TMT/Internet

• Headline 2QFY22 results for Softbank Group were in the black, largely due to the Alibaba stake sale, but the group’s three funds registered an aggregate USD10bn of valuation losses
• FTX’s write-down to zero will cost Softbank’s Vision Fund 2 USD100m in 3Q22, our main concern is what the VC funding downturn means for portfolio valuations in the coming quarter
• The group’s NAV discount has now tightened meaningfully; we believe that this makes it less advantageous for management to announce another share buy-back programme

• In Nov 2021, Paytm raised around US$2.2bn via selling a mix of primary and secondary shares in its IPO. 
• The company is backed by Alibaba (ADR) (BABA US), Softbank Group (9984 JP) and counts Berkshire Hathaway Inc Cl A (BRK/A US) among its investors. 
• In this note, we will talk about the upcoming lockup expiry.

• NetEase and Activision Blizzard will possibly terminate their cooperation next January.
• Singles’ Day sales were not very successful for e-commerce apps such as Alibaba and JD.com.
• IQiyi announced a revenue share rule to short TV series producers, including cost per mille and membership fee.

• Nearmap Ltd (NEA AU)’s litigation and trading update resulted in the spread to Thoma Bravo’s A$2.10 offer widening to 7.7%. The scheme meeting is on 25 November.
• There is no chance that the MAC clause will be triggered due to the downbeat trading update. However, the update is softening the stance of some of the retail dissenters.
• There is a small chance of a bump as peers have re-rated. Nevertheless, the low spread prior to the update suggested that the risk of the NO vote was minimal.

• Bloomberg reported on Friday that GoTo (GOTO IJ) is planning to cut more than 1k jobs across all its divisions to cutdown its costs and improve its financials.
• Though GoTo’s top line has continued to expand, the company continues to burn cash and the losses have further widened during the recent quarters.
• GoTo’s shares rose 11.7% during Friday’s trade, however, share price is still down by about 45%  from the company’s IPO price.

• Adobe rival Nitro Software Ltd (NTO AU)  has announced KKR (via Alludo) has firmed its $2.00/share Offer, by way of a Scheme, in tandem with an off-market takeover.
• Both the Scheme and takeover are subject to FIRB and MACs/prescribed occurrences. The takeover is subject to a 50.1% acceptance hurdle. The proposals have the unanimous support of Nitro’s board.
• The Transaction Booklet is expected to be despatched to shareholders in early February 2023, with a Scheme Meeting expected to be held in March 2023.

• In this insight, we discuss a pair trade between NCSOFT Corp (036570 KS) (go long) and Netmarble Corporation (251270 KS) (go short).
• NCSoft is currently trading at lower valuation multiples (in terms of EV/EBITDA and P/E) than Netmarble, which we believe is not justified.
• One of the key risk factors of Netmarble is that it could be excluded from the MSCI Korea Index in 2023/2024.

Softbank Group (SBG) has delivered acceptable Q2/22-23 results. Despite the large loss on investments, the company monetised an even greater amount of Alibaba shares to record a large quarterly net gain. As a result, the financial risk profile did not deteriorate. LTV was mostly stable q-o-q, improving since March 2022. Liquidity has strengthened, and now covers four years of planned bond redemptions.

The significant debt reduction and acceleration of share buybacks showed that SBG is trying to balance shareholders’ and creditors’ interests. In the past, SBG appeared more aligned towards shareholders’ interests, with frequent mentions of the share price’s discount to NAV, as well as large share purchases since 2016.

• Berkshire Hathaway Inc Cl B (BRK/B US) disclosed that it has acquired about 60.1m shares in Taiwan Semiconductor (TSMC) – ADR (TSM US).  
• Hon Hai is receiving local government support to recruit/return workers in order to ease its crisis there. Meanwhile, it will also quadruple its India-based iPhone manufacturing staff.
• UMC’s ADR premium is 0% and could see a bounce given the surge in TSMC.

