Daily Brief Equity Bottom-Up: China Gaming Restrictions 2.0 and more

• China has tightened restrictions on online games again driving significant falls in names such as Tencent and NetEase. 
• While the move may surprise some given prior moves to restart approvals in our view the overall trend of regulation is not especially surprising. 
• In particular, the tightened regulations appear to target the most important drivers of mobile gaming profitability and today’s large drops may actually be underreactions.

• GoTo senior management hosted an analyst call last week to provide further details on both the reasons behind the Tokopedia sale and the potential synergies and benefits of the move. 
• After the deal completes, GoTo will cede all management control but will receive a revenue stream from core GTV, which excludes digital products and certain big-ticket items.
• Plumbing for this deal effectively de-risks its exposure to e-commerce given it is not required to inject any new capital but it does take away future optionality on Tokpedia’s growth.  

• CPNG will provide Farfetch with a bridge loan to save it from default. In exchange, CPNG acquires Farfetch business and its US$ 460mn+ net debt.
• For Farfetch to achieve profitability, CPNG will need to conduct major layoffs and cancel brand deals, but both are difficult to achieve, in our view.
• CPNG only found limited overseas success in Taiwan, and EU poses an even greater challenge. We cut TP to US$ 14.1 on increased debt and FCF burden.

• Relative Value Trade in Micron Has Worked Since Our Last Piece; Results Blow Away Expectations
• Memory Pricing Improvement Continues, Management Expects Pricing Increases Through Calendar Year 2024 and 2025
• We Remain Structurally Long Memory; Now See Relative Value in SK Hynix

• O Ta Precision Industry is a company based in Taiwan that mainly makes golf clubs for global golf equipment branded companies including Titleist, PXG, Mizuno, and Honma.
• O-Ta Precision’s dividend yield averaged 9.2% annually from 2019 to 2022. Its annual dividend payout averaged 68.5% in the same period.
• We like the company’s strong niche in the golf club OEM/ODM business with excellent list of customers with its its historically high dividend payout ratio and dividend yields. 

• The Medium-Term Management Plan UNISOL includes the following FY26/12 targets, net sales of ¥200.0 bn, operating profit of ¥10.0 bn, and ROE of 8.5%.
• MARUKA FURUSATO will enter the 2nd stage of the plan, a period of accelerated growth, starting in FY24/12. During the 1st stage of the plan, which was centered on establishing a base, various initiatives were undertaken.
• The company promoted cross sales and expanded rebates through commercial flow integration, starting with streamlining administration departments, which included merging offices. 

Actinogen Medical has opened the first investigational study site for its Phase IIb XanaMIA trial of lead candidate Xanamem in patients with cognitive impairment (CI) associated with mild-to-moderate Alzheimer’s disease (AD). The study plans to enrol c 220 patients, who will be randomised to take Xanamem 10mg or placebo once daily for 36 weeks. The trial will concentrate on Australian test sites for the first 100 enrolled patients, and initial efficacy and safety results will be analysed when these patients reach 24 weeks of treatment. The results, expected in H1 CY25, could serve as a significant catalyst if data are positive. Nearer term, the next material milestone will be results, expected in Q2 CY24, from Actinogen’s Phase IIa XanaCIDD study in patients with CI and major depressive disorder (MDD). A positive XanaCIDD readout may lead to a share price re rating, and thereby may potentially accelerate the expansion of XanaMIA to US and global clinical study sites.

Basilea recently expanded its antifungal and antibacterial product pipeline with three new assets, including the latest addition, fosmanogepix. As a broad-spectrum antifungal (including multidrug-resistant fungi), fosmanogepix has a novel mechanism of action, a key differentiator in the rise of antifungal drug resistance. Two Phase III trials are expected to commence in mid- and late-2024 (in candidemia/invasive candidiasis and invasive mould infections, respectively) and a successful launch has the potential to refill the pipeline as the company’s lead asset Cresemba matures. We update our estimates and valuation to reflect the revised FY23 guidance and incorporate the potential contribution from fosmanogepix. Our overall valuation increases to CHF910.4m or CHF76.0/share (from CHF797.8m or CHF66.6/share previously). In the more immediate term, we view the US New Drug Application (NDA) decision on Zevtera (PDUFA date of 3 April 2024) as the next big catalyst for the company.

AFT Pharmaceuticals has bolstered its R&D pipeline with the addition of a new product candidate, HY-090, a locally acting novel molecule, targeting Burning Mouth Syndrome (BMS), a condition with no curative treatments. AFT will be developing the asset in collaboration with Hyloris Pharmaceuticals (existing development partner for Maxigesic IV). While Hyloris will be responsible for product formulation, manufacturing and commercialisation in Europe, AFT will take care of clinical trials and related modalities, as well as commercialisation ex-Europe. The US activities will be co-managed by the two partners. HY-090 is one of two R&D assets that was already in active consideration by AFT and diligence work is ongoing for another three. A robust R&D program has always been a focus area for AFT and we believe an active pipeline will be instrumental in driving growth and increasing the company’s international footprint.