TMT/Internet

• Revenue: Digital Media net new ARR $470 Mn ($50 mn higher than guide).

• Gross Margin: Digital Media gross margin remains steady at ~96%, but Digital Experience posted its highest ever gross margin of 67.3% in 2Q’23.

• Cost Structure: 2Q’23 GAAP operating margin was 33.7%, down from 34.9% in 2Q’22.

• Applied Materials managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• Despite weaknesses in consumer electronics, the company sees robust demand driven by technology inflections and regional supply chain investments.
• Applied Materials noted that leading-edge foundry logic customers have adjusted their spending plans but remain committed to their long-term roadmaps.

• The last quarter was decent for Autodesk as it managed to meet the revenue expectations as well as the earnings expectations of Wall Street.
• Key indicators remained consistent with the previous quarter, with modest growth in product usage, record bid activity on BuildingConnected, and improved renewal rates.
• Autodesk is driving innovation and transformation, shifting from products to capabilities, exemplified by the successful launch of the AEC industry cloud, Forma.

• Marvell managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company sees significant opportunities in the AI sector, as AI data centers require high-capacity, low-latency connectivity, driving demand for Marvell’s PAM4 optical DSP platform.
• Marvell expects the AI trend to continue growing, with plans to double revenue in fiscal 2024 and at least double it again in fiscal 2025.

• NetEase delivered a mixed result in the recent quarter with revenues above market expectations but it failed to surpass the analyst consensus in terms of earnings.
• The company experienced positive momentum with increased net revenues and significant growth in net income attributable to NetEase shareholders.
• The company’s strong growth in Q3, with increased revenues, robust net income, and sustained Chinese audience engagement, positions them for future success.

• Zee Entertainment Enterprises (Z IN) ‘s tussle with the regulators and legalities seem to be perpetual in nature.
• SEBI’s interim order highlights the abuse of promoters’ position in the company in order to siphon-off funds, ultimately benefiting the promoter family. SEBI has directed promoters to resign as directors.
• Since the irregularities are now being made public, eyes now would be on the proposed Zee-Sony merger, which could further be delayed.

• Hello from Kyoto! If there was a single big story from VLSI this year, it had to be Backside Power Delivery (BSPDN). VLSI is one of the premier conferences for semiconductor design and has been held since the 1980s.
• Today it’s one of the best places to present cutting-edge research in circuit technology.
• The key revolutionary announcement at VLSI this year was BSPDN. Let’s discuss.

• Recently, there has been an increase in discussions about Wechat Video Accounts (known as “ShiPinHao”) on local Chinese media and social networks. 
• Overall, merchants acknowledge the potential of Video Accounts and are willing to give it a try, but the results vary significantly among different businesses.
• We expect that Wechat Video Account will remain to have a high speed growth in the next several quarters, but the market expectation is also high.

• New Twitter CEO is only days into her new job and there already are warning signs she and Musk are bound to clash.
• Musk demonstrates he’s not interested in anyone else actually running Twitter or making it safe for key advertisers or even breakeven.
• Bad news for all of Twitter’s stakeholders, including its wary bankers still unable to offload to investors a refi of its crushing debt.

• Intouch Holdings (INTUCH TB) is coming up cheap versus Advanced Info Service (ADVANC TB). Yet the longer-term view suggests otherwise. 
• Preceding my comments on Intouch are the weekly setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn on a 90-day moving average, and a % market capitalisation threshold of at least 20%.

• The review period for the September rebalance ends 31 July. We expect the changes to be announced 25 August with the implementation taking place after the close on 8 September.
• We expect the index committee to continue using a 6-month minimum listing history resulting in two changes to the index.
• One way turnover is estimated at 3.45% resulting in a one-way trade of CNY 3,675m. The impact on the deletions will be larger than that on the inclusions.

• Our aggregate analysis of the 1Q23 earnings season showed a more balanced beat/miss ratio than 4Q22 likely due to already-downgraded forecasts presenting a lower expectations hurdle.
• Semiconductor’s inventory situation overall appeared to get worse in 1Q23… Excess inventory digestion is still a few quarters away for many semiconductor companies. Margins fell to the last cycle lows.
• Hardware showed small signs of overall inventory improvement. Margins fell further but remained pretty high relative to the previous cycle.

