TMT/Internet

• China’s gaming regulator, National Press and Publication Administration granted publication licenses to a list of 45 games, ending the nine-month long freeze on new game approvals in the country.
• While it comes as a relief, The Cyberspace Administration of China has kicked off a formal campaign to investigate and rectify algorithm security issues of tech companies.
• Though any of Tencent (700 HK) games didn’t receive approvals, the company’s shares have moved positively during today’s trade and up 2.1% from yesterday’s close.

• Zhihu Technology (ZH US) has launched an HKEx dual-primary listing to raise $150-200 million. The H Shares will be priced on 14 April and listed on 22 April.
• In Zhihu Dual-Primary Listing: A Question of Judgment, we stated that while a loss-making tech name is not everybody’s cup of tea, Zhihu has resilient performance and an undemanding valuation.  
• In this note, we will look at Zhihu’s potential HK-ADS premium/(discount). Zhihu pricing its H-shares at a discount of 3-4% to its ADSs will be reasonable, in our view.

• Chinese Internet data center services provider 21Vianet Group (VNET US) has recently received a non-binding proposal letter from the Hina Group and Shanghai’s Industrial Bank Co. 
• The indicative Offer price is US$8.00/ADS, or ~US$1.3333 per ordinary share.
• The Offer Price is utterly underwhelming. A successful outcome will more than likely find its way to the Cayman Court.

• ONE Store (ONE KS) is looking to raise up to US$228m in its Korean IPO.
• One Store is a mobile app market platform, formed by a cooperation between South Korea’s three telecom carriers, together with Naver Corp, an internet firm in South Korea.
• Given the lack of direct comparables, one way to look at valuation would be to compare the firm to its historical asking valuations.

• Viva Republica (Toss), one of the largest fintech companies in Korea, is expected to become the first decacorn in Korea in 2Q 2022. 
• Toss is expected to have a value range of 10 trillion won to 15 trillion won in the upcoming funding round in 2Q 2022. 
• Kakao Bank has P/S multiple of 20.2x in 2021. Applying this multiple on Viva Republica’s sales of 781 billion won, this would imply a valuation of 15.8 trillion won. 

• The 1Q22 revenue is NTD$63.4bn, and we estimate GM is ~40%, which is consistent with 1Q22 guidance.
• We estimate the order is pretty much confirmed in UMC in 3Q22, which should be ~NTD$65bn.
• UMC will increase about 10-15k/month of 28nm capacity in 2H22.

• In Q4FY22, Tata Consultancy Services Ltd (TCS) reported revenue growth of 3.4% QoQ in Rupee terms, beating our expectations.
• The company’s revenues stood at Rs 50,591 Cr, up 15.8% YoY.
• We recommend a BUY rating on the stock and assign a 31x P/E multiple to its FY24E earnings of Rs 135.2/share to arrive at a TP of Rs 4,200/share, implying an upside of 14% from the CMP.

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• VNET, formerly known as 21Vianet Group (VNET US), is a leading carrier and cloud-neutral data centre services provider in China. 
• It has received a non-binding privatisation proposal from The Hina Group and Industrial Bank Co Ltd A (601166 CH) at $8.00 per ADS, a 48.1% premium to the undisturbed price. 
• The Board has not made any decisions on the offer. Despite the juicy premium, the offer is unattractive in the context of historical multiples and share prices.    

• Zhihu plans to raise around US$130m via a dual primary listing in Hong Kong.
• Unlike all the prior dual primary/secondary listings which have been done via offering either only primary or a mix of primary+secondary shares, Zhihu’s offering will consist of only secondary shares.
• In this note, we’ll talk about the deal dynamics and structure.

• Here are the tradable stocks for Long/Short position buildups for the KOSDAQ 150 rebalancing in June.
• LONG (Additions): Dear U (376300 KS), Vidente (121800 KS), GOLFZON (215000 KS), Hana Micron (067310 KS), Danal (064260 KS), & Intellian Technologies (189300 KS)
• SHORT (Deletions): Daea Ti (045390 KS), Advanced Process Systems (265520 KS), Unison (018000 KS), Danawa (119860 KS), OE Solutions (138080 KS), & Toptec (108230 KS)

• China announced game approval last night, after 8 months of silence.
• We discussed in our previous note that China would resume game approval.
• There is no game approved for Tencent and Netease this round but we believe their approval will come in due time.

• Zhihu has filed for a dual primary listing on the HKEx through offering of 26m shares (Class A) by existing shareholders at a maximum offer price of HK$51.8 per share.
• Two ADS represent one Class A ordinary share and shares closed at US$2.56 per ADS, and the maximum offer price implies a 31.5% premium to the last close.
• Zhihu’s business model seems to work in favour and the company’s shares are extremely cheap at the current multiples. There is upside but we would remain cautious.

