TMT/Internet

• TSMC’s 2022 outlook is bright, but new drama around Intel’s possible orders could define the foundry in 2023
• IPhone’s 2022 modem is currently equipped with Qualcomm’s design but 2023’s will be designed by Apple
• TSMC’s continuously updated technology roadmap shows it as a tech-leader in the foundry space

• Early last year we very wrongly called Capcom as our top short-term pick as we expected an earnings blowout in 1QFY22. 
• The blowout duly came with OP 37% above clueless sell side expectations and… the stock tanked. 
• Almost a year later the stock languishes 28% lower just as the PC version of Monster Hunter Rise launches.

• Bilibili launched a shopping cart feature (Xiaohuangche) recently on its livestreaming platform which enables users to purchase goods while watching a live-stream.
• This comes at a time; China’s common prosperity crackdown has set its eyes on livestreaming e-commerce.
• Bilibili has been looking at ways to improve its monetisation to reduce losses, but we think the new initiative will likely add further pressure on deteriorating margins.

• Qingdao Ainnovation Technology Group Co Ltd (1853807D CH) is looking to raise up to US$200m in its Hong Kong IPO.
• Qingdao AInnovation Technology Group is an AI solutions provider offering full-stack AI-based products and solutions. 
• While revenue has grown since inception, margin improvement can’t be attributed solely to better cost controls. It also has an unproven track record and operates in a highly fragmented market. 

• Infosys reported strong Q3FY22 earnings with constant currency (CC) sequential growth of 7%, despite weak seasonality.  YoY CC growth at 21.5% is the highest ever over the past 11 years.
• Large deal wins and continued momentum in digital revenue growth helped Infosys Ltd (INFO IN) to post a strong Q3. Share of digital revenues grew to 58.5% vs 50.1% YoY.
• On the back of strong Q3FY22 earnings, Infosys raised its FY22 revenue growth guidance to 19.5-20% vs 16.5%-17.5% earlier.

• IOT data platform meant to digitize physical operations for manufacturing, transportation, construction, utilities, healthcare, and education. 
• Excellent management team, previously co-founded Meraki, which was sold to Cisco.
• Hypergrowth software business on par with ServiceNow and Workday at this stage in growth, but much less profitable (so far) due to hardware and bandwidth costs.

• CALX has yet to experience the full extent of our original sell thesis even though there are growing signs of an impending impact
• Component issues could have become a headwind in the fourth quarter and remain a challenge in 2022.
• With Huawei equipment replacement predominately complete, small service providers could reduce their spending

• In this weekly, we look at the macro where the recent selldown is well within the historical performance of the asset class
• Despite the end year correction, crypto funds have returned 178% in 2021 based on Eurekahedge which is leading to significant new launches in 2022 
• Meanwhile, NFTs continue to make headlines as Eminem spent half a million on a BAYC jpeg and a South Korean presidential hopeful taps NFTs to raise campaign funds 

• SK Square’s discount to NAV is reaching 68%, pretty close to the deepest end of the local peers.
• The cause of this price correction can be seen as the collapse of the overall market flow balance due to the LG Energy IPO.
• Entry timing for MSCI float-rate increase momentum is early February.

• With half of Nasdaq stocks down 50% from the top, is further meltdown ahead?  Valuation compression is already larger than recent big growth selloffs.  
• We like a balance of highest quality high growth (CRWD, SNOW, RBLX) and attractive relative valuations (PANW, NOW, BABA)
• Amazon is poised for a big 2022 as 1 day Prime shipping reaccelerates growth, and price increases hike profits.

• We have made a bullish yield argument from the 10yr 1.37% zone to clear the key 1.68% breakout barrier. A yield spike will pressure tech at NDX macro trendline support.
• NDX long term trendline make or break support lies at 15,300. We expect a break in later Q1 but if broken now it will bring forward a negative risk cycle.
• Our macro 10yr yield rise to the 2%+ region for a top correlated with a peak in the equity cycle in late Q1. Rate sensitive ration undercurrents.

• Blockchain games are gaining popularity and traction with new players. There are now over 1.4m people playing blockchain games daily  
• The economics of blockchain gaming and NFT is driving a flood of new investment into the space, with $4b committed by VCs in 2021. This year will be significantly higher  
• Square Enix understands that blockchain games are here to stay despite opposition from “legacy fans.” We expect further announcements on blockchain gaming to drive the stock

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• LG Energy Solution (LGENERGY KS) started book building for its mega US$10bn+ IPO
• Placements too got off to a large, if not strong, start with Sea Ltd (SE US) and Nippon Paint Holdings (4612 JP) US$1bn+ deals. 

• PC Partner (1263 HK) issued a positive profit alert 15/12/2021.
• Company will report FY21 results in 60 days which will be the best ever. 1H22 is on track to show growth YoY. 
• Forecast exceptional dividend to celebrate 25-yr since founding and 10-yr since IPO. 

• In December, Tencent announced that its board of directors has resolved to declare a special dividend by way of a distribution of its Class A ordinary shares of JD.com. 
• This seems to be in line with regulators’ aim of bringing down walled gardens; however, we think these steps are aimed more towards restructuring Tencent’s fintech business.
• Tencent’s fintech arm has been benefitting from its partnerships with JD.com and Pinduoduo which has helped face competition from closest rival AliPay.

