TMT/Internet

• Superapp GoTo (GOTO IJ) on Friday announced that it plans to issue 118.4bn shares through a private placement subject to shareholder approval.
• This fresh issue accounts for 9.9% of the total outstanding shares of the company and the announcement comes 2-months after the company’s US$1.1bn IPO in March this year.
• GoTo’s shares are down 20.4% since its IPO and the shares are trading IDR304 a piece, well below its IPO price of IDR338 per share.

• On May 20, Hang Seng Tech Index (HSTECH INDEX) took out ASMP (522.HK) and replaced by NIO Inc (9866 HK).
• Apparently, the EV has a better future outlook, and NIO is riding on the right wind even it’s still lost making.
• Meanwhile, we think ASMP’s should see another hike in 3Q22, and its revenue was forecasted between US$670 million and US$740 million in 2Q22.

• As expected, Lenovo (992 HK) will replace Hansoh Pharmaceutical (3692 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) after the close of trading on 10 June.
• Sunac China Holdings (1918 HK) has been kept in the index for now, though suspension till 30 June will see it deleted early July.
• Changes to the stocks, number of shares, float and capping results in an estimated one-way turnover of 3.7% and will result in a one-way trade of HK$2,977m.

• Amid recent market carnage, one of the strong turnaround stocks in Korea is NCSOFT Corp (036570 KS) which is down 54% from its highs in February 2021.
• Three major reasons why NCsoft’s share price will turnaround include attractive valuations, better control of labor costs, and strong pipeline of new games. 
• Short sale value/market cap ratio for NCsoft has declined materially in the past several weeks, reflecting increased optimism in the company’s future prospects. 

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. China Jinmao Holdings
2. Guangzhou R&F Properties
3. Sunac China Holdings
4. Greenland Hong Kong Holdings
5. Evergrande

and more…

• Seiko Epson (6724 JP) announces the first special div for the 2023 Nikkei 225 dividend futures.
• And it also announces a VERY big buyback. The headlines say 9.5%. The reality is more like 4.0-4.4%, but that is still going to be 15-20% of Real World Float. 
• Given mildly positive backdrop, a net cash position, low multiples, and lack of major Real World Float active investor, this could go up.

• Tencent bear/short call from 395 remains valid with risk we pierce the 310-320 support. Bear triangulation stands out as the key bear driver.
• Flat/Triangulation in price and the RSI rising wedge is a set up for a major new chart low.
• This wave 4 triangle will be followed by a hard wave 5 decline into a terminal low this summer.

• Grab (GRAB US) reported 1Q2022 results. IFRS revenue increased 6% YoY to $228m (vs consensus $142m) and negative adjusted EBITDA of $287m ( consensus $291m) compared to $111m in 1Q2021.
• The company’s deliveries biz saw a strong recovery in revenues post disappointing performance in 4Q2021 and the acquisition of Jaya Grocers partially contributed to this growth.
• Grab’s Mobilities biz has not yet recovered to pre-pandemic levels due to Omicron-related restrictions in the first two months of the quarter, but set to benefit from recovery in travel.

• In 1Q22, Xiaomi’s revenue decreased by 5% YoY in 1Q22 and the main business, smartphone, decreased by 11% YoY.
• Both global and domestic markets shrank and the competitor “Honor” came back.
• We conclude a downside of 26% and price target of HK$8.10.

• Safie’s 1Q results disappointed the market as revenue came in 5% lower than the average of two consensus estimates and R&D expense surged. 
• Nevertheless, 1Q should be the worst quarter of the year as downside from the specific distributor issue is now quantifiable and the stock is now on 2.5x 2022 EV/Sales. 
• Valuations are already highly compelling and if the sentiment driven sell off continues we would be looking for 5-10x returns over a 3-4 year timeframe.

• Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry. 
• Overall, the total value increased US$12.5bn in the past week, with Shanghai accounting for US$5.7bn and Shenzhen US$6.8bn. Tencent (700 HK) is the dominant holding across both programs
• Glory Sun Financial Group Limited (1282 HK) saw the biggest upward movement as the chairman sold to pay off debt. China South City (1668 HK) was reduced by both programs. 

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

• Xiaomi Corp

• GoTo (GOTO IJ) completes 20 trading days today. Based on the average price over the period and the last close, the stock meets the Fast Entry criteria for IDX30/LQ45/IDX80 inclusion.
• Using a free float of 66%, we estimate passive trackers buying 5.42bn shares (US$74m) of GoTo (GOTO IJ). Announcement could come in a few days with implementation at month-end. 
• With the real float close to 4%, passive trackers will need to buy 11.6% of the real float and the stock could move higher in the short-term.

