In today’s briefing:
- Appier Group (4180 JP): Now TOPIX-Ready!
- Meituan Bear Pressure Accelerating
- KOSDAQ150 Ad Hoc Index Rebalance: Hancom (030520) To Replace Vidente (121800)
- NEC (6701) | Significantly Undervalued with Upcoming Catalyst
- MSCI Korea Flow Trading for August 31st
- Tencent (700 HK): Revenue Decreased for First Time, Margin Recovering, Price Overly Impacted
- SSE50 Index Rebalance Preview: Sector Rotation To Continue
- Sea Ltd: Tough Times Ahead
- LX Semicon KOSDAQ→KOSPI Migration Event: Index Rebalance Trading
- GoTo (GOTO IJ) – Let the Synergistic Journey Begin
Appier Group (4180 JP): Now TOPIX-Ready!
- In February 2022, I discussed why Appier Group (4180 JP) could be an interesting TOPIX Inclusion Candidate in TOPIX Inclusion Pre-Event: Appier Group (4180 JP)
- Earlier this month, I reiterated my view in TOPIX Inclusions: Who Is Ready (Aug 2022) identifying Appier Group as the best pick among all current TOPIX Inclusion candidates.
- Since my last insight, the share price has risen sharply and that has important implications for the company’s Prime market ambitions.
Meituan Bear Pressure Accelerating
- June 27 call to sell strength in line and showing increasing downside pressure below the 185 support (now resistance).
- Dual top at 210 induced a turn well under trendline resistance. Break of bear wedge support confirmed the macro sell signal.
- Below 166 targets 140 where a stall in the decline/bounce is due (resistance near 160-66) but expected to give way for a test on the 110 low zone.
KOSDAQ150 Ad Hoc Index Rebalance: Hancom (030520) To Replace Vidente (121800)
- Vidente (121800 KS) has not submitted its semiannual reports and has been labeled as an ‘Administrative Issue’. This means deletion from the KOSDAQ 150 Index (KOSDQ150 INDEX) on 19 August.
- Hancom Inc (030520 KS) was the highest ranked stock to not be included in the index at the June rebalance. It will now be included in the index.
- Passive funds will need to buy KRW 8.8bn of Hancom Inc (030520 KS) while selling KRW 11.2bn of Vidente (121800 KS).
NEC (6701) | Significantly Undervalued with Upcoming Catalyst
- NEC is geared into two mega-trends that will drive 9% CAGR in EBITDA through 2025
- NEC is a beneficiary of DX (digital transformation) in Japan and global 5G, which are both just starting to take off
- NEC Investment Day may be short-term catalyst, but it is the undervaluation relative to the long-term opportunity that is mispriced
MSCI Korea Flow Trading for August 31st
- MSCI Korea’s August QIR features one deletion: SK Telecom. But Woori Financial, HYBE, and LG Energy will also present a notable impact as they face float rate changes.
- We should consider executing flow trading on these names, even SKT, towards the effective date as much as possible, as the flow magnitude wouldn’t be enough to act proactively.
- It’s been witnessed that SK Telecom’s recall and liquidation of short positions have been made preemptively this time, minimizing the risk of price distortion on the effective date.
Tencent (700 HK): Revenue Decreased for First Time, Margin Recovering, Price Overly Impacted
- In 2Q22, revenue decreased YoY for the first time on record.
- Unexpectedly, FinTech revenue stopped growing in 2Q22, as users are conservative in borrowing and investing money.
- However, we still believe Tencent’s stock price is overly impacted.
SSE50 Index Rebalance Preview: Sector Rotation To Continue
- Over 80% of the way through the review period for the December rebalance, we see 7 stocks in inclusion/exclusion zone. However, there can be a maximum of 5 changes.
- We estimate a one-way turnover of 3.9% at the December rebalance leading to a one-way trade of CNY 2.85bn.
- The potential adds have outperformed the potential deletes and the SSE50 Index (SSE50 INDEX) by a wide margin over the last few months.
Sea Ltd: Tough Times Ahead
- Sea’s share price dropped 14% yesterday following its 2Q22 results as $2.9bn revenue ($3.0bn for consensus) and $659.4m operating loss excluding goodwill impairment ($594m for consensus) were weaker than expected.
- After lowering the e-commerce revenue guidance by $400m in 1Q22, Sea Ltd (SE US)’s decision to suspend 2022 e-commerce revenue guidance in 2Q22 is an early indication of difficulties ahead.
- Digital Entertainment’s gross bookings are down another 10% QoQ in 2Q22, which indicates that Free Fire’s revenue and profitability could continue to go down during the second half of 2022.
LX Semicon KOSDAQ→KOSPI Migration Event: Index Rebalance Trading
- LX Semicon announced that its board approved KOSPI migration on August 17. This migration requires shareholder approval, and a shareholder meeting will be scheduled for September 23.
- The outflow of KOSDAQ 150 is estimated to be -1.37x ADTV. A passive impact of this magnitude should cause a price movement of at least 3%p.
- But LX Semicon’s GICS sector won’t change after the KOSPI migration. We should refrain from trading with expectations for the possibility of KOSPI 200 inclusion at this point.
GoTo (GOTO IJ) – Let the Synergistic Journey Begin
- GoTo (GOTO IJ)‘s announcement last week of the integration of GoFood into the Tokopedia app is a further signal of continuing synergies taking place across the ecosystem.
- This latest move follows GoPay’s integration into Tokopedia, which exceeded expectations plus further integration with Bank Jago, and the introduction of GoPay coins common rewards all providing growing synergies.
- GoTo is a unique proxy to the Indonesian digital economy covering more verticals than any other player, with huge potential for ongoing synergies potentially throwing off higher returns.
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