TMT/Internet

• We believe that Masa’s AI predictions and ambitions in the AGM presentation may well need a reality check; nonetheless, Softbank subsidiary Arm is a beneficiary of increasing AI applications
• The prospective Arm IPO is a key driver in the recent Softbank group share price rally; we look at AMD’s acquisition of Xilinx for an indication of Arm’s potential valuation
• Softbank group’s stated NAV discount narrowed by 19 pp to 31%; we explore Arm IPO valuation scenarios for NAV upside but we only see Softbank upside in a super-premium valuation

• 4Paradigm (1764934D HK) is looking to raise about US$600m in its upcoming IPO in Hong Kong. 
• 4P is a platform-centric AI enterprise solutions provider. It was the largest player by revenue in the platform-centric decision-making AI market in China in 2022, as per CIC. 
• In our previous note, we took a look at the company’s background and financial performance. In this note, we will cover the firm’s refiling updates.

• Micron results this week; will give a key readthrough for Nanya Tech. The latest memory chip pricing data implies it was another tough quarter.
• Hon Hai’s break out continues, with the shares achieving a new 52-week high. The company’s new JV with automaker Stellantis may finally be winning over naysayers.
• AI Leaders Basket: TSMC and ASML have substantially lagged Nvidia and could serve as AI-exposure alternatives to chasing Nvidia’s rally.

• JST Group (1703609D CH) is looking to raise at least US$100m in its upcoming HK IPO. The deal will be run by CICC and JP Morgan.
• Jushuitan (JST) is China’s largest e-commerce SaaS ERP provider in terms of revenue in 2022, with a market share of 20.7%, according to CIC. 
• The firm offers a suite of cloud-based e-commerce SaaS products, and is able to connect merchants with over 350 e-commerce platforms in China and across the world.

• Earable Neuroscience, a US-headquartered deep-tech company that has developed a sleep tech wearable device, has secured undisclosed bridge funding from Samsung Ventures.
• Through this investment, Samsung Ventures plans to forge alliances within its local and global network to support Earable Neuroscience’s global expansion, including the Korean market.
• Established in 2018 by Vietnamese founder Tam Vu, the startup’s sleep tech wearable, FRENZ Brainband, incorporates cutting-edge neuroscience technology into a consumer wearable to enhance sleep quality, improve focus, and promote relaxation.

• Japan System Techniques announced itsfull-year results for FY23/3 after the close of the market on Friday, May 12.
• Operating profit rose 19.3%, to ¥2,385 mn, on a 9.9% rise in sales, to ¥23,519 mn.
• Ordinary profit rose 19.4%, to ¥2,450 mn, and net profit rose 33.2%, to ¥1,772 mn. 

• Malaysian insurtech company PolicyStreet has raised US$15.3 million in its series B funding round led by local sovereign fund Khazanah Nasional Berhad.
• This investment was made under the fund’s 6 billion ringgit (US$1.3 billion) Dana Impak mandate.
• PolicyStreet offers digital insurance options to both consumers and businesses, aiming to make such products more accessible and affordable with the firm’s in-house underwriting capabilities.

• Impinj was a late beneficiary to the COVID-19 pandemic and could now be on the cusp of a correction in its revenue growth trajectory
• The developer of radio frequency identification (“RFID”) chips used in RFID tags benefited when companies were facing supply chain issues resulting in ordering much more inventory than necessary
• Consensus estimates are for another 36 percent increase in revenue in 2023 even though Impinj is heavily dependent on retail apparel

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Alibaba (ADR) (BABA US)‘s Cainiao & Cloud Intelligence Group, J&T Global Express (1936374D CH),  Amman Mineral Internasional (1416286D IJ), Tata Technologies (TATATECH IN) IPOs.
• Event-Driven developments – Invocare Ltd (IVC AU), Arcland Service (3085 JP), JSR Corp (4185 JP), SBI Shinsei Bank (8303 JP), Amara Holdings (AMA SP), Yashili International Holdings (1230 HK).       