• PayPal’s financial performance was impressive and the company managed to deliver an all-around beat.
• This will make it simple for PayPal’s merchant community to utilize their iPhone as a mobile point of sale without using a dongle or other payment terminals.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• For companies applying transitional measures, it was an opportunity to attract investor attention and consider what is listing. This should serve as an opportunity to promote metabolism of listed companies.
• Listing fees are set at the highest rates for prime market, so if the number of prime market companies decreases, TSE revenues will decrease. A conflict of interest has arisen.
• With such a conflict of interest at TSE, it is unlikely that the contradiction between the prime market concept and listing criteria that many market participants perceive can be resolved.

• 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

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front,  Indian IPOs continue to trickle in, while other regions appear to be waking up from their slumber.
• There were a few GDR issuances this week, along with another placement in Axis Bank Ltd (AXSB IN) and a number of lock-up expiries. 

• Ansys delivered a positive quarterly result with a strong performance on most key metrics, including revenues, earnings per share, operating margins, and ACV.
• Semiconductor and high-tech, automotive and ground transportation, and aerospace and defense were again the largest contributors in this quarter.
• The startup program of the company is growing as the nascent companies are taking advantage of Ansys solutions.

• HubSpot delivered a good quarterly result with revenue growth beyond market expectations, especially in terms of constant currency.
• The company also delivered an earnings beat as it added more than 8000 net new customers this quarter.
• In spite of the more challenging macro environment, HubSpot maintained a healthy growth retention rate largely given its low pricing.

• Trimble showed a decent organic revenue growth in the last quarter but failed to meet Wall Street expectations on the revenue front.
• The company’s top-line was impacted by the changes in the foreign exchange rates and it barely managed to meet market expectations regarding earnings.
• Recurring and software revenue continued to grow at quite a strong rate which is reflected by the sequential acceleration of its organic ARR growth.

• Company fundamentals have been and will continue to be the single most critical driver for BABA’s share price, although strong US dollar and geopolitics may complicate the situation.
• Expect BABA’s bottomline to reverse an eight-quarter down trend in coming September quarter on the back of disciplined capex and cost cutting, despite a challenging macro environment still pressuring topline.
• Importantly, investors have yet fully appreciated the improving competitive landscape thanks to regulation and rivals’ maturing businesses. See 30% upside in 6-12 months. Ripe timing to buy. 

• The bear market rally we have discussed since our Sept. 29 Int’l Compass has managed to surpass our price targets, which were the YTD downtrends on the ACWX-US and EFA-US.
• As you will see below, many countries are reversing topside their 6.5-month to YTD downtrends.
• As a result of these bullish reversals and breakdowns on the US dollar (DXY) and 10-year Treasury yield, we are upgrading our outlook to neutral. Buy on pullbacks.

• ASML pre-released their updated view on demand and capacity – ahead of Nov 11, 2022 Investor Day – BETTER THAN EXPECTED
• Inflation now past peak and semi/tech likely see sustained bid. Even better for those  names that are monopolies in the EUV space = ASML and Lasertec
• Remain bullish Lasertec despite the recent rally. Better earnings and order outlook, and multiples to drive share price

• Alibaba driven gains largely offset record losses from Q1 although this has been widely expected as were updates on the timing of ARM’s IPO from FY22 (Mar23) to calendar 2023
• With Q2 losses, Vision Fund is clearly in the red for the first time since Q4 19 driven by downside for both public and private investments
• Buybacks are over and what appears to be renewed macro enthusiasm is offset by a stronger yen and a low discount to NAV

• The reduction of policy shareholdings of companies (excluding financials) for March fiscal year end companies was 2.3 trillion yen, about 600 billion yen more than in the previous fiscal year.
• It was a special year in which changes in the TSE’s criteria regarding tradable shares included in the market’s listing criteria contributed to the reduction of policy shareholdings.
• Going forward, companies will need to discuss the nature of cross-shareholdings based on capital allocation even more than they do now.

