TMT/Internet

• Recent developments highlighted the strategic significance of Wechat Channels (微信视频号) that Tencent’s management attached to the company’s future.
• Counter-Intuitively, while backing of the social giant saves Wechat Channels’ efforts for traffic acquisition, it also limits the product’s potential to develop into a content ecosystem rivaling Douyin.
• Our base case values the product at $29 billion, or 6% of Tencent’s market cap as of January 20th.

• The review period for the March rebalance ends on 31 January, the changes will be announced towards end February and implemented at the close of trading on 9 March.
• We forecast one add/delete for the Game Index, and a couple of adds/deletes for the BBIG Index. There will be a lot of capping changes.
• The largest inflows are expected on Posco Chemical (003670 KS) and Douzone Bizon (012510 KS); the largest outflows are expected on SK Innovation (096770 KS) and KMW (032500 KS).

• In our January 10th Compass, we discussed a break above 3910 on SPX would signal a tradable rally, with 4100-4165 our target, the top-end of our expected 2023 trading range.
• We believe equities are still in the midst of a rally/short squeeze, but that the rally is likely to fizzle in the 4100-4165 area.
• After being underweight Communications (XLC) since Nov 2021, sidestepping 20% underperformance vs. SPX, we now see signs of price and RS bottoms, and we are upgrading to market weight. Buy.

• ADP had a great start to fiscal 2023 and delivered an all-around beat in its last result.
• The company overcame elevated expense growth over the first quarter of last year and ongoing investments in the business by delivering 30 basis points of adjusted EBIT margin expansion.
• In contrast, the start of bookings growth in the foreign business was slower than the management had anticipated.

• ON Semiconductor Corporation delivered another all-around beat in its last result.
• The company is a well-known provider of intelligent sensing and power solutions and has established a good market position within its niche in the semiconductor market.
• More and more companies are considering ON Semiconductors as their long-term strategic partners as the company walks according to an amazing foresight.

WANdisco’s deal flow momentum continues, with a $9m contract with a European consumer goods and manufacturing company. This win is notable in that it is the company’s first deployment for migrating a manufacturing company’s process data to the cloud. The manufacturing sector is increasingly producing large sets of data and has therefore been identified as a strategic target market for WANdisco. The deal provides early support to our recently upgraded 2023 estimates.

• Qualys delivered a strong set of results for the previous quarter, surpassing Wall Street expectations in terms of revenues as well as earnings.
• It was another quarter of steady VMDR (Vulnerability, Management, Detection, Response) adoption that has developed 45% of the company’s customers worldwide.
• VMDR applications of the company saw an increasing number of vendors and Qualys managed to build a high positioning in the recent market.

• Schrole Group Ltd (ASX:SCL) is an Australian software company focused on providing human resource technology solutions to the international education and training sector.
• Schrole has developed a suite of five HR Software-as-a-Service (SaaS) offerings including the core product, Schrole Connect, a SaaS-based staff recruitment platform.
• Schrole Group has reported its best- ever quarterly cash receipts and operating cashflow which respectively increased 38% and 138% over the same period in CY21.

• Like most of its tech peers, Twilio has also taken a beating in the markets even though its last results were not too bad.
• In fact, the company delivered an all-around beat in the previous quarter and has had some interesting developments.
• Given the current macro-economic climate, we are neutral on Twilio and give it a ‘Hold’ rating with a revised target price.

• Appian Corp delivered a mixed result in the last quarter with revenues exceeding Wall Street expectations largely driven by the growth in cloud subscription revenue.
• In every category, the revenue growth is healthy and setting records in the quarter.
• While a large part of the tech industry has been retrenching, Appian went ahead and hired 221 employees in the last quarter.

• The authorities approved three of Tencent’s games in January 2023 after five in December 2022.
• Tencent closed its XR business and terminated a property rental contract.
• NetEase refused to extend service for Activision Blizzard for additional six months.

• New China semiconductor restrictions could be announced by the Netherlands and Japan by end-January.
• Realtek 4Q22 results — Signals weakness for companies serving the PC market, and could get worse in 1Q23E.
• Western Digital & Kioxia could merge NAND flash units to create a rival to Samsung.

• Price Movements: BTC gained another 10% this week despite news that Genesis had filed for bankruptcy, with a reported $5bn in liabilities.
• Market Liquidity: Trade volume on the largest Asia-based exchanges fell to multi-year lows amid a tough regulatory environment in the region. 
• Derivatives: BTC open interest has dropped 25% as a short squeeze hits derivatives traders.

