TMT/Internet

• Both the S&P 500 and the Nasdaq 100 have hit decent supports
• This has come after the rise in yields has started to slow down
• At this stage it appears at least a short term bounce may be seen. It is too soon to determine anything more than that

• We explore the notion that stablecoins existed even before crypto was invented and shows the difficulties of creating a monetary medium with zero volatility 
• We show that the supply of stablecoins has grown 27x over the past 2 years and breakdown the history of stablecoins and their modern-day use cases 
• We demonstrate a strategy to generate 20% returns on stablecoins using TerraUSD (UST CURNCY)  and Anchor Protocol

• The stock price has risen 13% since our last note, but we still believe there is an upside of 21%.
• The company is cutting employee benefits, from housing allowance to afternoon tea.
• We believe the operating loss will shrink significantly in the following two years.

• CLFD has been the beneficiary of communication service providers investing in their broadband networks to meet an increase in data traffic.
• The events of the last two years, namely the COVID-19 pandemic causing work/learn from home and Huawei and ZTE equipment replacement, were the reason for the boom CLFD has experienced.
• CLFD’s community broadband customer was incentivized to replace Huawei and ZTE equipment with reimbursement checks from the FCC.

Robust deal wins to drive growth

• Mercari is down 33% since 22 November, actually underperforming the 31% decline in Mothers. 
• YoY numbers for the US may only modestly beat the 20% growth target for the year and this reset of expectations may have been the driver of the decline. 
• However, we expect significant upside surprises on profitability and that is our focus.

• It is continuing to raise wafer price, and revenue/GM to reach ~NT$58billion/~39% and NT$60billion/~41.5% in 4Q21/1Q22 respectively. 
• It will plan to add 5-8k 28nm production capacity in 12A Tainan during 2H22, and we consider it is to secure customers’ demands.
• We do not see any sign to deteriorate for the 2nd half at this moment. 

• Delhivery (1058656D IN) is the largest and fastest-growing 3PL express parcel delivery player in India by revenue in FY21. It has won SEBI approval to raise up to $1 billion.  
• The fundamentals are mixed as it has been unable to leverage its leading position and strong growth to deliver profits or cash generation.  
• Based on the draft red herring prospectus, we are cautious about this potential IPO as the negatives outweigh the positives.  

• A blizzard of cost synergies we conservatively estimate at $500MM from lower distribution commissions, hosting costs, and cutting ATVI’s highly paid C-Suite.
• Multiple strategic benefits: Catalyzes Microsoft’s XCloud streaming game service and Game Pass subscription offering….potentially offers greater leverage for app store negotiations with Apple and Google.
• Accretive on valuation alone…MSFT is paying a 10% discount to ATVI’s 23x average forward PE from last few years. MSFT’s 11x forward P/S vs. ATVI’s 5.5x revalues ATVI’s revenues 2x.

• Our initial thoughts on Microsoft’s bid for Activision Blizzard were on the sceptical side given various signs of trouble at the company. 
• In contrast the majority of commentary on the deal has been somewhere between positive and euphoric though there are monopoly concerns from customers. 
• Yet the more we examine the implications the less we like this deal for Microsoft.

• Shift reported its 1QFY08/2022 results last week. Revenue for the quarter increased 51.5% YoY to JPY14.3bn while OP more than tripled to JPY1.95bn vs JPY548m a year ago.
• Both Enterprise and Entertainment segments saw strong growth in revenue as well as improvement in GPM during the period.
• Shift’s share price gained 7.4% following its earnings announcement and we expect the company’s strong earnings momentum to continue over the next few years.

• Qoo10 has become one of the most popular Japanese malls among young women for all things Korean, particularly cosmetics and fashion.
• The online mall now wants to exploit this by creating a new dedicated fashion mall with better promotional opportunities for merchants of all nationalities.
• This should bring more competition to ZOZO Inc (3092 JP) and Rakuten Inc (4755 JP).

• GTPL Hathway (GTPL) is a leading MSO (No. 1 in terms of subscribers) offering cable television (CATV) and broadband services
• Expansion into new states and digitisation has led to strong topline and earnings growth of ~27% and ~86% CAGR, respectively, over FY16-21
• We roll over to FY24 and value GTPL at Rs 290 i.e. 14x FY24E P/E

• Microsoft’s largest-ever acquisition provides boost for cloud gaming and metaverse ambitions.
• Deal comes as Activision Blizzard’s been mired in gender pay disparity and sexual harassment storm.
• Controversial CEO Bobby Kotick to continue in his role as head of Activision Blizzard, though WSJ says otherwise.

