Category

TMT/Internet

TMT: Baozun Inc., BYD Electronics, Money Forward, Sumo Logic Inc, Palantir Technologies Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Baozun HK Secondary Listing – Large Dilution Needs a Large Correction
  • BYD Electronics (285): Time to Take Profit?
  • Small Cap Growth: Money Forward (3994) – Be Audit You Can Be
  • Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn
  • Palantir DPL Valuation Analysis

Baozun HK Secondary Listing – Large Dilution Needs a Large Correction

By Sumeet Singh

Baozun Inc. (BZUN US) plans to raise around US$490m in its secondary listing in Hong Kong.

The company was said to have won approval for listing last week along with ZTO Express (ZTO US) and Zai Lab Ltd (ZLAB US) however, it filed its PHIP only yesterday and launched its deal today.

In this insight, I’ll talk about the deal dynamics and what to do with the ADR during the book build.

Links to my previous notes on the topic on Secondary listings:


BYD Electronics (285): Time to Take Profit?

By Henry Soediarko

Apple has come out with an announcement yesterday that they will launch a new iPad and no iPhone.  The good news is that BYD Electronics (285 HK)is included in Apple’s supplier list to manufacture around 20-30% of iPad, and investors have been expecting this – causing the ultra optimism reflected in the share price YTD performance, beating the peers and even Apple Inc (AAPL US)

Unless the new iPad is selling like hotcakes and the domestic wearables and 5G migration really helps to increase demand, it is hard to see why BYD Electronics’ share price run-up is justifiable. 

For long-only investors – it is time to book profit. 

For long-short investors – it is time to start shorting the stock. 


Small Cap Growth: Money Forward (3994) – Be Audit You Can Be

By Mark Chadwick

  • Money Forward (3994 JP) provides online accounting software for Japan’s SMEs, providing all of the time-saving tools that small business owners need to grow. It is the Japanese version of Xero Ltd (XRO AU) or Quickbooks by Intuit Inc (INTU US) 
  • Money Forward (MF) and its domestic peer freee (4478 JP) dominate the Japanese online market, which is growing in the region of 60-70% YoY.
  • There is a huge addressable market with low online penetration. MF has the potential to build a strong competitive moat, in the absence of the global majors.
  • Today, MF looks similar to Xero in 2013. If MF follows the same growth trajectory, investors could be looking at a 9-bagger.  

Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn

By Andrei Zakharov

Sumo Logic provides best-in-class cloud monitoring, log management, cloud SIEM tools and real-time insights for web and SaaS based apps. Company is looking for innovative ways to reduce costs, exposure to security vulnerabilities and helps organizations at every stage of digital transformation. Sumo Logic has 2,100+ customers, including Airbnb, Anheuser-Busch, Samsung, Fastly, Okta, Sharp, One Medical, Teladoc, Fidelity, Medallia. We have positive view on Sumo Logic despite COVID-19 pandemic and intense competition from Elastic, Splunk and Datadog. Sumo Logic stock currently trades at 10x our FY 2021 revenue estimate of ~$200 million and our Sep 2021 price target of $39 a share implies ~56% upside potential keeping in mind $400 million of cash and cash equivalents after successful IPO.

Sumo Logic offered ~15 million shares at $22 a share (above the range) and we estimate net proceeds from the offering to reach $300 million. Tiger Global Management has indicated an interest in purchasing up to 10% of the shares in this offering at IPO price. Lead underwriters are Morgan Stanley, J.P. Morgan, RBC Capital Markets and Jefferies.


Palantir DPL Valuation Analysis

By Douglas Kim

Palantir is ready to complete its Direct Public Listing on September 23rd. 

Our valuation analysis suggests an implied market cap of $29.7 billion and a target price of $13.7 per share for Palantir (49% higher than the base price of $9.2 per share). The IPO price range is from $11.1 (low) to $16.6 per share (high). Assuming Direct Public Listing (DPL) market cap of $20 billion and diluted shares of 2.17 billion, this suggests $9.2 per share. Given the solid upside, we have a positive view of this DPL.

There are three key positives with Palantir which we believe are likely to outweigh its negatives, leading many investors to value this company at nearly $30 billion.

  • First, we believe the company’s accelerating sales growth since the launch of its Foundry product in 2017 is likely to be valued highly. The company’s sales growth is clearly much higher than its peers in 2020. 
  • Second, Palantir has picked a great time to complete its public offering with great investors demand high-quality software-related stocks this year.
  • Third, Palantir has been enjoying a noticeable improvement in its operating margins and the company possesses a strong balance sheet. 

Before it’s here, it’s on Smartkarma

TMT: Sina Corp (Class A), LINE Corp, NVIDIA Corp, Ming Yuan Cloud Group and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Homecoming For Chinese Companies: Appraisal Rights & Fair Value
  • LINE: The Zombie Twilight Begins
  • NVIDIA+Arm. Strategically Solid But Practically Impossible.
  • Ming Yuan Cloud IPO – In the Right Place at the Right Time

Homecoming For Chinese Companies: Appraisal Rights & Fair Value

By David Blennerhassett

On 20 May 2020, the US Senate passed the  S. 945 the Holding Foreign Companies Accountable Act, an act which could force the delisting of US-listed Chinese companies should they be in noncompliance with US accounting standards. Shortly after, the U.S. House of Representatives introduced its version of the Bill which has yet to pass.

This bill requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the Public Company Accounting Oversight Board (PCAOB) is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the board. Furthermore, if the board is unable to inspect the issuer’s public accounting firm for three consecutive years, the issuer’s securities are banned from trade on a national exchange or through other methods. 

This creates a conundrum, if not an impossibility, as Chinese regulators forbid foreign regulatory bodies, such as the PCAOB, from inspecting accounting firms based in China. 

The Act, which is still to be ratified by the House, reconciled with the Senate bill, and approved by President Trump, provides even greater impetus for “take private” transactions (often expecting to re-list elsewhere at higher valuations) and secondary listings in markets outside of the United States, such as Hong Kong and Shanghai.

Hong Kong is laying out the welcome mat. First the HKEx amended its listing rules in April 2018 to allow companies with multiple classes of shares with individual-controlled voting rights to sell shares in Hong Kong. This new listing regime enabled secondary listings for the likes of JD.com Inc (ADR) (JD US) / JD.com (HK) (9618 HK) and Alibaba Group (BABA US) / Alibaba Group (9988 HK). Further changes to the Listing Rules are anticipated to accommodate companies with corporate shareholders with weighted voting rights – such as Tencent Music (TME US).

But on occasion, the consideration paid under these take-private “homecoming” transactions are not always considered fair by the investment community.

The recently completed 58.Com Inc Adr (WUBA US) (58.com: Foregone Conclusion Amidst Proxy Advisor Pushback) faced considerable proxy advisor backlash. Similarly, Sina Corp (Class A) (SINA US)‘s preliminary non-binding “going private” proposal from its chairman/CEO,  is widely viewed as a low-balled, opportunistic Offer (Sina Corp: Management Buyout Offer). 

For Cayman Islands incorporated companies, such as SINA and 58.com, Section 238 of the Companies Law (2020 Revision) may provide scope for dissenting shareholders to a merger/take-private transaction to have the Grand Court determine the fair value of their shares.

