TMT/Internet

• The Korean government announced today that it will allow a fourth telco in Korea in order to reduce the oligopoly structure dominated by the three existing telcos.
• This decision to allow another telco in Korea will have a major negative impact on the existing three telcos in Korea.
• On a relative basis, we think that this could have a worse impact than LG Uplus as compared to SK Telecom due to greater price sensitivity of LG Uplus’ customers.

• Fadu (440110 KS) is looking to raise up to US$147m in its Korean IPO.
• Fadu is a South Korean fabless semiconductor maker mainly engaged in flash storage technology innovation. Its core products are Enterprise Solid State Drive (SSD) and Enterprise SSDs. 
• Fadu’s revenue growth has been stupendous, to say the least. However, the firm’s revenues are derived mainly from two customers, which exposes it to a large degree of concentration risk.

• Three risks in the short term: 1) Decreased gross billings from former legacies due to macro. 2) Lifecycle issues with new games. 3) Market over-optimism regarding new games and AI.
• NetEase still has some positive catalysts in the long term, including: 1) New games and content expansions. 2) Overseas game publishing. 3) Continual improvement in margins.
• We expect NetEase’s revenue in 2Q23 to be slightly lower than the consensus estimates of 2.5%, with a 13.3% beat in profits. Cut TP to $102, but maintain BUY rating.

• Today after the close, SoC and market darling Socionext (6526 JP) announced that DBJ, Fujitsu, and Panasonic would offer the remaining shares they in a US$1.8bn secondary offering.
• Pshaw…. that’s only 2.5 days of 20-day ADV… Not a lot. But in fact, that is a LOT of stock. 
• I harp on understanding shareholder structure. I think it worthwhile. Here it matters too.

• Three shareholders of Socionext (6526 JP) aim to raise around US$1.8bn via selling all of their shares in Socionext.
• Socionext was listed on 12th Oct 2022, when it raised US$457m in its upsized Japan IPO. Its six-month lockup expired in Apr 2023. Its shares are up 6x since listing.
• In this note, we talk about the deal dynamics and run the deal through our ECM framework.

• Socionext (6526 JP) announced a pure secondary offering of 12.6 million or 37.50% of outstanding shares. At the last close, the placement is worth JPY277 billion (US$1.9 billion)
• The selling shareholders’ primary motivation for exiting their shareholding is to capitalise on the extraordinary share price. Socionext shares are up 6x from the IPO price of JPY3,650 per share.
• We think looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 11 to 13 July (likely 11 July).

• Robosense Technology (ROBO HK) (RT) is looking to raise around US$300m (estimated) in its upcoming Hong Kong IPO. The deal will be run by JPM and China Renaissance.
• As of Mar 23, it had earned design wins for mass production of LiDAR for 52 vehicles with 21OEMs and Tier 1 suppliers, ranking No. 1 globally, according to CIC.
• As of Mar 23, it had served the largest number of automotive OEMs and Tier 1 suppliers, according to CIC.

• Today’s post will be an interview with Tony Pialis, founder and CEO of Alphawave.

• Alphawave recently got the all-clear from their KPMG auditor, and shares have been unsuspended.

• This interview is lightly edited for readability. I have some thoughts at the end as well.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Telecom Italia’s ESG as “Adequate”, in line with its “Adequate” Social and Governance scores. While the company has a “Strong” Environmental score, this pillar has the lowest weightage in our assessment of companies in the telecom sector. Controversies are “Immaterial” and Disclosure is “Strong”.

• Seven weeks ago, Marubeni Corp (8002 JP) and Secom Co Ltd (9735 JP) announced a joint deal to acquire the rest of ARTERIA Networks Corp (4423 JP). 
• As I wrote in the previous piece, the premium was good, but the price was not great. The Board rejected the price, then agreed when the bidders wouldn’t go further.  
• Now we have a deal and the Tender Offer starts 5 July. It was cheap to start. It’s still too cheap. But this one is tough to block.

