Category

TMT/Internet

TMT: Fujitsu Frontech, Spotify Technology SA, Synnex Thailand and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Fujitsu TOB For Fujitsu Frontech At a Discount?
  • Spotify 2Q20 Earnings: Purple Haze
  • SYNEX: Expect Earnings to Grow YoY in 2020 but Has Mostly Priced In

Fujitsu TOB For Fujitsu Frontech At a Discount?

By Travis Lundy

The recent past has seen some MBOs and Parent Company takeouts of companies (where incumbent shareholders and management own a large stake) and the takeout prices have been at insufficient premia, well below investor-perceived fair value, and generally opportunistic.

Current ‘live’ situations include Itochu (8001)’s takeover of Familymart (8028) (discussed here, here, and here (accompanied by a great piece by Michael Causton)), Bain’s MBO for Nichii Gakkan Co (9792 JP) which is currently also trading at a premium (discussed in a series here, here, and here; with public activist commentary linked here), and now on Naver/Softbank Corp’s takeout of LINE (discussed here, here, and here (with an earnings-related add-on here). 

Fujitsu Ltd (6702 JP) has today one-upped those pikers. 

Today, Fujitsu announced a Tender Offer for its subsidiary Fujitsu Frontech (6945 JP) at a DISCOUNT to the last traded market price, which itself was trading at a discount to book value.

Of course, the stock had experienced a nice run-up in high volume (the three highest volume days ever) in the last few days, most likely on speculation that a deal could be announced when earnings were released. There is reference in the document to the idea that the Tender Offer was “announced” or information “distributed” on 27 July, which caused the stock to go up unnaturally – attributed to “distribution of information by some information distribution companies which indicated the restructuring the group resulting to speculation buying”. I have not found that information and the document does not clarify.

source: tradingview.com, Quiddity

This is going to upset some people.

Based on the lowest trailing 12-month EBITDA figure in 20 years, with management forecast EBITDA expected to rise sharply in coming years, and a lot of non-cash assets which are effectively cash-equivalent for Fujitsu group, the forward EV/EBITDA of the takeout price is probably the wrong level. 

Using the 20yr low EBITDA, and assuming net receivables are factored and the PP&E is sold for a 20% discount to book and leased back would bring Enterprise Value close to zero. That is probably too low a price given management forecasts of respectable free cash flow ahead.

I’ve got popcorn.

Given the propensity for shareholders of Japanese companies to make noise when it is in their interests to do so, I might wish for a pillow instead, but hope springs eternal.

Investors need to understand that the “fairness opinions” of the “independent” valuation agents are based on conflicted target management forecasts, and the “reasonable” price has zero financial logic applied to it. If one can claim a premium is being paid to the market price, it’s probably “reasonable” to most target boards even if the price of the target and its “comparable companies” have been low precisely because of a lack of trust in the governance of the target company.

As always, there is more below the fold.

For more on the rules regulations, practices, and foibles in the M&A world in Japan, please refer to the Quiddity Japan M&A Guide 2019. For more about situations where minority investors should look at their options, please see Japan Needs More Cowbell


Spotify 2Q20 Earnings: Purple Haze

By Aaron Gabin

Purple haze, all in my brain
Lately things don’t seem the same
Actin’ funny, but I don’t know why
‘Scuse me while I kiss the sky

Spotify’s market cap has doubled since 1Q20 earnings. As far as we can tell, the business hasn’t improved, management has offered hazy explanations of how podcasting will improve the business. We don’t see a path to massive profitability (or any profitability) and think Spotify is grossly overvalued.

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.


SYNEX: Expect Earnings to Grow YoY in 2020 but Has Mostly Priced In

By Research Group at Country Group Securities

We expect SYNEX earnings to grow 15%YoY in 2020E amid negative environment in overall spending induced by global widespread of coronavirus. This driven by huge IT product purchase fueled by Work-from-home buyers and  the company’s strategy that moving toward high-margin IOT related devices. However, we downgrade rating for SYNEX to HOLD as near-term positive factors were mostly priced after share price surged 48%MTD and 93% since our latest update on 8th May to trade at 17.2xPE’20E (+1 S.D. 5-year average), the last time seen in October 2018.


