In today’s briefing:
- Softbank Corp (9434) – Accounting for the Accounting Is Complicated Redux – So Be Bearish
- Exploring the Kakao Corp and Krafton Deal Potential for Kakao Games
- LQ45 Index Rebalance Preview (July): Identifying Potential Index Changes
- BUY/SELL/HOLD: China/Hong Kong Stock Updates (July 8th)
- Sohu.com Inc (Nasdaq: SOHU): A Net-Net with $1.3B in Cash and Valuable Real Estate
- QUALCOMM INC. – Equity Research Flash Note
- Rapid7 Inc.: Comprehensive Security Solutions & 3 Factors Making It A Solid Acquisition Target! – Financial Forecasts
- UI: New Product Momentum
- Usen-Next Holdings Co Ltd (9418 JP): Q3 FY08/24 flash update
- Flex Ltd.: Initiation of Coverage – Here Are The 3 Biggest Factors Driving Its Performance!
Softbank Corp (9434) – Accounting for the Accounting Is Complicated Redux – So Be Bearish
- Telecom companies are traditionally “easy” to value. They have assets, debt, depreciation, earnings, cashflow. Lots of people like to use EV/EBITDA to measure.
- In comparing Japan’s telcos, I believe when Softbank Corp (9434 JP) is in the mix, one has to use forward PERs. EV/EBITDA is too fraught with complications.
- Softbank is currently at its most expensive multiple since listing on a Price to Forward Earnings basis, and relative to its major Peers. And KDDI has a big buyback now.
Exploring the Kakao Corp and Krafton Deal Potential for Kakao Games
- Kakao has begun talks with potential buyers for Kakao Games, with Krafton leading discussions directly using its own investment team.
- Despite official denials, it’s viewed as procedural. Local markets anticipate the deal due to no direct refutation beyond formal announcements.
- A three-month compliance period from disclosure makes this quarter challenging, but completion announcement potential exists by Q4 this year.
LQ45 Index Rebalance Preview (July): Identifying Potential Index Changes
- The review period for the LQ45 Index July rebalance ended 30 June. The changes should be announced the last week of July, becoming effective after the close on 31 July.
- Based on the index methodology, there could be up to 5 changes at the rebalance. Plus there will be capping changes for Bank Rakyat (BBRI) and Bank Central Asia (BBCA).
- For a change, the impact on the potential inclusions will be higher since they will join the index with higher weights compared to the potential deletions.
BUY/SELL/HOLD: China/Hong Kong Stock Updates (July 8th)
- After hitting a low point in Q4 2023, Research on Hong Kong companies has been slow to pick up reflecting the ongoing skepticism from investors.
- Reports on the large China tech companies dominated the top ten companies covered over the last couple of years and in the first half of 2024.
- As China continues to dominate and make news in the global EV market, research in that sector has picked up.
Sohu.com Inc (Nasdaq: SOHU): A Net-Net with $1.3B in Cash and Valuable Real Estate
- This writeup was inspired by David Orr’s tweet about the U.S. listed Chinese company DouYu (Nasdaq: DOYU) paying out a $9.76 special dividend.
- The stock closed at $12.59 the day before and was $6.59 earlier in the year.
- Among Chinese ADRs with significant cash balances, SOHU is my favorite.
QUALCOMM INC. – Equity Research Flash Note
- The company’s annual revenue was $35,820 million in 2023 compared to $44,200 million in 2022, seeing a decrease of 18.96%.
- We estimate that for FY2024 the annual revenue will range at around $37,671 million and for 2025 at around $39,934 million.
- Gross profit for FY2023 was $19,951 million, decreased by 21.96% compared to $25,565 million for the corresponding period of 2022.
Rapid7 Inc.: Comprehensive Security Solutions & 3 Factors Making It A Solid Acquisition Target! – Financial Forecasts
- Rapid7, under the leadership of CEO Corey Thomas and CFO Tim Adams, remains at the forefront of cybersecurity solutions focused on delivering integrated risk and security operations.
- The company concluded the first quarter of 2024 with $807 million in Annual Recurring Revenue (ARR), which indicates an 11% year-over year growth.
- The quarter saw steady performance in its Direct Complete offerings but noted a shortfall in ARR expectations primarily due to slower transitions in the vulnerability management (VM) base to its integrated Cloud Risk Complete offering.
UI: New Product Momentum
- A series of new product introductions earlier this year should contribute to Ubiquiti experiencing follow through sales momentum in the June quarter.
- In the June quarter we are anticipating both enterprise and service provider revenue to increase sequentially.
- The March 2024 quarter included a charge. We are not expecting Ubiquiti to incur a similar expense in the June quarter.
Usen-Next Holdings Co Ltd (9418 JP): Q3 FY08/24 flash update
- Cumulative Q3 FY08/24 results: Revenue JPY235.5bn (+16.5% YoY), Operating profit JPY23.5bn (+51.2% YoY), Recurring profit JPY23.0bn (+56.9% YoY).
- Segment performance: Communications revenue up 10.2% YoY, Business Systems revenue up 48.0% YoY, Energy revenue down 7.0% YoY.
- Subscriber growth: U-NEXT service subscribers at 4.34mn, ARR JPY101.2bn (+22.0% YoY), advertising expenses JPY9.3bn (+32.1% YoY).
Flex Ltd.: Initiation of Coverage – Here Are The 3 Biggest Factors Driving Its Performance!
- Flex Ltd. reported solid performance for fiscal Q3, demonstrating strong execution across its operations.
- The company, which provides a wide array of manufacturing services, generated $7.1 billion in revenue, achieving an adjusted operating margin of 6.7% and an adjusted EPS of $0.71.
- When excluding Nextracker, Core Flex revenue was $6.4 billion with a record operating margin of 4.9%, delivering $0.54 of EPS.
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