• On 18 January, Microsoft Corp (MSFT US) announced that it will acquire Activision Blizzard (ATVI US) for $68.7 billion all-cash deal.
• The acquisition of Activision Blizzard by Microsoft is likely to have a positive impact on the entire global game sector including in Korea. 
• This major acquisition of Activision Blizzard by Microsoft could rejuvenate the entire global game sector as it could signal greater M&A interest in high-quality game companies.

• Our updated NAV analysis of SK Square suggests an implied price of 92,050 won per share, representing 46.3% upside from current levels.
• Among the affiliated companies, OneStore and SK Shieldus are expected to be listed in the Korean stock market in 1H 2022.
• MSCI is likely to increase the weight of SK Square in the MSCI Korea Index rebalance announcement on 10 February. 

• We think the chance for GlobalWafers mergence case to have the final approval could be high. Even if it finally failed, the raw wafer supply should be full until 2024.
• This deal was granted by seven governments and organizations already. And it is still under review of Chinese and Japanese governments.
• The deal will not change the worldwide raw wafer supply status, especially such supply tightness. To our understanding, the secrets to achieve success are cost reduction and resource management mostly.

• Mindtree Ltd (Mindtree) is a mid-tier IT company with a presence in the US, Europe & RoW catering to BFSI, communication media & technology, retail & travel
• Expertise in infrastructure & application catering to Global 2000 clients
• We maintain HOLD rating on the stock. We value Mindtree at Rs 5,055 i.e. 40x P/E on FY24E

• Mio, a Vietnam-based social commerce startup, has raised US$8 million in a series A funding round led by Jungle Ventures
• The investment boosts Mio’s total funding raised to US$9.1 million.
• Founded in June 2020, Mio uses a network of resellers to sell fresh produce such as fruit, vegetables, and meat

• HCL Technologies Ltd (HCL Tech) Q3FY22 performance stood above our expectations and beat our estimate on all fronts.
• The company reported revenues of Rs 22,331 Cr, up 8.1% QoQ and 15.7% YoY.
• We recommend a BUY on the stock and assign a 24x P/E multiple to its FY24E earnings of Rs 67.4/share which gives a TP of Rs 1,600/share, indicating an upside of 20% from CMP.

HCLT delivered an exceptionally strong revenue growth of 7.6% QoQ CC in 3QFY22, 310bp above our estimate, led by its troubled Products and Platforms (P&P, +24.5% QoQ) vertical, which did exceptionally well despite benefitting from seasonality and deal spill over from 2QFY22 (600bp impact). Its Services verticals (IT Services/ER&D up 4.7%/8.3% QoQ CC) continued to clock strong growth and was ahead of our estimate. HCLT reported strong new deal TCV of USD2.1b (flat QoQ, +64% YoY).

• This short model seeks short-sale candidates among companies that use aggressive accounting and/or exhibit deteriorating quality of earnings.  
• They are typically highly idiosyncratic shorts and require thoughtful analyses of upcoming catalysts.  When the company’s issues become well-known, there is often multiple compression as well as a rerating.
• These shorts can have high or low betas, valuations based on artificial earnings and exhibit good short responses to subsequently disappointing earnings.

• Flexible printed board player Akm Industrial (1639 HK) has announced a pre-conditional Scheme from Alpha Luck and AKM Meadville at HK$1.82/share. The Offer price will NOT be increased.
• Alpha Luck is ultimately held by SASAC and AKM Meadville by the government of Haicang District, Xiamen. The two intend to hold 40:60 respectively in the unlisted vehicle. 
• Various PRC regulatory approvals are required. This appears a transaction geared to complete. Timing is the key risk to the deal.

