In today’s briefing:
- HKBN (1310 HK): China Mobile Is the Latest to Show Interest
- TSMC: Crowded Trade?
- Targeting the Widening of KT Corp ADR Premium Amid MSCI Inclusion
- Quiddity Leaderboard ASX Jun 23: DHG Could Underperform Peers
- Softbank (9984 JP) – Focus on the SVFs, Are the Private Companies Appropriately Marked?
- [PDD Holdings Inc. (PDD US, BUY, TP US$95) Earnings Preview]: BUY on Expected Margin Beat
- Sega Sammy Holdings/Rovio Entertainment: Agreed Offer
- Nreal: AR/MR Technology Player Recognised for Affordable Glasses
- First Solar Inc: A Strong Start To 2023 – Key Drivers
- Paychex Inc.: Strong Margin Expansion & Other Drivers
HKBN (1310 HK): China Mobile Is the Latest to Show Interest
- Reuters reported that China Mobile (600941 CH) is exploring a potential buyout of HKBN Ltd (1310 HK). The shares surged 12.3% to HK$6.57, above I Squared’s rumoured HK$6.00 offer.
- To get an idea of the appropriate offer price, we examine shareholding dealings from substantial shareholders. Our analysis suggests that a scheme offer of around HK$8.50 would likely be required.
- PAG is also a rumoured bidder. The flurry of interest around HKBN suggests a good probability that one of the bidders will come through with a formal offer.
TSMC: Crowded Trade?
- Taiwan Semiconductor (TSMC) is by far the most dominant stock holding among active EM investors.
- TSMC is owned by 87.5% of EM funds with an average weight of 6.1%, it is also the largest portfolio holding for 64.5% of managers.
- Despite high levels of positioning, there are no obvious signs that managers are scaling back positions. The risk of not holding TSMC may be greater than playing the contrarian.
Targeting the Widening of KT Corp ADR Premium Amid MSCI Inclusion
- We should expect significant changes in KT’s ADR premium approaching the implementation date as foreign institutions leading the passive flow for MSCI Korea constituents have typically preferred ADRs.
- Looking at the previous two occasions, the ADR disparity widened from the midpoint of the review period. And this trend continued for a while after the implementation.
- Although KT’s ADR disparity has not yet significantly expanded, we may witness a similar pattern this time as well, given that it has been continuously moving in the premium recently.
Quiddity Leaderboard ASX Jun 23: DHG Could Underperform Peers
- In this insight, we take a look at the potential index changes for ASX 200, 100, 50, and 20 in the run up to the June 2023 Rebalance.
- Based on the latest data, I do not expect any changes for ASX 20, ASX 50, and ASX 100.
- I expect Neuren Pharmaceuticals (NEU AU) to be added to ASX 200 and Domain Holdings Australia (DHG AU) to be deleted from ASX 200.
Softbank (9984 JP) – Focus on the SVFs, Are the Private Companies Appropriately Marked?
- Softbank Vision Funds 1 and 2 were the biggest combined holdings at December 2022, accounting for 30% of group equity value; SVF private companies accounted for 73% of equity value
- To December-end 2022, public companies in SVF2 were marked down by 52% versus investment cost, whereas SVF2 private companies were marked down by a more modest 33% versus investment cost
- We believe that SVF2 private company valuations are at risk of further markdowns in 4QFY22 results, with many of these investments made close to the period of peak pandemic valuations
[PDD Holdings Inc. (PDD US, BUY, TP US$95) Earnings Preview]: BUY on Expected Margin Beat
- We expect PDD to report 1Q23’s revenue and non-GAAP net income 6.1% and 23.8% ahead of consensus, respectively.
- PDD entered an adjustment period, reflected in lower S&M expenditure both overseas and domestically, which has led to declining PDD DAU and moderating growth of Temu’s GMV and losses.
- We raise our PDD’s 2023’s EPS estimate by 14%~ to reflect better-than-expected cost control. We maintain PDD’s BUY rating and US$ 95 TP, implying 21x 2023 P/E.
Sega Sammy Holdings/Rovio Entertainment: Agreed Offer
- Sega with better reputation and deeper pockets than Playtika, announces a €9.25/share recommended cash offer; 63% premium to Playtika’s announcement; it represents 2.1x EV/Fwd Revenue, 12.3x EV/Fwd EBITDA, 21.6x Fwd P/E.
- Acceptance condition is over 90%, and irrevocables are 49.1%, so 80.4% of the float is needed, which is high. I value Rovio using DCF (9% WACC, 1.5% perpetuity growth rate).
- My fair value base case estimate is €8.80/share (€9.45/bull case). I thus update my TP to €9.25. Spread is 0.59%/1.22% (gross/annualised), which is not massive.
Nreal: AR/MR Technology Player Recognised for Affordable Glasses
- Founded in 2017 in Beijing, Nreal.ai (1690070D CH) is an Augmented Reality (AR)/ mixed reality (MR) technology company that develops and sells AR glasses.
- The company’s glasses have received wide recognition as they are designed to be lightweight, comfortable and affordable, making them more accessible to consumers.
- The company has raised more than USD240m in funding and as per the company, we could expect an IPO over the next 18-24 months.
First Solar Inc: A Strong Start To 2023 – Key Drivers
- First Solar entered 2023 with an improved financial, operational, and commercial position with increased R&D, new international and domestic capacity coming online as well as a new Series 7 product.
- The company commenced initial production at its next-generation Series 7 factory in Ohio will continue to ramp this year.
- Furthering its manufacturing program, First Solar recently announced an innovative 3.5-gigawatt Series 7 factory in Alabama and also a 0.9-gigawatt rise to nameplate capacity at its Ohio factories.
Paychex Inc.: Strong Margin Expansion & Other Drivers
- Paychex produced strong financial results, with third-quarter total revenue growth of 8% and adjusted diluted earnings per share growth of 12%.
- It managed to deliver an all-around beat Revenue for Management Solutions climbed 7% to $1 billion because of new product attachments and auxiliary HR services.
- The continued high demand for their ERTC service accounted for about 1% of the quarter’s revenue growth.
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