• Qualcomm delivered a mixed set of results as its revenues were higher than the market expectations as a result of a solid chipset business performance and good execution of its diversification and expansion plan.
• The management is working towards transforming Qualcomm from a wireless communications provider for the mobile industry to a provider of linked processors for the intelligent edge.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• First came the Terra collapse. Then the bankruptcies of the centralized lenders.
• And now the (almost certain) insolvency of FTX, one of the largest cryptocurrency exchanges in the world. 
• FTX’s collapse has shaken the industry to its core, in part because it is a fundamentally different type of business than a crypto lender like Celsius.

• eBay had a solid third quarter and delivered an all-around beat.
• The company also completed the tech-led re-imagination in the quarter and met its short-term commitments.
• Additionally, eBay is attempting to improve the standard and volume of the supply of components and accessories.

• Tencent are due to report earnings next week on Nov 16th
• Implied vols are bid up into the event causing an inverted term structure
• We see an opportunity to buy long calendar spreads to play a reversion in vol surface

• Naver Corp (035420 KS) (market cap of 28.9 trillion won or $20.9 billion) is our 2023 high conviction play.
• In this report, we provide a deep-dive analysis of Naver Corp and why we believe this stock has an attractive upside of 30%+ by the end of 2023. 
• Having followed the company for many years, I often like to think of Naver as“The Genius Turtle.”

• Our NAV analysis suggests a target price of 146.5 TWD for Sino-American Silicon Products (SAS), representing a lack of upside from current price.
• Sino-American Silicon Products’ stake in Global wafers represents 109% of SAS’s current market cap. 
• Two major risk factors on SAS include concerns about a global semiconductor sector downturn combined with increasing hostile political conflict between China and Taiwan. 

• Apple Inc. supplier Foxconn Technology Group is trying all means including higher pay to lure runaway workers back to its Zhengzhou factory
• Starting Nov. 1, Foxconn’s Zhengzhou factory offered an allowance of 400 yuan ($55) a day to any workers showing up for work this month, up from the regular attendance allowance of 100 yuan
• It’s not clear how many workers left the factory, but online photos showed hundreds of workers waiting to board buses to their hometowns.

• Hon Hai Precision Industry (2317 TT) reported 3Q22 EPS of NT$2.80 yesterday, below consensus estimates of NT$2.95, partly due to gross margin falling QoQ.
• The company emphasized that 4Q22E could be impacted by Zhengzhou issues, but would be short-term in nature. It still aims to achieve a 10% gross margin by 2025.
• EV business continues to expand and shares are trading near lower-end of their recent trading range.

• Intel continues to face growing economic headwinds and delivered no growth in its revenues on a sequential basis.
• The service share of the company is tracking in line with its expectations, and against its product roadmap.
• The company launched its 13th Generation Intel Core processor family, which is led by the 13th Generation Intel Core i9-13900L.

• Paycom delivered a good quarterly result in a rather turbulent environment for tech stocks.
• Moreover, Paycom’s core offering, BETI is at the core of its automation approach since it helps businesses and employees succeed in payroll.
• Strong demo leads are generated by their efforts, and their target markets strongly respond to their new brand campaign.

• In a rather tumultuous market environment for technology stocks, Shopify did management to deliver an all-around beat in the recent quarter.
• The outsized pace of the offline growth on Shopify continued as it acquired 8 new merchants with more than 20 locations each.
• The management launched new tools along with Shopify Markets for merchants who are in search of expanding to new markets.

• The development of TSS has been a life’s work. We are pleased to acknowledge that our second TSS publication on Smartkarma produced an impressive and rapid result.
• On 7 November we determined that the new interim downtrend low below 59.51 had failed and would likely produce a minimum 6-8% correction in 1-2 weeks. 
• TSM US subsequently produced a 13.4% gain in the following 3 days. Job done! Chart and further details attached.