• PhilEnergy’s IPO price has been determined a 34,000 won. The company will raise 95.6 billion won in this IPO offering. 
• A total of 1,955 institutional investors participated in the IPO offering with a competition demand ratio of 1,812 to 1. 
• Given the exceptional book building results, it is highly likely that PhilEnergy will have a strong price performance once it starts trading. 

• Samsung Electronics (005930 KS) has been a nice outperformer relative to SK Hynix (000660 KS) and Micron Technology (MU US) due to valuation, tech merit and exposure to AI
• For cyclical stocks, no matter defensive vs. peers, does it make more sense to play the pure plays?
• On the recent settlement between Elliott and Samsung C&T (028260 KS) , there was a secret payment made to just Elliott. What about the other minority shareholders?!

• Two thirds of the way through the review period, we see 10 potential adds/8 potential deletes in December. However, there can be a maximum of 5 changes at a review.
• We estimate a one-way turnover of 5.8% at the December rebalance leading to a one-way trade of CNY 4.67bn. Index arb balances could increase the impact on the stocks.
• The potential adds have outperformed the potential deletes over the last six months and there has been renewed outperformance over the last month.

• Our base case valuation analysis suggests implied market cap of 2.2 trillion won or 43,676 won per share, representing 41% higher than the high end of the IPO price range. 
• At the high end of our valuation sensitivity analysis, it suggests implied price of 62,893 won per share, representing 103% higher than the high end of the IPO price range.
• Fadu is a system semiconductor fabless company specializing in data centers, which is experiencing a strong growth due to higher data demand for cloud, AI/Big data, 5G, and autonomous driving.

• IAC managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company’s emphasis on core fundamentals and operational efficiency has yielded profitability and improved customer experiences.
• IAC is also focused on driving revenue growth through investments in customer experience and strategic revenue reallocation.

• Fadu is getting ready to complete its IPO in Korea in August. Fadu is one of the most highly anticipated IPOs in Korea in 2023. 
• The expected market cap at the top end of the IPO price range is 1.6 trillion won. The IPO price range is from 26,000 won to 31,000 won.
• Fadu is a system semiconductor fabless company specializing in data centers.

• Black Sesame International Holdings (BSIH) is looking to raise around US$300m in its upcoming Hong Kong IPO. The deal will be run by CICC and Huatai.
• BSIH is an automotive-grade computing SoC and SoC-based intelligent vehicle solution provider. 
• In terms of shipment of automotive-grade high-computing power SoCs in 2022, it was the third largest provider globally, according to Frost & Sullivan.

• Two thirds of the way through the review period for the June rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 8 December.
• There is a big sector skew in the potential changes. We estimate a one-way turnover of 10.1% at the December rebalance resulting in a one-way trade of CNY 6.75bn.
• The potential adds have outperformed the potential deletes and the CSI500 Index over the last six weeks. There could be more outperformance till nearer the end of the review period.

• Black Sesame International Holding Ltd., a Xiaomi-backed designer of artificial intelligence-based self-driving computing chips, has filed for a Hong Kong IPO
• Black Sesame, which also counts Tencent Holdings Ltd. and SAIC Motor Corp. Ltd. among its major investors, plans to use the IPO proceeds mainly to develop system-on-a-chip (SoC) designs and software for intelligent vehicles in the next three years.
• Bloomberg in January reported that the company expects to raise $200 million through the share sale, citing people familiar with the matter.

• We recently discussed BABA’s management changes with more e-commerce practitioners, and our main conclusion is that this change will be more beneficial to BABA’s e-commerce business rather than other subsidiaries;
• BABA is expected to learn from Tencent and ByteDance by shifting from a centralized authority model to a racehorse mechanism. Some subsidiaries, especially AliCloud and Cainiao, undergo a painful transformation;
• This may be good news for BABA because its e-commerce  is the largest of its valuation. We also remind investors to exercise caution regarding the upcoming IPOs of BABA subsidiaries.