• 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 in our earlier notes, in this note we will undertake a peer comparison.

• Following Bh Co Ltd (090460 KS) moving from the KOSDAQ to KOSPI Market, the stock will be deleted from the KOSDAQ 150 Index and replaced with HFR Inc (230240 KS).
• The change will be implemented at the close on 19 June and passive trackers will need to trade over 1x ADV on both stocks.
• We had HFR Inc (230240 KS) as a potential replacement candidate and there could be pre-positions built up on the stock.

• Cybersecurity firm Tesserent Ltd (TNT AU) has announced it has entered into a Scheme with France’s Thales SA (HO FP).
• Thales is offering A$0.13/share, a whopping 165% premium to last close. Although, TNT is down 87% from its January 2021 high. 
• The Offer is conditional on TNT shareholder approval and FIRB/OIO approvals. Those regulatory approvals will not be straightforward.

• Tesserent Ltd (TNT AU) has entered into a scheme implementation deed with Thales SA (HO FP) at A$0.13 per share, a juicy 165.3% premium to the undisturbed price (9 June).
• The offer is subject to several conditions such as shareholder, FIRB and OIO approval. FIRB approval is likely due to Australia and France being part of the Nine Eyes alliance.
• Despite the substantial premium, shareholders’ acceptance of the offer could be a risk due to their higher buy-in prices. At the last close, the gross spread is 8.3%.

• GSI Technology (GSIT US) share price is up ~5x in the past month fuelled by the fact that they have an AI Accelerator (APU) called Gemini-I
• Launched in 2020, Gemini-I was 3 years late, has never been properly benchmarked and has thus far attracted just one customer, the Israeli military
• We remain wholly unconvinced that GSIT is on the cusp of a breakthrough in the world of Accelerated AI

• In 1Q FY23/12, CARTA Holdings posted a 23.3% YoY increase in transaction volume for programmatic TV commercial service TELECY, and a 2.8-fold increase in gross sales in the retail domain, showing steady performance in the mass retail domain, which the company has positioned as a priority area in its medium-term management plan.
• On the other hand, the weak macro environment continued to weigh on double-digit sales declines in reservation-based ads, resulting in a 7.7% YoY drop in sales and a 59.3% drop in operating profit overall. 
• YoY comparisons will ease off from the next quarter, but with 2Q usually being a slow period for advertising and the lack of activity from advertisers in the new fiscal year from April onward, earnings are expected to recovery smoothly rather than sharply.

• Carly Holdings Limited (ASX:CL8) operates a vehicle subscription business, which it launched in March 2019.
• Car subscription allows business and retail customers to pay a single monthly fee to access a car for 30 days or more and is an alternative to purchasing or financing a vehicle.
• Carly has attracted larger automotive industry businesses as shareholders, with a model that facilitates sales volumes of new vehicles and delivers a new recurring revenue stream for automotive manufacturers and dealers. 

• Adobe’s share price is experiencing significant momentum, which is likely to be sustained for the time being.
• Better than expected quarterly results could easily prompt a new wave of rating upgrades by the sell-side analysts.
• Investors interested in holding Adobe for a longer period of time should not ignore some important red flags.

• Network International Holdings (NETW LN) and a Brookfield Asset Management Lt (BAM US)-led consortium agreed on a 400p/share cash offer (64% premium, 12.9x EV/Fwd EBITDA) to be implemented via a scheme of arrangement. 
• Network is no longer grossly undervalued. The 9 June closing share price of 383p represents an 89% chance of completing the deal (based on the 245p close price). 
• Synergies have not been quantified, but may explain why Brookfield’s consortium has been able to trump CVC. Spread is 4.25%/8.92% (gross/annualised, assuming settlement by 15 December). Long.

• Mobvoi is getting ready to complete its IPO in Hong Kong in the coming weeks. Mobvoi is aiming to raise US$200 million to US$300 million in this IPO.
• Given the exceptional interest in AI  related companies such as ChatGPT and NVIDIA, the current environment should be an opportune time for Mobvoi to complete its IPO. 
• Furthermore, Mobvoi has achieved a strong growth in sales and operating profits in 2022 which is also likely to drive higher interest in this IPO.

