Category

TMT and Internet Sectors

Brief TMT & Internet: Naver Spike Overdone – Sell and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. Naver Spike Overdone – Sell
  2. TSMC. Setting The Stage For Record Growth In 2020 And Beyond

1. Naver Spike Overdone – Sell

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Naver Corp (035420 KS) has risen in a linear manner and testing highs from 2017 and 2018 amid growing bear divergence (non confirmation of new price highs that creates a negative undertone and precedes intermediate corrective cycles) along with deteriorating buy volume into recent strength. These weaker inputs sets up a good short trade in Naver.

RSI break below pattern support will act as a lead signal for price to break noted trendline support near 180k. Initially one would expect a reaction bounce from this trend support.

38.2% retracement lies at 160k and 50% near 150k, representing key pullback objectives.

2. TSMC. Setting The Stage For Record Growth In 2020 And Beyond

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TSMC kicked off earnings season with a bang, racking up their highest ever quarterly revenues and closing out 2019 with the company’s highest ever annual CapEx spending. Expecting semi sales, excluding memory, to grow by 8% in 2020, they forecasted that foundry will grow by 17% and that TSMC will grow even more than that

During what was a strongly upbeat earnings call, they shrugged off concerns about geopolitics, lingering trade wars and even the threat of further changes to the US Export Administration Regulations (EAR) de minimis rules. Here’s a look in detail at what TSMC had to say. 

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Brief TMT & Internet: How Do We Play Samsung Dividend Arb Trade? and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. How Do We Play Samsung Dividend Arb Trade?
  2. Apple and Big Tech Fade and Fresh Buy Levels in March
  3. StubWorld: PCCW – The Good, The Bad …
  4. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs
  5. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders

1. How Do We Play Samsung Dividend Arb Trade?

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Samsung needs to meet the 50% target of the 3-yr rolling FCF. This year’s projected FCF? It may be too early to tell, but the local street estimates it at around ₩30~33tril. Now, at an assumed ₩32.6tril (projected by Kiwoom), it will be 36.7%. So, Samsung will need to come up with something to bring it up to 50%, which requires about ₩10.7tril.

How? It will be either share buyback or more dividends (special dividends). Then, which is more likely? At the current price level, a buyback wouldn’t be as cost-effective as previously. At an 80%:20% ratio, buyback price for each common share will be ₩57,740, a 33.5% increase from the last buyback. So, we should also consider special dividends as a real possibility as well. To hit the 50% target, Samsung needs to give out a ₩1,575 additional bonus for each common share.

2. Apple and Big Tech Fade and Fresh Buy Levels in March

Focus is on Apple Inc (AAPL US) and the rising wedge as well as big tech upside fade levels and pullback targets for March. We cover cycles levels in Amazon.com Inc (AMZN US)Alphabet Inc Cl C (GOOG US)Facebook Inc A (FB US)Microsoft Corp (MSFT US) .

Apples’ exhaustive rising wedge stands out as a peak set up with uptick resistance within yesterdays’ gap zone.

As breadth narrows, it comes down to top tech holding the market together. If big tech rolls over then so does the NDX and SPX and the global cycle.

Note that recent tech strength has been on diminishing buy volumes from early February (x Microsoft) for this group which often precedes pullbacks from current overbought readings. Pullback levels and fresh buy zones in March hinge on price congestion and trendline supports holding. Apple and Facebook display the weaker underlying structures. Google and Microsoft show extended rises with pullback risk but remain macro bullish. Amazon exhibits the more bullish underlying technical posture.

3. StubWorld: PCCW – The Good, The Bad …

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This week in StubWorld …

A return to positive EBITDA for PCCW Ltd (8 HK)‘s media ops in the 2H19 is offset by a significant increase in elimination costs.

Preceding my comments on PCCW and GMO Internet (9449 JP) are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

4. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs

Platform

Our base case valuation of Metanet Mplatform is EV of 296 billion won, a market cap of 360 billion won, and an implied price of 17,215 won, which is 25% higher than the mid-point of the bankers’ IPO price range of 12,500 won to 15,000 won. As such, we have a positive view of the Metanet Mplatform IPO. 

The company’s core business is in the customer/contact centers. Driven by technology innovation, customer/contact centers are becoming increasingly automated, which will likely provide an attractive opportunity for the company to capitalize on its know-how of this business to further improve upon its economies of scale and reduce costs.