• Stablecoins are the critical $170 billion dollar sector that is the key building block for the entire $2 trillion dollar crypto asset class with increasing attention from regulators
• In part 1, we explore some real world case studies on problems that stablecoins solved for crypto such as stability of payments to vendors, and the enabling of lending
• We also present a (almost) risk-free arb where traders pay 1.5% to borrow USD and receive 9% on stablecoin dollars 

• Qingdao Ainnovation Technology Group Co Ltd (1853807D CH) is looking to raise up to US$157m in its Hong Kong IPO.
• Qingdao AInnovation Technology Group is an AI solutions provider offering full-stack AI-based products and solutions. 
• While we don’t have a fundamental issue with the listing, at asking valuations, the firm appears to be fairly valued with limited upside on its FY23 numbers. 

• AInnovation Technology (AIT HK) is a fast-growing enterprise AI solutions provider in China. It has launched an HKEx IPO to raise up to US$157 million. 
• In AInnovation Technology IPO Initiation: Code Amber, we stated that the negatives outweigh the positives and we would give the IPO a pass.
• Our valuation analysis suggests that the IPO price is fair. Due to our concerns about the fundamentals, we remain on the sidelines. Pricing is 20 January, listing on 27 January.

• Mindtree beat our estimates with revenue of Rs 2,750 Cr for Q3FY22, reporting revenue growth of 35.9% YoY and 6.3% QoQ
• The company posted operating profits of Rs 592 Cr, registering a growth of 9.7% QoQ
• We recommend a BUY on the stock and assign 40x P/E multiple to its FY24E earnings of Rs 131.5/share to arrive at a, implying an upside potential of 12% from CMP.

• Elastic NV (ESTC US)  has grown its ARR from ~$207 million as of Jul-18 to ~$760 million today and may become a multi-billion dollar unicorn in the future.  
• We like the subscription-based freemium business model, strong net expansion rate, and acceleration in revenue growth of Elastic Cloud business, which currently represents ~33% of total revenue. 
• Elastic Search is one of the most popular search engines globally, and the company’s products have been downloaded more than 350 million times since 2013. 

• Fiserv is valued as a slow-growth and low return on capital legacy business, although this does not appear to be the case.
• At present, the expected topline growth rate is far from spectacular, but parts of the business are growing fast and could result in a multiple repricing.
• Due to the acquisition of First Data, the company’s improving profitability is a better measure of business performance than return on capital is.

• Infosys Ltd (Infy) is one of the leading IT players catering to BFSI, retail, communication, manufacturing & hi tech verticals.
• The company generates >58% of revenues from digital technologies
• We continue to remain positive and retain our BUY rating on the stock. We value Infosys at Rs 2,300 i.e. 32x P/E on FY24E EPS

• Mindtree (MTCL) delivered healthy QoQ growth (following a very strong quarter) and margin beat (~100bps expansion) was the highlight of the quarter
• Recovery in T1 business was encouraging and growth was broad-based across verticals, geographies, and service lines
• Our target price of INR 5,060 is based on 37x Mar-24E EPS (25% CAGR over FY21-24E on a high base in FY21 of >70%)

• Even though IBM shares ended 2021 in the green, total return was very disappointing on a risk-adjusted basis.
• Kyndryl shareholders were severely punished, and prospects for the company remain rather bleak.
• 2022 will be a critical year for IBM’s management to prove that it could turn the business around.

• Mercari was expected to announce at some point that it would attempt to transfer to TSE Prime. They have now announced. 
• This will end up being a BIG TOPIX inclusion in May or June. 
• And the changes to the TOPIX Free Float Weight Methodology will mean it is bigger than it would have been under the old regime (despite unchanged FFW).

• HKMA released a discussion paper on the regulation of stablecoins in Hong Kong which seems to suggest a divergence in regulatory approach towards crypto from China’s current stance
• China has historically allowed banned activities from the mainland to operate in a controlled environment such as gaming in Macau
• We explore the potential that HK is the perfect firewalled environment where crypto could be allowed to develop without contagion for the rest of China

• AInnovation Technology (AIT HK) is a fast-growing enterprise AI solutions provider in China. It is set to launch an HKEx IPO to raise up to US$157 million.  
• The fundamentals are mixed as diverging growth profiles of key segments, low market share and cash burn are accompanied by a narrowing loss margin. 
• Overall, we believe the negatives outweigh the positives and we would give the IPO a pass. 

