TMT and Internet Sectors

In this briefing:

1. Softbank Vision Fund: Not Enthused About DoorDash IPO Filing but Vir Biotech Rally Could Be Positive
2. Revised Trading Approach for Samsung C/1P
3. Samsung C&T & Electronics Price Coupling Issue Amid New 3-Yr Shareholder Return Policy

1. Softbank Vision Fund: Not Enthused About DoorDash IPO Filing but Vir Biotech Rally Could Be Positive

Moving away from the sordid details on Vision Fund’s inner workings we tagged yesterday, we though there were a couple items out of the US worth mentioning. First, portfolio company DoorDash has confidentially filed for an IPO…we think the timing has more to do with last week’s bull market than this week’s Coronavirus reversal but the lackluster record of IPOs for loss-making companies likely means the chances of a valuation bump for Softbank as we saw before Uber and WeWork are less.  Second, Vir Biotech shares surged another 72% today, enough to outpace erosion in the Uber value and keep Vision Fund performance flat in a day markets fell 3-4%.  Monetisation of part or all of that stake would be positive for funding Vision Fund 2 and flattering to the P&L.  

2. Revised Trading Approach for Samsung C/1P

Samsung’s 30% cap got pushed back to June. Even if imposed in June, the KRX now has a comfortable buffer as the local ETFs do not need to cap Samsung at 30%. Nonetheless, the Samsung 1P is still going quite strong. The pref discount currently sits at 15.61%, which is still pretty close to the all-time low. Then, the question is why 1P is still going this strong despite the waning 30% cap factor.

3. Samsung C&T & Electronics Price Coupling Issue Amid New 3-Yr Shareholder Return Policy

Samsung C&T unveiled a new shareholder return policy for the next three years, FY20~FY22. It said that it would give out 60~70% of the dividend income from the affiliated companies in dividends to its shareholders with a minimum DPS of ₩2,000. Also, it will cancel a total of 2,802,962 common shares (with 15 1PB shares). Over the last two years, C&T gave virtually 60% of the dividend income from the affiliated companies in dividends to its shareholders.

In this briefing:

1. Softbank Vision Fund: Not Enthused About DoorDash IPO Filing but Vir Biotech Rally Could Be Positive
2. Revised Trading Approach for Samsung C/1P
3. Samsung C&T & Electronics Price Coupling Issue Amid New 3-Yr Shareholder Return Policy
4. NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively?

1. Softbank Vision Fund: Not Enthused About DoorDash IPO Filing but Vir Biotech Rally Could Be Positive

Moving away from the sordid details on Vision Fund’s inner workings we tagged yesterday, we though there were a couple items out of the US worth mentioning. First, portfolio company DoorDash has confidentially filed for an IPO…we think the timing has more to do with last week’s bull market than this week’s Coronavirus reversal but the lackluster record of IPOs for loss-making companies likely means the chances of a valuation bump for Softbank as we saw before Uber and WeWork are less.  Second, Vir Biotech shares surged another 72% today, enough to outpace erosion in the Uber value and keep Vision Fund performance flat in a day markets fell 3-4%.  Monetisation of part or all of that stake would be positive for funding Vision Fund 2 and flattering to the P&L.  

2. Revised Trading Approach for Samsung C/1P

Samsung’s 30% cap got pushed back to June. Even if imposed in June, the KRX now has a comfortable buffer as the local ETFs do not need to cap Samsung at 30%. Nonetheless, the Samsung 1P is still going quite strong. The pref discount currently sits at 15.61%, which is still pretty close to the all-time low. Then, the question is why 1P is still going this strong despite the waning 30% cap factor.

3. Samsung C&T & Electronics Price Coupling Issue Amid New 3-Yr Shareholder Return Policy

Samsung C&T unveiled a new shareholder return policy for the next three years, FY20~FY22. It said that it would give out 60~70% of the dividend income from the affiliated companies in dividends to its shareholders with a minimum DPS of ₩2,000. Also, it will cancel a total of 2,802,962 common shares (with 15 1PB shares). Over the last two years, C&T gave virtually 60% of the dividend income from the affiliated companies in dividends to its shareholders.

