Brief TMT & Internet: Bharti Airtel Buy on Short Lived Breach Below Support and more

In this briefing:

1. Bharti Airtel Buy on Short Lived Breach Below Support
2. HK Connect Discovery – February Snapshot (Tencent, COFCO Meat)
3. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
4. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
5. Nexon Controlling Stake Sale: Names Included in Short List

1. Bharti Airtel Buy on Short Lived Breach Below Support

Bharti Airtel (BHARTI IN) corrective cycle does not appear complete with risk of a final spike lower  below key pivot support. It is this crack lower that we want to take advantage of.

Sell volume spike implies the flat range will break lower. 

Daily cycle triangulation sides with a press below pivot support. An upside break of this triangle would trigger a tactical long but would lack needed gas for a sustainable drive.

Weekly MACD is seeking a bottoming/basing cycle that will turn the cycle higher once we see a final capitulation spike below pivot support as we did back in 2008, 2010 and 2012.

2. HK Connect Discovery – February Snapshot (Tencent, COFCO Meat)

This is a monthly version of our HK Connect Weekly note, in which I highlight Hong Kong-listed companies leading the southbound flow weekly. Over the past month, we have seen the outflow continue from January. In February, we have seen Chinese investors were selling Tencent in February after buying Tencent in January. Chinese investors were also buying domestic automotive manufacturers and Macau gaming sectors.

Our February Coverage of Hong Kong Connect southbound flow

• HK Connect Discovery Weekly: China Tower, Geely, COFCO Meat (2019-02-15)
• HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

3. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside

* We believe that the stagnancy in membership was due to the new competitor Ke.com and will make total revenues more volatile in the future.

* We assume total revenues will slow down, but the operating margin will be stable in 2019.

* We compare WUBA’s expected P/E for 2019 with other vertical platforms in China and conclude 17% downside.

4. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?

• We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
• This offering is a typical opportunistic fundraising as its ADR price has recently surged.
• At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
• We would recommend investors to go for the deal if it is priced at US$20 or lower.

5. Nexon Controlling Stake Sale: Names Included in Short List

• Korea’s local news house Hankyung reported the names that should be included in the short list. They are Kakao, MBK Partners (with NetMarble), Tencent, Bain Capital and another foreign PE whose name isn’t disclosed. Apparently, Amazon, Comcast and EA, didn’t make the short list. Those in the short list now get a chance to do due diligence. They will then participate in the main bidding round that is scheduled for early April.
• It is being reported that only Kakao and NetMarble (with MBK Partners) are truly interested in taking over Nexon’s management right. Tencent is expected to join either Kakao or NetMarble-led consortium in the end. Bain is looking into possible investment opportunities that may be created if this sale leads to a mandatory tender offer to Nexon minority shareholders. It seems safe to say that this comes down to a two-horse race: either Kakao or NetMarble.