That right to dissent also hinges off how these take-private transactions are undertaken,

As of today, four cases have resulted in final judgments handed down by the Grand Court of Cayman – Integra Group, Shanda Games Ltd Spons Adr (GAME US), Qunar Cayman Islands (QUNR US), and most recently, Nord Anglia Education (NORD US).

What’s Original?

This insight explores the mechanics of Section 238 of the Cayman Companies Law, the case history of four appraisal rights judgments, and what dissenting shareholders may expect when taking their merger objections to Court.


LINE: The Zombie Twilight Begins

By Travis Lundy

The life of LINE Corp (3938 JP) as a listed entity with a listed future is now entering its Zombie Twilight. The Tender Offer by Softbank Corp (9434 JP) and Naver Corp (035420 KS) to buy out minorities has ended and we now move on to the next stage. 

Today the results of the Tender Offer for LINE were announced and the Offerors managed to acquire a sum total of 31,234,670 shares leaving about 25,000,000 shares left over un-tendered (plus options and converts un-converted). That is 25,000,000 million shares worth of zombie shareholders who will roam the markets until the shares’ final retirement after the EGM. 

That is $1.25bn+ worth of zombies at the Tender Offer Price. 

The now-zombies defended their boundary, keeping the shares above the ¥5380 Tender Offer Price line from late June until the day before the Tender Offer went ex-.

 

The period between now and the delisting of LINE could be 4-5 months. It could take 5-6 months to get one’s money, unless one is going after appraisal rights. Then it will take a little longer, unless it takes a lot longer. 

This situation is different from the post-Tender trading situation of FamilyMart Co Ltd (8028 JP) and one should not expect the squeeze which happened there. 

Previous insights related to this situation and the names involved are listed below.

Relevant Insights

Date Author Title

About Cashless Payments

13 Mar 2019 Michael Causton  Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 
2 Apr 2019 Mio Kato, CFA  Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 
28 Jun 2019 Supun Walpola  Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 
6 Jan 2020 Michael Causton  Lawson and KDDI Join Forces in Cashless Payments War 
24 Jan 2020 Michael Causton  Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 
15 Feb 2020 Michael Causton  Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 
20 Mar 2020 Michael Causton  Some Resistance to Cashless Payments in Japan 
28 Apr 2020 Michael Causton  Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 
29 Jul 2020 Supun Walpola  Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint 

About This Deal

14 Nov 2019 Travis Lundy Z and LINE, Sitting in a Tree… M.E.R.G.I.N… G…? 
18 Nov 2019 Travis Lundy LINE and Z, Sitting in a Tree… M.E.R.G.I.N.G! And a Tender Offer! 
26 Dec 2019 Travis Lundy NEW Deal for LINE (A Lot Like the Old Deal)
6 July 2020 Travis Lundy Market Is Pricing a LINE Bump – Should It? 
22 July 2020 Travis Lundy A LINE Bump – The Other Argument Against 
29 July 2020 Travis Lundy LINE (3938) – This Is Not the Kitchen Sink You Are Looking For 
3 August 2020 Travis Lundy The End of the LINE (3938) 

In addition to the above insights, Michael Causton’s The Zozo Revival: A New Private Brand of Many Names, Category Expansion, Merchants Return is worth a read to know more about Z Holdings going forward and Mio Kato, CFA‘s Zozo – Nice Results but It’s Just a COVID Bump takes the view that results announced last week were less impressive than the headline numbers.


NVIDIA+Arm. Strategically Solid But Practically Impossible.

By William Keating

The much-anticipated acquisition by NVIDIA of Arm from Softbank was formally announced on Monday. The transaction is valued at $40 billion, an approximately equal combination of cash and NVIDIA stock.

On the surface the deal looks strategically solid from NVIDIA’s perspective. It places the company at the center of Arm’s one hundred and eighty billion connected device ecosystem. Perhaps even more importantly, it opens up the possibility of an outright assault on Intel’s data center dominance by adding Arm-based server processors to complement NVIDIA’s existing lineup of GPUs and interconnect.

Underneath the surface however, this deal is fraught with issues and risks. While Arm has been a very successful company, their growth is flatlining as smartphone sales stagnate. Furthermore, we see the rise of RISC-V as a very real threat to Arm’s business model in the coming years. Arm has never competed with its customers. Under NVIDIA ownership, this will be virtually impossible to avoid.

From a regulatory perspective, Arm IP moving under american ownership will raise the very real prospect that this technology will become a future weapon in the US-China trade and technology wars. In today’s environment, it’s difficult to see why China would agree to facilitate that possibility.

All in all we think this deal is not as good as it seems on the surface and that it will be practically impossible to get through the regulatory approval process. 


Ming Yuan Cloud IPO – In the Right Place at the Right Time

By Mio Kato

Examining Ming Yuan Cloud by including its results from when it traded on the Shenzhen stock exchange as Shenzhen MingYuan Software paints a picture of a company that has enjoyed transformative growth after focusing on cloud and SaaS. We have some governance concerns and our in-depth look at the numbers suggests the company’s exposures may not be quite as attractive as they look on the surface, but nevertheless prospects look relatively good and with Snowflake leading the way with extremely slick marketing of its IPO we feel Ming Yuan Cloud could also reap some of the benefit of the excitement that is being generated.


Before it’s here, it’s on Smartkarma

TMT: Kakao Games, Hexaware Technologies, Ming Yuan Cloud Group, iHuman Inc., Altice Nv A, JFrog Ltd and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Kakao Games: Current Selloff & KOSDAQ 150 Inclusion
  • Hexaware Exit Offer Reverse Book Build Gets 90% & Discovered Price – Now We Wait
  • Ming Yuan Cloud IPO – SaaSy, but Regional Channel Partners Are SaaSier Still
  • Ming Yuan Cloud IPO: Valuation Insights
  • IHuman Inc (洪恩) Pre-IPO – Overly Reliant on One App to Generate the Majority of Revenue
  • Altice – Next Private Takeover Announcement
  • JFrog IPO Valuation Analysis

Kakao Games: Current Selloff & KOSDAQ 150 Inclusion

By Sanghyun Park

Kakao Games is undergoing the second day of a well-anticipated correction.

It is now down -7.7% this morning. The current TV is already one fourth that of yesterday, which soared to ₩1.5tril, 25% of the market cap.

Again, as well expected, the foreign short-term IPO money has all left Kakao G. As of the previous close, the FO % was 0.59%, down by 2.04 percent point from 2.63%. Presumably, it is even lower now.

Date Close (₩) % TV TV (₩B) Local inst. Foreign FO FO %
2020.09.15 68,100 -7.72% 5,400,000 367.7
2020.09.14 73,800 -9.00% 20,213,705 1,491.8 -578,393 -999,063 428,995 0.59%
2020.09.11 81,100 29.97% 5,013,124 406.6 -786,093 -397,435 1,428,058 1.95%
2020.09.10 62,400 30.00% 561,750 35.1 -100,870 -99,289 1,825,493 2.49%
– Opening price 48,000 100.00% 1,924,782 2.63%
– IPO price 24,000
Source: KRX

At the current price, the PERs range from 63.4x to 85.2x on FY20E earnings (an EPS band of ₩800~1,074).