4. NetEase Earnings: Is NetEase Monetizing Mobile Gaming Traffic from the Virus Effectively?

NetEase misses FY19 revenue consensus estimates. Revenue was 7.1% lower than estimates at RMB59.2 billion while adjusted earnings beat by 6.5% at RMB120.48.

NetEase games had higher traffic during 1Q20 with users spending more time gaming. Users were also spending 40.7% more time gaming daily for a total of 159 minutes a day.

NetEase has a strong pipeline of games for 2020. Strong international titles such as Diablo Immortal, Harry Potter: Magic Awakened, Pokemon Quest could continue to drive traffic and revenue as well through in-game monetization for the period of the virus.

NetEase games could be effectively monetizing the increased traffic from the virus. According to Sensor Tower, NetEase’s mobile game Fantasy Westward Journey was the 6th highest-grossing iOS game yesterday and made US$27 million for the month of January. Along with two other mobile games within the Top 20 iOS highest-grossing list. With Youdao being one of NetEase growth drivers on top of gaming, the Company could be an appealing play during virus situation.

In this briefing:

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)

On 25th February, Japanese advertising company Hakuhodo Dy Holdings (2433 JP)announced a Tender Offer to acquire 78.1% of Taiwanese peer Growww Media (8497 TT) for NT$1,853mn.

The Offer has a 50% minimum acceptance condition. However, Target shareholders accounting for more than 50% of total shares have already agreed to tender their shares.

Furthermore, the Deal requires approval of the Investment Commission of the Taiwan Ministry of Economic Affairs and is expected to close by 15th April 2020. However, in case the approval gets delayed, the Acquirer can extend the Offer Period by a maximum of 50 days. 

The Offer Price is NT$69.00/share and the consideration will be in the form of cash.

Growww Media (8497 TT)‘s shares are currently at NT$67.90. With around two months left to completion, below we take a look at the fairness of the Offer, approval process of the Taiwan Ministry of Economic Affairs, and the consequent squeeze-out procedure. 

In this briefing:

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)
2. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)

On 25th February, Japanese advertising company Hakuhodo Dy Holdings (2433 JP)announced a Tender Offer to acquire 78.1% of Taiwanese peer Growww Media (8497 TT) for NT$1,853mn.

The Offer has a 50% minimum acceptance condition. However, Target shareholders accounting for more than 50% of total shares have already agreed to tender their shares.

Furthermore, the Deal requires approval of the Investment Commission of the Taiwan Ministry of Economic Affairs and is expected to close by 15th April 2020. However, in case the approval gets delayed, the Acquirer can extend the Offer Period by a maximum of 50 days. 

The Offer Price is NT$69.00/share and the consideration will be in the form of cash.

Growww Media (8497 TT)‘s shares are currently at NT$67.90. With around two months left to completion, below we take a look at the fairness of the Offer, approval process of the Taiwan Ministry of Economic Affairs, and the consequent squeeze-out procedure. 

2. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus

• The game revenue growth slowed down in 4Q2019. However, we believe it will jump up in 1Q2020 due to the boring life caused by the epidemic.
• Margin was stable in 4Q2019 due to a one-time increase of marketing expenses. We believe the operating margin will improve significantly in 1Q2020.
• Based on peer companies’ P/E ratios, we believe the stock will rise 13% in one year.

In this briefing:

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)
2. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus
3. Warning Sign for Microlenders Globally? SINA Faces Difficulty Collecting Debt Due to Coronavirus

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)

On 25th February, Japanese advertising company Hakuhodo Dy Holdings (2433 JP)announced a Tender Offer to acquire 78.1% of Taiwanese peer Growww Media (8497 TT) for NT$1,853mn.

The Offer has a 50% minimum acceptance condition. However, Target shareholders accounting for more than 50% of total shares have already agreed to tender their shares.

Furthermore, the Deal requires approval of the Investment Commission of the Taiwan Ministry of Economic Affairs and is expected to close by 15th April 2020. However, in case the approval gets delayed, the Acquirer can extend the Offer Period by a maximum of 50 days. 