• Anticipating PC market recovery in 3Q20 onwards
• Shifting product mix toward high margin segment
• Maintain earnings growth forecast to grow 17%CAGR in 2020-22E

We downgrade SYNEX with HOLD rating and rollover target price to Bt10.10 (Previous TP Bt8.40) derived from 12.9xPE’21E, information and technology sector. The company still offer high dividend yield at 5% and still will be one of the first benefit takers from 5G network launch in late 2020.


Before it’s here, it’s on Smartkarma

TMT: LINE Corp, Ant Financial, Synnex Thailand and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • LINE (3938) – This Is Not the Kitchen Sink You Are Looking For
  • Ant Group IPO First Look: Swarming to Market
  • SYNEX: Expect Earnings to Grow YoY in 2020 but Has Mostly Priced In

LINE (3938) – This Is Not the Kitchen Sink You Are Looking For

By Travis Lundy

Since writing my two insights describing how I thought betting on a LINE bump was not the best trade out there in Bump-Land, I have received no small amount of pushback by investors who are long the bump trade. 

My response?   That’s what makes a market. 

Today, LINE Corp (3938 JP) announced its Q2 earnings, showing both a normal operating loss and additional extraordinary losses from write-downs. That will not encourage some and I expect there may be some accusations of LINE kitchen-sinking their earnings before a Special Committee (and this has its own issues) decides to revisit the fair price valuation through a re-valuation and an updated Fairness Opinion. 

For those worried about that, I offer the following:

More discussion below.

Previous insights related to this situation and the names involved are listed below.

Relevant Insights

DateAuthorTitle

About Cashless Payments

13 Mar 2019 Michael Causton  Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 
2 Apr 2019 Mio Kato, CFA  Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 
28 Jun 2019 Supun Walpola  Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 
6 Jan 2020 Michael Causton  Lawson and KDDI Join Forces in Cashless Payments War 
24 Jan 2020 Michael Causton  Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 
15 Feb 2020 Michael Causton  Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 
20 Mar 2020 Michael Causton  Some Resistance to Cashless Payments in Japan 
28 Apr 2020 Michael Causton  Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 
29 July 2020 Supun Walpola  Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint 

About This Deal

14 Nov 2019Travis Lundy Z and LINE, Sitting in a Tree… M.E.R.G.I.N… G…? 
18 Nov 2019Travis Lundy LINE and Z, Sitting in a Tree… M.E.R.G.I.N.G! And a Tender Offer! 
26 Dec 2019Travis LundyNEW Deal for LINE (A Lot Like the Old Deal)
6 July 2020Travis Lundy Market Is Pricing a LINE Bump – Should It? 
22 July 2020travis Lundy A LINE Bump – The Other Argument Against 

Ant Group IPO First Look: Swarming to Market

By Arun George

Ant Financial (1051260D CH)/Ant Group is a technology company that provides digital payment services and digital financial services to consumers and small and micro businesses (SMBs) in China and across the world. Ant said last week it would pursue a simultaneous dual-listing in Hong Kong and on the Shanghai stock exchange’s STAR board. The Hong Kong share sale alone could raise about $10 billion at a $200 billion valuation, according to press reports. 

In this note, we take a first look at Ant and run through its history, industry and operating segments. We then take a closer look at the rumoured $200 billion valuation in the context of Ant’s financial performance. Based on available disclosure, our estimates and peer group multiples, the $200 billion valuation is justifiable, in our view.  


SYNEX: Expect Earnings to Grow YoY in 2020 but Has Mostly Priced In

By Research Group at Country Group Securities

We expect SYNEX earnings to grow 15%YoY in 2020E amid negative environment in overall spending induced by global widespread of coronavirus. This driven by huge IT product purchase fueled by Work-from-home buyers and  the company’s strategy that moving toward high-margin IOT related devices. However, we downgrade rating for SYNEX to HOLD as near-term positive factors were mostly priced after share price surged 48%MTD and 93% since our latest update on 8th May to trade at 17.2xPE’20E (+1 S.D. 5-year average), the last time seen in October 2018.