• We estimate that TME’s 4Q22 topline/bottom line would be (2.5%)/3.8% vs cons., because of disturbance in its social entertainment and ads business.
• We forecast net income would only slightly beat cons by 6.1%, due to likely expense rebound and no major improvement on main businesses.
• Reiterate SELL rating but raise TP to US$ 6.7 to reflect margin beat and improvement of macro environment. Our TP implies 12.3X PE in 2023.

• While BILI’s top line in 4Q22/2023 would be in line, we suggest that its bottom line in 4Q22/2023 would beat cons. by 6%/18% due to cost-savings and optimized monetization efficiency. 
• BILI’s adjusted net loss would be significantly narrowed to (3.2)bn RMB in 2023, per our estimation. However, we still have concerns about some of BILI’s fundamentals.
• Maintain SELL but raise TP to US$ 16.4, implying 1.8X PS in 2023.

• We expect BEKE C4Q22 revenue and non-GAAP NI to be 9% and 64% above consensus. The bottom line beat is a result of earning leverage;
• We expect the market monthly EH/NH transaction volume to turn positive growth in C1H23, with resumed offline activities and continuing policy support as main drivers
• We raise TP by US$1 to US$20: 1) dialling up GTV in 4Q22, 2) faster pace transaction recovery in 2023, and 3) rebase FX from 7.05 to 6.77 in valuation.

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• Adobe managed a decent result in the last quarter meeting the revenue expectations of Wall Street and managing an earnings beat.
• The company delivered 15% growth in the top-line for the 2022 fiscal with $17.61 billion in revenue.
• We remain confident in their long-term strategies and give Adobe a ‘Hold’ rating with a revised target price.

• Cirrus delivered a decent quarterly result with an all-around beat, driven by greater smartphone unit volumes linked to its customers’ new product launches, resulting in revenue over the high end of its target range.
• Furthermore, with the development of Cirrus’ 22-nm codec, audio sensing and other signal processing use cases will benefit from increased performance and power efficiency.
• The management has been working with several customers to design their first amplifier created especially for this market.

• Oracle had a strong quarter and saw its revenue increase by 25%.
• Even with Cerner excluded, total revenue increased by 9% in constant currency, exceeding Q1 and surpassing revenue from the same period last year.
• Oracle’s liquidity is also solid as it held over $7.4 billion in cash and marketable securities at the end of the quarter.

• IPG Photonics delivered a mixed result in the last quarter, as it failed to meet Wall Street expectations in terms of revenues but managed an earnings beat.
• Sales in high-power cutting applications suffered from a decline in general industrial demand in China and Europe.
• As this business required extra investment and was noncore to IPG, the management announced they would sell it to Lumentum.

• The Hang Seng Tech Index (HSTECH INDEX) represents the 30 largest technology companies listed in Hong Kong which have high business exposure to certain technology themes.
• This index was launched in 2020 and has gained significant passive tracking over the last two years.
• In this insight, we take a brief look at the selection criteria and the historical price performance of past Rebalance Events.

• We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (10 February) that are being highlighted by the locals. 
• The potential candidates for inclusion in the MSCI Korea Index emphasized by locals in February 2023 include Kakao Pay and Hanwha Aerospace. 
• The potential exclusion candidates in the MSCI Korea Index emphasized by locals include S-1 Corp, Celltrion Pharm, and Cheil Worldwide. 

• China’s gaming regulator granted publishing licenses to 88 video games including three licenses to Tencent (for Undawn, Alchemy Stars and Yuan Meng Zhi Xing) and one for NetEase (for Badlanders).
• In December, NPPA gave approvals to 84 new domestic games and 44 imported games suggesting the 18-month long crackdown on the sector is nearing an end.
• Tencent’s online games revenue declined YoY for three consecutive quarters with regulatory hurdles and drop in ranking of key titles but we expect an improvement going into 2023.

• Agriculture – including forestry and fisheries – is one of the most important sectors in the Philippines.
• In 2021, it accounted for US$32.4 billion or 9.6% of the country’s gross domestic product and 24% of its working population.

• In 2019, Mayani was established by several serial entrepreneurs to digitalize the system. The company provides a marketplace to connect farmers with individual and enterprise customers.

• Singapore-based cybersecurity firm Blackpanda, which specialises in incident response and digital forensics, has secured US$15 million in its Series A funding round.
• The company will use the capital to expand its technology-enabled cybersecurity services, including digital forensics and incident response.
• It will also develop its underlying Artificial Intelligence and Machine Learning cybersecurity insurtech platform.

Esker’s Q422 revenue update confirmed that the company hit the mid-point of its revenue guidance for FY22, despite the already flagged slowdown in volumes processed. The company continued to see strong bookings intake, with the annual recurring value (ARR) of contracts for Q422 up 21% y-o-y in constant currency (cc) and up 19% cc for FY22. This provides support for management’s FY23 guidance; our FY23 estimates are within the guidance range and we maintain our forecasts pending FY22 results on 23 March.

