In today’s briefing:
- Quiddity Flow Expectations HSTECH Mar 23: Two Index Changes Possible
- Tencent (700 HK): Risen 100% in Three Months, But Still 21%~44% Upside
- Why Taiwan’s Semiconductor and Hardware Forecasts Might Still Be Too Optimistic
- NEC (6701) | Strong Network Revenues
- Bukalapak (BUKA IJ) – Thriving Within a Virtuous Circle
- Tobila Systems: A Deep-Dive View
- Texas Instruments Inc: New Chip Launches & Other Drivers
- Microsoft Inc: Acquisition Of Fungible Inc & Other Drivers
- Playtika/Rovio: Fortunate Birds
- X2M Connect Limited – Tracking In-Line Across Key Variables
Quiddity Flow Expectations HSTECH Mar 23: Two Index Changes Possible
- In this insight, we take a look at the potential index changes and the resultant capping flows for the Hang Seng Tech Index (HSTECH INDEX) in March 2023.
- According to our estimation, there could be two changes for the HSTECH in March 2023 and there could be one-way index flows of US$365mn.
- The final index changes along with indicative capping and index weights could be published in Mid/Late-February 2023 and implemented in early-March 2023.
Tencent (700 HK): Risen 100% in Three Months, But Still 21%~44% Upside
- We believe total revenue growth rate will accelerate from 4Q22 and grow by 9% in 2023.
- We believe the operating margin will be stable from 4Q22 to 2Q23, but the margin will climb up from 3Q23.
- We believe that EPS will increase by 16% and the stock will have an upside of 21%~44%.
Why Taiwan’s Semiconductor and Hardware Forecasts Might Still Be Too Optimistic
- Inventory levels rose to highs in 3Q22 — Now increased margin pain may come through as we move through the latest earnings season.
- Forecasts still assume relatively strong margins vs. history and thus appear at risk of disappointment.
- Earnings forecasts, while assuming a down-cycle, are still assuming a relatively benign down-cycle.
NEC (6701) | Strong Network Revenues
- We remain bullish on NEC as we believe that the company is one of the key beneficiaries of the shift to standalone 5G
- NEC’s Network Services registered double-digit revenue and profit gains in Q3 on the back of growth in 5G equipment sales and IP income.
- We believe that the current share price (+4% over the past 12m) and valuation (10x PE, 0.8x PB) do not reflect the positive mid-term outlook
Bukalapak (BUKA IJ) – Thriving Within a Virtuous Circle
- Bukalapak (BUKA IJ) is one of Indonesia’s most differentiated digital economy players plus it is unusual in that it has one of the longest runways amongst peers at 15 years.
- Despite operating a marketplace model, the platform uses this to generate traffic for its other businesses including its O2O Mitra Bukalapak business and its growing online speciality store business.
- Bukalapak (BUKA IJ) also has strong ESG credentials, the most obvious of which is in the empowerment of MSMEs through its Mitra business. It is also making headway toward profitability.
Tobila Systems: A Deep-Dive View
- This is our second Insight into Tobila Systems – the absolute dominator in the niche of fraud/spam call and message filtering services in Japan;
- We like the high-quality, unique assets owned by the company, although capital allocation appears to stand out as a wild card in our formula of long-term shareholder-value creation;
- At the current level, we would hold the shares firmly and wait patiently for more opportunistic offerings from Mr. Market to accumulate more shares.
Texas Instruments Inc: New Chip Launches & Other Drivers
- Texas Instruments delivered a strong set of results in the quarter, with revenue of $4.7 billion and a gross profit of $3.1 billion resulting in an all-around beat.
- The company’s gross profit fell from a year ago due to lower revenue, higher capital expenses, and the conversion of LFAB-related charges to the cost of revenue.
- However, given the strong earnings, the company distributed $1.1 billion in dividends during the quarter and spent $848 million on stock repurchases.
Microsoft Inc: Acquisition Of Fungible Inc & Other Drivers
- Microsoft delivered a mixed set of results for the last quarter as its revenues failed to meet Wall Street expectations but the company managed an earnings beat.
- Revenue for the Microsoft Cloud surpassed $27 billion, increasing 22% and 29% in constant currency.
- Besides, the company made its Azure OpenAI widely available and has already been used by over 200 clients, ranging from KPMG to Al Jazeera.
Playtika/Rovio: Fortunate Birds
- Highly leveraged mobile-games developer Playtika goes mildly hostile in its pursuit for Angry Brids creator Rovio, albeit with a generous possible offer at €9.05/share (11.1x EV/Fwd EBITDA).
- The stakes controlled by the Heds total c.32% (source: Rovio), making a hostile offer prone to failure. The shares aren’t succeeding though, and trade 36% below its 2017 IPO price.
- The shares are trading at a 19.3% discount to the possible offer (and 14.6% discount to my DCF-based fair-value estimate). At this level, they do not seem expensive.
X2M Connect Limited – Tracking In-Line Across Key Variables
- X2M Connect Limited (ASX:X2M) has updated several key variables in conjunction with its December quarter 4C release.
- Most key variables were in-line or ahead of RaaS expectations including a cash-flow positive Q2, device growth of 23% on September 2022 to 361k (RaaS 345k), H1 FY23 revenue +96% to $9.0m (RaaS $9.2m), cash costs of ~$4.3m (RaaS $4.6m) and a cash balance of $3.05m.
- Post-month end we estimate a cash balance closer to $3.5m on receipt of a $1.3m R&D credit offset by the repayment of a related R&D loan.
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