In today’s briefing:
- Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion
- Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks
- Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes
- GoTo (GOTO IJ) – Ploughing a Path to Profitability
- Tencent: Is Tencent Trying to Cope with Revenue Slowdown?
- IQiyi – Generates Profits for the First Time; Can It Maintain Its Profitability?
- TRIPLE-1 – Power Efficient ASICS
- Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?
- AKM’s Scheme Document, Court Meeting on 22 June, IFA Opinion
- Weitz Investment Management Value Fund Q1 2022 Commentary
Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion
- Mercari Inc (4385 JP) was deleted from the MSCI Japan at the close today. Then the company announced that it would move to the Prime Market on 7 June.
- Transfer to Prime Market will require passive TPX INDEX trackers to buy stock end July and FTSE All-World trackers to buy in September – around 19% of free float together.
- Short interest is over 13% of free float. Some of the shorts would have covered against the passive MSCI selling today but the remaining shorts could look to cover.
Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks
- 4.5 months ago I wrote Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months and today it was announced Mercari would move from TSE Growth to Prime.
- The move happens on 7 June, which means that the actual TOPIX inclusion will be at the close of 28 July.
- This will change things near-term, and going forward. As always, we dig deeper below.
Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes
- The Nikkei 225 (NKY INDEX) market consultation released last week could lead to some tweaks to the index methodology and the stock selection process. Nothing really material enough though.
- Potential index inclusions in September are Renesas Electronics, Oriental Land and Pan Pacific International Holdings, while Toyobo Co Ltd, Nippon Light Metal and Oki Electric Industry are potential index deletions.
- Passive Nikkei 225 trackers will need to buy between 4-9% of the real float on the high/ medium probability names, while they need to buy between 2.5-14 days of ADV.
GoTo (GOTO IJ) – Ploughing a Path to Profitability
- GoTo announced its much-anticipated FY2021 and 1Q2022 results, which did not disappoint, with improvements in a number of different metrics across its main verticals.
- 1Q2022 saw a QoQ increase for on-demand, e-commerce, and fintech versus a seasonally strong 4Q plus the group improved take rates and contribution margin in 1Q2022 versus 4Q2021.
- GoTo‘s guidance for 2Q2022 is positive and it should be boosted by higher commission rates plus continuing synergies across the group, helping to improve profitability and growth.
Tencent: Is Tencent Trying to Cope with Revenue Slowdown?
- Tencent reported lowest YoY increase in revenue in 1Q2022. Subsequent to this, Tencent mentioned during earnings call that it continues to scale back on loss-making activities across its business segments.
- Recent scale back of operation is in its cloud-services segment that includes loss-making activities such as projects with high proportion of sub-contractors and deeply discounted-contracts for CVM and CDN capacity.
- Layoffs have become prevalent as a cost cutting measure and Tencent is in the process of reducing headcount at gaming and fintech businesses.
IQiyi – Generates Profits for the First Time; Can It Maintain Its Profitability?
- IQiyi reported 1Q2022 results last week. Revenue fell 8.7% YoY to RMB 7.3bn (vs consensus RMB 7.22bn) and reported an OP of RMB 93.4m (vs consensus loss of RMB 297m).
- Growth in ARM helped offset decline in the number of subscribers for membership revenue. However, online advertising and content distribution both declined due to lack of content and macroeconomic weaknesses.
- IQiyi’s shares have gained 11.2% since its earnings announcement as the company reported an OPM for the first time.
TRIPLE-1 – Power Efficient ASICS
- TRIPLE-1 was established in 2016 and got its start designing highly power efficient ASICs used for cryptocurrency mining, partnering with TSMC to use its leading-edge nodes.
- Since then the company has moved on to develop ASICs specialised in AI applications as well as for 5G base stations.
- In all cases the company emphasises power efficiency and with significant gearing into local 5G networks the domestic focus could be a positive rather than a negative.
Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?
- Since our March-end report, our shorts – especially Kakao Pay – worked better than our longs, given the continuing turbulent conditions; Santander’s offer for Getnet minorities signals a specific opportunity
- We still favour Mastercard in the megacaps, and we stick with PagSeguro and Nexi despite both having disappointed; Cielo has been a strong performer, but we would not chase it
- Among our shorts, we remain negative on DLocal, given its very demanding valuations, and we still see Kakao Pay to be fundamentally over-valued; we reintroduce Paytm to the shorts list
AKM’s Scheme Document, Court Meeting on 22 June, IFA Opinion
- The AKM Industrial (1639 HK) scheme document is out with the court and EGM meeting on 22 June. The IFA considers the offer to be fair and reasonable.
- The key condition is the scheme approval by at least 75% and rejection by <10% of disinterested shareholders. Shareholders who hold blocking stakes have provided irrevocables.
- At last close and for a 4 August payment, the gross and annualised spread to the offer is 1.1% and 6.2%, respectively. This is a done deal.
Weitz Investment Management Value Fund Q1 2022 Commentary
- Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
- The Value Fund’s Institutional Class returned -7.96% for the first quarter.
- Our companies are generally reporting solid financial results, at least so far, and they are adapting fluidly to rapidly evolving conditions.
Before it’s here, it’s on Smartkarma