Lemon has received the highest interest level (measured in terms of platform views per report) among the four Korean IPOs that we have written about. So if the level of interest in Lemon is 100, JNTC is 90 and Metanet Mplatform is much lower at 50. Overall, among these four companies, Lemon is likely to receive the highest institutional investors’ interest, followed by JNTC, Metanet Mplatform, and NPD.  Now, the more difficult part (this is where the art of investing really comes into play) is to perceive and understand how much of this investors’ interest will have factored in the IPO demand and their share prices. 

5. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders

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Atlas Copco AB (ATCOA SS) has offered €50/share for Isra Vision AG (ISR GR) in a friendly takeover bid. The offer represents a premium of ~30% on volume-weighted three months’ average price and 43% on the last close before the announcement. With ISRA’s management and Board tendering 29% of shares, Atlas Copco has already secured ~35% of shares. We expect the deal to complete given the significant premium offered by Atlas Copco.

The acquisition will only make sense if ISRA would provide meaningful revenue synergies and potential cost synergies. This deal provides a good exit premium for ISRA shareholders.

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Brief TMT & Internet: SK Hynix Short Zone with Option for SEC Long Pair and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. SK Hynix Short Zone with Option for SEC Long Pair

1. SK Hynix Short Zone with Option for SEC Long Pair

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SK Hynix (000660 KS) has done very well from our buy in level at 78k but the current upleg is looking overdone with ideal topside projection just under 105k and the RSI exhibiting minor bear divergence (non confirmation of the recent high) amid lofty readings. 

A choppy dip and rally would fit with some distribution taking place as the KOSPI shows similar froth near the 306-09 range.

SK Hynix needs a rest on the form of a pullback from a minor new high with supports near 94k and 90.50k. The macro drive higher should then resume.

The ratio chart between SK Hynix and SEC shows a clear bias for SK Hynix to continue to U/P SEC and another positioning option to test the 1.50 support zone. 1.66 represents uptick resistance on this ration.

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Brief TMT & Internet: SK Hynix Short Zone with Option for SEC Long Pair and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. SK Hynix Short Zone with Option for SEC Long Pair
  2. China Internet Weekly (20Jan2020): 18,000 Game Developers Bankrupt, PDD Sued in 1,765 Lawsuits

1. SK Hynix Short Zone with Option for SEC Long Pair

Sk%20hynix%20for%20sk

SK Hynix (000660 KS) has done very well from our buy in level at 78k but the current upleg is looking overdone with ideal topside projection just under 105k and the RSI exhibiting minor bear divergence (non confirmation of the recent high) amid lofty readings. 

A choppy dip and rally would fit with some distribution taking place as the KOSPI shows similar froth near the 306-09 range.

SK Hynix needs a rest on the form of a pullback from a minor new high with supports near 94k and 90.50k. The macro drive higher should then resume.

The ratio chart between SK Hynix and SEC shows a clear bias for SK Hynix to continue to U/P SEC and another positioning option to test the 1.50 support zone. 1.66 represents uptick resistance on this ration.

2. China Internet Weekly (20Jan2020): 18,000 Game Developers Bankrupt, PDD Sued in 1,765 Lawsuits

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The Weekly will be suspended for two weeks and be back on February 10, as normally Chinese authorities and companies do not release significant news during the Chinese New Year. The news we can expect is that three tutoring companies will release their quarterly results on January 20th and 21st. They are TAL Education, New Oriental (EDU), and EDU’s subsidiary Koolearn (1797 HK). 

Ratings of our coverage in China:

  • Buy: Alibaba (BABA), Tencent (700 HK), JD.com (JD), Meituan (3690), TAL Education (TAL), New Oriental (EDU).
  • Hold: Ctrip.com (CTRP), Autohome (HTHM), 58.com (WUBA), NetEase (NTES)
  • Sell: Tencent Music (TME), Baidu (BIDU), Weibo (WB), Pinduoduo (PDD)

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Brief TMT & Internet: StubWorld: PCCW – The Good, The Bad … and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. StubWorld: PCCW – The Good, The Bad …
  2. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs
  3. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders
  4. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal
  5. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”

1. StubWorld: PCCW – The Good, The Bad …

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This week in StubWorld …

A return to positive EBITDA for PCCW Ltd (8 HK)‘s media ops in the 2H19 is offset by a significant increase in elimination costs.

Preceding my comments on PCCW and GMO Internet (9449 JP) are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

2. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs

Platform

Our base case valuation of Metanet Mplatform is EV of 296 billion won, a market cap of 360 billion won, and an implied price of 17,215 won, which is 25% higher than the mid-point of the bankers’ IPO price range of 12,500 won to 15,000 won. As such, we have a positive view of the Metanet Mplatform IPO. 