• Anticipating PC market recovery in 3Q20 onwards
• Shifting product mix toward high margin segment
• Maintain earnings growth forecast to grow 17%CAGR in 2020-22E

We downgrade SYNEX with HOLD rating and rollover target price to Bt10.10 (Previous TP Bt8.40) derived from 12.9xPE’21E, information and technology sector. The company still offer high dividend yield at 5% and still will be one of the first benefit takers from 5G network launch in late 2020.


Before it’s here, it’s on Smartkarma

Brief TMT & Internet: Xiaomi (1810): Overvalued and Lingering Overhang and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. Xiaomi (1810): Overvalued and Lingering Overhang
  2. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group

1. Xiaomi (1810): Overvalued and Lingering Overhang

Image 43807702161593160213580

Xiaomi Corp (1810 HK) share price has gone up around 10% in the past few days due to a couple of reasons namely re-rating from brokers, new product launches, and 5G AIoT applications – causing investors to be extremely bullish on the company’s future prospects. However, a couple of overhangs linger namely the soft Q1 2020 smartphone shipment volumes and the increasing tension between China and India that recently occurred. The question that needed an answer is whether is it still worth holding Xiaomi’s shares after the run-up? 

source: Capital IQ, analyst

With a valuation that is relatively pricey while its net income margin is lower than its peers, Xiaomi should not trade at the 23x forward PER. 

2. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group

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.

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Brief TMT & Internet: Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives
  2. Newgen Software: New Year, Same Script
  3. China Internet Weekly (27Jul2020): Online Retail Continued to Accelerate in June
  4. Tencent – Well Timed Transaction
  5. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

1. Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives

Image?1595742814

Toplist China is a loyalty management solution services provider in China. It provides a one-stop loyalty management solution to clients, in particular, financial institutions. 

As per iResearch, it ranked second in the loyalty management SaaS market and fifth in the integrated loyalty management solution services market in China in 2019, in terms of gross sales proceeds.

Earnings growth has been strong over 2016-18, with TC reporting revenue CAGR of 37.47% and adjusted PAT CAGR of 37.32%. Growth has been driven by 6.7x increase in users over 2018-20, a 3.9x increase in orders processed and 7.3x increase in the number of vendors. 

Unfortunately, there isn’t much more to like apart from that, in our view.

2. Newgen Software: New Year, Same Script

Image 19786116721595767096692

Our previous update on Newgen Software Technologies (NEWGEN IN) highlighted concrete issues targeting at its revenue model in combination with the receivables. Moreover, Q4 seasonality coupled with unsustainable income further put a dirt on the financials. In this update, we realize that there have been no change in fortune of the company, as the old issues have not been vanished and few new issues have emerged in the new fiscal year.  

3. China Internet Weekly (27Jul2020): Online Retail Continued to Accelerate in June

Image 5550758721595741867654

  • The growth rate of China online retail reached 19% YoY in June, higher than 15.6% YoY in May.
  • Chinese retailing e-commerce companies raised funds of RMB28.6 billion in 1H20, decreasing by 74.5% YoY.
  • Ministry of Human Resource and Social Security warned about “employee sharing”, which was started by Alibaba (BABA).

4. Tencent – Well Timed Transaction

*Another Material Developments At Afterpay: Afterpay Touch (APT.AU) confirmed another material development. The launch of its global rewards system called “Pulse” commenced in the US, and is set to be launched in the United Kingdom, Australia, and New Zealand in the coming months. In short, Afterpay is looking to reward regular users who pay on time (five purchases every six months) which turns the credit card model on its head, as it relies solely on increasing customer spend for points; 

*Other Recently Announced Positives: In addition to the update provided on Pulse, Afterpay has provided a solid update on its growth and traction post-deal; expressed its interest in a capital raise; and onboarded Apple Pay (AAPL.US) and Alphabet (GOOG.US) Google Pay; and

*Magic Fairy Dust: While no transaction particulars were disclosed, we calculate an average share purchase price of AUD 22.47 per share for the 5% stake or a hefty 6.8x P/BV for a company which is loss-making and where Tencent hasn’t control. Tencent has already earned 146% on this stake. 

5. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

Image?1595752031

ByteDance IPO is one of the major listings by Chinese TMT companies that we are looking forward to. The company was valued at USD 75 billion in a pre-IPO round in October 2018 and was valued at USD 100 billion in the private transactions in May 2020. 

In our previous reports, we covered the company’s main products and its recent financials and user data in China. Although ByteDance records most of its revenues from China, one should not underestimate its potential from overseas expansion. ByteDance’s flagship app, TikTok, has become a global phenomenon. Competitors such as Facebook have not been successful in taking market shares from TikTok. In our opinion, ByteDance is the most successful Chinese TMT company in the overseas market. 

In this note, we will look at the latest numbers of the company. It set an ambitious target for its overseas operation but is now facing challenges in two of its biggest markets. We will discuss recent events and what to look forward to after the success of TikTok. 

Our previous coverage on ByteDance

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Brief TMT & Internet: Newgen Software: New Year, Same Script and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. Newgen Software: New Year, Same Script
  2. China Internet Weekly (27Jul2020): Online Retail Continued to Accelerate in June
  3. Tencent – Well Timed Transaction
  4. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges
  5. Intel. Deja Vu All Over Again With 7nm Delayed One Year. Long TSMC.

1. Newgen Software: New Year, Same Script

Image 19786116721595767096692

Our previous update on Newgen Software Technologies (NEWGEN IN) highlighted concrete issues targeting at its revenue model in combination with the receivables. Moreover, Q4 seasonality coupled with unsustainable income further put a dirt on the financials. In this update, we realize that there have been no change in fortune of the company, as the old issues have not been vanished and few new issues have emerged in the new fiscal year.  

2. China Internet Weekly (27Jul2020): Online Retail Continued to Accelerate in June

Image 5550758721595741867654

  • The growth rate of China online retail reached 19% YoY in June, higher than 15.6% YoY in May.
  • Chinese retailing e-commerce companies raised funds of RMB28.6 billion in 1H20, decreasing by 74.5% YoY.
  • Ministry of Human Resource and Social Security warned about “employee sharing”, which was started by Alibaba (BABA).

3. Tencent – Well Timed Transaction

*Another Material Developments At Afterpay: Afterpay Touch (APT.AU) confirmed another material development. The launch of its global rewards system called “Pulse” commenced in the US, and is set to be launched in the United Kingdom, Australia, and New Zealand in the coming months. In short, Afterpay is looking to reward regular users who pay on time (five purchases every six months) which turns the credit card model on its head, as it relies solely on increasing customer spend for points; 

*Other Recently Announced Positives: In addition to the update provided on Pulse, Afterpay has provided a solid update on its growth and traction post-deal; expressed its interest in a capital raise; and onboarded Apple Pay (AAPL.US) and Alphabet (GOOG.US) Google Pay; and

*Magic Fairy Dust: While no transaction particulars were disclosed, we calculate an average share purchase price of AUD 22.47 per share for the 5% stake or a hefty 6.8x P/BV for a company which is loss-making and where Tencent hasn’t control. Tencent has already earned 146% on this stake. 

4. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

Image?1595752031

ByteDance IPO is one of the major listings by Chinese TMT companies that we are looking forward to. The company was valued at USD 75 billion in a pre-IPO round in October 2018 and was valued at USD 100 billion in the private transactions in May 2020. 

In our previous reports, we covered the company’s main products and its recent financials and user data in China. Although ByteDance records most of its revenues from China, one should not underestimate its potential from overseas expansion. ByteDance’s flagship app, TikTok, has become a global phenomenon. Competitors such as Facebook have not been successful in taking market shares from TikTok. In our opinion, ByteDance is the most successful Chinese TMT company in the overseas market. 