• In this note, we will take a look at broker performance for HK IPOs from 2019-2022. 
• The following dataset includes all HK IPOs above US$100m for the period of Calendar Years 2019-2022, which amounted to a total of 173 deals. 
• The deals you see in this note are based on our historical IPO tracker. Feel free to drop us a message for additional information on any of these IPOs.

• ChatGPT is a mind boggling advancement in AI-human communication. I recommend EVERY reader of this insight to try out this service.
• This insight on ChatGPT has three parts: First, I discuss the basics of ChatGPT and valuations. Second, I provide 13 examples of questions or requests that I made to ChatGPT.
• Third, I discuss some key investment opportunities that could capitalize on all the “buzz” surrounding ChatGPT at this moment. 

• Some shareholders of Anycolor (5032 JP) are looking to raise US$151.5m via an International Only Follow-on offering. 
• The deal is a relatively small one to digest in terms of ADV, representing only 4 days of three-month ADV.  Although, it is still 10% of current mcap. 
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• China just announced game approval for January batch. The number of games approved is slightly higher than the previous three months.
• Pace of China game approval stays flattish, at a much slower pace than pre-tightening.
• Both Tencent and Netease received approval for one game each. Overall Tencent is still behind its peers since the approval resumed.

• IQiyi announced a follow-on equity offering of 76.5m ADS priced at $5.90 per ADS (at a 11% discount to previous close) and will raise approx. $442.3m through the issuance.
• Each ADS represents seven Class A ordinary shares and the new equity offering of 76.5m ADS will account for approx. 8.5% of iQiyi’s extended share capital post offering.
• Following the announcement, the company’s shares fell 16.4% and we think the upside is limited here.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the June 2023 Rebalance.
• Adani Enterprises (ADE IN) could be added and Wipro Ltd (WPRO IN) could be deleted from the SENSEX Index. There could be multiple changes for BSE 100, 200, and 500.
• Below is a look at our estimated rankings for potential ADDs/DELs, their recent price performance vs peers, and potential trading opportunities.

• Visa continues to outperform the market and fully capitalize on the prolonged business cycle.
• The company’s share price appears fairly valued both relative to peers and to its historical business fundamentals, according to the company’s stock price.
• The share price seems fairly valued and to the historical business fundamental, says the company.

• Big declines in NAVER Corp holdings among active Asia Ex-Japan investors in 2022
• Allocation drop part of broader rotation out of South Korea, but NAVER Corp the most aggressively sold.
• Current exposure close to the lowest on record, but past trends suggests this could represent a turning point.

• IQIYI Inc (IQ US) aims to raise net proceeds of US$442.3 million through the placement of 76.5 million ADS at US$5.90 per ADS.
• The net proceeds will be used for working capital purposes, including serving its existing debt obligations. The placement closes on 19 January. 
• The placement price is fair vs peers and is an opportunity to play iQiyi’s expected topline recovery which is supported by ongoing margin improvement and declining cash burn. 

• Hewlett Packard Enterprise’s quantitative operating features are a mess, with its EBITDA margin, inventory turnover, and NOPAT all in decline.
• Yet, we might witness a slowdown in 2023 as corporate earnings could stagnate.
• The stock provides a desirable dividend, but its price return prospects are glum.

• On the 9th of January, 2023, the Republic of Djibouti signed an MOU with Hong Kong Aerospace Technology (1725 HK) (HKAT) to develop a (reported) US$1bn international commercial “spaceport”.
• In the middle of last year, Djibouti announced plans to launch two nanosatellites to facilitate farming and other related activities.
• HKAT, a recent back-door listing, has a market cap of US$258mn. Wholly-owned subsidiary Gang Hang Ke (Shenzhen) Space Technology, has been successfully involved in the launch of ten satellites. 

• IQIYI aims to raise around US$500m via a follow-on ADS offering.
• While the company hasn’t stated its use of proceeds, it will probably use most of it to redeem convertible notes
• In this note, we will talk about the deal dynamics and  run the deal through our ECM framework.

• As for the one using the creation/redemption mechanism, the tracking error (market value – NAV) is still too tight to call this an arbitrage opening.
• Then, at this point, we need to pay attention to ETF arbitrage from a pair trade perspective. There are a total of 3 pairs we can consider for this.
• The mean reversion cycle is still not short. However, the diversion range is not extensive, so we can aim for a relatively stable setup in a market with increased volatility.