• Sea Ltd released a solid set of 1Q2022 results, with very strong YoY growth in e-commerce GAAP revenues, and a predictable softening of gaming revenues given greater mobility in 1Q2022. 
• A key highlight was improving profitability with the adjusted EBITDA loss per order falling 70% in South-East Asia and Taiwan. Management also signalled that gaming revenues started stabilising end 1Q2022.
• Sea Ltd (SE US) saw a strong rally post these results given guidance was maintained albeit with a wider range. Sea Ltd is now trading at a discount to peers.

• Authorities encourage platform economy and restarted approving the licenses for new games.
• Fintech just met a high comparison base in 1Q21 and we believe the growth rate will rise.
• We believe the stock has an upside of 39% for the year end 2022.

• Tencent (700 HK) reported 1Q2022 results today. Revenue grew 0.1% YoY to RMB135.5bn (vs consensus RMB140.7bn) while reported OP decreased 34% YoY to RMB37.2bn (vs consensus RMB37.3bn).
• Adjusted OP was down 36% YoY to RMB22.3bn while adjusted OPM declined to 39.2% from 56.1% in the same period a year ago.
• Tencent’s 1Q2022 revenues were below our estimates of RMB144.3bn which was mainly due to significant drop in Fintech and business services revenues.

• Sea’s share price rose 14% yesterday after beating consensus revenue by 1.4%, but this seems unwarranted as Sea lowered the lower-end of the e-commerce revenue guidance by $400m to $8.5bn.
• Nonetheless, most of this price reaction could be short covering as Sea Ltd (SE US)’s results were rather disappointing on multiple fronts.
• With Free Fire faltering fast, we think Sea could get washed back to rough seas before reaching calm waters.  

• Square Enix results were mildly above consensus (by 2.4% at the revenue line and 3.4% at the OP line). 
• The company did not provide guidance on account of the pending transfer of its overseas development studios. 
• However, we expect the sale to lift a significant burden from the bottom line enabling significant YoY OP growth.

• We believe there is an attractive pair trade of going long on LG Chem and going short on LG Energy Solution at current levels. 
• Main reasons why we like this pair trade include large shares that could be sold after 6 months lockup for LGES, LG Chem’s attractive valuation, and shift to value stocks.
• In the past one month, LG Energy Solution is down 5.3% whereas LG Chem is up 2.4%. We believe this gap could widen in the next several months. 

• Novatek reached NT$36.5bn, 50.7% and NT$18.3 for revenue, GM and ESP respectively. 
• Its revenue and GM would be NT$34.5~35.8bn and 46~49% range in 2Q22, which revenue was declined 2~5.5% QoQ and increase 1.2~4.7% YoY.
• There are hopes for China 618-shopping Festival, US back-to-school and China double 11 shopping Festival, etc.

• Trunomi (1314065D BH) is a customer consent and data rights management platform whose unique ability is proving compliance to various data protection regulations without seeing or storing customer data.
• The introduction of the EU GDPR was one of the company’s key drivers and many countries are now introducing similar data protection regulations.  
• A number of growing technologies such as Smart technologies and ad-tech would act as further drivers.

• IdentityMind (1254693D US) has a SaaS platform which builds regulatory technologies for fintech companies, crypto trading platforms and ICOs.
• Fraud is prevalent in the ICO market and the rise of regulations increasing demand for KYC/AML services will drive the company’s future growth.
• IdentityMind was acquired by Acuant (an identity verification company) in April 2020, for an undisclosed amount.

• Faith Inc (4295 JP) is a very smallcap contents management and platform business. As a business, one could give it a miss forever, but it is cash-rich. 
• The company is doing a very large buyback, and for someone who decided they’d be interested, there is a large block for sale. 
• The thing is… one would have to act quickly and aggressively.

• SMIC reported revenue/GM were US$1,869/40% for revenue/GM in 1Q22 respectively. The revenue matched to our expectation, but the GM was exceeding ~8% versus guidance.
• The outlook is a little bit lower than our expectation for revenue/GM to be US$1860-1,897/37-39% in 2Q22 guidance.
• The overall demand situation is growing up although inflation, Russia-Ukraine war, and other factors may affect. 

• Tencent Music (TME US) reported 1Q2022 results today. Revenue declined 15% YoY to RMB6.64bn (vs consensus RMB6.69n) while reported OP dropped 35.7% YoY to RMB749m (vs consensus RMB817m).
• Revenue from Online music services declined YoY for the first time since 2017 while revenue from Social Entertainment services further declined during the quarter.
• We expect TME’s earnings to remain under pressure with increased competition and regulatory restrictions on livestreaming sector.

