In today’s briefing:
- KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks
- Nitro Attracts a Competing Offer from KKR’s Alludo
- Foxconn / Hon Hai: Quick-Take On The Zhengzhou Outbreak; Accumulate on Weakness
- Visa Inc: Collaboration With FTX & Other Drivers
- AXTI: Inventory Balloon Pop
- NTGR: Retail Headwinds Is Not the Story
- ATNI: The Treat from Growth
- Cadence Design Systems: Acquisition of OpenEye Scientific Software & Other Drivers
- Taiwan Tech Weekly: Earnings Insights Emerging for Memory, Mobiles, PCs, and Autos
- Tyler Technologies: Acquisition of Rapid Financial Solutions & Other Drivers
KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks
- With the review period complete, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
- Most of the potential changes are high probability ones, but there are some stocks that are very close to market cap and liquidity cutoffs.
- The impact of passive trading will be much higher on the potential deletes as compared to the potential inclusions, though trade notionals are higher for the potential adds.
Nitro Attracts a Competing Offer from KKR’s Alludo
- Nitro Software Ltd (NTO AU) has received a competing proposal from Alludo. The offer is A$2.00 via a scheme or an off-market takeover at A$2.00, with a 50.1% minimum acceptance condition.
- Unsurprisingly, the Board rejected Potentia’s A$1.80 per share off-market takeover offer. Potentia has three options – lift its offer, do nothing or sell into Alludo’s offer.
- While Alludo’s offer is 11.1% above Potentia’s offer, it is far from a knockout bid. Therefore, there is a good chance that Potentia returns with improved terms.
Foxconn / Hon Hai: Quick-Take On The Zhengzhou Outbreak; Accumulate on Weakness
- Some workers have been fleeing Hon Hai’s largest iPhone production facility in Zhengzhou, China over the weekend, due to COVID-19 outbreak lock-downs.
- Even a significant hit to 4Q22E earnings is unlikely to change the 2023E and 2024E financial outlook or valuation multiples for the company, in our view.
- Even after considering that Q4 is a high production period, if we assume November is about 1/10th of annual production, then only an estimated 2% annual reduction is at risk.
Visa Inc: Collaboration With FTX & Other Drivers
- Despite the uncertainty brought on by the pandemic, the timing of the cross-border travel rebound, inflation, the Ukraine crisis, and potential recession, Visa’s performance in 2022 has been quite solid.
- The company delivered yet another all-around beat as it established over 400 business collaborations with fintechs worldwide this year, ranging from start-ups to established businesses.
- Cross-border volumes in Q4 increased by 7 points from Q3 and were up 49% year over year and 130% compared to three years earlier, excluding intra-Europe.
AXTI: Inventory Balloon Pop
- AXTI slightly beat its downward adjusted third quarter guidance but issued fourth quarter forecast showing further deterioration in the business
- During the third quarter AXTI experienced a significant delay in orders from customers causing revenue to decline by approximately 11 percent sequentially
- The spill over of weakness into the fourth quarter should not be a surprise given the pace of decline in revenue in the third quarter
NTGR: Retail Headwinds Is Not the Story
- NTGR reported third quarter results showcasing continued growth in its SMB and service provider product lines while the retail channel remained challenged.
- NTGR has been transitioning away from the lower end of the Wi-Fi router market, but a contracting market has extended out the timeframe of depleting channel inventory
- NTGR’s growth driver are primarily its Pro AV switches and 5G hotspots, which continue to outperform our expectations
ATNI: The Treat from Growth
- ATNI has grown the number of subscribers within its portfolio businesses resulting in revenue rising faster than expected
- ATNI’s steady progress with its network expansion is expected to help cash flow from operations in future quarters
- Each of the operating businesses are growing revenue and at a state where management believes there would be positive free cash flow if it was not for investing for growth
Cadence Design Systems: Acquisition of OpenEye Scientific Software & Other Drivers
- Cadence deliver a good result in Q3 surpassing Wall Street expectations on all fronts, driven by its technological leadership, solid execution, diverse customer base, and robust business model.
- Despite the current macroeconomic uncertainty, it is evident that long-term sustained design activity is being driven by generational drivers like 5G, hyperscale computing, and AI/ML where Cadence is a key player.
- Cadence also added the revolutionary Verisium AI verification tool and the JedAI data platform to their portfolio in Q3.
Taiwan Tech Weekly: Earnings Insights Emerging for Memory, Mobiles, PCs, and Autos
- Last week saw a wave of major tech companies report earnings with significance toward the semiconductor and technology space in Taiwan.
- Memory chip takeaways – SK Hynix, Samsung see better supply/demand in 2023E. PC market — Recent results discuss slight decline, potential stabilization in 2023E.
- Mobile phones — Relative strength in high-end vs. low-end. Auto & Industrial — Relative strength seen continuing. AMD, Qualcom, Elan, CHIPMos, Acer, Globalwafers results ahead.
Tyler Technologies: Acquisition of Rapid Financial Solutions & Other Drivers
- Tyler Technologies delivered yet another all-around beat that was a result of its 3% organic growth in this quarter, excluding COVID-related revenues of approximately 9%.
- It reflects both company’s accelerating shift to the cloud and growth in transaction-based revenues.
- Overall, we provide the stock of Tyler Technologies with a ‘Hold’ rating and a revision in the target price.
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