PERs/FY20E earnings (₩B) Earnings EPS Price PER
1H20 annualized 65.0 ₩858 ₩68,100 79.36
Hanwha 68.7 ₩907 ₩68,100 75.11
Daishin 81.4 ₩1,074 ₩68,100 63.39
Shinyoung 75.0 ₩990 ₩68,100 68.80
– Case 1 60.6 ₩800 ₩68,100 85.15
– Case 2 66.9 ₩883 ₩68,100 77.13
– Case 3 73.2 ₩966 ₩68,100 70.49
Source: DART, KRX, & HK Consensus
Consolidated (₩B) 2020E 2021E
Sales 505.0 557.5 610.0 602.0 738.0 874.0
– Existing lineup 400.0 400.0 400.0 300.0 300.0 300.0
– Guardian Tales 75.0 112.5 150.0 180.0 270.0 360.0
: Release date July 29, 2020
: Daily est. sales 0.50 0.75 1.00 0.50 0.75 1.00
– Elyon 30.0 45.0 60.0 72.0 108.0 144.0
: Release date November 1, 2020
: Daily est. sales 0.50 0.75 1.00 0.20 0.30 0.40
– Other 0.0 0.0 0.0 50.0 60.0 70.0
OP 70.7 78.1 85.4 84.3 103.3 122.4
NP 60.6 66.9 73.2 72.2 88.6 104.9
Post-IPO SO 75,768,385 75,768,385 75,768,385 75,768,385 75,768,385 75,768,385
EPS (₩) (Case 1) 800 (Case 2) 883 (Case 3) 966 953 1,169 1,384
P/E multiple 34.90 34.90 34.90 34.90 34.90 34.90
Target price (₩) 27,915 30,817 33,719 33,277 40,795 48,313
– Lower-end discount 28.35% 35.10% 40.69% 39.90% 50.97% 58.60%
– Upper-end discount 14.03% 22.12% 28.82% 27.88% 41.17% 50.32%
– OTC price discount -179.42% -153.10% -131.32% -134.40% -91.20% -61.45%
Source: DART

Even at today’s harshly corrected price, Kakao G still stands at Korea’s most expensive game stock as even the lower end of the PER range is higher than Netmarble, which is the second over-inflated game company.

PERs/FY20E earnings (₩B) Sales OP Earnings PER OPM NPM
Netmarble Corp 2,597.3 272.7 270.3 58.25 10.50% 10.41%
NCSoft Corp 2,561.9 947.5 733.9 24.56 36.98% 28.65%
PearlAbyss Corp 524.6 185.3 150.4 17.48 35.32% 28.67%
Com2uS Corp 513.8 128.6 121.0 12.97 25.03% 23.55%
WE MADE Co Ltd 121.4 6.4 13.8 46.87 5.27% 11.37%
Webzen Inc 257.7 79.4 63.2 21.04 30.81% 24.52%
Neowiz 296.0 67.8 58.5 11.01 22.91% 19.76%
Doubleu Games Co Ltd 662.8 204.5 145.0 9.41 30.85% 21.88%
Kakao Games Corp 557.5 78.1 66.9 74.52 14.00% 12.00%
Source: KRX & DART

Hexaware Exit Offer Reverse Book Build Gets 90% & Discovered Price – Now We Wait

By Travis Lundy

Hexaware Technologies (HEXW IN) took it down to the wire. The Reverse Book Build got to the 90.0% threshold at a little past 2:30pm local time, and small shareholders continued putting in offers until 5pm local time. 

It looks, from a combination of the BSE data and NSE data that we have a Discovered Price. 

Now we wait. 

More comment below the fold. 


Ming Yuan Cloud IPO – SaaSy, but Regional Channel Partners Are SaaSier Still

By Mio Kato

Ming Yuan Cloud offers software dedicated to the real estate industry and is the market leader in China. The company has already secured a bevy of high-class investors as cornerstones with Sequoia, GIC, Fidelity and Blackrock on board. We examine the company’s business model and market exposure below.


Ming Yuan Cloud IPO: Valuation Insights

By Arun George

Ming Yuan Cloud Group (MYCG HK) is the leading software solution provider for property developers in China with a market share of 18.5% as measured by revenue in 2019, according to Frost & Sullivan. Ming Yuan has launched its IPO at a price range of $15.00-16.50 per share. At the mid-point of the IPO price range, Ming Yuan will raise net proceeds of HK$5,635.9 million ($727 million). Six cornerstone investors will subscribe for 36.3% of the shares under the global offering, at the mid-point of the IPO price range. The cornerstone investors are Hillhouse Capital, GIC, China Structural Reform Fund, Sequoia Capital, BlackRock and Fidelity International. 

In our initiation note, we stated that Ming Yuan’s fundamentals are attractive due to several factors. Overall, we think that a reasonable PEG valuation, a market-leading business and solid cornerstone support makes Ming Yuan tempting at the proposed pricing range. 


IHuman Inc (洪恩) Pre-IPO – Overly Reliant on One App to Generate the Majority of Revenue

By Zhen Zhou, Toh

iHuman Inc. (IH US) is looking to raise US$100m in its upcoming IPO in the U.S.

iHuman is a childhood edutainment company in China. The company develops products and services that caters to the education demands of children aged between three and eight. The company has developed and now operates the widely popular app, iHuman Chinese. It also operates other apps such as iHuman English World, iHuman Pinyin, and etc. On top of its app business, the company sells offline products that include learning materials, smart reading pens, building blocks, and learning consoles.

In this note, we will look at the company’s background, analyze its financials and operating metrics, and share our thoughts.


Altice – Next Private Takeover Announcement

By Jesus Rodriguez Aguilar

  • Patrick Drahi, through Next Private has launched an agreed takeover offer for the 22.42% shares of Altice Nv A (ATC NA) he does not already own, with the aim of taking it private and delisting the company. The minimum acceptance level to achieve this is 95%.
  • The bid price represents 2.8x EV/NTM Revenue, 7.2x EV/NTM EBITDA and 23.8x EV/NTM EBIT (Capital IQ consensus). 
  • Altice is one of Europe’s biggest HY issuers, rated B by S&P.
  • The offer price takes advantage of the dismal performance of European telcos on the stock market following the onset of the Covid crisis. It is difficult to believe that shareholders will accept an offer below recent highs in February, and there are chances of an improved offer. Performance is improving at SFR (France), the company’s biggest subsidiary.
  • The shares are trading between EUR 4.15 and 4.12, with a close on Tuesday 15 of EUR 4.14, with a volume traded of c. EUR 24 mn.
  • I recommend using this price levels of EUR 4.12-4.15 as an entry point and holding out for an improved offer.

JFrog IPO Valuation Analysis

By Douglas Kim

In this insight, we provide a valuation analysis of JFrog which raised the IPO price range to $39 to $41 per share from $33 to $37 due to higher investors’ demand. The company and existing shareholders are selling 8 million shares and 3.57 million shares, respectively. At $41 per share, the JFrog IPO could raise $474 million. 

Our valuation analysis suggests an implied market cap of $5.0 billion and a target price of $55.2 per share for JFrog. The IPO price range is from $39 to $41 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 35% upside to this price level. Given the solid upside, we have a positive view of this stock.

The key investment thesis of JFrog is that it is a company has been able to capitalize on its first mover’s advantage in this new product category of Continuous Software Release to scale up its business significantly without spending large sums of money on sales & marketing and this is one of the key reasons why the company has quickly become profitable.