The Offer Price is NT$69.00/share and the consideration will be in the form of cash.

Growww Media (8497 TT)‘s shares are currently at NT$67.90. With around two months left to completion, below we take a look at the fairness of the Offer, approval process of the Taiwan Ministry of Economic Affairs, and the consequent squeeze-out procedure. 

2. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus

• The game revenue growth slowed down in 4Q2019. However, we believe it will jump up in 1Q2020 due to the boring life caused by the epidemic.
• Margin was stable in 4Q2019 due to a one-time increase of marketing expenses. We believe the operating margin will improve significantly in 1Q2020.
• Based on peer companies’ P/E ratios, we believe the stock will rise 13% in one year.

3. Warning Sign for Microlenders Globally? SINA Faces Difficulty Collecting Debt Due to Coronavirus

• SINA reported results –  Says microloans platform emerging as a new growth driver. Non-advertising revenue increased 31% YoY US$419.3m for the full year with the fintech vertical as the main driver.
• But… debt becoming increasingly difficult to collect due to coronavirus. Management expects revenue to suffer due to difficulty collecting debt causing SINA to limit loan applications to mainly Weibo users.
• SINA is a warning for micro-lenders globally as the virus continues to spread. Should the virus continue its spread, micro-lenders across China and around the globe could find themselves in a similar situation as SINA.
• Virus accelerating shift to a digital economy, there are better ways to play it over SINA. Digital services like virtual classrooms and online delivery continue to grow while SINA faces difficulty collecting debt and selecting higher-quality borrowers.
• Decreased interest rates due to regulatory tightening in China. The government has also imposed a maximum cap on interest rates, once again impacting the growth and profitability of SINA’s platform. Interest rates could be lowered further as the government tries to restart the economy amidst the virus situation.

In this briefing:

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)
2. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus
3. Warning Sign for Microlenders Globally? SINA Faces Difficulty Collecting Debt Due to Coronavirus
4. Softbank Group: It Is Getting Harder to Have Confidence in Vision Fund

1. Taiwan’s GROWWW Media to Be Acquired by Hakuhodo (2433 JP)

On 25th February, Japanese advertising company Hakuhodo Dy Holdings (2433 JP)announced a Tender Offer to acquire 78.1% of Taiwanese peer Growww Media (8497 TT) for NT$1,853mn.

The Offer has a 50% minimum acceptance condition. However, Target shareholders accounting for more than 50% of total shares have already agreed to tender their shares.

Furthermore, the Deal requires approval of the Investment Commission of the Taiwan Ministry of Economic Affairs and is expected to close by 15th April 2020. However, in case the approval gets delayed, the Acquirer can extend the Offer Period by a maximum of 50 days. 

The Offer Price is NT$69.00/share and the consideration will be in the form of cash.

Growww Media (8497 TT)‘s shares are currently at NT$67.90. With around two months left to completion, below we take a look at the fairness of the Offer, approval process of the Taiwan Ministry of Economic Affairs, and the consequent squeeze-out procedure. 

2. NetEase (NTES): Again, Our 4Q2019 Estimate Closer to Result Than Consensus

• The game revenue growth slowed down in 4Q2019. However, we believe it will jump up in 1Q2020 due to the boring life caused by the epidemic.
• Margin was stable in 4Q2019 due to a one-time increase of marketing expenses. We believe the operating margin will improve significantly in 1Q2020.
• Based on peer companies’ P/E ratios, we believe the stock will rise 13% in one year.