• Kurly’s management team needs to drastically lower its valuation expectation in this difficult market environment.
• Due to weak market conditions, it is likely to have a difficult time completing this IPO if its valuation is stretched to about 6 trillion won to 7 trillion won. 
• In our view, the company could complete its IPO if the valuation is close to about 3.5 trillion won to 4.5 trillion won. 

• The prices at work on the S&P 500 are warning of further weakness ahead
• Short term focus is on 4418 and if that gives way we could be en route towards the 4101 low again over the coming weeks
• Overall it is beginning to look as though the rebound over the past 4-6 weeks has been corrective

• GoTo (GOTO IJ) lists on the IDX tomorrow. The IDX has GoTo (GOTO IJ)‘s free float at 66% which would mean IDX30, LQ45 and IDX80 Fast Entry index inclusion. 
• If included in the indices at a free float of 66%, GoTo (GOTO IJ) will have a weight of 13.55% in the IDX30 Index and 12.12% in the LQ45 Index.
• Passive trackers will then need to buy 13.2% of the real float on the stock. Active funds will also buy the stock as it would appear in their benchmarks.

• Zhihu Technology (ZH US) has launched an HKEx dual-primary listing to raise $150-200 million. Zhihu will not receive any of the net proceeds as it is offering from selling shareholders.
• Zhihu shares are down 73% from the IPO price of $9.50 per ADS (March 2021) largely due to the tech sell-off and regulatory uncertainty on ADR listings.  
• While a loss-making Chinese tech name is not everybody’s cup of tea in the current environment, Zhihu has delivered resilient performance and the valuation is undemanding. 

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore and the US (Chinese ADRs only).
• This week, the highest gross spreads are Yashili International Holdings (1230 HK), Pendal Group (PDL AU), Sezzle Inc (SZL AU), Razer Inc (1337 HK), Link Administration Holdings (LNK AU).   
• The lowest gross spreads are Uniti Group Ltd (UWL AU), 51 Job Inc Adr (JOBS US), China Logistics Property Holdings (1589 HK), Irongate Group (IAP AU), Jin Jiang Capital.    

• The S&P/ASX 200 (AS51 INDEX) rebalance takes place at the close on Monday, 11 April with HomeCo Daily Needs REIT (HDN AU) replacing CIMIC Group Ltd (CIM AU). 
• The review period for the MSCI May SAIR starts on 18 April. There will be adds/deletes, listing switches, and FIF changes (both big and small).
• There were big inflows to the iShares MSCI Emerging Markets (EEM US), Vanguard FTSE Emerging Markets ETF (VWO US) and iShares Core MSCI Emerging Markets ETF (IEMG US) ETFs.

• Crowdstrikes’ growing platform offers three end markets as large as its core endpoint protection: log management, identity, and IT hygiene.
• 43 public enterprise software companies with more >$1 billion in revenues, only 5 are growing >60%, and only one has 30%+ free cash flow margins: Crowdstrike.  
• New $5B ARR 2026 target will prove as ridiculously conservative as last year’s $3B ARR 2025 target.

• GoTo was initially aiming to raise around US$1.25bn from a local listing. It managed to raise US$960m after downsizing its deal and pricing close to the midpoint.
• GoTo, is an Indonesian holding company, was formed in May 2021 as a result of a merger between Gojek, leading player in ride hailing, and Tokopedia, leading e-commerce player.
• In this note, we’ll talk about the trading dynamics of the deal.

• Japan-Based BPO company Bewith (9216 JP) was listed in the First Section (now known as the “Prime” Market) of the Tokyo Stock Exchange (TSE) on 2nd March 2022.
• When a company gets listed in the TSE First 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 Bewith’s Inclusion Event.

• We expect TSMC will grow ~4.7% QoQ in 2Q22, and the revenue/GM/OPG is around US$17.7bn/55.1%/43.8%.
• We highlighted TSMC was considering to increase the wafer price nearly 2 months ago, but TSMC has still not made the final decision yet.  
• TSMC 4/5nm capacity will be ready for for 150k/month within 4Q22. We think the new iPhone 14 would request more than half of the capacity.

• Yaskawa reported weak results as we expected (¥12.9bn OP vs. our ~¥14bn estimate and consensus at ¥16.7bn). 
• Despite this the company actually guided for a very punchy ¥72bn in OP next FY even above consensus’ ¥65.5bn and our expectation for OP to be flattish or even decline. 
• Nevertheless, there was nothing on the earnings call to suggest that guidance was anything more than overoptimism on the top line.

