Smartkarma Daily Briefs

• The 2023 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each. 
• Even if you do not “play” index changes, understanding impact is important. Advantest is up 100% in 3mos. Existing passive ownership and new passive buying were crucial to that performance.
• Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks in Japan. 

• The review period for the Nikkei 225 (NKY) September rebalance ended yesterday. There should be three index changes, potential stepwise inclusion, no Fast Retailing capping and a big funding trade.
• There appears to be decent positioning on the potential adds, while it is the close adds that are spiking along with a big increase in traded volumes.
• If the three changes are on expected lines, estimated one-way turnover at the rebalance is 2.01% resulting in a one-way trade of JPY 461bn (US$3.24bn). 

• Apple will report its earnings on August 3rd, 14:00 PDT. We highlight two potential trades into the Apple earnings event.
• Quanta Computer has massively outperformed Apple due to investors latching on to its AI-server growth story. One can consider to Long Apple / Short Quanta into the Apple earnings event.
• Hon Hai, Flexium, and Zhen Ding have all lagged Apple’s shares yet generate significant revenue from Apple. One can Long a basket of the three into Apple’s earnings.

• Wave of earnings this week — AMD, Qualcomm, Apple internationally… and Delta, Advantech, Innolux, Winbond, Realtek, plus others in Taiwan.
• We visited Micron’s A3 fab in Taiwan; SK Hynix gives strongest comments yet on Memory turn-around; Long Nanya Tech on DRAM turn-around.
• Intel results readthrough: PC cycle improving and could be accelerated by AI-demand… We continue to see Elan Micro as a laggard play on rallying PC names.

• We expect SMIC to report C1Q23 top-line and non-IFRS net income 2% and 16% vs. consensus, respectively.
• We suggest SMIC’s ability to supply sanctioned firms with 14/7nm nodes provides it with significant pricing power. We expect the decline in SMIC’s wafer ASP to slow.
• We expect overall 2H demand to improve due to (1) normalizing fabless inventory levels, and (2) stabilized smartphone demand. We maintain BUY rating and raise our TP to HK$ 26.

• High earnings visibility – Q1 FY3/2024 results indicate a robust start to the year with record-high quarterly sales, orders, and backlog.
• We believe the company exhibits robust earnings visibility, which can be attributed to its adeptness in delivering high-value-added services within a highly competitive market, with its high-quality workforce and sufficient capacity.

• Aiming for long-term sustainable growth –whilst strong results are appealing, we are encouraged by the following which we believe will allow the business the sustain long-term growth

MotorK reported double-digit H123 revenue growth, with committed annual recurring revenue (ARR) and a pipeline of contracts providing visibility for H223. The migration of acquired Dapda customers to the SparK platform drove a substantial rise in average contract value (ACV) and creates opportunities if this success can be replicated with other acquisitions. Short-term cost impacts drove higher year-on-year losses in the period, which has affected our FY23 profit forecasts, but not our FY24 assumptions.

• About a year ago, right as crypto trade volumes started to slump in the aftermath of the Celsius and Terra collapses, Binance vastly expanded its zero-fee trading promotions to 13 BTC pairs.
• This practice, though not new, had never been implemented on such a large scale.
• However, just nine months later the exchange decided to reverse this strategy and adopt a more selective approach.