3. Warning Sign for Microlenders Globally? SINA Faces Difficulty Collecting Debt Due to Coronavirus

• SINA reported results –  Says microloans platform emerging as a new growth driver. Non-advertising revenue increased 31% YoY US$419.3m for the full year with the fintech vertical as the main driver.
• But… debt becoming increasingly difficult to collect due to coronavirus. Management expects revenue to suffer due to difficulty collecting debt causing SINA to limit loan applications to mainly Weibo users.
• SINA is a warning for micro-lenders globally as the virus continues to spread. Should the virus continue its spread, micro-lenders across China and around the globe could find themselves in a similar situation as SINA.
• Virus accelerating shift to a digital economy, there are better ways to play it over SINA. Digital services like virtual classrooms and online delivery continue to grow while SINA faces difficulty collecting debt and selecting higher-quality borrowers.
• Decreased interest rates due to regulatory tightening in China. The government has also imposed a maximum cap on interest rates, once again impacting the growth and profitability of SINA’s platform. Interest rates could be lowered further as the government tries to restart the economy amidst the virus situation.

4. Softbank Group: It Is Getting Harder to Have Confidence in Vision Fund

The Wall Street Journal has published an article saying Vision Fund head Rajeev Misra waged a frankly bizarre campaign to sabotage potential executive competitors in the run up to creation of Vision Fund.  This is the second major negative story on the internal workings of Vision Fund this month and whilst Softbank and Mr. Misra have denied this and whether the stories are true or not, the added noise only makes it harder to attract outside investment for Vision Fund 2.  This plays against market concerns on the coronavirus, which has knocked 7% off the value of the Vision Fund’s public portfolio since last week. Softbank shares trade at a 46% discount to the public value of its holdings and we don’t expect that to change very much without a share buyback announcement. 

In this briefing:

1. Does COVID-19 Imply A Bonanza for Micron?

1. Does COVID-19 Imply A Bonanza for Micron?

The COVID-19 virus has undertaken a significant upturn in Korea.  Since Samsung and SK hynix dominate two of the markets that Micron is in, one would naturally anticipate that the outbreak could benefit Micron, a US-based firm.  In this SmartKarma Insight we will examine that line of thought and see why it misses key facts that must be considered.

In this briefing:

1. Does COVID-19 Imply A Bonanza for Micron?
2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower

1. Does COVID-19 Imply A Bonanza for Micron?

The COVID-19 virus has undertaken a significant upturn in Korea.  Since Samsung and SK hynix dominate two of the markets that Micron is in, one would naturally anticipate that the outbreak could benefit Micron, a US-based firm.  In this SmartKarma Insight we will examine that line of thought and see why it misses key facts that must be considered.

2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower

Weibo guided 1Q20 revenue guidance 15-20% lower as businesses cut back on ad spend due to the coronavirus. While management indicated that user traffic has grown significantly on the platform due to the virus, we don’t believe that it will solve the fundamental problems of the business given that both revenue & earnings were already stagnating even prior to COVID-19.

In previous notes, we’ve discussed extensively our preference for digital companies that are accelerating adoption vs. traditional brick & mortar services. Weibo is not one of them. 

In this briefing:

1. Does COVID-19 Imply A Bonanza for Micron?
2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower
3. Simmtech Rights Offer: Small Size but Higher Price Volatility May Ensure Fun for Arb Hunters

1. Does COVID-19 Imply A Bonanza for Micron?

The COVID-19 virus has undertaken a significant upturn in Korea.  Since Samsung and SK hynix dominate two of the markets that Micron is in, one would naturally anticipate that the outbreak could benefit Micron, a US-based firm.  In this SmartKarma Insight we will examine that line of thought and see why it misses key facts that must be considered.

2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower

Weibo guided 1Q20 revenue guidance 15-20% lower as businesses cut back on ad spend due to the coronavirus. While management indicated that user traffic has grown significantly on the platform due to the virus, we don’t believe that it will solve the fundamental problems of the business given that both revenue & earnings were already stagnating even prior to COVID-19.

In previous notes, we’ve discussed extensively our preference for digital companies that are accelerating adoption vs. traditional brick & mortar services. Weibo is not one of them. 

3. Simmtech Rights Offer: Small Size but Higher Price Volatility May Ensure Fun for Arb Hunters

Simmtech, a small-cap PCB maker (<₩300bil), announced a 92bil rights offering yesterday. It carries a usual 20% oversubscription privilege, and Mirae will serve as a banker. There is no cancellation risk since it is a standby offer. The capital increase rate sits at 40%. 20% of the offering will go to the ESOP, so the per share allocation for the stockholders remains at 0.32. March 17 is the first round pricing, followed by March 19 for the ex-rights date. The subscription rights will get traded starting April 7. Then, the pricing deadline is April 20.