Before it’s here, it’s on Smartkarma

TMT: Softbank Corp, Softbank Group, Xiaomi Corp, PC Partner, Ming Yuan Cloud Group, Snowflake Inc, Amazon.com Inc, Chindata and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Softbank Corp (9434) – Time To Cover
  • Softbank – Interpreting the Arm Sale
  • Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling
  • PC Partner: Poor-Man’s Play on Nvidia  (Part 2); Trades at 2x FY20 P/E and 14% Dividend Yield
  • Ming Yuan Cloud (明源云) IPO – Better Disclosure and a Leader in the Industry
  • Snowflake – Extremely Pretty, but Liable to Melt in Amazon’s Sun
  • Snowflake: Making It Rain
  • India Internet & Consumer Weekly | Amazon, Xiaomi, Zomato, PUBG, India’s Dual Listing Norms
  • Ming Yuan Cloud IPO Initiation: New Wiring
  • Chindata IPO: Making Good Progress but Challenges Ahead

Softbank Corp (9434) – Time To Cover

By Travis Lundy

When the Softbank Corp (9434 JP) block was announced on 28 August after the close, it was one of the larger secondary blocks ever placed in Japan, and it was underwritten.

It was always going to get sold rather than bought, and it appears that it has been sold. For some reason I could not figure out, the shares only fell 3-4% or so on the first day and then stayed stable for a few days. I thought it needed more of a wallop to see pricing come out right. 

It has, in the interim, been walloped. 

Now is the time to cover that sale in the market if you shorted, and to buy back if you sold long. 

The implied dividend yield on the offering is now (as I write) above 7%. Suganomics may not favor telcos but I expect the telcos probably have enough leverage to push back from time to time. 

More below the fold.


Softbank – Interpreting the Arm Sale

By Mio Kato

So the Arm sale is finally here, as is the $40bn that Softbank was looking for… sort of. We had commented previously that we felt Softbank’s mark for Arm was optimistic (this could be debated now but we actually feel this acquisition lends credence to this view), the acquisition would probably be heavy on the share component, and that exclusion of Arm’s IoT business from the deal would be a no-confidence vote from Nvidia and a repudiation of Son’s “Vision”. On the latter point we believe we were correct.


Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling

By Sumeet Singh

Xiaomi Corp (1810 HK)‘s co-founder Lin Bin aims to raise around US$1bn via selling some of his stake in the firm.

While he has provided a long lock-up to allay any concerns of an overhang, the shares have run-up a lot going into the index inclusion. 


PC Partner: Poor-Man’s Play on Nvidia  (Part 2); Trades at 2x FY20 P/E and 14% Dividend Yield

By Nicolas Van Broekhoven

Several years ago we wrote about PC Partners (1263 HK): A Poor Man’s Way into Nvidia New GPU Cycle; Trades at 3x PE and 11% Div Yield.

We see a similar trade coming up in 4Q20 and into 1Q21.

As demonstrated over the years covering PC Partners the stock is rarely a buy & hold. With Nvidia’s new RTX30 GPU launch (GTX3060/GTX3070/GTX3080 and GTX 3090) being spread out from October to December there is likely to be excitement around its performance and uptake.

Much different than in FY18 there is no large oversupply from a deflating crypto bubble. This means there is no old inventory to clear which should result in much better GPM and NPM for Pc Partners. Please also note that gearing for Pc Partner in 2018 was over 100% while the company will have a net cash position by the end of FY20.

Pc Partner remains a poor man’s way to play Nvidia and key themes such as e-sports, AI, data centers, and overall gaming. We expect dividends to be reinstated for FY20. On our estimates, the company will achieve 8 billion HKD in FY20 sales and generate 272 million HKD in net profit (3.4% NPM). If we assume a 30% payout on that we get a 0.22 HKD/share full-year dividend or a 14% dividend yield. We expect the stock to reach 3 HKD in the coming 6 months. Upside could come from a bullish breakout in cryptocurrencies as crypto mining (which consumes massive GPU) comes back in vogue. The downside is capped by a very cheap valuation.


Ming Yuan Cloud (明源云) IPO – Better Disclosure and a Leader in the Industry

By Zhen Zhou, Toh

Ming Yuan Cloud Group (MYCG HK) (MYCG) is looking to raise up to US$796m in its upcoming Hong Kong IPO.

MYCG is a software solution provider in China with a focus on real estate. The company provides enterprise resource planning (ERP) solutions and SaaS products to property developers and other industry participants in the real estate value chain in China. As per Frost & Sullivan (F&S), the company is ranked first among software providers for property developers in China and has a dominant 24.6% market share in terms of contract value in 2019.

In this note, we will look at updates in the new PHIP filing, do a brief peer comparison, and share our assumptions, and thoughts on valuation.

Our previous coverage of the IPO:


Snowflake – Extremely Pretty, but Liable to Melt in Amazon’s Sun

By Mio Kato

The Snowflake IPO has attracted significant investor interest including some pretty impressive names such as Warren Buffett and Salesforce. Indeed, the company’s business is impressive, and its sales growth should help drive a successful IPO in our opinion. However, that does not mean the company is without issues and while we suspect this could be a good trade, we are sceptical about its merits as an investment, and not just because of demanding valuations but also because it is unclear how the company will defend its currently attractive position against Amazon and other large players.


Snowflake: Making It Rain

By Aaron Gabin

We’ve looked into many IPOs over the last 20 years, and think Snowflake is one of the better ones we’ve come across. Its architectural competitive advantages vs. legacy data warehouse providers are simply insurmountable, and while the cloud platforms loom as eventual rivals, we think this management team knows how to carve out a defensible place amongst the cloud titans.

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.


India Internet & Consumer Weekly | Amazon, Xiaomi, Zomato, PUBG, India’s Dual Listing Norms

By Pranav Bhavsar

Our objective with this weekly is to highlight notable developments in the India internet and consumer sector focusing on public and private companies. The sub-sectors covered include payment providers, e-commerce retailers,  social media platforms and consumer companies.


Ming Yuan Cloud IPO Initiation: New Wiring

By Arun George

Ming Yuan Cloud Group (MYCG HK) provides enterprise-grade ERP solutions and SaaS products to property developers and other industry participants along the real estate value chain in China. It is the leading software solution provider for property developers in China with a market share of 18.5% as measured by revenue in 2019, according to Frost & Sullivan. Ming Yuan has launched a Hong Kong IPO to raise as much as HK$6.17 billion ($798 million), according to press reports.

The software solutions market for the real estate industry is growing due to expanding business operations of property developers which increases complexity and the intensifying competition which drives the need for property developers to use technology to lower costs. The key barrier to entry for software developers is deep industry know-how, which Ming Yuan has in spades. Overall, we believe that Ming Yuan is an attractive play on these market dynamics.


Chindata IPO: Making Good Progress but Challenges Ahead

By Shifara Samsudeen, ACMA, CGMA

  • Chindata (CD) is the leading carrier-neutral hyperscale data center solution provider in Asia Pacific emerging markets and the company focuses on China, India and Southeast Asian markets.
  • According to Frost & Sullivan, Chindata was ranked first in the carrier-neutral hyperscale data center market in Asia-Pacific emerging markets in terms of capacity in service, with a 21.5% market share (as of December 2019).
  • The company operates six hyperscale data centers in China and one data center in Malaysia and is in the process of constructing five data centers in China and one data center in India as of the date of the IPO prospectus.
  • The company has filed for an IPO in the US and has a placeholder indication to raise up to US$400m and plans to use approximately 70% of the IPO proceeds on the development and construction of new data center projects.

