Brief TMT & Internet: This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans and more

In this briefing:

1. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans
2. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies
3. ASML. Safe Harbor In A Semi Storm.
4. Spotify: Playbook for Online Platforms to Turn Profitable – Implications for Meituan Dianping
5. U.S. Equity Strategy: Nearing Short-Term Overbought Extremes

1. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 

Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.

2. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies

LG Uplus (032640 KS) shares have fallen around 20% from the highs of January when the market was excited by 5G. That always seemed overly optimistic given the lack of viable business cases and unknown investment requirements and we were comfortable with our Sell rating from mid October and KRW15,000 target price.  Following weak results, an easing of 5G  enthusiasm and the recently announced CJ Hello (037560 KS) deal the share price has fallen to around the KRW15,000. Alastair Jones now thinks a lot of bad news is in the price and the available synergies from CJ Hello offset a weaker earnings outlook. 

3. ASML. Safe Harbor In A Semi Storm.

Dutch lithography bellwether ASML is unique among its WFE peers in forecasting 2019 as yet another growth year for the company, making it eight such years in a row. While the likes of Applied Materials and Lam Research anticipate YoY revenue declines in the mid-to-high teens, ASML is sheltered from the worst excesses of the downturn by virtue of its technological moat, namely its EUV lithography tools. Customers like Taiwan Semiconductor Manufacturing Company, Samsung Electronics and Intel  are critically depending on ASML to deliver thirty of those tools in 2019 in order to ramp their latest process nodes. 

On the latest earnings call, ASML underscored its confidence in the company’s prospects by proposing a 50% increase in dividends to €2.10 per share. Currently trading at a 17% discount to its 52-week high, ASML is a safe harbor in the current semiconductor storm. 

4. Spotify: Playbook for Online Platforms to Turn Profitable – Implications for Meituan Dianping

• Our analysis of how Spotify Technology Sa (SPOT US) turned profitable in 4Q18 reveals three key ingredients: critical mass in sales, GM progression, and core business diversification.
• With sales reaching critical mass, this would allow fixed costs to be spread out in such a way that opex/unit is lower than GP/unit.
• Progression in GM and core business diversification strategy are worth monitoring.
• Implication: Meituan Dianping’s (3690 HK) core business is ahead of iQIYI Inc (IQ US) in terms of profitability inflection point timeline.

5. U.S. Equity Strategy: Nearing Short-Term Overbought Extremes

Positive news surrounding trade and dovish Fed rhetoric has continued to flow, resulting in a reversal from December’s oversold extremes to our current, overbought extremes according to the S&P 500’s percentage of stocks above their 50-day moving average (see chart below). We continue to believe the market is going through a bottoming process, and we prefer to be on the cautious side at current levels considering how far and how quickly the market has risen. 

In today’s report we highlight attractive stocks within Materials and Technology: large- and small-cap gold, silver, platinum, and optical equipment companies.