In this note, we will look at the latest numbers of the company. It set an ambitious target for its overseas operation but is now facing challenges in two of its biggest markets. We will discuss recent events and what to look forward to after the success of TikTok. 

Our previous coverage on ByteDance

5. Intel. Deja Vu All Over Again With 7nm Delayed One Year. Long TSMC.

Image 75934535721595574819733

Intel’s by now all-too-familiar earnings beat this week was completely overshadowed by the veritable bombshell the company dropped regarding its 7nm process roadmap. CEO Bob Swan announced that yields were about twelve months behind where they should be and that the first 7nm product ramp would be delayed by about six months. The announcement comes just over two years after Intel revealed that their 10nm process would be delayed for the same reason. 

Intel’s share price fell more than 10% in after-hours trading, losing a further 6% by Friday’s close. In sharp contrast, AMD and TSMC, the two companies most likely to benefit from Intel’s misfortune, recorded share price increases of 16.5% and 9.7% respectively in the same trading session. 

CEO Bob Swan valiantly sought to calm investor fears with soothing words about contingency plans involving outsourcing manufacturing to foundry. In his closing summary he went so far as to say that “we feel pretty good about where we are”. Bizarrely, he even seemed at one stage to suggest that this state of affairs was a good for the company. The reality is very different indeed. Here’s our analysis of what Intel had to say, the implications for the company and, most likely, for TSMC.

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Brief TMT & Internet: Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group

1. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group

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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief TMT & Internet: China Internet Weekly (27Jul2020): Online Retail Continued to Accelerate in June and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. China Internet Weekly (27Jul2020): Online Retail Continued to Accelerate in June
  2. Tencent – Well Timed Transaction
  3. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges
  4. Intel. Deja Vu All Over Again With 7nm Delayed One Year. Long TSMC.
  5. Bilibili: Early Thoughts on Bilibili’s Secondary Listing

1. China Internet Weekly (27Jul2020): Online Retail Continued to Accelerate in June

Image 88942528431595741867654

  • The growth rate of China online retail reached 19% YoY in June, higher than 15.6% YoY in May.
  • Chinese retailing e-commerce companies raised funds of RMB28.6 billion in 1H20, decreasing by 74.5% YoY.
  • Ministry of Human Resource and Social Security warned about “employee sharing”, which was started by Alibaba (BABA).

2. Tencent – Well Timed Transaction

*Another Material Developments At Afterpay: Afterpay Touch (APT.AU) confirmed another material development. The launch of its global rewards system called “Pulse” commenced in the US, and is set to be launched in the United Kingdom, Australia, and New Zealand in the coming months. In short, Afterpay is looking to reward regular users who pay on time (five purchases every six months) which turns the credit card model on its head, as it relies solely on increasing customer spend for points; 

*Other Recently Announced Positives: In addition to the update provided on Pulse, Afterpay has provided a solid update on its growth and traction post-deal; expressed its interest in a capital raise; and onboarded Apple Pay (AAPL.US) and Alphabet (GOOG.US) Google Pay; and

*Magic Fairy Dust: While no transaction particulars were disclosed, we calculate an average share purchase price of AUD 22.47 per share for the 5% stake or a hefty 6.8x P/BV for a company which is loss-making and where Tencent hasn’t control. Tencent has already earned 146% on this stake. 

3. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

Image?1595752031

ByteDance IPO is one of the major listings by Chinese TMT companies that we are looking forward to. The company was valued at USD 75 billion in a pre-IPO round in October 2018 and was valued at USD 100 billion in the private transactions in May 2020. 

In our previous reports, we covered the company’s main products and its recent financials and user data in China. Although ByteDance records most of its revenues from China, one should not underestimate its potential from overseas expansion. ByteDance’s flagship app, TikTok, has become a global phenomenon. Competitors such as Facebook have not been successful in taking market shares from TikTok. In our opinion, ByteDance is the most successful Chinese TMT company in the overseas market. 

In this note, we will look at the latest numbers of the company. It set an ambitious target for its overseas operation but is now facing challenges in two of its biggest markets. We will discuss recent events and what to look forward to after the success of TikTok. 