Before it’s here, it’s on Smartkarma

TMT: Chindata, Nintendo Co Ltd, Masmovil Ibercom, Unity Software Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Chindata Group IPO Initiation: Where the Cloud Meets the Ground
  • Nintendo – Catalysts to Support the Stock for the Next Year
  • MásMóvil: End of Acceptance Period
  • Unity Software IPO Valuation Analysis

Chindata Group IPO Initiation: Where the Cloud Meets the Ground

By Arun George

Chindata (CD US) is a data centre operator. It is the largest carrier-neutral hyperscale data centre operator in Asia-Pacific emerging markets as measured by capacity in service, with 21.5% market share out of a total market size of 829 MW, according to Frost & Sullivan. Chindata is backed by Bain Capital (57.17% shareholder), APG Strategic Real Estate Pool/Dutch pension funds (10.43%) and SK Holdings (034730 KS) (8.94%). It is seeking to raise up to $800 million (primary and secondary sale) through a Nasdaq IPO, according to press reports. 

The Asia-Pacific hyperscale data centre market is a structural growth market in part due to the increasing prevalence of outsourcing data centre services, rising client demand for higher power density and scalability, and increasing compliance and regulatory requirements on data security. Overall, we think that Chindata is an attractive play on these favourable market dynamics. 


Nintendo – Catalysts to Support the Stock for the Next Year

By Mio Kato

Positive news flow on Nintendo is increasing. Leaks regarding the new upgraded version of the Switch due next year are increasing and interesting, while the company has also asked suppliers to boost production of the Switch… again. There are also increasing signs of building third party support for the platform. What is pertinent is that this time it appears that third parties are finding some real success on the platform. We think this is underappreciated by the market and enables further upside.


MásMóvil: End of Acceptance Period

By Jesus Rodriguez Aguilar

  • On 10 September, Lorca Telecom Bidco SAU communicated to the CNMV that the offer had been accepted by more than 50% of the shares of Masmovil Ibercom (MAS SM) (therefore meeting the minimum accepance condition).
  • On 11 September ended the acceptance period of the takeover bid by Lorca Telecom Bidco SAU for Masmovil Ibercom (MAS SM) .
  • MásMóvil last closed at EUR 22.42
    • a gross spread of 0.35% to the takeover offer.
  • Using ten estimates, the mean target price on Capital IQ consensus is 25.5 per share.
  • Polygon sent a second letter to the CNMV with valuation details backing its assertions and refuting PwC’s valuation, on which the CNMV based its judgment that Lorca’s bid was fair.
    • In a nutshell, regarding the price offered, Polygon has expressed its “complete disagreement” with the content and conclusions of the valuation report published as an annex to the brochure and issued by PwC on July 24.
    • Polygon believes that the PwC valuation is at least “seven or eight euros below a fair offer” (i.e. in the neighbourhood of EUR 30).
  • I believe that Polygon is going to fight this one. A EUR 3 per share improvement would mean additional spending by Lorca of EUR 394 mn.
  • According to the takeover law, investors have three months from the end of the acceptance period to request that the company buy its shares at the same price at which the offer was made.
  • While it makes complete sense to cash in the chips, and I guess most institutionals would have done so, staying long and holding for an improved offer (with a 15% upside) does not look a foolish option either.

(Please, see timetable in the note)


Unity Software IPO Valuation Analysis

By Douglas Kim

Unity Software Inc (U US) plans to complete its IPO in the coming days. The company is seeking to raise $1.05 billion in this IPO selling 25 million shares at $34 to $42 per share. At the high end of the IPO price range, Unity Software would be valued at about $11 billion. Unity Software was valued at about $6 billion in July 2019 in its last round of private funding round so, at the high end of the IPO price range, it would be nearly double its last private market valuation about a year ago.  

Unity Software’s IPO process is using a new bidding process. According to FT, “Prospective institutional investors will be asked how many shares they wish to buy, and at what price, by an online system managed by Goldman Sachs, according to a notice sent out to explain the new process. Investors can place multiple bids at difference prices. Unity will select a price for the offering after the bids are entered, allocating a portion of the shares to all investors who indicated interest above that price level.”

Our valuation analysis suggests an implied market cap of $15.6 billion and a target price of $58.60 per share for Unity Software. The IPO price range is from $34 to $42 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 39% upside to this level. In fact, given the strong global demand for excellent software and game-related companies, there is a higher probability that Unity Software IPO trades in the mid-high end of our valuation range ($58.60 to $70.90 per share).


Before it’s here, it’s on Smartkarma

TMT: Softbank Group, Chindata and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Softbank Wrapping up Arm Sale While Wrestling With Alarmed Investors
  • Chindata Group Holdings Pre-IPO – Patchy Data but Is Growing Fast in a Hot Sector

Softbank Wrapping up Arm Sale While Wrestling With Alarmed Investors

By Vicki Bryan

Sold! Softbank is said to be closing in on a deal to sell Arm Holdings (ARM LN) to NVIDIA Corp (NVDA US) for more than $40 billion in cash and stock in a deal that could be announced as soon as Monday, according to reports out today by The Wall Street Journal and Financial Times.

This finally may be some good news for Softbank’s investors, shaken by news last week that it had launched a massive options program so large it helped move markets on stocks it just bought.

This was funded with cash Softbank had said it must protect against conditions too risky to allow it to execute promised stock buybacks and debt repayment to repair its damaged balance sheet (read more in Softbank’s Son “Feeling The Force” With Options Funded With Cash It Had Pledged To Protect on 9/8/20).

I warned last week Softbank had deliberately withheld and misrepresented material information about such a dramatic change in strategy direction and risk in its earnings presentation to investors just weeks ago.

On Sunday, Softbank’s top investors went straight to the top to find out why—the answer is troubling, but not surprising.

Read on for Bond Angle commentary.


Chindata Group Holdings Pre-IPO – Patchy Data but Is Growing Fast in a Hot Sector

By Sumeet Singh

Chindata Group Holdings aims to raise around US$400m in its US listing. Chindata is a data centre solution provider in Asia-Pacific with a focus on China. It currently operates six data centers in China and one in Malaysia and has numerous more data centers under construction.

The company is backed by Bain Capital and is almost like a startup, in the sense that it was recently formed via the merger of a China and Asia-Pac entity. Given the relative freshness of the firm, the company has taken the liberty of providing financials just for the past 18 months, which of course show rapid growth. Also, it doesn’t provide a whole lot of details about its individual assets. Furthermore, its two large clients account for a huge chunk of its revenue, one of which is Bytedance, the other being Wangsu.

On the positive side, Chindata has plans to more than double its capacity by the end of 2021, which will ensure that growth remains strong. Moreover, its Chairman and founder appear to have ample experience in the sector. It operates in a sector which has only seen investor demand increase during COVID-19 and hence, despite its lack of financials will probably still be hot. 

In this note, I’ll talk about the company’s background, its past performance and the above issues.


