• OP of ¥253bn beat consensus by 16.9% suggesting that sell side analysts do not understand Nintendo’s new profit structure. 
• The stock has been resilient since bottoming in early November and we expect strong performance to continue.

• Xiaomi has an ambitious goal to surpass Samsung to become the #1 smartphone brand in the world (shipment basis) by 2024.
• We believe Xiaomi is less like the “Apple of China” and more like the “Costco of smartphones”. We explore the key aspects of this business model, including services monetization and an ecosystem strategy leveraging an “investment + incubation” model.
• Most investors seems to understand Xiaomi’s market share growth story, but may yet be underappreciating its monetization potential

• The nasty “squeeze” up in the Nikkei 225 has so far stalled within the zone of resistance at 27,293-27,629
• A move back below 26,954 would add to the bearish bias seen overall
• Medium to long term supports and target area comes in closer to 24,500

Our next Webinar features an actionable, counter-consensus look into IndiaMart (INMART IN) from experienced Insight Providers Pranav Bhavsar and Nitin Mangal of India Independent Insight. While the stock is well-owned, forensic accounting and investigative due diligence from our Insight Providers suggests that risks are grossly under-appreciated. Join our session to get the full scoop.

The webinar will be hosted on Wednesday, 23 February 2022, 17:00 SGT/HKT.

Pranav Bhavsar is the Founder of ASA Capital Management, focusing on research on consumer themes and companies operating in India or global companies that have significant exposure to India or the Indian economy.

Nitin Mangal is a SEBI registered Research Analyst with more than 10 years of experience in Indian equities. He is Pioneer of Corporate Governance and Accounting Research in Indian Market and has successfully developed a product for Institutional Investors named as “Analysis Beyond Consensus” during his association with Edelweiss Securities Ltd, Mumbai. 

• Mercari opened down 11.7% and has now recovered to be down “only” 8.5%. 
• While our impression of results yesterday was negative the intensity of the move is overdone in our view. 
• We still believe that momentum is likely to be muted for a while but the current price is not unattractive.

• ATEN reported fourth quarter results beating our estimates and held an investor day to layout the framework for the next few years. 
• ATEN has continued to benefit from growing demand for security as network traffic has increased
• ATEN is forecasting Q1 and 2022 revenue to increase between 10 % and 12 %. ATEN forecasting gross margin of 78% to 80% leads us to raise our 2022 estimates

CME segment drives growth

• About the stock: Info Edge provides internet based service delivery like recruitment services (Naukri), real estate (99 acres), Jeevansaathi and Shiksha.
• Quasi play on Indian start up like Zomato, PolicyBazaar, Shoekonect, Ustra, Gramophone and job market, matrimony services & real estate market
• Prudent capital allocation and recruitment business EBITDA margin >50%

• Lasertec has been the darling of the SPE sector over the last few years, rising a 122x from mid-2016 to the peak at the start of this year. 
• With a commanding position for EUV inspection systems and its new ACTIS systems on deck the excitement is understandable. 
• The valuations though are not, and the share price has now clearly started to break down.

• The focus of this article is on the company’s announcement that it will buy back up to 10 billion yen (5.5 million shares, or 2.11% of the total outstanding shares).
• Without explanation of how Brother will actually allocate the expected cash flow between investment and shareholder-return, it is impossible to fully answer why the amount was set at JPY10 billion.
• Capital Allocation is not well explained, and not many investors are paying attention to our niche business, but we should get more attention because the company is a cash cow.

Info Edge Ltd (INFOE) delivered better-than-expected revenue in 3QFY22, with standalone revenue growth of 48% YoY (estimate of +42%). On the other hand, the EBITDA margin missed estimates due to higher ad spending in the 99acres business. 3Q billing also came in ahead of our estimate, led by a large beat in Naukri (80% YoY). The management has indicated continued strength in the Naukri business over the near term, along with the large impact of a price increase in FY22E billing.

• Allied Telesis is a Japan-listed business with a long US history making networking equipment and solutions for corporate customers. 
• The company received a legal settlement today which is worth a fair bit to them.
• The company had already had the best 12 months earnings history in years, while the stock is trading at long-time lows. This could get exciting.

• Keyence’s 3Q numbers were noticeably stronger than consensus with revenue at ¥190bn (just below our estimate of ¥192bn+) vs. consensus at ¥182bn. 
• OP also beat by 4.2% but was held back slightly by high SG&A. 
• Nevertheless, this should move the outlook for 4Q up significantly setting up a reasonable full year beat and better prospects for next year.

• The GlobalWafers announced the deal to merge Siltronic did not get the approval by Germany government this morning. We maintain our Target Price for GlobalWafers doesn’t change at NT$880~960.
• The GlobalWafers points out that the results will not influence business activities, and the European market remains the importance for GlobalWafers.
• Comparing to 20s years ago, we think the semiconductor market has experienced a dramatic changes already.

