Daily Brief Equity Bottom-Up: Tencent: Online Games Continue to Recover in 2Q2023E and more

• Tencent (700 HK) ’s online games business grew for the first time in 1Q2023 (+10.8% YoY) after four consecutive quarters of YoY decline followed by regulatory hurdles.
• Our app data analysis reveals that online games revenue would grow by about 12% YoY in 2Q2023E driven by increases in both domestic and international games revenues.
• On Monday, it was also reported that Tencent is in the process of acquiring a majority stake in Polish gaming studio Techland, expanding the long list of overseas gaming acquisitions.

• UMC reported 2Q23E results with revenue falling 20% YoY and EPS down 30% YoY. Results were higher than consensus but forward guidance was worrisome in our view.
• We are concerned by UMC’s high exposure to more mature technology nodes, limited exposure to AI, and vulnerability to China competition forced to focus on non-leading edge technology nodes.
• We rate the stock Underperform with a target price of $36 which implies a 2023E PER of 10x.

• In June, mainstream parcel pricing declined by over 10% Y/Y, but SF Holding saw ASPs rise
• We believe J&T Global Express’ planned IPO could negatively impact the industry in H2
• Pricing pressure has increased, in our view, and we expect margins to decline in H2 23

• Grab recently announced the acquisition of Trans-cab in Singapore, the 3rd largest taxi operator there. This will help to solve driver shortage issues and improve cost efficiencies.
• Taxis pay the lowest COE prices plus Grab can improve the productivity of taxi drivers through access to the Grab app. Trans-cab gives Grab access to street hailing. 
• Grab‘s Singapore digital bank recently raised new capital but has also seen its deposit cap lifted significantly, which is helping to significantly boost deposit growth.

• CyberAgent Inc (4751 JP) reported 3QFY09/2023 results today. Revenue decreased 0.2% YoY to ¥171.7n (vs consensus ¥177.8bn) while operating income decreased 86.2% YoY to ¥1.4bn (vs consensus ¥11.0bn).
• The game business has further deteriorated during 3Q with the absence of hit title launches and drop in UMA MUSUME Rankings. Segment reported losses during the quarter.
• CA has opened pre-registrations for two new games, we are not convinced that these could become top performers as the company has not given a hit title since UMA MUSUME.

• Since 1H FY24/3 corresponds with the bottom of the current reset cycle, initial guidance for net sales is -9.3% YoY.
• In addition to ongoing high electricity rates, depreciation expense is set to increase +51.1% YoY, and initial guidance for OP is -62.3% YoY.
• On a cash flow basis, implied EBITDA is forecast to decline -29.1% YoY.

• Krung Thai remains our pick; it ranks second from top in terms of post-provision profitability, screens well on NPL coverage, funding as well as PBV ratios and PE multiples
• We also like Ayudhya, with its sound pre and post-provision profitability metrics in 2Q23, its sound credit quality metrics and attractive valuations
• Kasikorn has seen its TTM cost of risk remain high, and it is the negative outlier versus its peers; yet Kasikorn’s poor share performance makes it one for the watchlist

• We are negative on Feng Tay Enterprise’s share price in the next 6-12 months mainly due to inventory/margin concerns at its largest customer Nike combined with unattractive valuations.
• In the next several months, we think there is a higher probability of Feng Tay’s share price underperforming versus Nike.
• Feng Tay Enterprise is one of the largest global OEM/ODM companies that specializes the design and manufacturing of footwear. Nike is one of the largest customers of Feng Tay Enterprise. 

Oryzon’s H123 results highlight the continued progress of its lead clinical-stage assets, including positive aggregate safety data from the Phase IIb PORTICO trial assessing vafidemstat in borderline personality disorder. The company also indicated that enrolment is proceeding for the Phase IIb EVOLUTION trial (assessing vafidemstat in schizophrenia) and for the Phase Ib FRIDA trial (evaluating iadademstat in acute myeloid leukaemia, (AML)). Total H123 operating expenses were up by only 0.5% y-o-y (to €10.95m), despite a 6.3% increase in R&D costs (to $8.63m). With gross cash of $14.6m at the end of H123, we estimate a cash runway into Q224. We anticipate that top-line data readouts from the PORTICO trial (expected in Q124) may be the company’s next significant catalyst.