For Q123, Nano Dimension reported good progress in revenue, up 43.5% y o-y and 23.6% q-o-q to $15.0m. Continued investment in R&D resulted in an adjusted EBITDA loss of $23.7m. Revaluation of the company’s stake in Stratasys and interest income earned on cash resulted in net income of $22.2m for the quarter. With net cash of $974m at quarter end, the company is well-funded to pursue its acquisition strategy.

• Qiniu Limited (1045102D CH) is looking to raise about US$200m in its upcoming Hong Kong IPO.
• Qiniu Limited (Qiniu) is a one-stop scenario-based intelligent audiovisual service provider.
• According to iResearch, the firm is the third largest audiovisual platform as a service (PaaS) provider in China in terms of FY22 revenue, with a market share of 5.7%. 

• Keep Inc., the largest online fitness platform in China, set terms for HK IPO and plans to raise ~HK$667M at the high end of the range at HK$61.46/share. 
• CICC is leading the offering and Keep Inc (KEEP HK) will trade under the stock code “3650”. The company offers ~10.8M shares at a price range of HK$28.92-HK$61.46.
• The low end of the range implies an IPO valuation of HK$15B, which looks attractive and is equal to the last round valuation of ~$2B that was led by SoftBank.

• Netherlands expands range of semiconductor tech restricted for export; Tightening the vice further on China’s semiconductor industry.
• AI In The Family: Nvidia founder Jensen Huang a distant cousin of AMD CEO Lisa Su.
• TSMC supplier hit by cyberattack, Hon Hai expanding EV in Vietnam, plus our recent research notes on Hon Hai, Nanya Tech, Himax, Yageo, and Delta.

• Businesses across the world are rushing to adopt AI. Japan-based startup Flux is targeting companies in the country who want to do so at lower cost and higher efficiency.
• The firm developed a no-code AI platform called Flux AI. According to Flux, the platform enables businesses to leverage AI technologies such as predictive analytics, natural language processing, and large language models without needing prior coding skills or knowledge.
• The startup has just raised US$32 million in a series B round led by DNX Ventures.

• Indonesia-based fleet-tracking startup TransTRACK has secured US$2.1 million in a pre-Series A funding round.
• Ortus Star, Cocoon Capital, and YCAB Ventures led the funding round. Goldbell Investment, NP Consulting, Damson Capital, and unnamed angel investors participated.
• TransTRACK plans to use the fresh funds to expand operations to 100 cities in Indonesia and other Southeast Asian countries, including Malaysia, Singapore, Thailand, Cambodia, and Vietnam, providing an end-to-end supply chain solution for the business players in the region.

• ApartX, a startup focused on rental property management in Kazakhstan, has secured US$250,000 in a seed funding round from local VC firm Big Sky Capital and Activat VC.
• The funds will be used for talent acquisition, improving the platform functionality, and expanding into new regions, such as Southeast Asia. It will also bolster its R&D efforts.
• The company aims to broaden its market presence, forge strategic partnerships, and solidify its position in the industry.

• Singapore-based construction planning simulation and optimisation startup Frontline Industrial Software has raised US$700,000 in a seed funding round led by Cocoon Capital.
• Frontline, founded by Luis Martinez and Ruiqi Ding, enables construction companies, operators and contractors to quickly identify best-in-class construction plans with optimal activity sequencing and resource allocation.
• The software uses Artificial Intelligence to identify the most efficient and cost-effective construction plans for complex infrastructure, civil, energy, industrial and residential projects.

• The Naspers (NPN SJ) / Prosus (PRX NA) circularity was too complex. Lots of people hated it. It was actually easier than most thought, but optically was difficult to reconcile. 
• Swire Pacific (19 HK) was a clear buy: there is no justification for assigning a similar discount for cash from the US Coke ops as you would to unlisted ops
• A residual NTT (9432 JP) individual small-holder shareholding tenure reward does not get split 25:1 when the stock gets split 25:1. It doesn’t mean much, but it’s an interesting artefact. 