• Nikkei reported last week that NTT (Nippon Telegraph & Telephone) (9432 JP) is developing a generative AI and plans to offer services to the company’s corporate clients by Next March.
• Over the recent years, NTT has been extensively investing on AI, robotics and other data-driven products and services to boost its top line growth as its core business is saturating.
• AI and semiconductors are two key policy areas of Japanese government for development as the country is dealing with population and other demographic changes.

• Hon Hai shares have broken out to near-term highs after news flow regarding its investment agreement in Lordstown Motors.
• PC makers Acer & Asustek’s share prices remain subdued since Nvidia results despite AI’s potential to accelerate the PC upgrade cycle.
• TSMC’s ADR premium went even higher just today; Also, Realtek is suing Mediatek in the U.S., adding to our Long/Short watchlists.

• Synopsys delivered an all-around beat in the most recent quarterly result.
• Despite weaker demand for semiconductors overall, Synopsys has been prioritizing research and development to emerge stronger when demand accelerates.
• Collaborations with industry leaders like NVIDIA, TSMC, MediaTek, Renesas, and IBM Research have resulted in impressive results, showcasing the criticality of Synopsys.ai in delivering breakthrough outcomes.

• Take-Two Interactive Software delivered a mixed set of results in its most recent result, with revenues above Wall Street expectations but below-par earnings.
• Moving forward into fiscal 2024, Take Two expects full-year net bookings from $5.45 billion to $5.55 billion, considering the challenging consumer backdrop.
• We give Take-Two Interactive Software a ‘Hold’ rating with a revised target price.

• Cisco Systems delivered a solid result and managed an all-around beat in the last quarter.
• Cisco also delivered significant quarterly performance, with high revenue and non-GAAP earnings per share, reflecting their solid operating discipline.
• We give Cisco Systems, Inc. a ‘Hold’ rating with a revised target price.

• Zoom Video delivered an all-around beat in the most recent quarterly result.
• Total revenue was up, online revenue was up, the enterprise business grew, and online business improved meaningfully.
• Last quarter, Zoom Video reiterated its strong positioning of AI and highlighted its expanded vision to elevate progress across its portfolio and see generative AI permeate.

• Confluent (CFLT US), a high-growth data streaming vendor, will host Investor Day 2023 in New York City on June 13, 2023. 
• Management will provide an update on the company’s vision and strategy. Confluent (CFLT US) shares traded up ~64% in 2023, outperforming the Nasdaq Composite, up ~27%.
• I expect CY24 revenue to exceed $1B, driven by efficient growth at a large scale, strong growth in the cloud segment, and rapid adoption of Apache Kafka.

• Microchip Technology had a strong quarter.
• Non-GAAP gross margin exceeded the company’s forecast by 171 basis points to an all-time high of 68.3% in the most recent quarter.
• Additionally, the non-GAAP operating margin, which increased by 292 basis points from the same quarter last year to an all-time high of 47.65%, came in just below the high end of their forecast.

• The upcoming rebalance of the MVIS US Listed Semiconductor 25 Index will be implemented on 16 June. There are no constituent changes, but there are float and capping changes.
• The VanEck Vectors Semiconductor (SMH US) ETF tracks the index and has an AUM of US$9.26bn.
• Estimated one-way turnover is 3.9% resulting in a one-way trade of US$358m. The stocks are extremely liquid, the impact on the stock in terms of ADV to trade is small.

• TSMC is back to an 11.8% ADR premium after dropping to 8%… potentially another good Long/Short point.
• UMC has flipped to a -0.6% ADR discount, from a 5.6% Premium. If the discount ticks slightly more negative then a good setup level will open up.
• ASE, ChipMOS, and CHT spreads have also experienced significant swings since our last dual-listings piece.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads  111 Inc (YI US), Mason Group Holdings (273 HK), United Malt Group Ltd (UMG AU), HKBN Ltd (1310 HK), Silk Laser Australia (SLA AU), Chindata Group (CD US). 
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Musgrave Minerals (MGV AU), Lian Beng (LBG SP), Toyo Construction (1890 JP), Mincor Resources NL (MCR AU). 