The company’s core business is in the customer/contact centers. Driven by technology innovation, customer/contact centers are becoming increasingly automated, which will likely provide an attractive opportunity for the company to capitalize on its know-how of this business to further improve upon its economies of scale and reduce costs.

Lemon has received the highest interest level (measured in terms of platform views per report) among the four Korean IPOs that we have written about. So if the level of interest in Lemon is 100, JNTC is 90 and Metanet Mplatform is much lower at 50. Overall, among these four companies, Lemon is likely to receive the highest institutional investors’ interest, followed by JNTC, Metanet Mplatform, and NPD.  Now, the more difficult part (this is where the art of investing really comes into play) is to perceive and understand how much of this investors’ interest will have factored in the IPO demand and their share prices. 

3. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders

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Atlas Copco AB (ATCOA SS) has offered €50/share for Isra Vision AG (ISR GR) in a friendly takeover bid. The offer represents a premium of ~30% on volume-weighted three months’ average price and 43% on the last close before the announcement. With ISRA’s management and Board tendering 29% of shares, Atlas Copco has already secured ~35% of shares. We expect the deal to complete given the significant premium offered by Atlas Copco.

The acquisition will only make sense if ISRA would provide meaningful revenue synergies and potential cost synergies. This deal provides a good exit premium for ISRA shareholders.

4. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal

  • We believe many Chinese companies will hide profits for future under the excuse of epidemic.
  • Alibaba Group (BABA US)’s exemption of service fee is not a big deal for total revenues.
  • Both Xiaomi Corp (1810 HK)’s TV and handset businesses will be negatively impacted.

5. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”

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Alibaba’s 3Q FY03/19 results are a mixed bag. The China Commerce Retail sub-segment seems to be slowing down with new customers generating less incremental revenue. However, the marginal profitability of the Core Commerce business has increased, implying that the profitability of international and new e-commerce operations are improving. Moreover, Alibaba Cloud continues to grow at a healthy rate and the losses now seem to be more “under-control” than “unruly”.

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Brief TMT & Internet: Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs
  2. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders
  3. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal
  4. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”
  5. AVIC: The Vote Is In; Now For The Acceptances

1. Metanet Mplatform IPO Valuation & Interest Levels of Lemon, JNTC, Metanet Mplatform, & NPD IPOs

Platform

Our base case valuation of Metanet Mplatform is EV of 296 billion won, a market cap of 360 billion won, and an implied price of 17,215 won, which is 25% higher than the mid-point of the bankers’ IPO price range of 12,500 won to 15,000 won. As such, we have a positive view of the Metanet Mplatform IPO. 

The company’s core business is in the customer/contact centers. Driven by technology innovation, customer/contact centers are becoming increasingly automated, which will likely provide an attractive opportunity for the company to capitalize on its know-how of this business to further improve upon its economies of scale and reduce costs.

Lemon has received the highest interest level (measured in terms of platform views per report) among the four Korean IPOs that we have written about. So if the level of interest in Lemon is 100, JNTC is 90 and Metanet Mplatform is much lower at 50. Overall, among these four companies, Lemon is likely to receive the highest institutional investors’ interest, followed by JNTC, Metanet Mplatform, and NPD.  Now, the more difficult part (this is where the art of investing really comes into play) is to perceive and understand how much of this investors’ interest will have factored in the IPO demand and their share prices. 

2. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders

Image 24046444771581938221028

Atlas Copco AB (ATCOA SS) has offered €50/share for Isra Vision AG (ISR GR) in a friendly takeover bid. The offer represents a premium of ~30% on volume-weighted three months’ average price and 43% on the last close before the announcement. With ISRA’s management and Board tendering 29% of shares, Atlas Copco has already secured ~35% of shares. We expect the deal to complete given the significant premium offered by Atlas Copco.

The acquisition will only make sense if ISRA would provide meaningful revenue synergies and potential cost synergies. This deal provides a good exit premium for ISRA shareholders.

3. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal

  • We believe many Chinese companies will hide profits for future under the excuse of epidemic.
  • Alibaba Group (BABA US)’s exemption of service fee is not a big deal for total revenues.
  • Both Xiaomi Corp (1810 HK)’s TV and handset businesses will be negatively impacted.

4. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”

Image 24170207831581911179042

Alibaba’s 3Q FY03/19 results are a mixed bag. The China Commerce Retail sub-segment seems to be slowing down with new customers generating less incremental revenue. However, the marginal profitability of the Core Commerce business has increased, implying that the profitability of international and new e-commerce operations are improving. Moreover, Alibaba Cloud continues to grow at a healthy rate and the losses now seem to be more “under-control” than “unruly”.

5. AVIC: The Vote Is In; Now For The Acceptances

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AVIC International Holdings (161 HK) overwhelmingly gains shareholder approval for the merger by absorption. The next step is to clear the 90% acceptance condition. 

The H Class Meeting Vote

There were two special resolutions voted on:

  • For the Delisting. ≥ 75% for, ≤10% against the delisting resolution. 
  • For the Merger Agreement and Merger. ≥ 75% for, ≤10% against the merger resolution.

Summary of The H-Share Class Meeting

Total H Shares present and via proxy at the meeting189.1mn
As a % of total H shares55.9%
Shares voting FOR the Delisting resolution182.1mn
As a % of those present and voting99.9%
Shares voting AGAINST the Delisting resolution0.3mn
As a % of those present and voting0.1%
Shares voting FOR the Merger Agreement and Merger resolution188.9mn
As a % of those present and voting99.9%
Shares voting AGAINST the Merger Agreement and Merger resolution0.3mn
As a % of those present and voting0.1%
Source: Announcement my estimates
AVIC holds 6.786mn H shares which were required to abstain at the H Class meeting. This reduced the independent H shares to 326.3mn.

To put this attendance % in perspective, 42.04% of the total number of the votes attaching to all the H Shares held by the independent shareholders were present at the H Share class meeting for Harbin Electric Co Ltd H (1133 HK) and 72.43% for Huaneng Renewables Corp H (958 HK) (HRC).

Past AGMs for AVIC provide little guidance with minimal independent shareholders bothering to attend and vote, when stripping out domestic shares held by AVIC international and AVIC Shenzhen.

The Acceptances

The Offer remains open for acceptances until the 6 March, 60 days from the dispatch of the Composite Document, although, there is an ever-increasing possibility this is extended. The Offer was extended for Harbin Electric for 60 days; HRC was also extended, seemingly without reference to any deadline date, ostensibly to secure regulatory approvals.

Since the dispatch of the composite offer document on the 8 January, wherein the Offer was open to acceptances, 5.44% of shares out appear to have tendered when analysing CCASS data. 

There will be a higher degree of confidence this acceptance condition will be met after HRC’s was secured. Yet, 91.42% of the total issued H shares held by the independent H shareholders of HRC tendered into the Offer on the closing date, and it is still only ~92.50% with a final closing date of the 4 March. Harbin failed with  85.84% of H shares tendering on its first closing date and 88.32% after the extension.  There remains a very fine line between success and failure.

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Brief TMT & Internet: JNTC IPO Valuation Analysis and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. JNTC IPO Valuation Analysis
  2. Removal of 30% Limit on a Single Stock in ETFs: Impact on Samsung 30% Cap in KOSPI 200
  3. KOSPI200 and Samsung Capping – What’s the Big Deal?
  4. ECM Weekly (16 Feb 2020) – ThaiBev Brewery, ByteDance, China Bright Culture, Equitas SFB, LIC
  5. How Many Shares Would Samsung Buy Back This Year? Then, Another Pref-Favored Buyback?

1. JNTC IPO Valuation Analysis

JNTC is one of the global leaders in making 3D cover (tempered) glass and connector parts for smartphones. The IPO base deal size is from US$80 million to US$98 million. The book-building for the institutional investors starts on 19 February. 

Overall, we believe that the combination of higher operating margin, ROE, and sales growth than its peers warrants JNTC higher valuation multiples than its peers. Thus, we applied a 20% premium multiple to the comps (19.4x). Using our estimated 2019 net profit of 37.2 billion won and applying a 19.4x P/E multiple results in an implied market cap of 720.8 billion won or implied price of 12,471 won per share, which is a 19% premium to the high end of the IPO price range of 10,500 won. This is a reasonably attractive upside so we have a POSITIVE view on JNTC.

2. Removal of 30% Limit on a Single Stock in ETFs: Impact on Samsung 30% Cap in KOSPI 200

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The Korea Financial Supervisory Service (KFSS) announced the amendment to the Enforcement Regulations of Financial Investment Business Regulations on February 11. This amendment contains the removal of the 30% limit weight of a single stock in local ETFs. For instance, those ETFs mirroring KOSPI 200 can now have Samsung Electronics common shares for more than 30% weight. The schedule of the enactment is as follows. March 22 is the deadline for the review. Then, the amendment will become in effect as of the second quarter of this year, which is the first of April.