• We expect that Meituan and Douyin engaged in fierce competition in 2Q23. Meituan intensified its efforts in three aspects: commission reduction and rebates, promotion of “Meituan Quanquan,” and video subsidy. 
• However, our 2Q23 Meituan revenue/profit estimates are in-line/34% higher vs. cons. This is mainly because it was Meituan’s first quarter of counterattack.
• Meituan’s counterattack has shown initial results, in Douyin’s slowing local services growth during 618, and the return of merchants. We maintain Meituan’s BUY rating, but lowered TP to HK$ 165.

• In April 2022, after long prep and considerable public comment as to desires and design, the TSE launched its new market segments designed to encourage governance and foreign investment.
• At the time, the TSE wanted to showcase Japan’s best blue chips. In March, JPX announced JPX Prime 150, designed to make visible
• In March 2023, JPX announced JPX Prime 150, to “make visible the leading Japanese companies that are estimated to create value.” Ambitious? Yes. Fated to fail? Probably. Badly constructed?  Definitely. 

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• TSMC’s ADR premium dropped to 8.8% but still historically high. The company has said it will send more Taiwan staff to get its U.S. production up and running.
• ASE’s ADR premium is high even for this usually-high premium range. ASE ADRs may be slightly behind the curve of the local shares’ recent decline, hence the spread opened up.
• Chunghwa Telecom is at a relatively high ADR premium for this tightly trading range.

• Delta Electronics Thai (DELTA TB) has been added to the Market Surveillance Measure List twice in the last few months. That increases the probability of index deletion in December.
• Given the big turnover every time Delta Electronics is added to and deleted from the index, there could be another go at weighting the SET50 Index by free-float market cap.
• Deletion from the index will have a big impact on Delta Electronics Thai (DELTA TB) and the passive selling could help narrow the gap with Delta Electronics (2308 TT).

• Samsung Display still holds a 5.85% stake. Hankyung reported that this remaining stake would also be disposed of in the future.
• Then the key lies in timing. Considering the ongoing pattern of block deals being exposed during the pre-sounding phase, we may be able to capture clues for preemptive trading.
• As seen from the chart depicting SFA’s loan balance and the percentage of short-selling to daily TV, we can observe a significant increase in activity just before today’s sale event.

• Asia Ex-Japan investors move from underweight to a record overweight in Samsung Electronics
• Samsung has been a key beneficiary of manager rotation over the last 6-months alongside BYD, Trip Com and Meituan.
• Majority of funds positioned overweight with a record 81.4% of funds holding a position.  Samsung becomes one of the highest conviction holdings in the Asia Ex-Japan region.

• Micron reported FQ3’23 revenues of $3.8 billion, up 2% sequentially and down 57% year-over-year.
• Despite upbeat AI notes among others, Micron quietly delivered more bad news than good with their overall outlook worsening in many key respects. 
• In the company’s own words, “Profitability and cash flow will remain extremely challenged for some time”. For “some time”, you could insert “at least 12 months”

• We have an Underperform rating for Delta Electronics Taiwan as a single stock trade due to our concerns that its valuation has been inflated by Delta Thailand.
• The extreme valuation mismatch between Delta Thailand and Delta Taiwan has corrected to some degree (Delta Thai crashed 23%) but still has a long way to go.
• Delta Thailand should be removed from the SET50 Index in our view, the stock could be at risk of just such an action by year end according to precedent.

• ALT Co is getting ready to complete its IPO in Korea in July. ALT tests high-performance non-memory semiconductors applied to various industries such as secondary batteries, artificial intelligence, and automotive. 
• The bankers used four companies as comps for ALT including Lb Semicon, LB Lusem, Doosan Tesna, and Nepes Ark. These four stocks are up on average 48% YTD.
• The IPO price range is from 16,700 won to 20,500 won. The expected market cap of the company post IPO is from 150 billion won to 184 billion won. 

