Brief TMT & Internet: U.S. Equity Strategy: Positive Outlook Intact; Tech Leading and more

In this briefing:

1. U.S. Equity Strategy: Positive Outlook Intact; Tech Leading
2. Thai Telecoms: Slowdown in Mobile Business Continues.
3. China Tower. How Far Will It Rally?
4. Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers
5. Wisetech Global Placement – Past Deal Did Well but Valuations Looks Stretched

1. U.S. Equity Strategy: Positive Outlook Intact; Tech Leading

The S&P 500 is working through 2,817 resistance and our technical work continues to support an overall positive outlook. As markets improve in Europe and in EM countries, U.S. markets in turn should get a tailwind of improved global equity market conditions.  In today’s report we highlight attractive Groups and stocks within Technology: Large- and Mid-Cap Semiconductors Large/Mid-Cap Semi Equip. (TE-04), Software, Enterprise Applications (TE-42), and Software, Design Solutions (TE-46). List of charts included: Intel Corp (INTC US) $TSM, Texas Instruments (TXN US), Analog Devices (ADI US)  Xilinx Inc (XLNX US)  Advanced Micro Devices (AMD US)  Microchip Technology (MCHP US)  Skyworks Solutions (SWKS US)  Marvell Technology Group Ltd (MRVL US)  On Semiconductor (ON US)  Monolithic Power Systems, Inc (MPWR US)  ASML Holding NV (ASML NA) , Applied Materials (AMAT US)Lam Research (LRCX US)  Teradyne Inc (TER US)Mks Instruments (MKSI US)Microsoft Corp (MSFT US)Oracle Corp (ORCL US)Sap Se Sponsored Adr (SAP US)Now Inc (DNOW US)Workday Inc Class A (WDAY US) .

2. Thai Telecoms: Slowdown in Mobile Business Continues.

The Thai mobile market reported another weak quarter in 4Q18, with trends deteriorating at all three operators. The weakness was partly due to the cheap unlimited fixed speed offers which were popular in 2018 but which have now been removed from the market. Growth should recover by 2H19.  With Total Access Communication (DTAC TB) having acquired spectrum in 2018, it will no longer cede market share without a struggle. That suggests competitive risks are high in Thailand, with all three operators aiming to boost market share. We remain cautious on the sector and are also worried that the government seems keen to push on with 5G spectrum auctions despite a lack of use cases.

3. China Tower. How Far Will It Rally?

China Tower (788 HK) has rallied strongly in recent months and the question raised repeatedly in recent client meetings was “how much further is China Tower likely to rally?”. Chris Hoare sees China Tower’s position as unusual as the price moves are not driven by earnings upgrades or changed 5G expectations. Rather is is a sustained move post the IPO when the information in the market was incomplete and expectations were much lower. We were negative at the time of the IPO but changed our views as more information became available.  We remain positive on the scope for revaluation in China Tower given its rapid revenue growth and low valuations vs EM peers. While the recent results were somewhat disappointing, we see good upside as the market factors is lower capex and higher returns.

4. Lyft IPO: Key Takeaways from In-Depth Interviews with Drivers

• In-depth interviews with two full-time drivers reveal that Lyft Inc (0812823D US) has disrupted the incumbent Yellow Cab in NY City due to better take-home income economics for drivers.
• Bargaining and pricing power favor LYFT (vs. drivers) as LYFT could provide the volume (sufficient number of rides per day) for drivers.
• LYFT’s path to profitability depends on 1) the further scale-up of network effect 2) diversification of transportation-related business and 3) progress in autonomous cars’ unit cost economics.
• Given its track record as a disruptive force, investors could be willing to pay up (over 5.0x P/S multiple) for LYFT, making the IPO a hot deal.

5. Wisetech Global Placement – Past Deal Did Well but Valuations Looks Stretched

Wisetech Global (WTC AU) plans to raise US$177m/AUD250m in order to shore-up its balancesheet for future acquistiions. 

The company has done exceedingly well since listing and even its past fund raising delivered good returns. However, the deal scores a mixed score on our framework as valuations appear strecthed with the stock trading above analysts target price. Thus, the deal might warrant a large discount.