• Fintech unicorn could report strong earnings results for FY Q3 2022. Total revenue increased by 54% year-over-year, and net loss narrowed to ~$55M for the reporting period.
• Affirm Holdings (AFRM US)  closed a $500M revolving ABS deal and added $2.5B in new funding capacity from various partners. Total funding capacity was ~$9B, marking a 55% YoY increase.  
• Sovereign wealth fund GIC Singapore acquired ~$126 million worth of Affirm Holdings (AFRM US)  shares in April at an average of $33.00 per share.

• The company has made multiple investments in Mekari since its first investment in 2018
• This investment is a large one, equivalent to approximately 6.2bn yen. We understand that the largest investment the company has made in the past was approximately 3.4bn yen in Smartcamp (a consolidated subsidiary).
• The company’s balance sheet at the end of 1Q FY11/22 showed 5.4bn yen in investment securities and 4.8bn yen in goodwill

• Sea Ltd (SE US) reports 1Q22 results tomorrow and we expect results to follow the overall sector’s trend of weak revenue growth but lower losses.
• Consensus 1Q22 revenue expectation was lowered in the last three months but there’s still a bit more downside due to Free Fire’s struggles.
• The biggest risk is the remaining three quarters of 2022 and the next year as consensus revenue seems too bullish with estimates of 42% revenue CAGR through 2021-23.

• The review period for the September rebalance of the KRX New Deal indices started on 1 May and will run till 31 July. Implementation is on 8 September.
• Intellian Technologies (189300) could replace Danal Co Ltd (064260) in the Internet index, while KMW Co Ltd (032500 KS) could replace AfreecaTV (067160 KS) in the top 3 index stocks.
• Nexon Games (225570 KS) could replace Devsisters (194480 KS) in the Game Index, though the flows are small on the stocks given the small benchmarked AUM.

• freee (4478 JP)  reported 3QFY06/2022 results on Friday. Revenue grew 35.7% YoY to JPY3.65bn (vs consensus JPY3.63bn) driven by strong growth in paying users.
• Operating losses declined to 18.5% of revenues during the quarter from 24.0% in the same period a year ago.
• The company’s shares moved up by about 9% at the end of Friday’s close following its earnings announcement.

• Generic segment positively surprised; maintain BUY
• Results within expectations
• Key takeaways from 3QFY22 results
• Resilient but not immune to downside risks

Inari posted another set of strong results for 9MFY22, supported by steady growth for its RF/Opto products, and a surprise beat by its Generic segment. In line with our recent moderation of the sector’s valuation pegs (given the Fed’s aggressive monetary tightening), we lower Inari’s to 28x FY23E PER, at +0.5SD to the LT mean (from 32x FY23 PER, at +1SD). Our TP is also lowered to MYR3.50 (-11%), but we maintain our BUY call/forecasts for now. Inari remains our top M’sian OSAT pick, premised upon its (i) RF division’s sustained resilience, (ii) proven mgmt team, and (iii) solid fundamentals (net cash pile of c.MYR2b, or 53 sen/share).

• On Friday 13 May, two days after earnings, Capcom Co Ltd (9697 JP) announced a share buyback via Tender Offer from its CEO. 
• The Announcement talks about how buying the shares back “contributes to the improvement of capital efficiency such as earnings per share (EPS) and return on equity (ROE) of the Company.”
• Then another company announcement erases 99% of that accretion, and money out the door. ROE goes up because cash goes out, and pro-forma EPS rises from ¥161.59 to ¥161.61. Whoopee!

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia and the US (ADRs only).
• This week, highest gross spreads are Dongzheng Automotive Finance (2718 HK), Sezzle Inc (SZL AU), 21Vianet Group (VNET US), Infomedia Ltd (IFM AU), Link Administration Holdings (LNK AU), Alliance Aviation.
• Lowest gross spreads are Virtus Health (VRT AU), China Logistics Property Holdings (1589 HK), Uniti Group Ltd (UWL AU), Mapletree North Asia Commercial Trust (MAGIC SP), Irongate Group (IAP AU).

• Coinbase reported its first net loss since listing, as warned by the management before, due to both declining trading/transaction revenue and a continued increase in operating expenses.
• Besides the impairment charges, the increase in Q1’22 operating expenses was mainly because of the headcount growth as Coinbase plans to further expand its business offerings this year.
• Coinbase’s earnings for the year will unlikely improve as the company sticks to the plan to make 2022 an investment year regardless of the downturns in the broader crypto markets. 