In this briefing:

1. Does COVID-19 Imply A Bonanza for Micron?
2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower
3. Simmtech Rights Offer: Small Size but Higher Price Volatility May Ensure Fun for Arb Hunters
4. Naver, SoftBank’s Savior Again? This Time with Coupang?

1. Does COVID-19 Imply A Bonanza for Micron?

The COVID-19 virus has undertaken a significant upturn in Korea.  Since Samsung and SK hynix dominate two of the markets that Micron is in, one would naturally anticipate that the outbreak could benefit Micron, a US-based firm.  In this SmartKarma Insight we will examine that line of thought and see why it misses key facts that must be considered.

2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower

Weibo guided 1Q20 revenue guidance 15-20% lower as businesses cut back on ad spend due to the coronavirus. While management indicated that user traffic has grown significantly on the platform due to the virus, we don’t believe that it will solve the fundamental problems of the business given that both revenue & earnings were already stagnating even prior to COVID-19.

In previous notes, we’ve discussed extensively our preference for digital companies that are accelerating adoption vs. traditional brick & mortar services. Weibo is not one of them. 

3. Simmtech Rights Offer: Small Size but Higher Price Volatility May Ensure Fun for Arb Hunters

Simmtech, a small-cap PCB maker (<₩300bil), announced a 92bil rights offering yesterday. It carries a usual 20% oversubscription privilege, and Mirae will serve as a banker. There is no cancellation risk since it is a standby offer. The capital increase rate sits at 40%. 20% of the offering will go to the ESOP, so the per share allocation for the stockholders remains at 0.32. March 17 is the first round pricing, followed by March 19 for the ex-rights date. The subscription rights will get traded starting April 7. Then, the pricing deadline is April 20.

4. Naver, SoftBank’s Savior Again? This Time with Coupang?

Elliott left Korea, but it didn’t go very far. It chose Korea’s closest neighbor, Japan, as its next stop. It is now sitting on SoftBank Group with about a 3% stake. Elliott reportedly wants to see a vast improvement in SoftBank’s venture investment, the so-called Vision Fund. Well, it is quite understandable and no surprise. Then, what would be an immediate target? Again, unsurprisingly, it is Coupang that is in the limelight at this point. Korea’s local street is speculating that Elliott may single out Coupang as an exemplary target of its activism efforts.

Of course, we can not know what Elliott demands and how it will exercise its activism muscle on SoftBank and Coupang. It may or may not force SoftBank to completely get out of Coupang by selling off all of its stakes. But what at least seems inevitable is that Elliott will demand a quick and viable liquidation strategy. That is, SoftBank will likely find it extremely difficult to provide another massive capital injection into Coupang. Then, where does Coupang stand in terms of the money situation? Well, it is pretty bad and urgent. Last year again, it reportedly put up a ₩1.4tril operating loss.

It got about ₩2.3tril in 2018 from the Vision Fund, but out of that ₩2.3tril, it has already consumed nearly ₩1.4tril. The street estimation is, at the current pace of operating loss, Coupang will completely deplete its capital pool by the third quarter of this year. So, like it or not, SoftBank will have two options left, either say farewell or have it go public. Of course, neither option would be a walk in the park. Finding a buyer in the short-term for a company that is losing like US$1bil a year would be one hell of a job (although the local street speculates about Amazon being as a potential buyer). For a similar reason, IPO on either KOSPI or NASDAQ should also be a very challenging job.

So, SoftBank and Coupang need someone from outside for a makeup purpose. Realistically, that makeup would be for IPO. Then, who would that be? Well, the local street has been heavily speculating that Naver would take the role, yes again. We have seen at least three local news reports on the possibility since last December. Lately, a couple of the local brokerages have jumped in to argue on the likelihood of another SoftBank and Naver marriage.