Brief TMT & Internet: LYFT: Wouldn’t It Be Ironic if This Was an IPO to Rent but Not Own? and more

In this briefing:

1. LYFT: Wouldn’t It Be Ironic if This Was an IPO to Rent but Not Own?
2. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit
3. SNK Corp IPO Preview
4. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On
5. Cracking the Keyence Conundrum

1. LYFT: Wouldn’t It Be Ironic if This Was an IPO to Rent but Not Own?

Lyft Inc (LYFT US) announced an increase in its IPO price range from $62-68 to $70-72 after previous reports had indicated that the IPO became oversubscribed very early.

There has been significant coverage of the name on Smartkarma but a disappointing lack of obvious puns:

Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers by Johannes Salim, CFA

Lyft IPO: Valuation Analysis (Prudent Investment or Quasi-Gambling?) and Lyft IPO Preview by Douglas Kim

Lyft IPO Preview: Maybe We’ll Just Walk? by Rickin Thakrar

LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing by Sumeet Singh

We would highlight Johannes’ interview piece as being well worth a read to understand the driver perspective, as well as Sumeet’s piece and the comments sections for discussions of business model strengths and weaknesses.

Ultimately, this issue isn’t going to be bought for its cheapness and we would guess that it will be successful (initially) due to pent up demand and relatively strong broad stock market performance over the last few months. Below, however, we examine NY transportation data to point out what we feel are misconceptions about the overall value proposition of the ride sharing industry.

2. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit

In our previous note, Money Forward (3994 JP): Solid Mid-Term Prospects for the Fintech Pro, but Overvalued, published July last year (2018), we suggested that Money Forward (3994 JP) (MF) was overvalued despite its strong growth profile. MF’s share price, which was at an all-time high (close to JPY6,000) around this time, fell below its IPO price (JPY3,000) in December, reinforcing our bearish view.

Since then, Money Forward’s share price has picked up (closing at JPY4,400 on 26th March 2019), on the back of strong topline guidance for FY11/19E (+55%-65% YoY growth) and “aggressive” medium-term profit targets (positive EBITDA by FY11/21E).

However, following our recent conversation with MF’s IR team, we believe that the above guidance needs to be slightly toned down.

3. SNK Corp IPO Preview

SNK Corp (950180 KS), a Japanese game company founded in 1978, is trying to complete its IPO in the Korean stock market (KOSDAQ) in April. SNK is well known its The King of Fighters game. The IPO price range is between 30,800 won and 40,400 won. The IPO base deal size ranges from $114 million to $150 million. 

This is the second time that SNK Corp is trying to complete the IPO after a failed attempt in late 2018. The company has reduced the average IPO price range by 12% this time compared to the first try in late 2018.

The bankers used four comparable companies including Webzen, NCsoft, Pearl Abyss, and Netmarble Games to value SNK Corp. Using P/B valuation method, the bankers derived an average P/B multiple of 4.1x. The bankers then took the applied equity (controlling interest) of the company and applied the P/B multiple of 4.1x to derive an implied value of the company. After applying additional 8.57% to 32.99% IPO discount, the bankers derived an IPO price range of 34,300 – 46,800 won.  

4. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On

Have you ever wondered how a company secures the Chinese lucky number “8” as their ticker in Hong Kong? I’ll explain later on, but let’s just say that being the son of Li Ka Shing helps. 

Li Ka Shing is a name that hardly needs introduction in Hong Kong and Richard Li, Li Ka Shing’s youngest son and Chairman of PCCW Ltd (8 HK), follows suit. After being born into Hong Kong’s richest family, Richard Li was educated in the US where he worked various odd jobs at McDonald’s and as a caddy at a local golf course before enrolling at Menlo College and eventually withdrawing without a degree. As fate would have it, Mr. Li went on to set up STAR TV, Asia’s satellite-delivered cable TV service, at the tender age of 24. Three years after starting STAR TV, Richard Li sold the venture, which had amassed a viewer base of 45 million people, to Rupert Murdoch’s News Corp (NWS AU) for USD 1 billion in 1993. During the same year, Mr. Li founded the Pacific Century Group and began a streak of noteworthy acquisitions. 

You may be starting to wonder what all of this has to do with a trade on PCCW Ltd (8 HK) and I don’t blame you. In the rest of this insight I will:

• finish the historical overview of the Li family and PCCW
• present my trade idea and rationale
• give a detailed overview of the business units of PCCW and the associated performance of each
• recap ALL of my stub trades on Smartkarma and the performance of each  

5. Cracking the Keyence Conundrum

Keyence Corp (6861 JP) has long been a standout within the Japanese machinery sector for its exceptional margins, with only Fanuc Corp (6954 JP) and perhaps Smc Corp (6273 JP)  really operating in the same the stratosphere. But while Fanuc has faded, with its OPM now struggling to stay over 30% and SMC has only recently peaked its head over the 30% level, Keyence has been powering ahead and is on the cusp of recording five straight years over 50% OPM.

With relatively limited disclosures to go along with such stellar performance it is understandable then that some investors are concerned that the story is too good to be true, and even the FT has written a series of articles with a slightly critical bent: 1 2 34

Having recently visited the company, we analyse below, the nature of its competitive advantages by comparing it with its most similar peer Cognex Corp (CGNX US).