Daily Brief TMT/Internet: ARM Holdings, SK Square , AAC Technologies Holdings, NEC Corp, Snap , Constellation Software /Can, Nutanix Inc, SenSen Networks, PagerDuty Inc and more

• Softbank Group (9984 JP) raised around US$4.9bn via selling some of its stake in ARM Holdings (ARM US)‘ US IPO.
• ARM develops and licences high-performance, low-cost, and energy-efficient CPU products and related technology, which is used by semiconductor companies and OEMs to develop their own products.
• In our previous notes, we looked at the company’s past performance and valuation. In this note, we talk about the trading dynamics.

• ARM Holdings (ARM US) has priced its IPO at US$51.00 per ADS, at the top end of the price range. Softbank Group (9984 JP) will raise gross proceeds of US$4.9bn.
• We previously discussed the IPO in ARM Holdings IPO: The Bull Case, ARM Holdings IPO: The Bear Case and ARM Holdings IPO: Unattractive Price Range. 
• The ARM IPO is structurally set up for a first-day pop. Beyond the first-day euphoria, ARM will face the daunting task of delivering bullish estimates to justify the IPO price.

• Maeil Business Daily reported that Alibaba Group Holding (9988 HK) is considering on acquiring a controlling stake in 11st, which is a leading e-commerce platform owned by SK Square
• In 2018, 11st was valued at 2.7 trillion won by financial investors. However, the current valuation of 11st is estimated to have declined to about 1 trillion won (US$760 million).
• We estimate that the probability of Alibaba acquiring 11st is about 60-70%. 

The Asia Trade Book for September 2023 includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds across Asia HY and crossover credits.

Please reach out to our analysts to discuss any of these ideas, or other trade recommendations from our Asia coverage.

• NEC’ is up almost 90% year-to-date to 16X EPS guidance for this fiscal year and 12x targeted EPS three years out. It now looks fairly valued.
• Profit growth is led by IT Services for the private and public sectors, with strength in finance and system integration. 
• Social Infrastructure is growing, but in the red. Aerospace and national security are profitable, but margins are low.

• Snap-on Incorporated achieved decent growth in both sales and profitability in its most recent result.
• Moreover, Snap-on’s success in the Tools Group highlighted its ability to innovate and cater to customer needs effectively.
• Snap-on’s customization and profitability, particularly in low-volume production, have been a driving force behind its growth.

• Our estimations for FY 2023 annual revenue range at around $8,023 million and for 2024 at around $9,219 million.
• The company’s annual revenue reached $6,622 million in 2022 compared to $5,106 million in 2021, post- ing an increase by 29.69%.
• Constellation Software’s gross profit for FY 2022 was $2,271 million, increased by 44.74% compared to $1,569 million for the corresponding period of 2021.

• Nutanix Inc. managed to exceed the revenue expectations as well as the earnings expectations of Wall Street.
• Notably, the company outperformed all guided metrics, achieving robust ACV billings growth and quarterly revenue.
• Additionally, the company generated significant free cash flow growth compared to the previous fiscal year.

SenSen’s FY23 preliminary results show robust revenue growth, albeit missing our forecasts slightly. Losses narrowed year-on-year from efficiency initiatives. The strategic shift towards more predictable opex and cloud contracts continues to improve the revenue mix. Margin expansion is expected in FY24 following efficiency measures, with potential for cash flow positivity. Valuation remains at a discount to peers despite SenSen being one of the few with a positive FY24 EBITDA forecast.

• PagerDuty Inc. managed to surpass the revenue expectations as well as the earnings expectations of Wall Street with a 19% revenue increase and a 13% non-GAAP operating margin.
• The company’s profitable growth was evident as the year-over-year operating margin expanded by a significant 1,700 basis points.
• Notable organizations like Banco Santander, Cisco Systems, Confluent, Grammarly, DocuSign, HubSpot, and NVIDIA selected PagerDuty as their real-time operations platform.