3. KOSPI200 and Samsung Capping – What’s the Big Deal?

Image

Much has been written about the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) capping rule that would affect Samsung Electronics (005930 KS). There has been a lot of hand wringing on ‘tying the hands of a champion’ and misconceptions abound, even among investment professionals, on how capping works and how it would affect Samsung Electronics.

We break down this Insight into a few parts that delve into why this has become a big issue, the rules and regulations in Korea that are at the heart of the matter, an index capping 101, probable timing of capping implementation, the impact of the capping on Samsung and other index names, and propose a possible scenario for the Samsung preference shares outperforming the common shares.

4. ECM Weekly (16 Feb 2020) – ThaiBev Brewery, ByteDance, China Bright Culture, Equitas SFB, LIC

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Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.

ECM activity has been slow this week. We saw some signs of life earlier this week with the launch of a handful of placements such Innovent Biologics Inc (1801 HK) and Prime US REIT (PRIME SP) which Ke Yan, CFA, FRM covered in:

Lion Air has decided push back its IPO to Q2 citing uncertainty from the coronavirus outbreak, according to news report. The company was said to be pre-marketing earlier towards the end of January. 58 Home has also decided to delay its US IPO plans citing the similar reasons. The company was supposed to list in 1H of 2020 as per news reports. In Hong Kong, Japanese restaurant chain Daikiya has also pulled its Hong Kong IPO 

That said, UOB Hampshire REIT, which comprised of US-based grocery stores, is still moving ahead with pre-marketing for a Singapore listing to gauge demand. SPH was also said to be picking banks for the REIT listing of its UK student accommodation asset.

In anticipation of ThaiBev’s potential IPO of its brewery business, we looked at the unit in an early note to understand its past performance, estimated valuation, and implications.

Sumeet Singh also shared some early thoughts on the upcoming mega IPO, LIC, in India as well as Equitas SFB’s listing in:

Last, but not least, Ke Yan, CFA, FRM covered the recently approved IPO, China Bright Culture, and continued his coverage on ByteDance which was rumored to be exploring listing options.

Accuracy Rate:

Our overall accuracy rate is 73.6% for IPOs and 65.1% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings this week

  • Ayala REIT (Philippines, US$300m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Akeso Bio Akesobio (康方生物) Pre-IPO: Late in the PD-1 Game but Products Are Promising 
Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

Helenbergh

Helenbergh (海伦堡) Early Thoughts – The Usual Red Flag – Related Party Transactions

Innocare

InnoCare (诺诚健华) Pre-IPO: A Decent Team but Short of Clinical Stage Candidates 

Innocare

InnoCare (诺诚健华) Pre-IPO: Thoughts on Valuation 

Jiumaojiu

Jiumaojiu (九毛九) Pre-IPO Early Thoughts – New Brand Driving Growth 

Kilcoy

Kilcoy Global Foods Pre-IPO – Rapid Earnings Growth on the Back of Margin Improvement 

Kilcoy

Kilcoy Global Foods Pre-IPO – A Lot of Things Still Remain Unexplained 

Megvii Megvii (旷视) Pre-IPO – Remarkable Growth (Part 1) 
Megvii Megvii (旷视) Pre-IPO – A Bet on the Future – Segments, Revenue Drivers and Growth Potential 
Megvii Megvii (旷视) Pre-IPO – The Real Race Is in Research – Founders’ Profile and Talent 
Megvii Megvii (旷视) Pre-IPO – Competitive Landscape and Peer Analysis 
Megvii Megvii (旷视) Pre-IPO –  Initial Thoughts on Valuation 
MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
Smoore

Smoore Tech (麦克韦尔) IPO: Hidden E-Cigarette Player Behind the FEELM Technology 

Smoore

Smoore Tech (麦克韦尔) Pre-IPO: 6Y and 1H2019 Financials Show Technology Driven Growth 

Smoore

Smoore Intl (思摩尔国际) Pre-IPO: Tripling Capacity in Three Years 

Smoore

Smoore Intl (思摩尔国际) Pre-IPO: Thoughts on E-Cig Regulation 

Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
Yeahka Yeahka (移卡) Pre-IPO Review – Growing in an Increasingly Competitive Space 
Yeahka Yeahka (移卡) Pre-IPO – Peer Analysis and Early Thoughts on Valuation 
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Aakash EduAakash Education Pre-IPO – Fast Growth in an Attractive Sector
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Burger King