• AMD’s Q3 results were well below Wall Street expectations because of weaker PC demand and significant inventory reduction measures taken throughout the PC supply chain.
• As server OEMs continued to resolve match set concerns, OEM sales in the enterprise sector decreased sequentially.
• AMD’s Xilinx FPGA and networking data center products saw good sales thanks to strong demand from cloud and financial customers.

• In Nov 2021, PB Fintech raised around US$793m in its India IPO, via selling a mix of primary and secondary shares.  The lock-up on its pre-IPO shareholder will expire soon.
• The company operates two platforms: Policybazaar operates in India’s online insurance product and service industry; and Paisabazaar platform operates in India’s online credit industry. 
• In this note, we will talk about the upcoming lockup expiry.

• Nexon is our top pick within the Japanese Gaming Sector 
• We see continued strong growth in revenue driven by existing game franchises in addition to new pipeline opportunities
• Nexon is cash rich, debt free and is returning more and more money back to shareholders

• Nexon (3659 JP) reported Q3 earnings and full-year forecasts today. Revenue came in at the bottom end of August guidance, despite the higher-than-forecast USD/yen rate. 
• The forecast for full-year is below consensus. This may be seen as disappointing. The stock may fall on this. 
• But a buyback announcement and relative valuation suggests time to cover the short. 

• TSMC is planning to build a second Arizona fab that could produce its highest-end 3nm chips, according to the WSJ.
• TSMC ADR Premium Impact: The TSMC ADR premium is near zero, and increased U.S. investor enthusiasm could lead to a significant bounce for the premium.
• INTC vs. TSMC Impact: News flow could favor TSMC over Intel over the next few days, at least until a November 14th conference Intel will be attending.

• We believe Tencent’s revenue will stop declining in 3Q22 and bounce back thereafter.
• We believe FinTech will grow fast, but online game will still be stagnant.
• We expect Tencent will have an upside of 67% for year end 2023.

• ARLO affirmed the slowdown in consumer purchasing that began in September and is expecting the market to remain soft through the middle of 2023
• While ARLO had reduced channel inventory in the second quarter, it had started to ship more product into the channel by the time there was a shift in the market
• Number of paid subscribers continues to rise in Q3 with ARLO adding 195 thousand. ARLO is expecting paid subscriber growth to continue as the channel sells units to the consumer

• XPER reported third quarter results after becoming a separate operating business at the beginning of October
• XPER is progressing in adding new customers for its different product lines with revenue expected to ramp in subsequent quarters
• The third quarter did not have much in the form of surprises with XPER maintaining its full year guidance. 

• Softbank Group (9984 JP) massively ramped up share buybacks in October driving a 31% increase in the share price
• Average Daily Volume (ADV) was 28% higher in October and 46% higher for the last half of the month. October buyback volumes were the second highest for a month ever
• Whether Softbank announces additional buyback plans likely depends on the timing of the ARM IPO and that partly depends on Q2 performance

• Japan-Based System-On-Chip designer and IP purveyor Socionext (6526 JP) was listed in the “Prime” section of the Tokyo Stock Exchange (TSE) on 12th October 2022.
• When a company gets listed in the Prime section, it subsequently gets included in the TOPIX Index requiring TOPIX-tracking funds to purchase the stock during an Inclusion Event.
• Usually, this presents interesting trading opportunities to generate sharp market-neutral returns in the space of few trading days. Below is a look at the details for Socionext’s TOPIX Inclusion Event.

• NTT (Nippon Telegraph & Telephone) (9432 JP) announced Q2 results today during market hours. The stock had been trading up 1.1% on the day, but fell 1% in 5 minutes.
• It then spent the rest of the day grinding higher to end just higher than just before results. 
• NTT announced another buyback – this one on-market. It is only a little bit of a surprise.