• Akm Industrial (1639 HK) announced a privatisation offer from Alpha Luck and AKM Meadville at HK$1.82 per scheme share, a 14.47% premium to last full trading day price of HK$1.59. 
• The key pre-condition is several regulatory approvals which be forthcoming as Alpha Luck is indirectly 100% owned by the SASAC. 
• The key condition is the scheme approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). We think the offer price is reasonable and the scheme will pass. 

We maintain our BUY rating with a target price of INR 1,485, valuing the HCLT stock at 22x Mar-24E EPS, factoring in +13/14% CAGRs in revenue/EPS over FY21-24E HCL Technologies: We maintain BUY on HCL Tech (HCLT), supported by strong growth in services (+5.3% QoQ CC) and recovery in P&P (+24.5% QoQ CC). The services growth was led by ER&D but the ~200 bps decline in margin was higher than peers. Key attributes that support our growth outlook are: (1) growth momentum in ER&D services (+8.3 QoQ CC), supported by digital engineering and IoT services; (2) robust TCV of USD 2.14bn (+64% YoY growth), led by eight large deals in services and product; and (3) strong fresher hiring, which will continue in FY23E.

• Money Forward reported full year results post close on Friday. The stock will react negatively…probably.  
• The stock is down 45% from its 52-week high, along with most high growth SaaS stocks 
• The fundamentals, earnings and growth remain intact, but valuations are unlikely to recover as excess liquidity drains out of the market.  One for patient LT investors

• There are currently 45 – mostly firm – transactions currently being discussed and analysed on Smartkarma.
• One new deal discussed this week – SASAC-backed Hubei Ports’ tilt for China Infrastructure & Logistics Group (1719 HK).
• There were updates for Crown Resorts (CWN AU), Razer Inc (1337 HK), Australian Pharmaceutical Industries (API AU), Katakura Industries (3001 JP), and Irongate Group (IAP AU).

• We have been sceptical about Krafton’s valuation and ability to generate new hits since its listing. 
• After treading water close to its IPO price for five months the new year has seen the stock crater 25%. 
• In our view the bad news is just getting started and that is despite PUBG: Mobile still doing well in China and India.

• NDX is dangerously close to a meaningful break below macro trendline and price support that would induce downside pressure on supports in other key indices.
• NDX Pivot support break would set in motion a downward spiral in the DJI and SPX as well as the global risk cycle. On alert!
• Late January a weaker cycle for a washout that sets up a tender bullish February grind with Q1 topping signals maturing.

• In this insight, we discuss the end of lock-up periods for Kakao Pay, KakaoBank, Hyundai Heavy Industries, Krafton Inc, and SD Biosensor in 1Q 2022.
• Typically, investors tend to focus on the end of the lock-up periods in Korea about 1-2 months ahead of the actual end of these lock-up periods.
• Among these five companies, there are relatively large number of shares that could be sold post end of the lock-up periods for Kakao Pay and Kakao Bank in 1Q 2022. 

TCS reported 3QFY22 revenue of USD6.52b, up 4.0% QoQ in constant currency (CC) above our estimate of 3.2% QoQ growth. 3Q topline was driven by Communication, Technology and Regional markets, while Manufacturing and Retail verticals dragged down growth. EBIT margin contracted 60bp QoQ to 25.0%, 100bp lower than our estimate of 26.0%, as TCS augmented its employee intake (all-time high at 28k), along with a spike in sub-contracting cost.

• Tata Consultancy Services: TCS reported in-line revenue performance, while the margin was a miss
• Infosys: We maintain BUY on Infosys (INFY), following a significant beat in revenue (+7% QoQ CC vs. estimate of 4.4%) and a strong growth outlook.
• Wipro: Wipro delivered a muted performance in Q3; growth of 3.0% QoQ CC was below estimate and the lowest in the last five quarters

• Tata Consultancy Services Ltd (TCS) reported a 4.3% revenue growth QoQ in Q3FY22 in Rupee terms, much in line with our expectations
• The company’s revenues stood at Rs 48,885 Cr, up 16.3% YoY and 4.3% QoQ
• We recommend a HOLD rating on the stock and assign a 31x P/E multiple to its FY24E earnings of Rs 135.2/share to arrive at a TP of Rs 4,200/share

• Wipro Ltd’s (Wipro) revenue growth stood below our expectations at Rs 20,313 Cr, up 3.1% QoQ and 27% YoY in CC terms
• Operating profit grew robust 30.8% YoY to Rs 3,492 Cr, aided by better executions, better employee management and service mix
• We recommend a HOLD rating on the stock and assign a 27x P/E multiple to its FY24E earnings of Rs 27.7/share to arrive at a TP of Rs 750/share, implying an upside of 9% from CMP.