Before it’s here, it’s on Smartkarma

TMT: JFrog Ltd, Unity Software Inc, Palantir Technologies Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • JFrog IPO. Profitable Tech Unicorn With Substantial Post-IPO Upside
  • Unity IPO Valuation – Disappointingly Un-Epic
  • Major Highlights of the Palantir Investors Day Presentation

JFrog IPO. Profitable Tech Unicorn With Substantial Post-IPO Upside

By Andrei Zakharov

JFrog is one of the leaders in the software update industry. Tech unicorn helps developers and organizations to be more agile, faster, secure in the software release lifecycle and offers a universal set of DevOps tools that work with all major software technologies to accelerate the delivery of software packages or binaries through delivery pipeline. DevOps affects healthcare, politics, social interaction, food & water, transportation and energy. Just imagine, Facebook, LinkedIn and Netflix update software 7 times a day. That is why releasing and updating software is especially important in the era of digital transformation and the transition to cloud. Number of devices and applications is growing at unimagined rate as well as data – 175 ZB globally by 2025, mostly cloud.

JFrog is offering ~12 million shares at valuation range of $33-37 and we estimate net proceeds from the offering to reach $255 million at midpoint. Lead underwriters are Morgan Stanley, BofA Securities and J.P. Morgan


Unity IPO Valuation – Disappointingly Un-Epic

By Mio Kato

When we initially heard about Unity’s plans to IPO, we were quite excited and felt some anticipation. Given the positioning serving mobile game customers and emerging trends using game engines in movies and other 3D modelling software we felt that market prospects were good and on hearing that gross margins were about 80% we imagined that operating margins could be 40 or 50% and were starting to rub our hands in expectation. Thus, we were stunned to see that the company was loss-making and analysing its financials caused any optimism we had to evaporate. The company plays a nice role democratising game development but as an investment it totally underwhelms.


Major Highlights of the Palantir Investors Day Presentation

By Douglas Kim

Palantir is expected to complete its Direct Public Listing (DPL) on 23 September. Although the valuation pricing levels of Palantir’s DPL are yet to be announced, it appears that they will be lower than the implied valuation of $20 billion that the company received in the private round funding in 2015. The company’s updated prospectus, which includes the latest shares outstanding and average shares price, sets the company’s valuation at about $10.5 billion.

With the company’s financials now publicly available, there is a strong probability that the DPL will NOT price the company at close to $20 billion. This is a distinctly different case than Snowflake where its IPO valuation is much higher than the private market valuation Snowflake received in early 2020. Overall, there could be more interested investors in Palantir if the DPL valuation is set close to about $15 billion, in our view.

In this insight, we provide the key highlights of the Palantir Investor Day presentation which was held on 9 September. (Source: https://vimeo.com/palantir) It is always good to hear directly from the key members of the senior management team. We provide 13 key highlights from the presentation. 


Before it’s here, it’s on Smartkarma

TMT: Snowflake Inc, Softbank Group, Koei Tecmo Holdings, Palantir Technologies Inc, Joy Spreader Interactive Technology, Softbank Corp, RPA Holdings Inc, Chatwork Co Ltd and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Snowflake IPO – Approved by the Oracle of Omaha
  • Softbank Group – Funding Secured by Masayoshi Musk?
  • Koei Tecmo – The Market Is Sleeping on the Zelda Musou Nintendo Tie-Up for Switch but Shouldn’t
  • Palantir – The Anti-WeWork and Updates From Its Presentation
  • Joy Spreader (乐享互动) IPO – Fairly Valued at Best
  • Softbank Corp Placement – Quick Update – Wide Discount from Undisturbed but Don’t Expect Much
  • Small Cap Growth: RPA (6572) – The Digital Workforce
  • Joy Spreader IPO Initiation: For the Joy of It
  • Small Cap Growth: Chatwork (4448) – It’s Good to Chat.

Snowflake IPO – Approved by the Oracle of Omaha

By Douglas Kim

In this insight, we provide a valuation analysis of Snowflake which has set its IPO price range of $75 to $85 per share. At these prices, Snowflake’s market cap would range between $20.9 billion and $23.7 billion. Snowflake could raise more than $2.7 billion in this IPO and this would be one of the biggest IPOs in the U.S. stock market this year. The valuation range is a big jump from the valuation the company received earlier this year when it was valued at about $12.5 billion (raising $479 million in its Series G funding round).

It was also announced that Berkshire Hathaway will invest $573 million in the Snowflake IPO, which is likely to have a big positive impact on this IPO, especially among the value-oriented investors globally. Salesforce.Com Inc (CRM US)also plans to invest $250 million in the Snowflake IPO. The private placement investments by Berkshire Hathaway and Salesforce.com will be equal to the IPO price. For Berkshire Hathaway, it plans to purchase 3.125 million new shares of the company’s Class A common stock (assuming $80 per share, this would represent $250 million) and an additional 4.042 million shares of the company’s Class A common stock from one of the existing shareholders (assuming $80 per share, this would represent $323 million).

Our valuation analysis suggests an EV of $37.1 billion, a market cap of $40.4 billion, and a target price of $145 per share for Snowflake. The IPO price range is from $75 to $85 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 70% upside to this price level. We used fully diluted shares outstanding of 278.8 million post IPO and this resulted in a target price of $145 per share. Given the strong upside, we would take this IPO deal. In fact, we are including Snowflake in our model portfolio.


Softbank Group – Funding Secured by Masayoshi Musk?

By Mio Kato

The Japanese language Nikkei had an article out yesterday after the close discussing the possibility of a Softbank MBO. Of course, with Softbank you really never know, but to us this smells like an attempt to drive a short squeeze. We discuss why below.


Koei Tecmo – The Market Is Sleeping on the Zelda Musou Nintendo Tie-Up for Switch but Shouldn’t

By Mio Kato

Two days ago Nintendo released an announcement about Hyrule Warriors: Age of Calamity (Aka Zelda Musou). This is a tie-up with Koei Tecmo and will be essentially a Zelda skin on KT’s Dynasty Warriors series… except it isn’t. More below.


Palantir – The Anti-WeWork and Updates From Its Presentation

By Mio Kato

According to Palantir CEO Alex Karp talking about security and data integration

“If you think that we are going to reduce the complexity of these issues to some weird soundbite that makes sense to somebody in marketing hired by a consultancy you should not invest in Palantir.”

Alex, don’t you believe in the POWER OF WE???!!!

Also

“If you think that we will doggedly build the best software in the world years before anyone else and that we will supply the software at the world’s perfect macro timing we want your support because that’s what we’ve done in the past and that’s what we’re going to do in the future.”

It’s almost as if Alex Karp believes that long-term thinking and actual innovation are more important than enormous losses, slick marketing and Masayoshi Son sensing the force in you… lunatic.


Joy Spreader (乐享互动) IPO – Fairly Valued at Best

By Zhen Zhou, Toh

Joy Spreader Interactive Technology (6988 HK) (JST) is looking to raise up to US$225m in its upcoming Hong Kong IPO.

JST is a performance-based we-media marketing service provider in China. JST connects marketers and we-media publishers via its technology and platforms. The services provided to marketers include analyzing and distributing their products on the we-media network which will help marketers acquire users.

In this note, we will look at assumptions and share our thoughts on valuation.

