Daily Brief Equity Bottom-Up: Taiwan Tech Weekly: AMAT Results Imply Longer Memory Weakness and more

• Berkshire’s TSMC U-Turn. Berkshire’s TSMC stake was sold down by 86.2% just months after acquiring it. One had to wonder what the about-face on the investment was based on.
• Applied Materials results well received by the market, however provided some caveates in terms of how fast the Memory chip industry recovery will come. (Readthrough: Nanya Tech, Micron, SK hynix)
• TSMC believes that the automotive chip crunch is now easing, which should be good news for the auto industry, especially EV.

• Rakuten Inc (4755 JP)’s 4Q22 results were not all that great with operating loss exceeding consensus by ¥8.4bn mainly through fair value losses in minority investments.
• The domestic e-commerce and fintech businesses did reasonably well with 23.4% and 16.4% YoY OP growth while the mobile business managed to narrow its quarterly loss by ¥8.2bn.
• However, we think the main catalysts for shares to rise 12% following earnings are Rakuten Symphony, Rakuten Energy and a possibly attractive valuation for the Rakuten Bank IPO.

• TY Holdings (363280 KS) is the 19th company in our Korea Small Cap Gems series.
• Our NAV analysis of TY Holdings suggests NAV of 925.5 billion won or NAV per share of 18,172 won per share, which is 47.4% higher than current share price.
• The key catalysts include earnings improvements at SBS and Ecorbit, potential corporate activism on SBS, and potential change in regulation to allow foreigners to invest in SBS (terrestrial broadcasting company). 

• This weekend at the NBA All-Star weekend, we saw the NBA commissioner Adam Silver unveil an in-game streaming experience which had the internet in awe.
• Many have decided to brand the ‘Metaverse’ a sham, a dystopian digital experience or something that just plain won’t work.
• When Mark Zuckerberg changed Facebook’s name to ‘Meta’ to indicate the direction of travel he thinks the world is heading in — we should probably have sat up and said “there might be something there”

• Alight (NYSE: ALIT, $4.5b market cap) is a well-established company providing health, wealth, payroll administration, and human capital management cloud advisory services to most of the leading companies in the United States.
• The company exhibits many qualities that make it an attractive long-term investment: this is an extremely sticky business with 97% revenue retention, high levels of recurring revenues, a market-leading position, and a blue-chip customer base.
• Management also has many levers to accelerate growth further and improve profitability.

• Post the Powertrain spin-off, Conti’s automotive business is more robust and of higher quality, now more focused on rapidly growing areas such as autonomous mobility and safety and motion.
• The Tires division is resilient by nature and generates strong cash flow.
• The Company benefits from long-term structural trends. Valuation is supportive, with 25% upside from current levels

• Unilever had a decent performance in 2022.
• It achieved underlying sales growth of 9.2% and a fair level of operating margin aligned with expectations despite the volatile period.
• Prestige Beauty delivered outstanding double-digit growth with a strong performance by Paula’s Choice.

• Hilton Worldwide Holdings delivered an all-around beat in its last result with strong free cash flows.
• It distributed over $1.7 billion to shareholders for the entire year due to strong profits and increased margins.
• We give Hilton Worldwide Holdings a ‘Hold’ rating with a revised target price.

• Royce Value Trust is ideally placed to benefit from a change in market risk attribution.
• The fund’s IR ratio suggests its managers provide value for money.
• In addition, the CEF’s fee structures are favorable.

abrdn Private Equity Opportunities Trust (APEO) reported a robust 14.1% NAV total return (TR) in FY22 (ended September), as underlying portfolio valuations were up by 10.5% excluding the FX impact (with co-investments particularly strong) and a higher US$/£ rate. Earnings momentum remained high with LTM revenue and EBITDA across APEO’s top 50 holdings at 22.7% and 23.8% in FY22, respectively. This, together with solid exit activity (£210.2m distributions) at an average 20% uplift to carrying values two quarters prior, helped offset lower public valuation multiples.