INFO reported a growth of 7% QoQ CC, ahead of our estimate of 4.8%, on the back of a broad based performance. Large deal TCV stood at USD2.53b (net new at 44%). The management indicated traction in large deals, and highlighting that the deal pipeline was the highest in a very long time. EBIT margin dipped only 10bp QoQ to 23.5%, in line with our estimate, despite a drag from employee additions (12.5k), higher sub-contracting, and…

• Wipro (WPRO) reported 3QFY22 IT Services revenue of USD2.64b (+3.0% QoQ CC), missing our estimate by 70bps
• We now expect FY22 IT Services revenue growth at 27.4% (18.5% YoY organic growth), down 100bps v/s the previous expectation.
• We lower our FY22–24E EPS estimate by 1% to factor in the miss on the growth front. We maintain our Neutral stance as we view the current valuation as fair

• Infosys Ltd (Infy) reported Q3FY22 revenue of Rs 31,867 Cr, up 7.7% QoQ and 7% QoQ (in CC terms)
• The company’s operating profit stood at Rs 7,484 Cr, reporting a growth of 7.3% on a QoQ basis
• We recommend a BUY rating on the stock and assign a 29x P/E multiple to its FY24E earnings of Rs 73.5/share to arrive at a TP of Rs 2,140/share

• A share pop a flash in the pan and still shows heavy price action as the bull wedge matures into late January.
• HSI is meeting the fresh short target zone near 24,700 with a minor new low in store for late January.
• HK tech is making strides to bottom as RSI divergence matures but still needs some final strokes for a higher conviction base.

• The consortium’s updated transaction has lowered the offer price -27.6% to $57.25 in cash per ADS, a 24.92% premium to the last trading price (11 January 2022).
• The combination of the dramatically lower price, spurious justification for lowering the price and the shares recently trading higher than the revised price is unlikely to win over minorities.
• Meeting the two-thirds shareholder approval threshold is likely a challenge due to the need to convince around 27% of disinterested shareholders to vote in favour of the transaction. 

• TSMC posted results at or above the top end of its guidance ranges for 4Q21 at the revenue, GPM and OPM levels. 
• Guidance for 1Q22 was also punchy with the midpoint of revenue guidance 6.0% above consensus and mid to high 20s revenue growth guidance for the year. 
• We still suspect however that momentum could actually accelerate through the year.

• With the penetration rate as high as 42%, Mitra could be fast running out of room for growth.
• Consensus seems to be overestimating Bukalapak (BUKA IJ)’s 2021 and 2022 revenue by 22% and 40% respectively.
• At 6.0x consensus FY+2 revenue, Bukalapak is still expensive compared to the peer average of 4.3x.

• We expect a wide price range ranging from 18,001 won to 39,939 won for Skonec Entertainment IPO, which is much higher than the high end of IPO price range.
• We estimate Skonec to generate sales of 6.0 billion won in 2021 (up 27.6% YoY) and 13.9 billion won in 2022 (up 132% YoY). 
• Skonec Entertainment’s main business is VR-based content production. It has also been providing metaverse VR game business through VR platforms such as Oculus and PlayStation.

• TCS reported a healthy revenue growth of 15.4% YoY in constant currency (CC) terms. Operating margins contracted by -60bp to 25%, due to supply-side challenges. 
• LTM attrition for TCS was 15.4%, best in the industry. However, on an absolute basis, it is high and TCS is continuously working on stabilizing it.  
• Growth has been broad-based across sectors and the demand outlook remains robust on the back of strong spends by corporates on digital transformation and adoption of cloud.