• In April 2021, Gulf Energy (GULF TB)‘s surprising VTO for Intouch (INTUCH TB) was conditional, inter alia, on a waiver NOT to make a downstream offer for Thaicom (THCOM TB).
• Now Gulf has announced an intention to acquire Intouch’s 41.13% stake in Thaicom for Bt 9.92/share, a 19.3% discount last close, the completion of which triggers an MTO.
• The acquisition of shares from Intouch requires approval from Intouch shareholders. Gulf, with 46.44% of shares out, is required to abstain. 

• The share price is roughly flat since we turned Bearish on Nintendo citing concerns that the cycle had peaked
• Q2 results released today suggest that the hardware cycle has indeed peaked – Switch hardware guidance cut
• We see a lack of catalysts for the stock price over the next several months and remain bearish

• Results were mostly positive with strong forex-boosted revenue growth and mobile outperformance 
• An expansion of the buyback program helps sentiment as an additional Y150bn program takes FY22 buybacks to the highest single-year total since 2005
• Comments at the analyst meeting focused on underlying costs but management seems positive that it can manage with cost efficiencies

• At current prices, we like a pair trade between SK Telecom (go long) and LG Uplus (go short). 
• We believe the share price gap has widened too much in the past month in favor of LG Uplus and this gap is likely to close in the coming weeks.
• While LG Uplus tries to expand its non-telecom businesses, this may involve greater spending on marketing and promotions (as % of sales), which could be a drag on its earnings.

• All eyes are on inflation data this week with CPI due out on Thursday
• Shorts in tech have been working but could be looking to take profits after big gains last week
• Use options for a cheap play on NDX outperformance over SPX

• First Solar’s bull run was halted by a below par result in the last quarter as the company failed to meet Wall Street expectations with respect to revenues as well as earnings.
• The company’s manufacturing plants produced 2.4 gigawatts of modules in the third quarter and sold 2.8 gigawatts.
• Besides, their current fleet’s manufacturing performance metrics remain consistent, and plans for the third manufacturing plant in Ohio are still on track.

• Pinterest’s performance as a stock has been fairly decent in what can be termed as a tumultuous environment for the technology industry.
• The company’s global MAUs of 445 million were higher than in Q3 2021 because it largely overcame the pandemic’s difficulties and increased user engagement.
• During the quarter, they collaborated with Merlin, BMG, Warner Music Group, and Warner Chappell Music to enhance the music experience on Pinterest.

• AEM reported its best PBT 3Q and 9M22 results ever, yet investors remain skeptical of its FY23 outlook
• Management reiterated guidance and provided a bullish statement about the coming years
• AEM EPS likely to reach at least 0.42 SGD leaving the stock trading at only 7.8x P/E FY22 

• PT Global Digital (BliBli) raised around US$517m in its Indonesian IPO, after using the upsize option and pricing its deal just below the top-end.
• BliBli provides e-commerce services across Indonesia to both retail consumers and institutions.
• In our previous notes, we have looked at the company’s past performance. In this note, we will talk about the trading dynamics.

• Korea’s partial short-selling system, implemented in May last year, created a new trading pattern, a surge in short selling for new additions, immediately after index rebalancing.
• Canaria Bio, HPSP, and SungEel Hitech are highly likely to be the primary targets for short selling, but there is one more thing we need to consider.
• KODEX will likely begin rebalancing buying on HPSP and SungEel on December 9, the same day the short-selling starts for them. So, we need a more flexible setup.

• TSM US has declined 35% since mid-August 2022 and 59% from its January 2022 peak. 
• A new 2022 low of 59.43 was produced on Thursday 3 November amid extreme bullish ST momentum failure.
• Our TSS methodology triggered a TSS < 10 at the low and justifies a further 6-8% upside in the coming 1-2 weeks.

• In December 2022, Naver plans to launch its long awaited 24 hours delivery service (Naver Arrival Guarantee Solution), competing directly against Coupang’s “rocket delivery” services in Korea.
• Coupang’s valuations are not attractive at current levels and the heightened competition in the 24 hour delivery service market from Naver/CJ Logistics is likely to negatively impact Coupang. 
• By providing 24 hours quick delivery service, Naver is expected to take away market share from Coupang from the fast delivery services in Korea.

