In today’s briefing:
- Tencent/Netease: Smell of Common Prosperity in June Game Approval
- Tencent – Cold Shoulder On New Game Approvals Is A Concern
- Elon’s Trying To Get Out Of Buying Twitter—As We Knew He Would
- STAR50 Index Rebalance Preview (Sep): Change Is the Only Constant
- GOGOX IPO: Growth at All Costs
- GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability
- Net Protections Holding IPO Lock-Up – Small Expiry Now, Before 20% Is Released Later in the Year
- Crypto Biweekly – Breakdown In Correlation Between Crypto and Equity as Market Wait for ETH 2.0
- Diamond Hill All Cap Select Fund Q1 2022 Market Commentary
- Diamond Hill International Fund 2022 Market Commentary
Tencent/Netease: Smell of Common Prosperity in June Game Approval
- China announced game approval last night for June batch, after a break in May.
- We discussed in our previous note that China had resume game approval but at a slower pace.
- Tencent and Netease continue to score zero in June domestic game approval.
Tencent – Cold Shoulder On New Game Approvals Is A Concern
- As reported by Reuters, yesterday China’s gaming regulator granted licences for 60 new games, none of which were published by Tencent or NetEase.
- The two dominant companies in the industry did not feature in the list of 45 approvals in April either and this pattern should not be ignored by investors.
- The lack of approval of foreign titles in the two batches is also striking and a further negative in our view.
Elon’s Trying To Get Out Of Buying Twitter—As We Knew He Would
- Elon can’t get out of his stupidly overpriced, but solidly binding agreement to buy Twitter. But he can tie it up in court indefinitely.
- Meanwhile, Twitter’s prospects for operational improvement are mixed at best.
- Twitter is left in limbo, as are its investors. What should bondholders do?
STAR50 Index Rebalance Preview (Sep): Change Is the Only Constant
- With only one change expected in September using a 12 month minimum listing history, we expect the index committee to continue using a 6 month minimum listing history.
- That will see the maximum of 5 changes that are permitted at a single rebalance resulting in a one-way turnover just shy of 5%.
- Over the last few rebalances, the adds have outperformed the deletes post the end of the review period. That’s expected given passive trackers need to buy/sell a lot of stock.
GOGOX IPO: Growth at All Costs
- GoGoX Holdings (GOGO HK) is a major online intra-city logistics platform in Asia. It has passed the listing hearing for an HKEx IPO to raise US$100-150 million.
- In GOGOX IPO Initiation: A Less than Perfect Delivery, we noted that as the losses are expected to persist over the next three years, we would avoid the IPO.
- In this note, we examine the PHIP for the 2021 results and recent developments. The fundamentals remain unattractive and we would give the IPO a pass.
GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability
- GoTo (GOTO IJ) announced 1Q2022 and FY2021 results on 30th May. Gross income grew by 43.5% YoY in 2021 with a growth of 53.5% YoY in 1Q2022.
- However, gross margins show no improvement and operating losses have also worsened with the merger of Tokopedia in May 2021.
- GoTo plans to turnaround its profitability through synergies, improved monetisation and cost efficiencies. However, we don’t expect profits in the near future.
Net Protections Holding IPO Lock-Up – Small Expiry Now, Before 20% Is Released Later in the Year
- Net Protections Holdings, a buy now pay later service provider, raised around US$570m via selling a mix of primary and secondary shares in its Japan IPO in Dec 2021.
- As per Yano Research, it had 40% market share in the domestic BNPL market for B2C transactions.
- In this note, we will talk about the upcoming lock-up expiry on 12th Jun 2022.
Crypto Biweekly – Breakdown In Correlation Between Crypto and Equity as Market Wait for ETH 2.0
- Crypto and equity correlations are at all-time highs this year as both are negatively impacted by global headwinds like rate hikes. However, correlations decoupled over the past two weeks
- Equities were in the positives while crypto prices continued to decline due to idiosyncratic factors such as the continued impact from Luna and the execution risks of ETH 2.0 merger
- However, public crypto valuation is now overly depressed and the worst may be over with the Luna impact while the ETH 2.0 execution risk will be derisked imminently
Diamond Hill All Cap Select Fund Q1 2022 Market Commentary
- Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
- During a volatile quarter, the Diamond Hill All Cap Select Fund held up meaningfully better than the Russell 3000 Index.
- After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
- While the year-to-date pullback in equity markets has created some investment opportunities, broad market valuations remain above historical averages.
Diamond Hill International Fund 2022 Market Commentary
- Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
- During a volatile quarter, the portfolio held up better than the Morningstar Global Markets ex-US Index by a decent margin.
- After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
- We expect to see varying states of economic growth aroundthe world in 2022 and believe persistent inflation will be one of the mostcritical risk factors economies face this year.
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