• We spoke with management of Himax, the global leader in chips powering displays inside automotives including EVs. Its sales have been badly impacted by China’s EV price war.
• Himax sales have fallen recently largely due to China demand weakness; 70% of the company’s sales are in China.
• Himax has underperformed peer Novatek as well as the TWSE both YTD and on a 1-year basis. We believe the less-followed stock could represent an opportunity for investors.

• NTT (Nippon Telegraph & Telephone) (9432 JP) is splitting its stock 25:1 on record date 30 June 2023. That means it goes ex- at the new price on 29 June.
• The day before, the stock is up nearly 5% on heavy volume. This is likely punters buying before it splits so one round lot will be <¥20,000 vs ~¥420,000 yesterday.
• But there is a new attraction for retail, somewhat un-noticed. 

• Bain Capital has made a CHF 18.5/share offer proposal for SoftwareONE Holding (SWON SW), 33% premium, CHF 2,933 million implied equity value, 9.8x EV/NTM EBITDA and 18.7 Fwd P/E. 
• The offer is supported by founding shareholders (c.29.1% aggregate), who’d co-invest alongside Bain. SoftwareOne, in the middle of a turnaround, trades cheap vs. peers and my fair-value estimate (CHF 19.92/share).
• On IBES estimates, without significant cost-cutting, at CHF 20/share, Bain could achieve 18.6% IRR by year 6, thus could offer more. Gross spread is 3.7%. Considering prospects, I’d be long.

• Mobvoi is a leading AI company with generative AI and voice interaction technologies at the core of its business. The company has filed for an IPO on the HKEx.
• Unlike a lot of the AI start-ups, Mobvoi has already begun commercialising its products and services and the company has started generating operating profits in 2022.
• The advent of ChatGPT and Midjourney have created a hype for AI. Mobvoi has taken the right decision to go public at the right time.

• Hon Hai shares have rallied to new 52-week highs; We update our model and sanity check the company’s 2025E gross margin target.
• Hon Hai can realize its target higher gross margin as its revenue mix changes between its legacy contract manufacturing and components/ higher value products revenue.
• We maintain our 12-month price target of NT$155 per share, 35% above current levels and higher than the entire Street.

• Micron released results and its shares are rising U.S. afterhours. The company said that its trough is past, implying the same for other memory chip producers such as Nanya Tech.
• Given Nanya Tech recently rallied ahead of Micron, then reverted back most of the gains, we see at least a10% short-term Long trade for Nanya shares here.
• Micron also made positive comments about the PC industry inventories. However, Taiwan PC names are already near 52-week highs. Elan Microelectronics could be a yet-to-rally play: See our full piece.

• Yageo has been relatively range-bound since early 2023E, missing completely the ‘AI Rally’ that caused many other Taiwan names to rise. Hence one can buy it without chasing hype.
• We spoke with management. The company has historically enjoyed durable margins and we believe could enjoy a cycle turn-around as its products are linked to high-tech power needs.
• While not directly linked to AI demand, its products have strong long-term demand dynamics and are necessary for AI servers, high-end computing, autos, defense, and communications. Structural Long, NT$690 target.

• Oracle’s upside in the near term might appear limited, but there is potential for higher dividend growth going forward.
• The debt level should be monitored closely by investors, but in my view does not present a major risk for Oracle’s dividend.
• The dividend yield remains low, but the debt level must be monitored by investors.

Nano Dimension has extended its special tender offer for Stratasys, increasing its cash offer from $18.00 to $20.05 per share and extending the deadline to 24 July. It has reduced the number of shares it is seeking to acquire, from up to 27.926m to up to 25.266m, to achieve a holding of 46–51% including the 9.7m shares it already owns. On the same day, Stratasys received a revised bid from 3D Systems (offering a mix of cash and shares) and it is currently reviewing both revised bids.

