In today’s briefing:
- Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again
- Unpacking First Mover OpenAI. Can It Avoid the Fate of Netscape and MySpace?
- [Tencent(700 HK,BUY,TP HK$425)Target Price Change]: International Game and Advertising Drove Results
- Key Takeaways from OpenAI DevDay
- Softbank (9984 JP): WeWork Hangover and Other Challenges
- HHGrace. Yikes! Things Just Got Really Ugly
- SMIC (981.HK): Probably A Double U-Shape Correction for Around 2 Years Until the End of 2024F.
- How Foxconn Triumphed on the Chinese Mainland
- ARLO: Picture of One Word, Buy
- Qualcomm Sees No Threat From Huawei-Developed Chips, CEO Says
Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again
- INCJ made a lot of money on Renesas Electronics (6723 JP) over the years and arguably did a great job helping the firm change direction. Now they are out.
- Last night they launched a block sale through JPM and Bof A for 130.2317mm shares. They priced the heavily-oversubscribed deal at a discount of 8% or ¥2143/share.
- That’s a big discount (so bad broking) for such oversubscription on a clearly-flagged deal but now they are out.
Unpacking First Mover OpenAI. Can It Avoid the Fate of Netscape and MySpace?
- First mover advantage is half-truth. For every academic study proving that first-mover advantages exist, there is a study proving they do not.
- Engineers at OpenAI, scaled up a special machine learning method using large data sets to create GPT or “Generative Pre-trained Transformer.”
- Launch of ChatGPT has put OpenAI revenues on steroids with reports suggesting USD 1.3B this year (versus USD 28 million before ChatGPT was rolled out).
[Tencent(700 HK,BUY,TP HK$425)Target Price Change]: International Game and Advertising Drove Results
- We expect that Tencent’s C3Q23’s revenue/non-IFRS operating profit/IFRS net income to be 2.3%/3.3%/4.2% above consensus.
- We raised estimates of Tencent’s international game growth to 12% YoY to reflect the success. We also expect Tencent’s advertising business to benefit from e-commerce advertisers’ competition.
- We raised the Target Price to HK$425, which implies 22.4X PE in 2024.
Key Takeaways from OpenAI DevDay
- OpenAI held its first developer conference on November 6th. The event announced the launch of OpenAI’s latest model and feature upgrades.
- The latest OpenAI model, GPT-4 Turbo offers drastically lower costs, updated knowledge cutoff, better vision and voice support, and improved API.
- Event unveiled custom chatbots called GPTs for specific applications, showcasing expanded domain knowledge. They’ll be sold in a digital store, adding a new revenue stream for OpenAI.
Softbank (9984 JP): WeWork Hangover and Other Challenges
- Softbank’s exposure to WeWork continues to haunt it beyond the close of 2QFY23, due to its credit support agreements
- Aside from WeWork, we continue to see risks to valuations supporting the NAV; in particular, Arm Holdings and SVF2 which accounted for 45% of group equity value
- Softbank shares trade at a 45% discount to the stated NAV yet there is downside risk to Arm’s valuation along with questions over private company valuations at SVF1 and SVF2
HHGrace. Yikes! Things Just Got Really Ugly
- Revenues of US$568.5 million, down 10% sequentially and down 9.7% YoY, at the bottom of the previously guided range.
- Net loss of $25.8 million compared to a profit of $7.8 million in the previous quarter and $65.5 million in the year ago period.
- With current quarter gross margins in the 2-5% range, HHGrace has flipped from best in class in H123 to the worst in class now.
SMIC (981.HK): Probably A Double U-Shape Correction for Around 2 Years Until the End of 2024F.
- Based on the some judgments, SMIC consider it will be relatively flat demand in 2024F.
- SMIC took into consideration geopolitical instability and allowed equipment vendors to submit orders in advance.
- Currently, only a few manufacturers are stockpiling smartphones in response to this wave. The overall industry remains relatively stable.
How Foxconn Triumphed on the Chinese Mainland
- Foxconn is facing one of its biggest compliance challenges on the Chinese mainland, where the key iPhone assembler has been caught in the crosshairs of government investigators.
- Multiple Foxconn-affiliated entities are being investigated by Chinese authorities as part of probes into the company’s mainland facilities, Caixin confirmed Monday with Foxconn Industrial Internet Co. Ltd., the Taiwanese contract manufacturer’s Shanghai-listed arm.
- State-owned newspaper Global Times first reported Sunday that Foxconn, also known as Hon Hai Precision Industry Co. Ltd., was facing tax and land-use probes into its mainland facilities.
ARLO: Picture of One Word, Buy
- ARLO reported third quarter results underscoring the continued growth in paid subscribers leading the Company to another quarter of positive free cash flow.
- ARLO has maintained its rate of quarterly net subscriber adds throughout 2023 and is poised to cross 3 million paid subscribers by the middle of 2024.
- ARLO reported third quarter revenue of $130.0 million compared to our forecast of $127.5 million.
Qualcomm Sees No Threat From Huawei-Developed Chips, CEO Says
- Qualcomm Inc.’s handset chip business in China will not be affected by Huawei’s push for semiconductor self-sufficiency, said chief executive Cristiano Amon.
- Despite Huawei’s return to the mobile arena spotlight with an in-house chip, the growth trajectory of Qualcomm’s business with Android handset-makers in China will remain unchanged, according to Amon on a post-earnings call on Wednesday.
- Chief Financial Officer Akash Palkhiwala cited an estimated jump of more than 35% in chip sales to Chinese smartphone-makers in and outside China for the fourth quarter of fiscal 2023.
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