Daily Brief TMT/Internet: Tencent, Nexon, Softbank Group, NHN Corp and more

• Tencent short from 390 is rewarding and reaching for new chart lows now that the 310 pivot support has given way and leading the likes of BABA.
• MACD target support is the key input to align with a terminal wave 5 low to set up the macro long entry in September.
• Undershoot risk to lower channel support with a low due in September and rally hurdles toward year end at 370/390. 420 remains the forward macro barrier to challenge/clear.

• Nexon (3659 JP) reported Q2 earnings and Q3 forecasts today. Everything is generally “in-line” to tilting slightly light. But USD/yen volatility matters a lot. 
• The company announced a small dividend hike, from largely meaningless to ever-so-slightly less meaningless. And a plan to buy back ¥100bn of shares over 3 years. 
• The inheritance tax issue remains a big one, but overhang appears delayed and buyback accretion is small, and also appears delated. And there’s an index sell at end-September.

In our view, Softbank Group’s (SBG) Q1/22-23 results were dismal, with the company reporting a record loss. This was the second consecutive quarterly loss, after SBG registered a big loss just three months ago. One positive factor is liquidity, with the company holding a large amount of cash after heavily monetising its liquid assets (mostly Alibaba shares) during the quarter.

The improvement in LTV despite the steep drop in NAV signals that the ratio, as defined and reported by SBG, is open to the company’s control and manipulation. SBG still has a lot of room to monetise its asset base (JPY 4.5 tn in Alibaba shares and JPY 1.2 tn in T-Mobile/Deutsche Telekom shares). Thus, LTV is no longer meaningful, as the company appears to be able to manipulate the ratio as it wishes, as long as it has liquid assets.

• Reuters and several other news media outlets reported that Tencent (700 HK) is looking to raise its stake in French game publisher Ubisoft as it seeks to expand overseas.
• Tencent owns approx. 5.0% of Ubisoft which was acquired in 2018 and is said to have reached out to the founding family Guillemot to buy a stake from their ownership.
• As we mentioned in our previous insight, Tencent has been excluded for the fourth time from new game approvals which had impacted its online games biz.

• After the market close on 9 August, NHN Corp announced that it will cancel treasury shares equivalent to 10% of outstanding shares in the next three years. 
• This is a tremendous management move to improve shareholder return policy. 
• A 10% share cancellation of outstanding shares is a major move and this is likely to result in a sharp appreciation of NHN’s share price in the next several weeks.