Burger King India Pre-IPO – Has Been Growing Fast and Plans to Grow Even Faster 

Burger King

Burger King India Pre-IPO – Peer Comparison Yields Interesting Nuggets on Profitability and Capex 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

CAMS CAMS Pre-IPO – Quasi Monopoly Status Muddled by Inconsistent Performance 
CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Equitas SFB Equitas Small Finance Bank Pre-IPO – Another Forced Small Finance Bank Listing 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mindspace Mindspace Business Parks REIT Pre-IPO – Decent Growth but Not All Assets Are Equal 
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Samhi Hotels Samhi Hotels Pre-IPO – Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 
SBI Cards SBI Cards and Payments Pre-IPO – The Positives – Ticks a Lot of Boxes 
SBI Cards SBI Cards and Payments Pre-IPO – The Negatives – Banking on a Single Growth Driver 
SBI Cards SBI Cards and Payments Pre-IPO – Valuations – A Tale of Two Revenue Streams 
Malaysia
Mr DIY Mr D.I.Y. Pre-IPO – Largest Home Improvement Retailer in Malaysia 
Mr DIY Mr D.I.Y. Pre-IPO – Store Walk-Through and Thoughts on Value Proposition 
Mr DIY Mr D.I.Y. Pre-IPO – Peer Comparison – Small Stores with Dominant Market Share  
Mr DIY Mr D.I.Y. Pre-IPO – Assumptions and Thoughts on Valuation 
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMindsCloudMinds Inc Early Thoughts – Still Nascent
Huize Huize (慧择) Pre-IPO – Insurance Agency Masquerading as a Platform Business 
Kingsoft Cloud Kingsoft Cloud (金山云) Pre-IPO: The Leading Cloud Provider in China 

5. How Many Shares Would Samsung Buy Back This Year? Then, Another Pref-Favored Buyback?

15

In 2017, Samsung Electronics announced its shareholder return program for 2018-2020. Below are the key points.

  • Samsung will increase annual dividends in 2017 by 20%, which will be followed by a 100% rise in 2018. The 2019 and 2020 will stay at the same level as 2018. It will translate into approximately 29 trillion won of total dividend returns in the 2018 to 2020 period.
  • The portion of FCF allocated for shareholder returns will be set at a minimum of 50% over three years. Samsung will not deduct future M&A investments from free cash flow (FCF).
  • After dividend payouts, any remaining portion of the 50 percent of FCF available for shareholder returns will be used either for additional cash dividends or share buybacks as deemed appropriate.

Now, let’s see where Samsung stands with its shareholder return program for this year. We can then calculate how much of share buyback it will have to do to meet the 3-yr rolling 50% of the FCF target by the end of this year.

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Brief TMT & Internet: Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green
  2. Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler

1. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

2. Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler

Image 51634407431579455789754

  • It was reported by several news media outlets including the Nikkei on Friday (17th January) that Apple supplier Foxconn and Fiat Chrysler (FCA) are setting up a joint venture to manufacture electric vehicles.
  • FCA will hold 50% of the JV while Foxconn’s share will not exceed more than 40% (some sources say Foxconn will own 40% directly and 10% indirectly) and the contract is expected to be signed during 1Q2020.
  • The JV will initially focus on manufacturing electric vehicles in China for the Chinese market, while the venture will explore exporting EVs to foreign markets eventually. At the same time, the venture will also focus on the internet of vehicles.
  • According to Nikkei, FCA will be in charge of the car making while Foxconn will offer its electronics know-how including hardware and software.
  • The operation of Foxconn’s EV business will be overseen by group subsidiaries FIT Hon Teng, which makes automobile components and FIH Mobile, responsible for Foxconn’s Android smartphone assembly arm.
  • According to Foxconn, FIH Mobile will offer software solutions for automotive systems in electric cars.

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Brief TMT & Internet: Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders
  2. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal
  3. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”
  4. AVIC: The Vote Is In; Now For The Acceptances
  5. Samsung C/1P Is At -1.4σ & 1P Discount Close to an All-Time Low: Structural Reversion Is Ahead

1. Atlas Copco Bid For ISRA Vision: Good Exit Premium for ISRA Shareholders

Image 74914111121581946623744

Atlas Copco AB (ATCOA SS) has offered €50/share for Isra Vision AG (ISR GR) in a friendly takeover bid. The offer represents a premium of ~30% on volume-weighted three months’ average price and 43% on the last close before the announcement. With ISRA’s management and Board tendering 29% of shares, Atlas Copco has already secured ~35% of shares. We expect the deal to complete given the significant premium offered by Atlas Copco.