Our previous coverage on ByteDance

4. Intel. Deja Vu All Over Again With 7nm Delayed One Year. Long TSMC.

Image 75934535721595574819733

Intel’s by now all-too-familiar earnings beat this week was completely overshadowed by the veritable bombshell the company dropped regarding its 7nm process roadmap. CEO Bob Swan announced that yields were about twelve months behind where they should be and that the first 7nm product ramp would be delayed by about six months. The announcement comes just over two years after Intel revealed that their 10nm process would be delayed for the same reason. 

Intel’s share price fell more than 10% in after-hours trading, losing a further 6% by Friday’s close. In sharp contrast, AMD and TSMC, the two companies most likely to benefit from Intel’s misfortune, recorded share price increases of 16.5% and 9.7% respectively in the same trading session. 

CEO Bob Swan valiantly sought to calm investor fears with soothing words about contingency plans involving outsourcing manufacturing to foundry. In his closing summary he went so far as to say that “we feel pretty good about where we are”. Bizarrely, he even seemed at one stage to suggest that this state of affairs was a good for the company. The reality is very different indeed. Here’s our analysis of what Intel had to say, the implications for the company and, most likely, for TSMC.

5. Bilibili: Early Thoughts on Bilibili’s Secondary Listing

Image 72666150561595560338784

  • Over the past couple of weeks, several news media outlets have reported that Bilibili, a Chinese video site, is considering a secondary listing on Hong Kong Stock Exchange and join the list of companies who have successfully completed new homecoming secondary offerings.
  • It is believed that the company will sell 5-10% of its shares. Since Hong Kong’s listing rules require a track record of at least two financial years of good regulatory compliance on another qualifying exchange, Bilibili will only be able to carry out the secondary listing next year.
  • NetEase and JD.com carried out their secondary listing on the Hong Kong Stock Exchange in June 2020 following China’s most valuable company, Alibaba which secured a secondary listing on the Hong Kong Stock Exchange in November 2019, amid growing pressure from the US lawmakers for greater financial scrutiny of Chinese companies listed in the US.
  • The impact of lockdowns due to the spread of COVID-19 has been positive for Chinese streaming companies as can be witnessed from the high growth in premium paid subscribers and monthly active users during 1Q20. Furthermore, Bilibili had a reduced impact compared to other streaming companies as the company mostly relies on external content creators for its content.

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Brief TMT & Internet: Softbank Group: First Steps Towards De-Leveraging in Wake of TMUS Share Sale and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. Softbank Group: First Steps Towards De-Leveraging in Wake of TMUS Share Sale
  2. China Internet Weekly (29Jun2020): BABA Food Delivery Worker Tested Positive, TCOM to Sell Food
  3. Xiaomi (1810): Overvalued and Lingering Overhang
  4. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group

1. Softbank Group: First Steps Towards De-Leveraging in Wake of TMUS Share Sale

Sbg%20asset%20sales%2029jun

Softbank Group (9984 JP)  has taken its first steps to address the balance sheet in its asset restructuring program with the announcement it would pay down up to ¥200bn in public bonds by mid-July. We expect the company to have sufficient resources to pay down up to ¥1.7 trillion with its restructuring although some of its debt “reduction” could end up being the holding of a larger cash position.

This announcement follows the sale of roughly two-thirds of its TMUS stake and runs concurrently with share repurchases that are expected to total ¥2.5 trillion this fiscal year. Our main concern with the asset restructuring program has been a lack of action on the debt side and today’s news provides modest reassurance on management’s efforts. Improving sentiment has helped Softbank shares climb 100% from the March low and the discount to fair value has narrowed to 46% from 48% before the TMUS share sale was finalized and 68% in March.

2. China Internet Weekly (29Jun2020): BABA Food Delivery Worker Tested Positive, TCOM to Sell Food

  • A delivery worker of Alibaba (BABA)’s food delivery service, Ele.me, tested positive for coronavirus.
  • Software revenues increased 4.2% YoY and software profits decreased 1.1% YoY in the first five months in China.
  • Xiaomi (1810 HK) planned to repurchase 10% of its shares.
  • Trip.com (TCOM) added “food sales” in its business license.
  • All three telecom operators reduced their 5G package fees.

