Daily Brief TMT/Internet: Socionext, SK Hynix, Reddit , TDCX, NetEase Inc, Media and Games Invest and more

• The changes to the Nikkei 225 Average for the March 2024 Review were announced today after the close. A little earlier than I expected. 
• Socionext, Disco, Zozo IN; Takara Hldgs, Sumi Osaka Cement, Pacific Metals OUT. Nitori PAF increase. US$4bn+ to trade one way on 29Mar close. One interesting surprise. 
• Overall more impactful than it looks. And it changes the front-end arithmetic on Fast Retailing (9983 JP). There may be fun on the DELETEs.

• Investing in semiconductors can be pretty simple if you let it be.

• At a high level, I believe you want to invest in the secular at a decent price or invest in places where there are unwarranted dislocations.

• Sometimes the entire ecosystem says one thing and the stocks say another. Usually, the ecosystem is right.

• Reddit plans to price its IPO between $31 to $34 a share, which would suggest equity value of US$6.0 billion to US$6.5 billion on a fully diluted basis.
• Our base case valuation of Reddit is implied market cap of US$7.9 billion or implied price of US$41.2 per share. 
• Given the moderate upside relative to the IPO price range, we have a Positive view of the Reddit IPO. 

• On the 2 January, TDCX (TDCX US), a Singapore-headquartered digital customer experience (CX) provider, announced it had received a preliminary non-binding proposal from Laurent Junique to be acquired at $6.60/ADS.  
• On the 1st March, TDCX entered in a definitive agreement by way of a short form merger at US$7.20/ADS, a 48% premium to undisturbed.
• As Laurent Junique holds 98.4% of the voting power, there is no shareholder vote on the merger. This is done. The Offer should close in the 2Q24.  

• NetEase reported C4Q23 top line, GAAP operating profit and GAAP net income (4.8%), (16%) and (9.0%) vs. our estimates, and (3.6%), (12%) and (6.8%) vs. consensus， mainly due to..
• The positive, however, is the acceleration of launch of <Naraka Mobile> by 1-2 quarters. Our estimate of the gross billing remains the same;
• We remain optimistic about the upcoming pipeline, and we raise our TP to US$122. Our new TP implies 15.4X PE, which is 12% above current price.

• Reddit, an American social news aggregation, content rating, and forum social network, filed to go public. The company plans to trade on the NYSE under the ticker “RDDT”.
• Reddit was founded in 2005 by Steven Huffman, Aaron Swartz and Alexis Ohanian. The company is forecasted to surpass $1B in total revenue in 2024.
• They chose the right time to go public. I have a positive view of the upcoming Reddit IPO and looking forward to seeing them trade as a public company.

• According to Pitchbook and their S-1, Reddit has raised ~$1.5B in equity financing. Their last private round, a Series F led by Fidelity in August 2021, was around ~$10B valuation.
• I derive a target valuation for Reddit using a ~8x EV/Revenue multiple on my 2024 estimates. The multiple represents a top-range multiple of the peer group.
• I arrived at my ~$9.6B target valuation, which implies 50% upside to indicative IPO valuation at the midpoint. I expect Reddit will trade above their last round valuation of $10B.

MGI – Media and Games Invest (MGI) had a good Q423, gaining market share in an improving trading environment. Organic revenue growth of 16% in the quarter helped lift the full year figure to +5%. This good momentum has continued into the new year, with 18% revenue growth in January. MGI has leading positions in in-app advertising in the US on both iOS and Android, with the US its largest market at 70% of revenues, and has well established non-identifier-based and AI-driven solutions in the market. In the fast-growing Connected TV (CTV) market, MGI is targeting margin over volume. We have lifted our FY24 estimates reflecting the improving growth and margin prospects. Our view is that these are not yet factored into the valuation.