The acquisition will only make sense if ISRA would provide meaningful revenue synergies and potential cost synergies. This deal provides a good exit premium for ISRA shareholders.

2. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal

  • We believe many Chinese companies will hide profits for future under the excuse of epidemic.
  • Alibaba Group (BABA US)’s exemption of service fee is not a big deal for total revenues.
  • Both Xiaomi Corp (1810 HK)’s TV and handset businesses will be negatively impacted.

3. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”

Image 29302829841581911179043

Alibaba’s 3Q FY03/19 results are a mixed bag. The China Commerce Retail sub-segment seems to be slowing down with new customers generating less incremental revenue. However, the marginal profitability of the Core Commerce business has increased, implying that the profitability of international and new e-commerce operations are improving. Moreover, Alibaba Cloud continues to grow at a healthy rate and the losses now seem to be more “under-control” than “unruly”.

4. AVIC: The Vote Is In; Now For The Acceptances

Image 19534917841581905670328

AVIC International Holdings (161 HK) overwhelmingly gains shareholder approval for the merger by absorption. The next step is to clear the 90% acceptance condition. 

The H Class Meeting Vote

There were two special resolutions voted on:

  • For the Delisting. ≥ 75% for, ≤10% against the delisting resolution. 
  • For the Merger Agreement and Merger. ≥ 75% for, ≤10% against the merger resolution.

Summary of The H-Share Class Meeting

Total H Shares present and via proxy at the meeting189.1mn
As a % of total H shares55.9%
Shares voting FOR the Delisting resolution182.1mn
As a % of those present and voting99.9%
Shares voting AGAINST the Delisting resolution0.3mn
As a % of those present and voting0.1%
Shares voting FOR the Merger Agreement and Merger resolution188.9mn
As a % of those present and voting99.9%
Shares voting AGAINST the Merger Agreement and Merger resolution0.3mn
As a % of those present and voting0.1%
Source: Announcement my estimates
AVIC holds 6.786mn H shares which were required to abstain at the H Class meeting. This reduced the independent H shares to 326.3mn.

To put this attendance % in perspective, 42.04% of the total number of the votes attaching to all the H Shares held by the independent shareholders were present at the H Share class meeting for Harbin Electric Co Ltd H (1133 HK) and 72.43% for Huaneng Renewables Corp H (958 HK) (HRC).

Past AGMs for AVIC provide little guidance with minimal independent shareholders bothering to attend and vote, when stripping out domestic shares held by AVIC international and AVIC Shenzhen.

The Acceptances

The Offer remains open for acceptances until the 6 March, 60 days from the dispatch of the Composite Document, although, there is an ever-increasing possibility this is extended. The Offer was extended for Harbin Electric for 60 days; HRC was also extended, seemingly without reference to any deadline date, ostensibly to secure regulatory approvals.

Since the dispatch of the composite offer document on the 8 January, wherein the Offer was open to acceptances, 5.44% of shares out appear to have tendered when analysing CCASS data. 

There will be a higher degree of confidence this acceptance condition will be met after HRC’s was secured. Yet, 91.42% of the total issued H shares held by the independent H shareholders of HRC tendered into the Offer on the closing date, and it is still only ~92.50% with a final closing date of the 4 March. Harbin failed with  85.84% of H shares tendering on its first closing date and 88.32% after the extension.  There remains a very fine line between success and failure.

5. Samsung C/1P Is At -1.4σ & 1P Discount Close to an All-Time Low: Structural Reversion Is Ahead

6

Samsung C/1P is currently at -1.4σ on a 20D MA. The preferred share discount is 14.72%, which is pretty close to the 2-yr low (14.57%). Even compared with the 120D mean, it is more than a 3% point lower.

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Brief TMT & Internet: China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal and more

By | Daily Briefs, TMT and Internet Sectors

In this briefing:

  1. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal
  2. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”
  3. AVIC: The Vote Is In; Now For The Acceptances
  4. Samsung C/1P Is At -1.4σ & 1P Discount Close to an All-Time Low: Structural Reversion Is Ahead
  5. JNTC IPO Valuation Analysis

1. China Internet Weekly (17Feb2020): Companies May Hide Profits, BABA Fee Exemption Not a Big Deal

  • We believe many Chinese companies will hide profits for future under the excuse of epidemic.
  • Alibaba Group (BABA US)’s exemption of service fee is not a big deal for total revenues.
  • Both Xiaomi Corp (1810 HK)’s TV and handset businesses will be negatively impacted.