• Hoya Corp (7741 JP) reported 3QFY03/2022 results today. Revenue grew 16.6% YoY to JPY171.3bn (vs. consensus JPY162.1bn) and OP grew 17.0% YoY to JPY53.5bn (vs. consensus JPY51bn).
• Life Care revenue which was severely impacted due to Covid-19, exceeded pre-Covid levels with a 11.7% YoY increase. IT revenue continued to maintain its momentum during the quarter.
• Hoya has slightly upgraded its full-year forecasts and also has announced a share buyback program for JPY60bn.

• There is lots of competition for Li-Ion batteries and also for silicon anode Li-Ion batteries
• Enovix is a going concern and has a material internal control weakness
• With facilities that need to be built, lacking firm contracts with customers/suppliers, and unfinished products, lots of things need to go perfectly.

• For this March rebalancing, the screening base date is January 28, which is the last trading day of January. So, the 3-month rebalancing review period is now done.
• Other than LG Energy (+₩146,2B), we should pay the most attention to AfreecaTV (+1.70x), Chunbo (+0.36x), Douzone Bizon (-4.82x), and SoulBrain (-0.99x).
• In addition, large-cap stocks such as SKIET (+0.25x), Ecopro BM (+0.10x), LG Chem (-0.62x), and Posco Chemical (-0.30x) will likely draw much attention.

• Intellect Design Arena (Intellect) provides software products to retail, corporate banking, insurance & treasury.
• The company is a transition from a product company to a platform company
• Intellect generates 55% of revenues from developed markets and rest from emerging markets Recently, it saw a turnaround in margins (from 5% in FY20 to 23% in FY21)

• On 1 February, Siltronic announced that the public tender offer by GlobalWafers will not be completed as offer conditions have not been fulfilled within the applicable deadline.
• Germany’s Economy Ministry could not complete all the necessary review steps. The deal rationale was compelling. Wacker Chemie still intends to sell its remaining 30.83%. GlobalWafers may bid again.
• As the industry deals with overcapacity, Siltronic could be worth more as a standalone business. Longer term, TP is €162.64/share (comparables based), 12% above Siltronic’s offer

• Court and EGM meetings are scheduled 2 February. Aristocrat is the only suitor remaining.  Some investors in Playtech who anticipated a bidding war aren’t too keen to support the deal.
• The Board threatens with a break-up and auction of both Snaitech and the B2B white label software division. Analysts believe that the business is worth more than the current offer.
• Reiterate long PTEC LN, TP 680/share (Aristocrat offer), with the potential upside risk of a sweetened offer to placate some investors, or a break-up.

• Koei Tecmo delivered strong results with revenue of ¥18.1bn and OP of ¥10.7bn comfortably beating consensus of ¥16.2bn and ¥5.7bn respectively. 
• OP guidance was raised from an absurdly conservative ¥24.5bn to a still conservative ¥31.5bn, below consensus at ¥33.6bn. 
• While these results look broadly positive we are concerned that the recent sell off may continue.

• Overall, we have a positive view of SK Hynix’s new dividends and total shareholder return policy. 
• We estimate SK Hynix’s dividend yield could be 1.3% in 2022 and 1.5% in 2023. We estimate its total shareholder returns could be 3.3% in 2022 and 5.4% in 2023. 
• However, this is based on the consensus free cash flow estimates and also there is uncertainty in the timing of potential share buybacks from 2022 to 2024. 

• Coforge offers system integration, apps & BPO services to BFSI, travel & healthcare verticals.
• Revenues and PAT grew at a CAGR of ~12% each over the past five years
• Target Price and Valuation: We value Coforge at Rs 5870 i.e. 30x P/E on FY24E EPS

• Kuaishou’s share price has climbed more than 20.0% YTD as the company has increased its focus on e-commerce while also narrowing down its costs.
• The company opened its e-commerce store to local merchants in China including food delivery, healthcare, hospitality and entertainment ticketing.
• According to news media outlets, the e-commerce GMV hit RMB650bn (US$102bn) in 2021 from RMB381bn in 2020. This figure is expected to go up to RMB900bn in 2022E.

• Infosys is India’s second-largest provider of consulting and IT services to clients across the globe
• It is also among the fastest-growing IT services organization in the world and leader in the offshore services space
•  The company provides business consulting, application development and maintenance, and engineering services to 1,738 active clients

• Birlasoft Ltd (Birlasoft) has strength in non-ERP digital businesses like CRM, B & data analytics, app development & enterprise solution.
• The company caters to manufacturing, BFSI, energy & utility and lifescience
• Target Price and Valuation: We value Birlasoft at Rs 540 i.e. 23x P/E on FY24E EPS

• Coforge Ltd (Coforge) Q3FY22 results stood below our expectations. The company’s revenue grew by 4.2% QoQ in CC terms to Rs 1,658 C
• Operating profits were reported at Rs 323 Cr, exhibiting a growth of 8.8% QoQ and operating margins witnessed a marginal growth of 90bps QoQ and stood at 19.5%
• We recommend a BUY rating on the stock and assign a 28x P/E multiple to its FY24E earnings of Rs 177.8/share which gives a TP of Rs 5,060 /share. TP implies an upside of 15% from CMP.