• Money Forward (3994 JP) reported 4QFY11/2022 results yesterday. Revenue increased 42.5% YoY to JPY6.2bn (vs consensus JPY6.0bn) driven by growth in both MF Business and MF Home.
• Operating losses for the quarter widened to JPY2.2bn (34.8% of revenue) from JPY661m (15.2% of revenue) in the same quarter last year (vs consensus JPY2.0bn).
• Though MF’s top line continues to grow, we have not yet seen a meaningful improvement in its profitability, and we think, MF’s shares are overvalued compared to its counterpart freee.

• The Hang Seng China Enterprises Index (HSCEI INDEX) is one of the most widely discussed indices in the Hang Seng Indices family.
• The HSCEI serves as a benchmark to reflect the overall performance of “Mainland” Securities listed in Hong Kong.
• In this insight, we take a brief look at the selection criteria and the historical price performance of past Rebalance Events.

• Alibaba (ADR) (BABA US), along with several other Chinese tech names have rallied more than 100% over the past 2.5 months with the Chinese government indicating regulatory crackdowns are over.
• However, we think this could just be a temporary respite for tech names as there’s a lot more to be done in terms of a data security and privacy standpoint.
• Nevertheless, Alibaba Group (9988 HK) is still quite expensive, given that government interventions have pretty much curtailed Alibaba’s avenues for growth in the domestic market.

• The Chinese government may possibly buy minor shares in Alibaba and Tencent.
• JD.com’s long-term competitor, Dangdang, opened a bookstore in JD.com’s app.
• In 2022, both Tencent Video Account’s active user base and time on site reached 80% of We Chat.

• BABA US is up 85% from October lows and continues to trade well in 2023 up 32% in January
• Stock has benefitted from not only improved economic sentiment but also an end to the 2-year crack down on the Internet Sector
• We suggest using call ratios to increase upside leverage prior to earnings release

• Money Forward Q4 sales rose +42% YoY to Y6.2bn driven by corporate ARR (+55% YoY)
• Full year revenue guidance for FY11/23 is in line with consensus 
• We still see over 20% upside in the stock if the company hits the top end of revenue guidance

• Tencent faces formidable resistance at 385 that may not be seen for a while. 385 is where old lows and old highs coincide.
• RSI is extended (ST sell and bounce). Buy volumes are descent but have been drifting since late 2022.
• 385 a good zone to sell cash positions or short to challenge pivot supports outlined. 320 is an intermediate level to hold to keep things glued together.

• Short video continued to accumulate active users in China and the company’s light-version grew the most rapidly.
• We believe the revenue growth rate will rise from 2Q23 and the company will have positive operating profit from 2024.
• We set the price target at HK$103, which is 44% over the market price.

• Qingdao Ainnovation Technology Group (2121 HK) was listed on 27th Jan 2022, with its one-year lockup expiring on 27th January 2023.
• Qingdao AInnovation Technology Group is an AI solutions provider offering full-stack AI-based products and solutions.
• Coming up for one-year lockup expiry are the pre-IPO shareholders. Bulk of them are in the money as some have invested as early as 2018.

• UMC vs. TSMC results review comparison: Vastly different tones of results shows the large gap in industry performance for the most advanced chips products vs. the lesser advanced.
• Japan gives mixed signals about rapidly joining U.S. chip restrictions vs. China.
• TSMC and UMC were some of the most net-bought stocks in Taiwan by foreigners last week.

• Q4 revenue growth of 43% was driven by growth in sales to corporates (+54%) on new user growth, customer mix, and upside from cross-selling
• EBITDA erosion improved from the peak losses of Q3 and whilst it has not issued full-year FY23 guidance, it says it expects steady improvements as the year goes on
• This was a good quarter but we expect that is largely reflected in the share price after a 61% run over the last six months

• After a gap of over fifteen years from formal coverage of Venture Corp (VMS SP), I took a look again this week, not much seems to have changed.
• Venture Corp’s management hankering for “charm” in its contracts, with respect to NOT just return on investment but also return on effort will be the primary risk for growth
• Excellent anchor customers have boosted margins. The tech slowdown might entice larger EMS to be more aggressive and chase these businesses placing margins at risk.

• TSMC’s comments during its 4Q22 analyst call indicate the company expects an industry recovery in 2H23E, adding further confirmation to this view expressed by other firms.
• TSMC grew faster than the industry in 2022 and expects to grow faster than the industry in 2023E again.
• Based on our cycle-adjusted PE valuation metric, TSMC my not be super cheap vs. history, but it is also inexpensive.

• AvidXchange is one of the leading providers of AP automation software and payment solutions for mid-market businesses and their suppliers. The company was founded in 2000 in the United States. 
• With a large $20B+ TAM and valuation at ~5x FY23 revenue estimate of $392M – significantly below the average for software and payment peers – we believe shares are undervalued. 
• Management raised the FY22 revenue outlook and expected a strong FY23. AvidXchange is two years from GAAP profitability, likely making the stock volatile in the coming years.