• The adoption of AI promises to be highly disruptive and has to potential to improve profitability of companies that adopt the technology.
• It faces regulatory hurdles and risk-pricing challenges as insurance companies learn to price AI risk, but those problems are a few years away.
• In the near term, the technology rally appears extended and may need a breather.

• In the face of potential recession and inflationary pressures, the luxury goods market stands out from its peers.
• This resilience can largely be attributed to strong pent-up demand following pandemic lockdowns, coupled with the spending power of high-end consumers.
• One of the leaders of the space is Global Blue Group, a tax-free shopping-focused company that had a turbulent introduction to public markets in 2020, through a SPAC deal, amidst the pandemic.

• There were a couple of ad hoc rebalances in Korea last week for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX EQUITY) and KOSDAQ 150 Index (KOSDQ150 INDEX EQUITY). 
• Coming Friday will mark the end of the review period for the next rebalance of the HSI, HSCEI, HSTECH, HSCI, LQ45, PCOMP as well as the SET50 June implementation.
• With Japan indices moving higher, the largest inflows went into ETFs tracking the Nikkei 225 (NKY INDEX) and other local/global indices.

• 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

• By combining TMG+TD+IFS into a single reportable segment, all internal demand will move to this new entity, leapfrogging Intel to global #2 foundry by Q1’24 instead of by 2030
• This new structure risks obfuscating the details of external foundry customer growth
• A much simpler step by step approach which achieves all Intel’s stated goals while retaining visibility into IFS would be far more preferable from a shareholder perspective

• Silver Lake announced it waived the minimum acceptance threshold of 50% + 1 share in  its offer for Software AG (SOW GR) . The acceptance period has been extended until 28 June.
• Bain Capital abandons the pursuit and will sell its 10.01% stake to Silver Lake, which will now controls 41%, plus another 10% from a convertible bond.
• Silver Lake is now pressing the minority shareholders to tender. Spread is 1.44%/15.13% (gross/annualised), assuming settlement on 31 July. I believe that Silver Lake will be successful. Long and tender.

• Ambarella managed to exceed analyst expectations in terms of revenue as well as earnings.
• However, despite these headwinds, the company’s Q1 results exceeded expectations.
• The introduction of the CV3 platform marks a new phase in the development of the AI market for Ambarella.

• Amkor Technology delivered a disappointing set of results as the company was unable to meet the revenue expectations as well as earnings expectations of Wall Street.
• Despite the decline in revenue, the company’s diversified end-market exposure provided stability and resilience.
• Amkor’s technology leadership in advanced packaging allowed them to win new programs in the communications market, offsetting the softening of the consumer and computing markets.

• Cirrus Logic managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• The company achieved a significant revenue of $1.9 billion.
• We give Cirrus Logic a ‘Hold’ rating with a revised target price.

• Grab‘s announcement this week that it would cut 11% of its workforce was a move to rationalise costs to give the platform a sure footing for longer-term growth. 
• Near-Term profit targets would be achieved without these recent cuts which are focused on addressing geographical cost imbalances and taking into account potential automation through the impact of Generative AI.
• The outlook for growth this year looks promising, with the potential for a strong 2H recovery despite employee-related costs but cuts will establish a more competitive cost base long term. 

• The market’s attention has shifted to the second part, which is the additional utilization of a portion of the harvest result for shareholder returns.
• There is a significant possibility that the timing to allocate the ₩200B for shareholder returns will be advanced to late July or early August.
• We should set up a position aiming for the potential for a special dividend, which may lead to momentum trading flow just before the quarterly ex-div date later this month.