3. Xiaomi (1810): Overvalued and Lingering Overhang

Image 43807702161593160213580

Xiaomi Corp (1810 HK) share price has gone up around 10% in the past few days due to a couple of reasons namely re-rating from brokers, new product launches, and 5G AIoT applications – causing investors to be extremely bullish on the company’s future prospects. However, a couple of overhangs linger namely the soft Q1 2020 smartphone shipment volumes and the increasing tension between China and India that recently occurred. The question that needed an answer is whether is it still worth holding Xiaomi’s shares after the run-up? 

source: Capital IQ, analyst

With a valuation that is relatively pricey while its net income margin is lower than its peers, Xiaomi should not trade at the 23x forward PER. 

4. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group

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.

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief TMT & Internet: Tencent – Well Timed Transaction and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. Tencent – Well Timed Transaction
  2. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges
  3. Intel. Deja Vu All Over Again With 7nm Delayed One Year. Long TSMC.
  4. Bilibili: Early Thoughts on Bilibili’s Secondary Listing
  5. Intel Earnings Call – Solid Revenues Partly Thanks to COVID-19

1. Tencent – Well Timed Transaction

*Another Material Developments At Afterpay: Afterpay Touch (APT.AU) confirmed another material development. The launch of its global rewards system called “Pulse” commenced in the US, and is set to be launched in the United Kingdom, Australia, and New Zealand in the coming months. In short, Afterpay is looking to reward regular users who pay on time (five purchases every six months) which turns the credit card model on its head, as it relies solely on increasing customer spend for points; 

*Other Recently Announced Positives: In addition to the update provided on Pulse, Afterpay has provided a solid update on its growth and traction post-deal; expressed its interest in a capital raise; and onboarded Apple Pay (AAPL.US) and Alphabet (GOOG.US) Google Pay; and

*Magic Fairy Dust: While no transaction particulars were disclosed, we calculate an average share purchase price of AUD 22.47 per share for the 5% stake or a hefty 6.8x P/BV for a company which is loss-making and where Tencent hasn’t control. Tencent has already earned 146% on this stake. 

2. ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges

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ByteDance IPO is one of the major listings by Chinese TMT companies that we are looking forward to. The company was valued at USD 75 billion in a pre-IPO round in October 2018 and was valued at USD 100 billion in the private transactions in May 2020. 

In our previous reports, we covered the company’s main products and its recent financials and user data in China. Although ByteDance records most of its revenues from China, one should not underestimate its potential from overseas expansion. ByteDance’s flagship app, TikTok, has become a global phenomenon. Competitors such as Facebook have not been successful in taking market shares from TikTok. In our opinion, ByteDance is the most successful Chinese TMT company in the overseas market. 

In this note, we will look at the latest numbers of the company. It set an ambitious target for its overseas operation but is now facing challenges in two of its biggest markets. We will discuss recent events and what to look forward to after the success of TikTok. 

Our previous coverage on ByteDance

3. Intel. Deja Vu All Over Again With 7nm Delayed One Year. Long TSMC.

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Intel’s by now all-too-familiar earnings beat this week was completely overshadowed by the veritable bombshell the company dropped regarding its 7nm process roadmap. CEO Bob Swan announced that yields were about twelve months behind where they should be and that the first 7nm product ramp would be delayed by about six months. The announcement comes just over two years after Intel revealed that their 10nm process would be delayed for the same reason. 

Intel’s share price fell more than 10% in after-hours trading, losing a further 6% by Friday’s close. In sharp contrast, AMD and TSMC, the two companies most likely to benefit from Intel’s misfortune, recorded share price increases of 16.5% and 9.7% respectively in the same trading session. 

CEO Bob Swan valiantly sought to calm investor fears with soothing words about contingency plans involving outsourcing manufacturing to foundry. In his closing summary he went so far as to say that “we feel pretty good about where we are”. Bizarrely, he even seemed at one stage to suggest that this state of affairs was a good for the company. The reality is very different indeed. Here’s our analysis of what Intel had to say, the implications for the company and, most likely, for TSMC.

