Daily Brief TMT/Internet: Hygon Information Technology C, Taiwan Semiconductor (TSMC) – ADR, Sea , Appier Group, Himax Technologies Inc Adr, EQS Group AG, Centralnic and more

• With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
• We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
• Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.

• TSMC’s ADR premium is 10.4%, this is a decent level to short it based on the historical trading range.
• UMC’s ADR premium is near a good level to short the spread but one should wait for it to rise above 1.5% in our view.
• UMC ADR short interest continues to trend higher; TSMC ADR short interest continues to fall.

• We suspect that the recent strength in Sea (SE US)‘s price performance is likely due to short covering, with shorts incentivized to cover after a nearly 38% gain.
• As earnings approach, short positions have been increasing since late October, likely anticipating another earnings disappointment from Sea Ltd’s Q3 report on November 14, 2023.
• Consensus estimates for Sea Ltd are at their lowest since its inception. A modest outperformance could lead to a squeeze in short interest.

• Appier’s Q3 demonstrated a 39% YoY revenue increase, reaching a record JPY7.1B. This was driven by substantial growth in the US/EMEA markets (117% YoY), customer expansion, and Digital Content growth.
• Appier’s gross margin expanded from 51.3% to 52.6% and the operating margin reached a historical high of 4.4%. Despite ongoing investments, EBITDA margins hit12.1%, showcasing strong operating leverage.
• Appier’s revised full-year outlook, with increased revenue target (JPY 26.2B), operating income (JPY0.70B), and EBITDA (JPY2.6B), exceeds consensus expectations by 1%, 11%, and 8%, respectively.

• Both Himax and Novatek reported their results last week; both delivered gross margins at the high-end or above their previous guidance.
• Both companies showed a continued decline in inventory levels. Himax is trading at one of the cheapest levels relative to Novatek in history.
• Novatek sees industry inventory levels as normalized and expects 2024E to be an industry growth year. We rate both stocks as Structural Longs.

As anticipated, now that the German whistleblower protection laws are in place, EQS is recruiting substantial numbers of new customers and is set for a strong fourth quarter, with good momentum into FY24. Once these new customers convert, they become a pipeline of warm leads for other EQS products and services, including more recent additions such as those for ESG monitoring and reporting. Q323 revenues were up 14% on the prior year and newly won annual recurring revenue (ARR), which precedes reported revenue, was up 50%. The rating remains well below that of peers and the value indicated by a discounted cash flow (DCF).

Team Internet’s results for the nine months to 30 September 2023 (9M23) showed good, continued progress, with revenue, adjusted EBITDA and adjusted EPS growing 16%, 11% and 28% y-o-y. Online Presence continued its return to form, with 20% growth over the period. While the weak advertising market and a strong comparative period was reflected in a moderation in growth in Online Marketing (15%), this still implies outperformance of the overall market. Management expects full year results to be at least in line with consensus. We make no material changes to our P&L estimates and continue to see scope for upside. We have increased our year end net debt forecast (previously below consensus) to reflect higher capital investment in content and software development, acquisition costs and working capital than previously modelled. In our view, the company’s value P/E rating of 7.1x FY23 dropping to 6.1x in FY24 is in stark contrast the company’s growth track record and prospects.