Our previous coverage of the IPO:


Softbank Corp Placement – Quick Update – Wide Discount from Undisturbed but Don’t Expect Much

By Zhen Zhou, Toh

Softbank Group (9984 JP) (SBG) is looking to raise about US$11bn by selling some of its shares (10%) in Softbank Corp (9434 JP) (SBC). Post sell down, SBG will still hold about 2bn shares (about 42% stake) in SBC.

In this insight, we will look at the deal dynamics, recent performance of the company, and run the deal through our deal framework.

We have previously looked at the May placement, the potential selldown (post announcement selling assets to fund buyback) and its 2018 IPO in:


Small Cap Growth: RPA (6572) – The Digital Workforce

By Mark Chadwick

  • RPA Holdings Inc (6572 JP) is the Japanese leader in the hottest area of enterprise tech, Robotic Process Automation. 
  • Adoption of RPA in Japan is still low and there is a huge potential addressable market.
  • RPA’s BizRobo platform has hit a growth wobble, but the larger, higher margin Robot Transformation segment is on fire. 
  • The stock trades at an 80% discount to global peers.

Joy Spreader IPO Initiation: For the Joy of It

By Arun George

Joy Spreader Interactive Technology (6988 HK) is an ad tech company which connect marketers (namely, product providers and merchants) with we-media publishers. Joy Spreader has launched a Hong Kong IPO to raise around net proceeds of $140-210 million. 

The post-IPO performance of Chinese ad tech companies has been mixed. Consequently, backing the winners is crucial to generate investment returns in the Chinese ad tech sector. For investors seeking Chinese ad tech exposure, we think Joy Spreader’s fundamentals are attractive. We will discuss the IPO valuation in our next piece. 


Small Cap Growth: Chatwork (4448) – It’s Good to Chat.

By Mark Chadwick

  • Chatwork Co Ltd (4448 JP)  is Japan’s leading business chat app provider with a ¥50bn market capitalization.  

  • With 35% topline growth, the company’s future lies in conquering the SME market and then using that as a platform to launch additional value-added services.  

  • Chatwork dominates within the SME chat market and competes head to head with Slack Technologies Inc (WORK US)  in Japan.  


Before it’s here, it’s on Smartkarma

TMT: oRo Co Ltd, Ant Financial, Kakao Games, Slack Technologies Inc, Coupa Software, Apple Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • One “Better” Quality Pick to Consider to Participate in the Future of Japan
  • Ant Group IPO: Key Takeaways from the Response to SSE’s Queries
  • Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure
  • Slack 2Q21 Earnings Recap: Too Much Slack in Billings
  • Coupa 2Q21: P/S Multiples Are Coup-Ed Up
  • Apple to Start Producing 5G IPhones in Mid-September

One “Better” Quality Pick to Consider to Participate in the Future of Japan

By Steven Chen

  • We view Warren Buffett’s move to invest in Japan’s largest trading companies as being indicative of the lack of reasonably-valued opportunities in the US as well as the size disadvantage of Berkshire Hathaway;
  • While being in no place to judge the superinvestor’s investment decision, we find better investment targets to “participate in the future of Japan,” especially for those who manage a smaller AUM than Berkshire;
  • In this article, we list one superior-quality business that serves the backbone of Japan’s economy (i.e., the SMEs);
  • Our investment strategy concentrates on quality from a business perspective and seeks long-term opportunities with a 10%-15% hurdle rate.

Ant Group IPO: Key Takeaways from the Response to SSE’s Queries

By Arun George

On 30 August, the Shanghai Stock Exchange (SSE) posed 21 questions to Ant Financial (1051260D CH) in relation to its IPO filing. Ant responded to the questions in a Chinese regulatory filing on 3 September. As a reminder, Ant has submitted its IPO applications for simultaneous dual-listing in Hong Kong and on the Shanghai stock exchange’s STAR board. Ant is floating no less than 10% of its total share capital to raise around $30 billion, at a valuation of $200-300 billion, according to various press reports.

In this note, we highlight the key questions posed by the SSE and Ant’s response. Notably, several of the questions result in new disclosures by Ant. We examine the new disclosures and provide our take on the responses.


Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure

By Sanghyun Park

Today is the first trading day of Kakao Games.

The latest OTC price is ₩78,000, which gives a market cap of ₩5.9tril.

More importantly, Kakao Games’ trading volume in the OTC market is astonishingly high, suggesting an insanely high level of interest by local retail.

But the street consensus is substantially lower.

Three local brokerages gave an earnings estimate for FY2020. They range from ₩68.7bil (Hanwha) to ₩81.4bil (Daishin).

It is pretty much in line with my projected range (₩60.6~73.2bil).

The PER range is 22.34~26.47x at the offering price of ₩24,000.

If we see the opening price hit the upper end (200%), it will be 44.68~52.94x on FY2020 projected earnings.

Then, it reaches the daily ceiling (+30%), we will have a 58.08~69.82x. 


Slack 2Q21 Earnings Recap: Too Much Slack in Billings

By Aaron Gabin

If all other work from home beneficiaries used by SMBs continue to see explosive growth Zoom Video Communications Inc (ZM US) , DocuSign Inc (DOCU US) , Crowdstrike Holdings Inc (CRWD US) , but you see sharp deceleration, you may have a competition issue.

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.


Coupa 2Q21: P/S Multiples Are Coup-Ed Up

By Aaron Gabin

We have been pitching Coupa as a long since the March bottom, and have been blown away by the surge in its stock and multiple…it went from 15x forward sales to 25x last quarter and stands at 35x forward sales today. A lack of disclosure around Coupa Pay progress and a potentially “conservative” 3Q21 billings guidance says to us its time to move to the sidelines on Coupa and await a better re-entry point

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.


Apple to Start Producing 5G IPhones in Mid-September

By Shifara Samsudeen, ACMA, CGMA

Nikkei reported on Tuesday (08th September 2020) that Apple will begin initial production of its 5G-enabled iPhones in mid-September amid travel restrictions and Covid-19 disruptions. Apple has managed to reduce the delay in the production of its much anticipated 5G iPhones to just weeks instead of months.

Apple usually begins mass production of its new iPhone model in August every year that are scheduled for release during the company’s September event.


Before it’s here, it’s on Smartkarma

TMT: Nexon, Hexaware Technologies, Softbank Group, Double Standard Inc, Palantir Technologies Inc, Douzone Bizon, Joy Spreader Interactive Technology and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Nexon (3659.T): Unfolding Opportunities in the Mobile Games Market
  • Hexaware Technologies Reverse Book Build Auction – It’s On
  • Softbank’s Son “Feeling The Force” With Options Funded With Cash It Had Pledged To Protect
  • Double Standard: SBI Financial Services Alliance and Aster Stake Increase Revive Growth
  • Palantir – Quantamentals Suggest Profitability Could Surge with Revenue Growth
  • Korean New Deal Fund – Could This Be a BBIG Deal?
  • Joy Spreader (乐享互动) Pre-IPO – Found a Niche in Games but Still Just a Middleman

Nexon (3659.T): Unfolding Opportunities in the Mobile Games Market

By Julie Lee

Games are now one of the best entertainment channels for many consumers. The global games market is estimated to grow faster than GDP growth for next few years (8.3% CAGR for 2014-2019), backed by its accessibility, affordability and interesting features from new technologies. Furthermore, the growth rate has been increased due to COVID this year.