• In mid-September 2019, Naspers (NPN SJ) listed Prosus (PRX NA) on international markets, but the law required Naspers own 70+% of Prosus and it created a dual-layer NAV Discount Trade.
• In summer 2021, they announced an Exchange Offer, where Naspers holders could get Prosus, and Prosus would end up owning 49% of Naspers, creating a cross-holding circularity – an Ouroboros.
• In summer 2022, they launched open-ended buyback programmes, and they’ve bought back a lot. NOW they are unwinding the Ouroboros, going back to the pre-EO structure. buybacks will continue. 

• Former Samsung executive attempted to construct replicated factory 1.5 km away from Samsung Electronics’ Chinese plant by stealing technology
• Prosecutors described this case as a leakage of “core national technologies”
• This technology theft incident falls under the category of risk oversight, and currently, Samsung Electronics’ company risk is rated at an extreme level of 4.0

• NPS has expressed concerns about the wide risk range of the KOSDAQ 150 index, and there has been speculation about whether they will take advantage of the KOSDAQ Global Index.
• The launch of these ETFs should be closely watched as it could potentially be a turning point in the investment patterns of local pension funds in KOSDAQ.
• It may be worth considering the constituents included in this index where the NPS ownership stake does not reach 5%.

• First some caveats: while we have all probably read Charlie Munger’s quote “I never allow myself to hold an opinion on anything that I don’t know the other side’s argument better than they do”, the reality is this is exceptionally uncommon and challenging.
• In fact, when investors mention risks about a company they like, they often deliberately choose strawman arguments from the other side and advertently or inadvertently ignore steelman arguments.
• I will try to avoid strawman bear cases (and boy there are many), and only outline the bear cases that indeed concern me as a shareholder.

• Indonesian e-commerce enabler Sirclo Group has secured US$10.5 million in a Series C funding round from Vertex Ventures Southeast Asia and India.
• This takes the company’s total capital raised to approximately US$100 million, according to VentureCap Insights.
• Founded in 2013 by Brian Marshal, Sirclo provides omnichannel commerce solutions. It offers two main categories of solutions: entrepreneur solutions and enterprise solutions.

• Oddity Tech (ODD US) , innovative consumer-tech unicorn and a prominent player in the beauty industry, filed for a $100M U.S. IPO, with Goldman Sachs leading the offering.
• Founded in 2013 in Israel by CEO Mr. Holtzman and Chief Product Officer Ms. Holtzman-Erel, Oddity Tech (ODD US)  wants to disrupt the global beauty and wellness market.
• Founder-Led company delivered profitable high-growth at a scale and has a rapidly growing user base. Given the company’s attractive fundamentals, Oddity Tech is bound to have a very successful IPO.

• Singapore-based startup ONEVIEW today announced that it had raised S$4 million (US$2.9 million) in a seed funding round from ADERA Global; Beyon Connect, part of the Beyon Group; and Cumulo9 to transform the digital payments and communication landscape across Southeast Asia.
• In a press statement, the company said that it aims to set the benchmark for a digital post-box service that will greatly improve people’s lives.
• It aims to revolutionise bill payments by simplifying everyday digital communications with what it promised to be a more convenient, sustainable, and spam-free experience.

• Hybr1d, a workforce management platform co-founded by Hmlet co-founder Yoan Kamalski, has raised US$3.2 million in pre-seed funding from Global Founders Capital, MS&AD, 468 Capital, and 1982 Ventures.
• Kamalski, who stepped down from his role as CEO of Hmlet in March 2021, established Hybr1d with Aditya Anand and Pauline Wetzer last year.
• His latest venture helps businesses automate and streamline their IT and HR processes, such as onboarding, procurement, and leave and attendance management.