• SK Square announced that it will cancel treasury shares worth 2.5 million shares on 4 October 2023, which represents 1.8% of its current outstanding shares.
• Our NAV analysis of SK Square suggests NAV of 9.4 trillion won or NAV per share of 66,421 won, representing a 45% upside from current levels.
• SK Square’s positive shareholder return policies including higher share buybacks, cancellations, and dividends are result in further outperformance of SK Square relative to KOSPI this year. 

• Advantest’s stock has doubled in the past two months, outperforming even Nvidia, indicating a potential peak in momentum
• Near term technical indicators suggest the stock could be running out of steam, with few catalysts ahead of July Q1 earnings
• The stock is trading at a significant premium to Japanese-listed SPE peers and its historical EV/EBIT multiple of 15x

• Alibaba (ADR) (BABA US) aims to complete a spin-off of the Cloud Intelligence Group via a stock dividend distribution, with it becoming publicly listed in the next 12 months.  
• The Cloud business is pursuing a land-grab strategy to reignite growth. While it is the only profitable Chinese cloud platform, the profitability gap to Amazon AWS highlights the opportunity. 
• The aim to bring in external strategic investors before the spin-off will provide a valuation benchmark. Our analysis points to a Cloud business valuation range of US$45-58 billion. 

• PCCW Ltd (8 HK) is selling an initial 26.1% equity stake in its streaming platform Viu, to Vivendi SA (VIV FP)‘s Canal+, for US$200mn.
• Via a staggered investment, Canal+ can increase its equity to US$300mn. In addition, a further investment, at Canal+’s option, could result in increasing its stake in Viu to 51%.  
• Elsewhere, PCCW’s 18% discount to NAV is the narrowest in over two years.

• Comms Group Ltd (ASX:CCG) has announced an extension of the Vodafone contract term to a minimum five-years together with an expansion in the range of services provided in delivering voice connectivity for Microsoft Teams, including the more advanced Operator Connect.
• The extended agreement also includes a minimum monthly payment to CCG of A$30k beginning October 2023.
• While our Vodafone assumptions are unchanged, and our medium-term expectations for Vodafone well above the minimum monthly payment, the revised agreement improves visibility and demonstrates Vodafone’s commitment to the relationship. 

• PagerDuty delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
• In terms of the pipeline, the total ARR and mix from new products significantly improved.
• PagerDuty AIOps offers end-to-end automation, from event intake through auto-remediation, to efficiently manage large volumes of data and events.

• Ciena managed to exceed analyst expectations in terms of revenue as well as earnings.
• Inventory levels decreased by $80 million from Q1 as the operating environment continued to improve.
• As the year progresses, their management anticipates further inventory reductions, which will enable the company to resume the steady rate of cash flow they were experiencing prior to the supply chain disruptions.

• Smartsheet delivered a solid result and managed an all-around beat in the last quarter.
• The quarter’s revenue increased by 31% year over year to $219.9 million, while billings increased by 20% year over year to $215.5 million.
• Enterprise expansions during the quarter included Eli Lilly, Foxtel, Motorola Solutions, and Novocure, and new customer wins included Liberty Media, Hostess Brands, and Eight Eleven Group.

• Alibaba (ADR) (BABA US) aims to complete the IPO of Cainiao Smart Logistics (1437124D HK) in the next 12 to 18 months. Alibaba holds a 67% stake in Cainiao. 
• Cainiao’s revenue growth, while on a declining trend, remains in double digits. Encouragingly. narrowing losses set a path to profitability.
• On 30 March, Bloomberg reported that Cainiao is currently valued at more than US$20 billion. Our valuation analysis suggests that such a valuation is justifiable.

• Keep Inc (KEEP HK) is looking to raise around US$100m in its upcoming Hong Kong IPO.
• Keep is an online fitness platform, offering online fitness content, smart fitness devices and fitness products.
• In this note, we discuss the updates since our last note.

• Mercari Inc (4385 JP) is potentially a leading candidate for inclusion in the Nikkei 225 in September. 
• There are other technical reasons to think it is not. 
• This insight looks at the issue of why it might be a leading candidate and why it might not be. 