Global per capita game spend and China per capita game spend were still only $24.2 per year and $23 per year respectively, as of 2018. Korea had the highest per capita spend of $227 and game spend in other countries, especially China, is expected to catch up given development of devices and IT networks, and increase in disposable income. 

Nexon is one of the largest game developers in Asia. In 2020, it has begun tapping into the huge opportunities of the mobile games market. When other games companies introduced mobile versions utilizing their PC IPs, the mobile versions were able to achieve 2~10x revenues compared to their PC versions.

Nexon’s share price has declined by 13% from the peak, since it had delayed the launch of a key mobile game (“DNF mobile”) on 11th August. The street is expecting it to resume its launch sometime in September. There is a risk that its launch could be further delayed. However, Nexon can still grow its operating profit by 24% CAGR over 2019-2021E without “DNF mobile” and its valuation is not expensive. If “DNF mobile” is successfully launched in September, its operating profit is estimated to grow by 47% CAGR over 2019-2021E. 

Any further correction due to the concern over “DNF mobile” could provide a good buying opportunity for a long term investment in the fast growing entertainment company at attractive valuation.  


Hexaware Technologies Reverse Book Build Auction – It’s On

By Travis Lundy

On Thursday 3 September at mid-day, Hexaware Technologies (HEXW IN) announced that the Exchange had granted In-Principle Approval the day before. Hexaware’s Public Announcement went out on the 3rd. 

The completion of the Despatch of the Offer Letter was announced on 6 September.

The Reverse Book Build Auction will open on the 9th of September and close on the 15th.  The last possible day to announce a counter-offer would be the 17th of September. Settlement would be expected to be the 29 September. 

It’s on. 

I see Mooar Gainz here.

Relevant Insights To Date

Date Theme or Ticker Insight Title
2019 Indian M&A Guide Quiddity India M&A Guide 2019 
24 May 2020 Delisting Offers Indian Delisting/Exit Offers – Know Your Process and The Games Played 
19 Jun 2020 Failed Exit Offers Failed Exit Offers in India: Lessons for VEDL, ADANI, and HEXW? 
8 Jun 2020 Hexaware Tech Hexaware Delisting Proposal – This Could Go Higher 
11 Jun 2020 Hexaware Tech Hexaware:  Dips and Doodles in the Delisting Proposal Process 

Softbank’s Son “Feeling The Force” With Options Funded With Cash It Had Pledged To Protect

By Vicki Bryan

Softbank Group (9984 JP) was revealed on Friday as the massive NASDAQ whale helping to drive unprecedented option volume in recent weeks with its multi-billion dollar call-buying spree in the biggest tech names, as reported by Financial Times and The Wall Street Journal which confirmed speculation Thursday by Zero Hedge.

Softbank’s option trades added to $40 billion in call-buying over the past month traced to retail investors. The resulting frenzy netted Softbank $4 billion in option trading gains—on paper—on its own $50 billion notional exposure.

By comparison, Softbank’s newly acquired long positions in Amazon.com Inc (AMZN US), Alphabet Inc Cl C (GOOG US), Microsoft Corp (MSFT US),  and Tesla Motors (TSLA US) are worth just $2 billion, almost all that’s left of the $10 billion Softbank spent late in the June quarter buying and selling mostly tech stocks at heady prices. Those holdings now are also subject to sharp declines triggered when Softbank’s option scheme was revealed. Sure enough, Softbank lost $9 billion in market value on Monday.

There’s plenty of intense scrutiny underway to understand these trades and what their impact ultimately proves to be. I’m more interested in Softbank’s drastic change in strategy and its alternative deployment of cash from $40 billion raised in stock fire sales forced by its wary banks and legacy mega-investors who cut him and Softbank off after decades of seemingly endless billions in available funding when his recklessness netted Softbank and Vision Fund tens of billions of dollars in record losses. 

This certainly is not what Softbank told investors to expect mere weeks ago.

Instead, Softbank’s actions signal arrogance, or desperation, or worse—that CEO Masayoshi Son feels unrestrained and back in his Star Wars Zone with $40 billion in fresh cash.

Read on for a Bond Angle deep dive into the belly of Softbank, The Whale, and what Son feels free to do with its $40 billion in cash that was pledged to bolster Softbank’s bloodied balance sheet.


Double Standard: SBI Financial Services Alliance and Aster Stake Increase Revive Growth

By Shifara Samsudeen, ACMA, CGMA

Double Standard provides web marketing support services and content data by utilising big data for enterprises. The company operates under two main business segments, Big Data related business and Service Planning Development business. The company was founded in 2012 and listed its shares in 2015 through an initial public offering.

The company’s revenues have grown at double-digit rates over the past 4-5 years; however, we have observed that the company’s margins have declined over the past 4-5 quarters.

The company has entered into a business alliance with SBI Financial Services in December 2019 and at the same time, it also has increased its stake in one of its equity-affiliates, Aster’s. We expect these strategic moves to help boost the company’s top line and revive its deteriorating margins.

In this insight, we take a look at the company’s business, financials and valuation.


Palantir – Quantamentals Suggest Profitability Could Surge with Revenue Growth

By Mio Kato

Much has been made in the press of Palantir’s history of losses. Unfortunately, in its S-1 Palantir only disclosed six quarters of operating history making a deep analysis difficult, but nevertheless, based on our analysis of those financials we believe that the company’s underlying profitability potential is high, very high. Leaving valuations aside, from an operational standpoint this is one of the most attractive looking tech stocks we have seen among the new wave and we do not consider it impossible for the company to become one of the biggest companies in the world as the data revolution gathers steam.


Korean New Deal Fund – Could This Be a BBIG Deal?

By Brian Freitas

“A huge leap forward for South Korea” is how President Moon described the New Deal initiative that the Government launched to digitalise social infrastructure and jumpstart the transition to green energy.

The expected spend of KRW 160 trillion (US$134.45bn) over 5 years will be financed by the Government (KRW 114.1 trillion) and from local Governments and the private sector (KRW 46 trillion) and is expected to create 1.9m jobs over the period based on the Digital New Deal and the Green New Deal that look to strengthen employment and the social safety net.

The KRX has created 4 new indices tracking the secondary Battery, Bio, Internet and Gaming sectors that are expected to benefit from the New Deal initiative plus an additional index (BBIG) that includes the top 3 stocks from each sector. While the BBIG is an equal weighted index, the sector indices allocate 75% of the index weight equally among the top 3 stocks while the remaining 25% weight is allocated to the rest of the stocks based on free float market cap. This will create some very interesting trades if ETFs that are launched on these indices gather a lot of assets.

Some stocks that have been included in these indices have already started to run up in anticipation of index flows and investors will need to monitor ETF asset gathering in determining entry/exit trades on these stocks. There are existing ETFs that track these sectors so it is hard to fathom why ETFs on the new indices would gather a lot of assets especially with a skewed weighting scheme.


Joy Spreader (乐享互动) Pre-IPO – Found a Niche in Games but Still Just a Middleman

By Zhen Zhou, Toh

Joy Spreader Interactive Technology (JST HK) is looking to raise US$200m in its upcoming Hong Kong IPO.

JST is a performance-based we-media marketing service provider in China. JST connects marketers and we-media publishers via its technology and platforms. The services provided to marketers include analyzing and distributing their products on the we-media network which will help marketers acquire users.

In this note, we will share our thoughts on the company’s business model, financials and operating data.


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