2. Alibaba: China E-Commerce Continues to Slowdown but Alibaba Cloud Losses Are Now “Under Control”

Image 77952822351581911179044

Alibaba’s 3Q FY03/19 results are a mixed bag. The China Commerce Retail sub-segment seems to be slowing down with new customers generating less incremental revenue. However, the marginal profitability of the Core Commerce business has increased, implying that the profitability of international and new e-commerce operations are improving. Moreover, Alibaba Cloud continues to grow at a healthy rate and the losses now seem to be more “under-control” than “unruly”.

3. AVIC: The Vote Is In; Now For The Acceptances

Image 96819286521581902836944

AVIC International Holdings (161 HK) overwhelmingly gains shareholder approval for the merger by absorption. The next step is to clear the 90% acceptance condition. 

The H Class Meeting Vote

There were two special resolutions voted on:

  • For the Delisting. ≥ 75% for, ≤10% against the delisting resolution. 
  • For the Merger Agreement and Merger. ≥ 75% for, ≤10% against the merger resolution.

Summary of The H-Share Class Meeting

Total H Shares present and via proxy at the meeting189.1mn
As a % of total H shares55.9%
Shares voting FOR the Delisting resolution182.1mn
As a % of those present and voting99.9%
Shares voting AGAINST the Delisting resolution0.3mn
As a % of those present and voting0.1%
Shares voting FOR the Merger Agreement and Merger resolution188.9mn
As a % of those present and voting99.9%
Shares voting AGAINST the Merger Agreement and Merger resolution0.3mn
As a % of those present and voting0.1%
Source: Announcement my estimates
AVIC holds 6.786mn H shares which were required to abstain at the H Class meeting. This reduced the independent H shares to 326.3mn.

To put this attendance % in perspective, 42.04% of the total number of the votes attaching to all the H Shares held by the independent shareholders were present at the H Share class meeting for Harbin Electric Co Ltd H (1133 HK) and 72.43% for Huaneng Renewables Corp H (958 HK) (HRC).

Past AGMs for AVIC provide little guidance with minimal independent shareholders bothering to attend and vote, when stripping out domestic shares held by AVIC international and AVIC Shenzhen.

The Acceptances

The Offer remains open for acceptances until the 6 March, 60 days from the dispatch of the Composite Document, although, there is an ever-increasing possibility this is extended. The Offer was extended for Harbin Electric for 60 days; HRC was also extended, seemingly without reference to any deadline date, ostensibly to secure regulatory approvals.

Since the dispatch of the composite offer document on the 8 January, wherein the Offer was open to acceptances, 5.44% of shares out appear to have tendered when analysing CCASS data. 

There will be a higher degree of confidence this acceptance condition will be met after HRC’s was secured. Yet, 91.42% of the total issued H shares held by the independent H shareholders of HRC tendered into the Offer on the closing date, and it is still only ~92.50% with a final closing date of the 4 March. Harbin failed with  85.84% of H shares tendering on its first closing date and 88.32% after the extension.  There remains a very fine line between success and failure.

4. Samsung C/1P Is At -1.4σ & 1P Discount Close to an All-Time Low: Structural Reversion Is Ahead

3

Samsung C/1P is currently at -1.4σ on a 20D MA. The preferred share discount is 14.72%, which is pretty close to the 2-yr low (14.57%). Even compared with the 120D mean, it is more than a 3% point lower.

5. JNTC IPO Valuation Analysis

JNTC is one of the global leaders in making 3D cover (tempered) glass and connector parts for smartphones. The IPO base deal size is from US$80 million to US$98 million. The book-building for the institutional investors starts on 19 February. 

Overall, we believe that the combination of higher operating margin, ROE, and sales growth than its peers warrants JNTC higher valuation multiples than its peers. Thus, we applied a 20% premium multiple to the comps (19.4x). Using our estimated 2019 net profit of 37.2 billion won and applying a 19.4x P/E multiple results in an implied market cap of 720.8 billion won or implied price of 12,471 won per share, which is a 19% premium to the high end of the IPO price range of 10,500 won. This is a reasonably attractive upside so we have a POSITIVE view on JNTC.

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