4. Bilibili: Early Thoughts on Bilibili’s Secondary Listing

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  • Over the past couple of weeks, several news media outlets have reported that Bilibili, a Chinese video site, is considering a secondary listing on Hong Kong Stock Exchange and join the list of companies who have successfully completed new homecoming secondary offerings.
  • It is believed that the company will sell 5-10% of its shares. Since Hong Kong’s listing rules require a track record of at least two financial years of good regulatory compliance on another qualifying exchange, Bilibili will only be able to carry out the secondary listing next year.
  • NetEase and JD.com carried out their secondary listing on the Hong Kong Stock Exchange in June 2020 following China’s most valuable company, Alibaba which secured a secondary listing on the Hong Kong Stock Exchange in November 2019, amid growing pressure from the US lawmakers for greater financial scrutiny of Chinese companies listed in the US.
  • The impact of lockdowns due to the spread of COVID-19 has been positive for Chinese streaming companies as can be witnessed from the high growth in premium paid subscribers and monthly active users during 1Q20. Furthermore, Bilibili had a reduced impact compared to other streaming companies as the company mostly relies on external content creators for its content.

5. Intel Earnings Call – Solid Revenues Partly Thanks to COVID-19

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In Intel’s earnings call today the company showed Y/Y revenue growth of 20% that was due in part to the data center build-out caused by COVID-19 and the work-from-home wave.  Management indicated that future quarters may not be as good.

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Brief TMT & Internet: China Internet Weekly (29Jun2020): BABA Food Delivery Worker Tested Positive, TCOM to Sell Food and more

By | Daily Briefs, TMT/Internet

In this briefing:

  1. China Internet Weekly (29Jun2020): BABA Food Delivery Worker Tested Positive, TCOM to Sell Food
  2. Xiaomi (1810): Overvalued and Lingering Overhang
  3. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group
  4. Unity Technologies Pre-IPO – Unlikely to Dethrone Unreal Engine in AAA But Watch the M&A Strategy

1. China Internet Weekly (29Jun2020): BABA Food Delivery Worker Tested Positive, TCOM to Sell Food

  • A delivery worker of Alibaba (BABA)’s food delivery service, Ele.me, tested positive for coronavirus.
  • Software revenues increased 4.2% YoY and software profits decreased 1.1% YoY in the first five months in China.
  • Xiaomi (1810 HK) planned to repurchase 10% of its shares.
  • Trip.com (TCOM) added “food sales” in its business license.
  • All three telecom operators reduced their 5G package fees.

2. Xiaomi (1810): Overvalued and Lingering Overhang

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Xiaomi Corp (1810 HK) share price has gone up around 10% in the past few days due to a couple of reasons namely re-rating from brokers, new product launches, and 5G AIoT applications – causing investors to be extremely bullish on the company’s future prospects. However, a couple of overhangs linger namely the soft Q1 2020 smartphone shipment volumes and the increasing tension between China and India that recently occurred. The question that needed an answer is whether is it still worth holding Xiaomi’s shares after the run-up? 

source: Capital IQ, analyst

With a valuation that is relatively pricey while its net income margin is lower than its peers, Xiaomi should not trade at the 23x forward PER. 

3. Morning Views Asia: Glenmark Pharmaceuticals, Softbank Group

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.

4. Unity Technologies Pre-IPO – Unlikely to Dethrone Unreal Engine in AAA But Watch the M&A Strategy

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Unity Technologies is in the process of prepping for an IPO this year. The company develops the Unity game engine which is widely used to develop video games, particularly mobile and indie games. The market for game engines is mostly split between Unity and Epic Games’ Unreal Engine though larger game developers can use their own in-house developed engines. With this attractive situation on offer to the two companies, we examine below whether the market is likely to be bifurcated or result in clash for market share. We also highlight the moves both companies have been making to strengthen their online gaming functionality.

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