• Its revenue, GM and NM were NT$16.3bn, 42.6% and 36.1% in 1Q22. 
• GlobalWafer experienced their China Suzhou subsidiary, SST, suspended production during April 2~27 by local government’s COVID-19 control measure, but it had resumed production.
• The stock dividend is NT$16 in 2022, which is 58.7% payout ratio from 2021 earnings. The payment date is to be 2022/08/05.

• Phison reached to NT$17.1bn, 32%, 14% and NT$10.49 for revenue, GM, NM and the Diluted EPS in 1Q22.
• We estimate it could be a slight positive growth in 2022, which could reach NT$18.1bn/32.5% for revenue/GM respectively.
• Phison and its competitors shall continuously strive in Flash card and the related business.

• KYEC reached revenue, GM, OPM and Diluted EPS of NT$8,984mn, 35.8%, 25.6% and NT$1.47 respectively in 1Q22.
• KYEC could reach to ~10% revenue QoQ growth in 2Q22 because of some orders delayed in Suzhou for COVID-19 controlling measure in 1Q22.
• The mainland China smartphone is not strong in 2Q22, but the smartphone chipset testing demand could still be the largest demand in KYEC. 

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

• What I try to look for is the holy Trifecta of value investing: Revenue growth, margin expansion and multiple expansion.
• I think this stock has got all three of them. I think the company has reached an inflection point in the past few years in terms of product and service offering with SaaS revenue of $100m and growing 50% YoY.
• Overall service and subscription revenue being 30% of revenue, up from 24% 3 years ago. With an overall very sticky revenue base with high switching costs. 

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

• MSCI announced the changes to the Standard and Small Cap Indexes, along with FIF/NOS changes as part of the May SAIR. Plenty of flows in Asia Pacific.
• Announcement of changes to the FTSE AW/AC, HSI INDEX, HSCEI INDEX, HSTECH INDEX and SENSEX INDEX will be made after market close on Friday.
• There were inflows into Taiwan, Australia and Hong Kong focused ETFs, while there were redemptions from China and Korea focused ETFs.

• Online auto parts and service provider Infomedia Ltd (IFM AU) has received a non-binding proposal  – by way of a Scheme – from TA Associates and Viburnum Funds. 
• The Offer price is A$1.70/share, a 32.8% premium to last close. 
• Via a tie-in with Viburnum, TA disclosed a 14.46% interest.  IFM said it is also in preliminary discussions with other interested parties. 

• Maxell Ltd (6810 JP) has been restructuring itself and the cost-cutting and rationalising of sales efforts and regions has led to post-relisting record OP.
• But another (non-cash) write-off this past year has led to the third year of net losses in a row.
• The company has, however, taken its actual cashflows and turned them into a large buyback

• The NTT (9432 JP) / NTT Data (9613 JP) transaction is a little complicated, but the end goal appears, like before, to push operating control below holdcos on the chain. 
• Both Link Administration (LNK AU) and Dye & Durham tanked over the unfortunate timing of an ACCC delay and MAC disconnect – before a price recovery to close the week.
• MCB says the AGL Energy Ltd (AGL AU) de-merger plan is bad, and now analysts say it is “underwhelming.” Duh.  But the alternative? Underwhelming too, but less independent.

• This is the second weekly series on the “Top 20 Best Performers in the Korean Stock Market Adjusted for Trading Value & Mkt Cap.” 
• Starting this weekly, we include stocks in both KOSPI and KOSDAQ. All the stocks in KOSPI and KOSDAQ are ranked, adjusted for market cap and trading value. 
• Among the top 20 performers, NCSoft, Hyundai Motor, Kia Motors, Dohwa Engineering, DB Hitek, SK Telecom, and KT Corp were included. 

• The 1Q22 revenue/GM/OPM was US$215mn/55%/36% respectively, with revenue growing 50% YoY and -2.6% QoQ. Silergy considers its own business will grow quarter by quarter in 2022.
• Silergy expects to see ~3% revenue contribution for Automotive in 2022, which means it should grow over 3% by the end of 2022.
• Silergy’s order visibility is extended from 3 quarters to over 6~8 quarters now. Meanwhile, Silergy aims to split the share to let more retail investors to hold their shares.    

• TA Associates and Viburnum Funds’ non-binding indicative privatisation proposal is A$1.70 per Infomedia Ltd (IFM AU) share in cash, a 32.8% premium to the last close.
• The timing of the bid looks opportunistic in the context of the shares hitting a 3-year low on 9 May. Viburnum with a 14.5% stake is the largest shareholder.
• The Board notes expressions of interest from other parties. TA and Viburnum’s bid is the catalyst for other bidders to show their hands.  

