In today’s briefing:
- A Word on The Capcom (9697) Buyback
- Merger Arb Mondays (16 May) – Link Admin, Infomedia, VNET, Alliance Aviation, Ramsay, Link Net
- Coinbase Q1’22: A Deeper Look Into the Operating Expenses
- GlobalWafers (6488.TT): Not Settling Disturbing Reasons, but We Presume Stock Price Could Rebound.
- Phison (8299.TT): 2Q22 Could Expect a Slightly Growth QoQ
- KYEC (2449.TT): It Could Reach ~10% QoQ Growth in 2Q22 Because Some Orders Were Delayed in 1Q22.
- Tech Mahindra – Margin Pressure Higher; Reduce Target Multiple on Vulnerability
- Extreme Networks
- Coforge Ltd (COFORGE) – Strong Results; Outlook Remains Healthy
A Word on The Capcom (9697) Buyback
- On Friday 13 May, two days after earnings, Capcom Co Ltd (9697 JP) announced a share buyback via Tender Offer from its CEO.
- The Announcement talks about how buying the shares back “contributes to the improvement of capital efficiency such as earnings per share (EPS) and return on equity (ROE) of the Company.”
- Then another company announcement erases 99% of that accretion, and money out the door. ROE goes up because cash goes out, and pro-forma EPS rises from ¥161.59 to ¥161.61. Whoopee!
Merger Arb Mondays (16 May) – Link Admin, Infomedia, VNET, Alliance Aviation, Ramsay, Link Net
- We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia and the US (ADRs only).
- This week, highest gross spreads are Dongzheng Automotive Finance (2718 HK), Sezzle Inc (SZL AU), 21Vianet Group (VNET US), Infomedia Ltd (IFM AU), Link Administration Holdings (LNK AU), Alliance Aviation.
- Lowest gross spreads are Virtus Health (VRT AU), China Logistics Property Holdings (1589 HK), Uniti Group Ltd (UWL AU), Mapletree North Asia Commercial Trust (MAGIC SP), Irongate Group (IAP AU).
Coinbase Q1’22: A Deeper Look Into the Operating Expenses
- Coinbase reported its first net loss since listing, as warned by the management before, due to both declining trading/transaction revenue and a continued increase in operating expenses.
- Besides the impairment charges, the increase in Q1’22 operating expenses was mainly because of the headcount growth as Coinbase plans to further expand its business offerings this year.
- Coinbase’s earnings for the year will unlikely improve as the company sticks to the plan to make 2022 an investment year regardless of the downturns in the broader crypto markets.
GlobalWafers (6488.TT): Not Settling Disturbing Reasons, but We Presume Stock Price Could Rebound.
- Its revenue, GM and NM were NT$16.3bn, 42.6% and 36.1% in 1Q22.
- GlobalWafer experienced their China Suzhou subsidiary, SST, suspended production during April 2~27 by local government’s COVID-19 control measure, but it had resumed production.
- The stock dividend is NT$16 in 2022, which is 58.7% payout ratio from 2021 earnings. The payment date is to be 2022/08/05.
Phison (8299.TT): 2Q22 Could Expect a Slightly Growth QoQ
- Phison reached to NT$17.1bn, 32%, 14% and NT$10.49 for revenue, GM, NM and the Diluted EPS in 1Q22.
- We estimate it could be a slight positive growth in 2022, which could reach NT$18.1bn/32.5% for revenue/GM respectively.
- Phison and its competitors shall continuously strive in Flash card and the related business.
KYEC (2449.TT): It Could Reach ~10% QoQ Growth in 2Q22 Because Some Orders Were Delayed in 1Q22.
- KYEC reached revenue, GM, OPM and Diluted EPS of NT$8,984mn, 35.8%, 25.6% and NT$1.47 respectively in 1Q22.
- KYEC could reach to ~10% revenue QoQ growth in 2Q22 because of some orders delayed in Suzhou for COVID-19 controlling measure in 1Q22.
- The mainland China smartphone is not strong in 2Q22, but the smartphone chipset testing demand could still be the largest demand in KYEC.
Tech Mahindra – Margin Pressure Higher; Reduce Target Multiple on Vulnerability
- Need to see how 5G spending holds up in a stagflationary environment: 5G related demand is one of the reasons why we and the street have been bullish on TML.
- While we are at the beginning of the 5G spend cycle (which could play out over a longer time compared to the 4G cycle, according to industry), we think the spends may be a bit cyclically constrained in 2HFY23 and in FY24 before they recover eventually – quite similar to how we expect the digital spends to behave.
- However, unlike in Digital, we believe that TML has a better right to win in the this area because of its long-standing relationships has with >150 Telcos, to which it has likely added a lot of value over the years.
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Extreme Networks
- What I try to look for is the holy Trifecta of value investing: Revenue growth, margin expansion and multiple expansion.
- I think this stock has got all three of them. I think the company has reached an inflection point in the past few years in terms of product and service offering with SaaS revenue of $100m and growing 50% YoY.
- Overall service and subscription revenue being 30% of revenue, up from 24% 3 years ago. With an overall very sticky revenue base with high switching costs.
Coforge Ltd (COFORGE) – Strong Results; Outlook Remains Healthy
- Encouraging growth across verticles – On the vertical front, the BFS vertical exhibited a robust growth of 3% QoQ.
- Outlook & Valuation – Coforge has a robust business structure coupled with multiple long-term contracts spread across verticals which will help it generate sustainable growth momentum moving ahead.
- We recommend a BUY rating on the stock and assign a 24x P/E multiple to its FY24E earnings of Rs 177.8/share which gives a TP of Rs 4,200 /share.
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.
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