• Tata Technologies (TATATECH IN) (TT) is looking to raise around US$600m in its upcoming India IPO.
• Tata Technologies is a global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEMs) and their tier 1 suppliers. 
• We have looked at the company’s past performance and undertaken a peer comparison in our earlier notes. In this note we talk about valuations.

• Elastic managed to exceed analyst expectations in terms of revenue as well as earnings.
• In Q4, total revenue increased by 19% year over year in constant currency, while Elastic Cloud increased by 30% year over year in constant currency.
• The subscription revenue was $256 million, increasing 16% year over year or 18% in constant currency, and made up 91% of the overall revenue.

• Large portion of the business is in secular decline and facing pricing pressure
• Ricoh Company Ltd (7752 JP) appears to be losing share in a shrinking market
• Estimates are above overly optimistic guidance making shares look optically inexpensive

• Dell Technologies managed to exceed analyst expectations in terms of revenue as well as earnings.
• They also made significant strides in their innovation agenda, introducing new cloud platforms, edge solutions, AI collaborations, and security initiatives.
• We give Dell Technologies a ‘Hold’ rating with a revised target price.

• Guidewire Software delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
• Their third quarter result was highlighted by continuous demand for InsuranceSuite Cloud and ARR and profitability, which exceeded expectations.
• We give Guidewire Software a ‘Hold’ rating with a revised target price.

• Broadcom delivered a positive result and managed an all-around beat in the last quarter.
• Semiconductor Solutions’ revenue showed an increase, driven by stable growth in core software despite some challenges in the Brocade business.
• They remain confident about their prospects and anticipate continued growth in semiconductor revenue for the upcoming quarter.

• Workday managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• In the quarter, subscription revenue increased by 20% year over year to $1.53 billion.
• Outside of the United States, overall revenue was $420 million, which represents 25% of total sales.

• Zscaler managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company’s disciplined approach, high gross retention rates, and high operating income contributed to its success.
• We give Zscaler a ‘Hold’ rating with a revised target price.

• MongoDB managed to exceed analyst expectations in terms of revenue as well as earnings.
• They continued to execute well and generated impressive revenue growth.
• MongoDB’s flagship product, Atlas, experienced significant year-over-year growth and contributed substantially to the company’s overall revenue.

• After the market close on 16 June, it was reported in the local media that LG Chem is close to selling about 2 trillion won worth of LG Energy Solution.
• This block deal sale is likely to pose overhang on more stake sales of LG Energy Solution (about 10% stake) in the next 3-5 years.
• Our NAV valuation analysis of LG Chem suggests an implied price of 1,057,770 won per share, which is 41% higher than current share price.

• Canon Inc (7751 JP) has, as discussed in these pages, conducted 18 buybacks since the GFC. Every single one is ¥50bn. They are short and sharp. The longest? 23 days.
• The most recent took 18 days, and was only 15% of ADV, significantly lower than the average of the last dozen at 23-24%.
• This time, 3 days after the finished they launched another. The stock popped 5% the first day. There’s a reason for that. Shareholder structure STILL matters a lot. 

• We expect June quarter results to beat consensus and demonstrate a balanced growth across topline and bottom-line.
• During a time when headlines drive BABA share price, it is more important to stay grounded in numbers, see what is in price and make trades accordingly.
• We maintain US$500 billion target market cap on 20x RMB180 billion non-GAAP net profit by FY25.

• Far Eastone Telecomm (4904 TT)’s (FE) parent aims to raise around US$165m via selling 1.9% of its stake.
• As far as we could see this appears to be the first selldown by the parent and doesn’t seem to have been well flagged.
• In this note, we will run the deal through our ECM framework and comment on other deal dynamics.