Multiple transitions to drive growth

• Sea Ltd (SE US) stock was down a lot since the announcement of its Q3 results. Tencent (700 HK) selling a 2.6% stake yesterday took the stock down even further.
• Given the large drawdown and Tencent (700 HK) locking in its remaining Sea Ltd (SE US) holding for the next 6 months, the stock could rally in the short term.
• There will be passive inflow from MSCI trackers in February as a part of the tranched inclusion and then more in May due to an increase in the FIF.

• We take a look at the Asia Pacific IPO pipeline for 2022. This list has been compiled on a best effort basis from tracking company filings and other sources.
• For readers who aren’t familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific (ex A-shares), including China ADRs. 
• The deals you see in this note are only a part of our full IPO pipeline tracker. Feel free to drop us a message for additional information on these IPOs.

• The gross spread to the HK$2.82 per share offer has retouched the high of 23%. The headcount test is a key challenge as some minorities voice displeasure over the price.  
• Based on the unaffected price of HK$1.81 and at the last close of HK$2.30, the deal probability retouched lows of 48.5%. A 65% deal probability would imply HK$2.47 per share. 
• In the event of a failed deal, Razer Inc (1337 HK)’s strong fundamentals provide solid valuation support. Our SoTP valuation is HK$2.96 per share, 5% higher than the privatisation price.

• Sea Sale: Tencent sold 14.5 mn shares in Sea, raising approximately USD 3 bn in cash – reducing Tencent’s position in Sea from 21.3% to 18.7%;   
• Not A Surprise: Given mainland China’s crackdown on the country’s largest internet companies, Tencent’s disposal of Sea shares is not a surprise; and  
• Other Stake Sales To Follow: Further divestitures of major stakes are likely if Tencent wishes to remain on the right side of mainland China’s Communist Party.    

• 2021 marked our sixth year covering Equity Capital Markets (ECM) in Asia Pacific. 
• Most markets were in top gear on the ECM front and we ended the year covering the highest number of IPOs and the second highest number of placements since inception.
• For those not familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific, including China ADRs.

• Deal wins for FY21 stood at $781 Mn, showcasing a growth of 11% YoY and the highest ever in the history of Coforge. The company has also added 45 clients during FY2021.
• Revenue growth in FY21 stood industry-leading at 11.4%. The company also reported healthy expansion in its operating margins
• We recommend a BUY rating on the stock and assign a 37 x P/E multiple to its FY24E earnings of Rs 184/share to arrive at a TP of Rs 6,870/share, implying an upside of 15% from CMP.

• We estimate Vision Fund portfolio companies lost $2.1bn in value in Q3 as upside from new listings was not enough to offset valuation losses from the current portfolio.
• A strong debut for SenseTime boosted Q3 gains by $2.3bn and +$1.7bn this week. That takes the sting out of weak Didi Q3 results but China remains a challenge. 
• Shares trade at a 49% discount to NAV because investment losses both lower NAV and boost balance sheet concerns. 

• Square Enix rose 7.5% yesterday driven by some New Year commentary on integration of NFTs from President Yosuke Matsuda. 
• The share price jump stands in contrast to broadly negative and suspicious reactions from consumers. 
• The handling of the issue could be tricky as Ubisoft is finding out but we believe there is positive potential.

• eClerx Services (eClerx) provides business process management, automation and analytics services.
• It caters to financial services, communications, retail, media, manufacturing, travel and technology companies
• We roll over valuations to FY24E and value eClerx at Rs 2900 i.e. 21x P/E on FY24E EPS

• The stock is pretty illiquid, and is effectively a nano cap as insiders effectively own 65% of shares outstanding. Average daily trading volume only about $10k. 
• I feel quite optimistic about it. Trades <10x earnings while co is growing and only at about 1.5x recurring revenue and a lot of operating leverage.
• The company provides tracking software and services to monitor convicts. Generally contracts are signed on a multi year basis

• SKonec Entertainment (276040 KS), which specializes in VR based metaverse technologies, is getting ready to complete an IPO in the Korean stock market in the next several weeks.
• Currently, Skonec Entertainment has a gray market value of 34,000 won, which is 183% higher than the high end of the IPO price range of 12,000 won. 
• The company has been one of the first game companies to develop VR based gun shooting games in Korea.

• XPER starts 2022 with a baseline free cash flow that is receiving little investor attention after the Company spent 2021 investing in its product offering
• XPER has multiple shots to achieve greater free cash flow in 2022. From AutoStage and AutoSense to hybrid bonding and content streaming intellectual property
• The steps XPER took in 2021 did not achieve triumphant revenue and free cash flow events to garner investor attention in the same year, but sets up 2022 for growth

• After labeling Sushiswap a deep-value crypto play in our last report, it has rallied 100% over the past month on the back of the proposed takeover by Frog Nation
• Frog Nation, despite the name, is a serious crypto conglomerate with control over three projects with a combined market cap of USD7bn, led by developer Daniele Sesta
• If the takeover is successful, Frog Nation is likely to unlock value in Sushi by migrating over liquidity as well as managerial talent. However, this is likely priced-in.