TMT: Sea Ltd, Meituan, Xiaomi Corp, Adobe Systems, Avast PLC and more

• Shopee, the e-commerce arm of Singapore-based Sea Ltd (SE US), announced today that they are shutting down operations in India due to global market uncertainties.
• We feel this could turn even the most hopeful followers of Sea Ltd as they must be running out of angles to justify their bullish calls on the company.
• We think, Sea Ltd shares could easily fall below the pre-COVID level once it starts losing these ardent followers.

• Meituan (3690 HK) reported 4Q2021 results on Friday. Revenue grew 30.6% YoY to RMB49.5bn (vs consensus RMB49.0bn) and reported operating losses of RMB5.0bn vs RMB2.9bn in 4Q2020 (vs consensus RMB7.0bn).
• Since 2Q2022, Meituan’s revenue growth has started decelerating with demand for online and food and grocery deliveries has been slowing down.
• Meituan’s 4Q2021 results were better than expected but we expect the company’s earnings to remain under pressure with new regulation on food delivery commission and resurgence of Covid-19.

We view Xiaomi Corp as “Low Risk” on the LARA scale, driven by: [1] the company’s leading market position in smartphones and smart hardware; [2] its increasing market share, scale and brand name; and [3] the company’s strong financial metrics with large positive FCF, solid balance sheet with net cash, as well as sound liquidity position. Xiaomi has a strong track record of execution and innovation, along with the entrance into and success in new verticals (e.g. cleaning robots, smart speakers, smart TVs and smart routers). The company also has fast-growing revenue streams from Internet services and gaming. On the other hand, the mobile phone industry is very competitive with low switching costs, particularly for Android phones (Blackberry and Nokia have gone out of business despite having been leading players). The credit is further weighed down by: [1] potential trade sanctions from the US; and [2] execution risk related to Xiaomi’s entry into the increasingly competitive electric vehicle market.

Our Credit Bias is “Stable”, given the company’s robust business risk profile and strong balance sheet.

• Adobe’s high quality business model does not matter much in a sector where topline growth is the main driver of valuations.
• In the meantime, the company’s organic growth is showing signs of slowing down which could result in more risk taking by the management.

• The British competition regulator questions the acquisition of cybersecurity company Avast PLC (AVST LN) by NortonLifeLock (NLOK US). and refers the transaction for an in-depth phase 2 investigation.
• The combination would not hold more than c.31% of the UK antivirus market and probably less than 30% in malware protection. The CMA investigation should take 20-24 weeks.
• Deal closing could happen during Q4 2022. Spread on the majority cash option is 11.9%, spread on the majority stock option is 3.9%.