• Mobvoi, the innovative Chinese AI company backed by Google, Volkswagen Group, and top-tier VC firms, filed for a Hong Kong IPO. The company plans to raise between $200M and $300M. 
• Mobvoi is a rapidly growing AI unicorn. Revenue from AI software solutions skyrocketed 400%+ y/y in 2022. The company will launch AI painting assistant and AI writing assistant 2.0. soon.
• China-Based startup chose CICC and CMB international to tap capital markets to develop universal LLM, market expansion, strategic alliances, acquisitions, and working capital. 

• During the weekend, I asked my twitter followers: What do you think Facebook’s DAU to MAU ratio was in 2009?
• The number that got the highest votes was ~80% even though I mentioned the most recent number was ~68%.
• I asked this question a couple of friends in real life too and they too picked the ~80% number.

1Spatial has won its first two contracts for 1Streetworks, the company’s SaaS-based Traffic Management Plan Automation product. This is an important development for the company in that the potential addressable market for this product is large; management estimates around £250m for low speed roads in the UK alone and 1Spatial looks well positioned to gain a significant market share. 1Streetworks also runs on the company’s newly launched cloud-based platform, representing an important milestone in 1Spatial’s migration to a scalable, SaaS-based model. Both contracts are for a three-month term initially, with the intention to move to annual or multi-year contracts upon successful completion. We are not changing our estimates at this stage. Further deal flow for 1Streetworks (or other SaaS products), together with the continuation of these initial deals to longer engagements, could be the catalyst for stronger growth and margin expansion to become priced in.

• On 8 May I wrote JAPAN FLOW: Foreign Investor Inflows May Increase.  Since the data used in that insight, TSE data shows net foreign buying of ¥3.5trln+. 
• Investor flows appear to work in patterns which are correlated to TOPIX gains and outperformance vs S&P500. 
• The history of autocorrelation of net buying suggests while the current streak may end, a four week average of net buys could remain positive for a while. 

• Recently, there has been more discussion about TikTok’s e-commerce business in Southeast Asia on Chinese media and social networks.
• Many service providers and entrepreneurs in China have also been inspired and hope to take the lead in the market with their domestic experience.
• We estimate that TikTok’s 2023 GMV in Southeast Asia will reach 20%~ of Shopee, and this is one of the key reasons why we are bearish to SE.

• Delta Thailand surged 20% since our last trade monitor piece. This was without any significant news and the company received another query from the stock exchange as a result.
• Delta Taiwan increased by a higher 22%, thus the extreme valuation mismatch between the two has corrected slightly. Delta Taiwan is still only 0.78x the market cap of Delta Thailand.
• Delta Taiwan last week announced the acquisition of a German company that makes components for vehicles. This will strengthen Delta’s battery management product portfolio and add client relationships.

• More Nvidia Takeaways from two conferences the company spoke at — The company highlighted support for Intel’s new Foundry business, Mediatek, and why automakers will absolutely need AI to compete.
• Memory Chip Stocks — Nanya jumps 10% on hopes that AI servers will need 7x the value of DRAM. Micron warns that half of China revenue could be at risk.
• Delta Taiwan and Thailand Surge 20%+, Taiwan outperforms. Delta Taiwan has acquired a German automotive components company to boost its EV powertrain products lead.

• Q1-4 FY4/2023 results were ahead of revised company guidance and our earnings estimates, highlighting the company’s success in 1) driving demand at both existing and newly acquired customers, and 2) implementing Marketing Technology services that are improving the overall sales mix and driving margin growth.
• On this fundamentally robust basis, the company acquired Net Marketing in April 2023, an advertising agency that will allow access to new customers in which to sell-in profitable Marketing Technology services and replicate its effective model, as well as gain exposure to a more diversified range of market sectors.
• Strong outlook for FY4/2024 – we revise our earnings estimates for FY4/2024 and beyond, reflecting the following: 1) stronger topline growth in Analytics Consulting, 2) a more enhanced trajectory of profitability improvement in the medium term, given the success of Marketing Technology services to date.

• 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