• Internet Initiative Japan (3774 JP) posted solid Q2 results with the best quarterly revenue growth since 2016 and a 12th consecutive quarter of margin expansion
• Results were driven by growth tailwinds for corporate digitization which was also visible in KDDI/Softbank results as well as a recovery in mobile which was not
• The company did not raise its full-year financial guidance despite an H1 beat but forecasts looks increasingly conservative

• Hon Hai Precision Industry (2317 TT)  announced today that it will invest up to US$170m into Lordstown Motors Corp (RIDE US).
• The deal represents favorable terms for Hon Hai in our view, given the conversion price of preferred shares involved in the deal and the after-market price for Lordstown shares.
• Germany is expected to block a chip facility acquisition by Navtech Inc/China (300456 CH); Alibaba and Biren are slowing chip speeds due to U.S. curbs; Lithuan-Taiwan chip partnership.

• Price Movements: For the first time since April, Lido staked ether (stETH) now trades at parity with ETH.
• Market Liquidity: Coinbase reported lower than expected earnings due to a continued rout in trade volume.
• Derivatives: ETH perpetual futures volume is now higher than BTC volumes as traders pounce at renewed volatility.

• Apple has been correcting along with broader markets and the company’s performance has also been hit by the Covid-19 outbreak in the Foxconn unit in China that produces iPhones.
• The company’s results were fairly good and it surpassed Wall Street expectations in terms of revenues as well as earnings with a good performance from iPhone, accessories, home, and wearables.
• Apple continues to grow its platform quite well in emerging markets with quite strong growth in Latin America, Southeast Asia, and India.

• With the backdrop of cross-border travel continuing to improve and consumer expenditure remaining resilient, Mastercard delivered strong earnings and revenue growth in its latest result.
• Mastercard has expanded with gaming payouts, thus launching its Gaming Fast payout program.
• For addressing domestic, cross-border, and account-to-account payments, it has signed an agreement with leading worldwide B2B solutions and networks, Pagero.

• Blibli (1437710D IJ) priced its IPO at IDR450 per share to raise net proceeds of US$508 million. The shares will start trading on 8 November.
• We have previously discussed the IPO in Blibli IPO: The Bull Case, Blibli IPO: The Bear Case, Blibli Vs Tokopedia Vs Bukalapak Vs Lazada Vs Shopee, Blibli IPO: Valuation Insights.   
• Despite peer multiple derating, the IPO price remains unattractive compared to global and Asian-focused e-commerce peers. 

• While 80% of Japanese institutional investors place a high value on corporate respect for human rights, only 10% of companies have conducted human rights due diligence.
• Japanese institutional investors should make it “visible” to their beneficiaries how they require companies to respect human rights in their engagement and how they encourage effective responses.
• To ensure that the guidelines don’t end up as mere figure of speech, the government should make concrete policies to ensure that respect for human rights takes root in society.

• Tencent and Alibaba are rumored to be acquired by state-owned companies.
• Tencent charges for originally free function and JD.com re-organized to cut cost.
• Autohome’s revenue stopped declining in 3Q22 and it is time to accumulate.

• At the moment of writing this, it’s 2:30 pm on a Sunday and I am in a ground blind. Every year at about this time of the year I take a few days off of work to unplug, have a few drinks with other family members and run off to the middle of the woods.
• I get some of my best thinking done out here while I wait for a White Tail Buck to come by. It’s blissful.
• Regardless of where I am or what I am doing, I am and always have been committed to maintaining my transparency, my thoughts and my investing story/process to all of you.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front,  a number of companies in India have launched thier IPOs recently, even as HK and rest of Asia remains dormant.
• The only notable placement this week was the selldown in Axis Bank Ltd (AXSB IN) by Bain Capital.