• It’s commonly known that investment theses are the most powerful when demographic trends are on your side. Crypto adoption may enjoy the same tailwind as internet adoption
• We analyze the fact that the younger segment of the population has evolved to be early adopters of crypto and blockchain technology, which protends strong future growth
• We argue that the young are embracing crypto because it is a much easier game to play and win for those who do not benefit as traditional asset owners 

• TSMC’s 2022 outlook is bright, but new drama around Intel’s possible orders could define the foundry in 2023
• IPhone’s 2022 modem is currently equipped with Qualcomm’s design but 2023’s will be designed by Apple
• TSMC’s continuously updated technology roadmap shows it as a tech-leader in the foundry space

• Early last year we very wrongly called Capcom as our top short-term pick as we expected an earnings blowout in 1QFY22. 
• The blowout duly came with OP 37% above clueless sell side expectations and… the stock tanked. 
• Almost a year later the stock languishes 28% lower just as the PC version of Monster Hunter Rise launches.

• Bilibili launched a shopping cart feature (Xiaohuangche) recently on its livestreaming platform which enables users to purchase goods while watching a live-stream.
• This comes at a time; China’s common prosperity crackdown has set its eyes on livestreaming e-commerce.
• Bilibili has been looking at ways to improve its monetisation to reduce losses, but we think the new initiative will likely add further pressure on deteriorating margins.

• Qingdao Ainnovation Technology Group Co Ltd (1853807D CH) is looking to raise up to US$200m in its Hong Kong IPO.
• Qingdao AInnovation Technology Group is an AI solutions provider offering full-stack AI-based products and solutions. 
• While revenue has grown since inception, margin improvement can’t be attributed solely to better cost controls. It also has an unproven track record and operates in a highly fragmented market. 

• Infosys reported strong Q3FY22 earnings with constant currency (CC) sequential growth of 7%, despite weak seasonality.  YoY CC growth at 21.5% is the highest ever over the past 11 years.
• Large deal wins and continued momentum in digital revenue growth helped Infosys Ltd (INFO IN) to post a strong Q3. Share of digital revenues grew to 58.5% vs 50.1% YoY.
• On the back of strong Q3FY22 earnings, Infosys raised its FY22 revenue growth guidance to 19.5-20% vs 16.5%-17.5% earlier.

• IOT data platform meant to digitize physical operations for manufacturing, transportation, construction, utilities, healthcare, and education. 
• Excellent management team, previously co-founded Meraki, which was sold to Cisco.
• Hypergrowth software business on par with ServiceNow and Workday at this stage in growth, but much less profitable (so far) due to hardware and bandwidth costs.

• CALX has yet to experience the full extent of our original sell thesis even though there are growing signs of an impending impact
• Component issues could have become a headwind in the fourth quarter and remain a challenge in 2022.
• With Huawei equipment replacement predominately complete, small service providers could reduce their spending

• In this weekly, we look at the macro where the recent selldown is well within the historical performance of the asset class
• Despite the end year correction, crypto funds have returned 178% in 2021 based on Eurekahedge which is leading to significant new launches in 2022 
• Meanwhile, NFTs continue to make headlines as Eminem spent half a million on a BAYC jpeg and a South Korean presidential hopeful taps NFTs to raise campaign funds 

• SK Square’s discount to NAV is reaching 68%, pretty close to the deepest end of the local peers.
• The cause of this price correction can be seen as the collapse of the overall market flow balance due to the LG Energy IPO.
• Entry timing for MSCI float-rate increase momentum is early February.

• With half of Nasdaq stocks down 50% from the top, is further meltdown ahead?  Valuation compression is already larger than recent big growth selloffs.  
• We like a balance of highest quality high growth (CRWD, SNOW, RBLX) and attractive relative valuations (PANW, NOW, BABA)
• Amazon is poised for a big 2022 as 1 day Prime shipping reaccelerates growth, and price increases hike profits.

• We have made a bullish yield argument from the 10yr 1.37% zone to clear the key 1.68% breakout barrier. A yield spike will pressure tech at NDX macro trendline support.
• NDX long term trendline make or break support lies at 15,300. We expect a break in later Q1 but if broken now it will bring forward a negative risk cycle.
• Our macro 10yr yield rise to the 2%+ region for a top correlated with a peak in the equity cycle in late Q1. Rate sensitive ration undercurrents.

• Blockchain games are gaining popularity and traction with new players. There are now over 1.4m people playing blockchain games daily  
• The economics of blockchain gaming and NFT is driving a flood of new investment into the space, with $4b committed by VCs in 2021. This year will be significantly higher  
• Square Enix understands that blockchain games are here to stay despite opposition from “legacy fans.” We expect further announcements on blockchain gaming to drive the stock