• MSCI comprehensively evaluates the free float for stocks at the May SAIR. The changes will be announced on 12 May and implemented at the close on 31 May.
• We expect an increase in the FIF for some stocks. Largest inflows are expected on Tencent (700 HK), Kuaishou Technology (1024 HK), JD Health (6618 HK) and KakaoBank (323410 KS). 
• There is reasonably large short interest on some of the stocks and there could be some short covering on stocks where there could be large passive inflows.

• Our base case valuation of OneStore is market cap of 1.3 trillion won and target price of 48,713 won per share (28% higher than the IPO mid-point price range).
• Our valuation of the company is based on P/S multiple of 4.8x (average of the peers) using our estimated sales of 269 billion won for the company in 2022. 
• In our comparable companies valuation analysis, we have used the following four Korean companies as comps including Kakao Corp, Naver Corp (035420 KS), AfreecaTV (067160 KS), Kidari Studio (020120 KS).

• ONE Store (ONE KS) is looking to raise up to US$228m in its upcoming Korean IPO.
• One Store is a mobile app market platform, formed by a cooperation between South Korea’s three telecom carriers, together with Naver Corp, an internet firm in South Korea.
• By cutting its commission take rate to attract developers, the firm has managed to turnaround its transaction volume in FY18, leading it to record consecutive quarters of growth.

• HOOD’s performance indicators are deteriorating.  Growth in funded accounts is not growing.  Monthly average users are declining, and ARPU is falling.  Margins remain negative and are declining.
• The company’s main sources of revenue are from transactions in speculative instruments.  Options and crypto trading represent 80% of transaction revenue… in accounts that average $4,300 in size.
• Small scale and lack of diversification leave it disadvantaged.   Further, it generates little fee income, such as asset management fees.  It is nearly entirely reliant on payment for order flow.

• This model uncovers companies facing recent sharp cuts in estimates. These shorts can have very disparate characteristics.
• The key judgement involves whether the negative revisions are temporary or if they are indications of ongoing weakness in the business. 
• Breaking Estimates stocks often continue to decline after the cuts.  This week we flag: UiPath, EchoStar, Stitch Fix, First Solar

• Yaskawa reports today and we expect earnings and guidance to both be on the weak side. 
• The stock has been weak of late but we still lean towards the idea that there is a little downside risk remaining. 
• The key question is whether the market attaches any credibility to consensus projections of 15% YoY OP growth next FY.

• PC Partners has solid bull base line support to stage a fresh bull cycle. Old high support and key lows rest at the 7.50 level. 
• RSI is due to rally off of the bull wedge breakout support. Buy volumes are constructive on strength with weak sell volume on recent weakness (underlying bullish).
• 12.50 and 14 bull targets with the later the hurdle to clear to open the way higher.

• After the market close today, Ecopro BM announced a rights offering worth 500 billion won as well as a bonus issue of three new shares for one existing share.
• The tentative rights offering price is 310,300 won, which is 27% lower than current price of 423,800 won.
• Ecopro BM’s valuations remain stretched with its shares trading at high multiples and we believe there could be some further weakness in its share price in the coming weeks. 

• It will be difficult to reach a valuation consensus in the short term, suggesting the likelihood of substantially higher price volatility after listing. The IPO valuation itself is quite excessive.
• There are not enough stories to instill growth expectations in investors. Expectations for regulatory benefits are uncertain. The inclusion to K-New Deal and WISE Media Contents are worth a look.
• In conclusion, I do not recommend an aggressive approach to this IPO. Similar to SK Shieldus, we even need to consider a post-listing entry.

• Vltava is a global equity investment fund.
• Its objective is to achieve long-term capital growth of the assets under management while investing primarily into publicly traded companies.
• If Putin has succeeded in anything, it is to completely dismantle a functioning domestic economy virtually overnight.
• We probably never have seen anything like this before.

• Every year in April there are two TOPIX rebalance changes – the FFW review for July-September FY-end companies, and the annual liquidity factor adjustments.
• This year, the former is replaced by the TOPIX FFW Methodology Change for the new Market Structure. This is a big change, but it will not necessarily overwhelm the latter.
• Janaghan Jeyakumar, CFA‘s piece of 5 weeks ago discussing the Liquidity Factor basket has seen generally good performance. There are two days to go. 

• Since Elon Musk bought his 9.2% stake in Twitter, the stock is up 30%
• We are doubtful Musk can alter the trajectory of Twitter’s slow product development and weak monetization of direct response advertising and SMB customers.  
• Twitter trades 6.5x forward sales / 61x forward earnings / 28x forward EV/EBITDA while Facebook trades 4.5x / 19x / 10x those same metrics…essentially 1/3rd the valuation on earnings.

