Daily Brief TMT/Internet: iSoftStone Information Technology Group, Sea , Taiwan Semiconductor (TSMC), Hon Hai Precision Industry, Asustek Computer, Media and Games Invest and more

• With the review period for the December rebalance of the CSI500 Index complete, we forecast 50 changes (the maximum permitted) for the index at the close on 8 December.
• Estimated one-way turnover is 9.66% at the December rebalance resulting in a one-way trade of CNY 6.36bn. There are 29 stocks with over 1 day of ADV to trade.
• The potential deletes have outperformed the potential adds over the last 6 months though there has been a narrowing of the gap recently. Position for a further narrowing.

• Looks like Sea (SE US) decided to take a detour back to the land of losses this quarter.
• But it’s not a massive issue. They’ve maintained close to 7% QoQ revenue growth, so things should be okay.
• Investors likely won’t delve into the details further to uncover the substantial costs hidden behind that apparent growth.

• Earnings season wrapping up — Hon Hai & Asustek recently reported… Some AI names rallied hard but our Nvidia L/S trade still working
• Hon Hai’s margin expansion story is finally starting to be realized. Stock’s perceived political risk could be an opportunity.
• How Asustek plans to take the lead globally in AI PCs; Gaming PCs will be the first key battleground. MSI could be an interesting play on Asustek’s recent strong performance.

• The 4Q23F results will be higher than 3Q23, but lower than 4Q22.
• If the market is unchanged, and it will be slightly upside in 2024F market. 
• For the target of GM 10% is still unchanged in 2025F.

• Asustek reported results on November 13th that beat analyst expectations thanks to a major margin rebound. The stock soared post results.
• Asus plans to be the first company globally to release an AI PC, leveraging extensive AI R&D across different devices as well as its leading market share in gaming PCs.
• However, gaming PC competitor MSI is already moving fast; Shows how gaming PCs are likely to be the first AI PC battleground. Long Asustek, remains preferred over Acer.

• Hon Hai beat expectations yesterday when it reported thanks to higher than expected margins. Gross margin rose to its highest level since 2018, hitting 6.7%.
• The company has maintained its 2025E 10% gross margin target and implied that 2024 will see significant margin improvement as new higher margin businesses ramp up revenue contribution.
• Two key market concerns: News of Chinese government investigation and political risk given Mr. Gou running for president. Company said operations continue as normal. Hon Hai remains a Structural Long.

MGI – Media and Games Invest (MGI) has been steadily gaining market share in a difficult trading environment. It is now the leading mobile open web supply-side platform (SSP) on both Android and iOS in North America; second on Android and fifth on iOS in EMEA. Continuing weak advertising pricing means that FY23 revenue guidance was pulled back at the interims, but careful cost management should ensure EBITDA is flat over FY22, with an annualised cost-saving programme of €10m also put in place. MGI’s fundamentals are positive, with its vertical integration giving an efficient market proposition and earlier acquisitions providing a sound basis for its connected TV offering. The withdrawal of personal identifiers on Google should give further impetus, which we feel is not yet reflected in the rating.