Daily Brief TMT/Internet: LG Uplus Corp, Fadu , NetEase Inc and more

In today’s briefing:

The Rise of the Fourth Telco in Korea – Breaking the Oligopoly
Fadu Pre-IPO – Stupendous Revenue Growth but Heavily Reliant on Two Key Customers
[NetEase(NTES US, BUY, TP US$102) TP Change]: Cut TP to $102 Due to More Near-Term Downside Risks

The Rise of the Fourth Telco in Korea – Breaking the Oligopoly

The Korean government announced today that it will allow a fourth telco in Korea in order to reduce the oligopoly structure dominated by the three existing telcos.
This decision to allow another telco in Korea will have a major negative impact on the existing three telcos in Korea.
On a relative basis, we think that this could have a worse impact than LG Uplus as compared to SK Telecom due to greater price sensitivity of LG Uplus’ customers.

Fadu (440110 KS) is looking to raise up to US$147m in its Korean IPO.
Fadu is a South Korean fabless semiconductor maker mainly engaged in flash storage technology innovation. Its core products are Enterprise Solid State Drive (SSD) and Enterprise SSDs.
Fadu’s revenue growth has been stupendous, to say the least. However, the firm’s revenues are derived mainly from two customers, which exposes it to a large degree of concentration risk.

Three risks in the short term: 1) Decreased gross billings from former legacies due to macro. 2) Lifecycle issues with new games. 3) Market over-optimism regarding new games and AI.
NetEase still has some positive catalysts in the long term, including: 1) New games and content expansions. 2) Overseas game publishing. 3) Continual improvement in margins.
We expect NetEase’s revenue in 2Q23 to be slightly lower than the consensus estimates of 2.5%, with a 13.3% beat in profits. Cut TP to $102, but maintain BUY rating.

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