• Greenhaven Road Capital Partners Fund returned approximately -26.5% net in the first quarter.
• The three big factors that currently appear to be dominating investors’ focus are rising interest rates/inflation, rising oil prices, and war in Ukraine.

• Polen Capital is a high-conviction growth investment manager.
• During the first quarter of 2022, the Polen Focus Growth Composite Portfolio returned -13.39% and -12.56% gross and net of fees.

• Polen Capital is a high-conviction growth investment manager.
• We scour the globe in search of the highest quality, sustainable companies to invest in.
• Aon, Visa, and Mastercard were the top absolute performers during the quarter.

• There are quite a lot of stocks that have changes to their Foreign Inclusion Factor (FIF) at the May SAIR since MSCI comprehensively assesses the float for stocks.
• The largest passive inflows will be on Tencent, Kuaishou Technology, JD Health, Macquarie Group, Shin Etsu Chemical, Recruit Holdings, Olympus Corp, Naver Corp and Sun Hung Kai Properties.
• Changes to FIFs are tougher to forecast and not very widely tracked, so pre-positions are likely to be lower and the stocks with higher ADV to buy/sell should outperform/underperform.

• DND’s 3QFY22 last night continued to suggest DND’s commitment to complete the Link Administration Holdings (LNK AU) acquisition.
• DND management’s messaging in the call downplayed the MAC risk of a contract renewal but shifted incrementally more bearish on the ACCC review, in our view.
• The risk-reward calculus is now incrementally more positive. The gross spread is wide at 24.4% with the “deal-break” valuation of A$4.18 (-5% below the last close) limiting downside risk.

• BASE Inc (4477 JP) is up more than 27% today as the Mothers Index bounced back 4.5% following a steep sell-off during the last one-month period.
• Nevertheless, results were disappointing on both the top line and the bottom line with Q1 revenue and operating loss of ¥2,512m (consensus ¥2,659m) and ¥272m (consensus ¥139.2m) respectively.
• After disappointing the market with a guidance range that was significantly below consensus in 2021, Base Inc has withheld from providing 2022 guidance.

• Downtrends remain intact for Japan’s TOPIX/Nikkei 225, Hong Kong’s Hang Seng, Europe’s EURO STOXX50, Germany’s DAX, China (MCHI-US), and all the MSCI global indexes (ACWI, ACWI ex-US, EM, and EAFE).
• The majority of these indexes are in well-defined downtrends; that means when the downtrends eventually reverse, it will be clear and we will be ready to buy/turn bullish.
• Relative strength on Japan’s TOPIX is reversing topside a 4.5-year downtrend, signaling Japan is emerging as leadership. We highlight buy opportunities in Japan and also in defensive Sectors

• Shufti Pro (1988739D LN) provides AI-based identification verification solutions offering real-time global identity verification for KYC/AML and KYB compliance.
• In 2020, the company grew its revenue by over 100% due to strong adoption skills and flexibility allowing to capture the growth in demand due to the COVID-19 pandemic.
• While flexibility helps Shufti Pro stand out from competitors, global expansions, growth in identity fraud and a number of strong partnerships would drive company revenues over the medium-term.

• Polen Capital is a high-conviction growth investment manager.
• Over the first quarter of 2022, Polen Global SMID Company Growth Composite Portfolio returned -22.37% gross and – 22.48% net of fees, respectively, versus the -6.41% return of the MSCI ACWI SMID Capitalization Index.

• Sift Science (0747031D US) uses machine learning to help companies with detecting fraud, fake accounts and money laundering.  
• The company’s business is claimed to have tripled since 2018.
• The growth of internet crime and increasing account takeover fraud will act as drivers for the company.

• Hummingbird Technologies (1681343D LN) allows companies without easy access to IT or engineering resources carry out anti-money laundering practices.
• Unmet demand in the AML market, strong partnerships and expansion to new markets are expected to act as key drivers.  
• The company claims to allow clients reduce investigation and reporting times by 70-90%.

• Polen Capital is a high-conviction growth investment manager.
• Over the first quarter, Polen U.S.
• Small Company Growth Composite Portfolio returned -21.98% gross and -22.18% net of fees, respectively, underperforming the -12.63% return of the Russell 2000 Growth Index.

• Polen Capital is a high-conviction growth investment manager.
• Over the first quarter of 2022, Polen International Small Company Growth Composite Portfolio returned -22.48% gross and – 22.73% net of fees, respectively, versus the -6.