• All of the Hon Hai’s 4 product-lines were growing double digits in March. 
• In 1Q22, Hon Hai’s revenue was NT$1,408.2bn, which was -25.5% QoQ and 4.83% YoY respectively. The 1Q22 revenue was a bit better than the original expectation.
• Although Hon Hai is confident, we think the visibility is still a bit of ambiguous in 2Q22.

• This morning I had two of my larger holdings, Starbucks and Twitter, become embroiled in headlines. It was announced this morning that Twitter has a new shareholder, Elon Musk
• And Starbucks would be axing their $20B buyback program as Howard Schultz looks to make a stamp on his welcoming party.
• Shares of Twitter were trading as high as +26% in the early pre-market hours this morning, after an SEC filing from Twitter shows that Elon Musk, founder and current CEO of Tesla has acquired a “passive” but sizeable 9.2% ownership stake of Twitter (~73.5M shares).

• The company sells software tools that that allow businesses to automate cloud infrastructure
• Next gen VMware… onboarding technology for cloud transitions. Impressive parallel.
• Terraform and Vault are 85% of revenues today, but big TAM for the future.

• On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.
• On 8th Mar 2022, Securities Exchange Commission (SEC) had added five China ADR names to its provisional list of issuers under HFCAA, which set the clock ticking for their delisting.
• In this note, we’ll talk about the latest developments and its implications.

• Vision Fund’s public portfolio dropped $18.6bn (-24%) in Q4. China concerns grabbed headlines but it was Asian names (Coupang, Grab) that drove losses
• Public investments held at the parent level fell 41% (-$1.3bn), led by SoFi (-$862mn), Lemonade (-$189mn) and THG (-$147mn) 
• We expect that Softbank will also need to write down private investments although it is not clear just how far private valuations have tracked public changes

• The shares have rebounded by nearly 30% since the 1st of February. Consolidation seems likely while waiting for evidence that management’s sales and profit targets can be met.
• As Japan’s No. 1 IT services company, Fujitsu should benefit from the ongoing digitalization of Japan’s public and private sectors, the roll-out of 5G and the development of 6G.
• Risks for investors include the weakening yen and economic slowdown. A history of IT system failures also raises a red flag.

• Our updated NAV valuation of SK Square suggests an implied price of 82,167 won per share, which represents a 46% upside from current levels.
• For SK Shieldus and OneStore, we took the mid-points of the IPO price ranges and applied SK Square’s post IPO ownership stakes, respectively. 
• SK Square’s CEO Park Jung-Ho announced that the SK Group is interested in investing in Arm Holdings. SK Group is well positioned to participate in the investment of ARM Holdings. 

• JCET has reported 2021 annual results, and there was RMB$8.59bn/9.5% of revenue/NM percentage in 4Q21. JCET 2021 grew 6.0% QoQ and 11.5% YoY respectively.
• Despite US-China trade war, the revenue from US clients are taking 50.2% in 2021, which is growing 23% from 2020 to 2021. 
• Given the 5G and China Automotive are developing actively, we believe these two applications shall be keeping the energetic momentum.

• Reports emerged in the past week that social media & content creation platform OnlyFans was holding talks with prospective SPACs for a potential deal.
• Despite numerous attempts at fundraising in the past, investors remain skeptical about the adult-oriented nature of the content shared on the platform
• The company is in a delicate position, needing banks & payment providers to process payments while relying on explicit content to drive future avenues of growth

• Lenovo (992 HK) could replace Hansoh Pharmaceutical (3692 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance to be implemented on 10 June.
• If Sunac China Holdings (1918 HK) remains suspended, it could be deleted from the index and Great Wall Motor (2333 HK) could be added to the index.
• Passive Hang Seng China Enterprises Index (HSCEI INDEX) trackers will need to buy around 2.45% of Lenovo (992 HK)‘s real float. Short interest is over 17 days of ADV.

• The PCAOB has not, despite a cooperation agreement with the CSRC signed in 2013, been able to conduct on-site investigations of a HK or mainland-based company since 2010.
• On Friday, the CSRC published a new Strengthening Confidentiality and File Management Related to Overseas Issuance to replace 2009 rules. 
• Importantly, the revised Provisions deletes the stipulation that “on-site inspections shall be dominated by domestic regulators or depend on the conclusions of inspections by domestic regulators.” Will it be enough?

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore and the US (Chinese ADRs only).
• This week, the highest gross spreads are Yashili International Holdings (1230 HK), Razer Inc (1337 HK), Sezzle Inc (SZL AU), Link Administration Holdings (LNK AU), Uniti Group Ltd (UWL AU) 
• The lowest gross spreads CIMIC Group Ltd (CIM AU), China Logistics Property Holdings (1589 HK), Dragon Crown Group (935 HK), 51 Job Inc Adr (JOBS US), Jin Jiang Capital.