• Can the AI frenzy, which appears to be in its early stages, carry the stock market to a new bull? An academic study indicates that’s the wrong question to ask.
• The right question is to determine whether we are in an equity bull so that AI stocks can take advantage of the bull trend. Breadth needs to broaden out.
• The other and more conventional explanation of market structure is an unhealthy advance against a backdrop of a market that’s positioning for a recession.

• 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

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, Australia finally got its IPO counter ticking for the year with Redox (RDX AU).
• On the placement front, Infratil Ltd (IFT NZ) raised to increase its stake in One NZ. While Skymark Airlines (9204 JP) will see a lockup expiry in the coming week.

• AppLovin delivered a mixed result in the recent quarter, with revenues above market expectations, but it failed to surpass the analyst consensus in terms of earnings.
• The management’s belief in the resilience of mobile gaming was validated, as the category remained stable even during uncertain economic times.
• The development of AXON 2, their advanced technology, has been a priority, with ongoing upgrades expected to bring significant revenue and cash flow improvements.

• Unity Software delivered a mixed set of results for the previous quarter, with revenues above the analyst consensus.
• Unity believes AI is a positive force for the industry and its creators, leveraging the sustainable competitive advantages provided by its platform.
• We give Unity Software Inc. a ‘Hold’ rating with a revised target price.

• TSMC (ADR) upside gap out of the bull wedge shows conviction to test the 2021 old high zone. Wedge breakouts have a high conviction rate.
• Price and RSI pattern breakouts show fresh buy support in the gap zone. Buy volumes are constructive as is backswing support.
• Near term dip risk stems from a stall in the US tech sector (RSI stall zone). Intermediate cycle is compelling.

• Google-backed Chinese artificial intelligence company Mobvoi Inc. filed Tuesday for an initial public offering on the Hong Kong Stock Exchange.
• The Beijing-based startup, valued at $756 million in its last round of fundraising three years ago, didn’t disclose the size of the IPO.
• Bloomberg reported that the company aims to raise $200 million to $300 million, citing people familiar with the matter.

• Elastic NV (ESTC US) reported a solid 4QFY23, reflecting a stronger-than-expected non-GAAP operating margin of ~9% and GAAP subscription gross margin of ~79%. 
• Elastic cloud revenue grew 28% y/y, representing 40% of total revenue. Elastic cloud is scaling well, and margins improved faster-than-anticipated. 
• We are concerned about slowing H1 FY24 y/y growth in total revenue and failure to achieve the $2B revenue mark in FY25. Price target to $112.

• Coinbase lost 16% of its value after the SEC announced a lawsuit against the company.
• The lawsuit comes 24 hours after a similar action against rival exchange Binance, which saw $780 million in outflows.
• Coinbase may continue to make quarterly losses due to market uncertainty, loss of deposits and potential SEC fines.

For FY23, discoverIE reported double-digit organic revenue growth, operating margin expansion to 11.5% and strong free cash generation. On track to meet its FY25 operating margin target of 13.5%, the company has set a more testing target of 15% by FY28. We have upgraded our forecasts, which reflect more modest revenue growth than in FY23 as the order book normalises and continued operating margin expansion, and we expect further M&A activity to boost growth and profitability.

• Roblox delivered a mixed result in the recent quarter, with revenues above market expectations, but it failed to surpass the analyst consensus in terms of earnings.
• They achieved positive cash flow and generated substantial free cash during the quarter.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Twilio delivered an all-around beat in the previous quarter.
• It was a challenging quarter as the company navigated through changes and headwinds in a demanding macro environment.
• The management acknowledged the moderation in consumer-facing usage patterns and the impact of lapping peak crypto usage from the previous year.

• The Kishida administration is looking for funding sources for its two big objectives – 1) raising the birthrate, 2) raising defense spending by 60% in 5yrs to 2% of GDP.
• The second is not new. It was in an “order” PM Kishida gave to FinMin Suzuki and MinDef Hamada last November. They need ¥48trln by end 2027. 
• Yesterday, in an LDP meeting, the idea of changing the NTT Law so the government could sell more NTT shares was mooted. It’s worth thinking about.

• Mobvoi (2185047D CH) is looking to raise about US$200m in its upcoming Hong Kong IPO. The deal will be run by CICC and CMBI.
• Mobvoi is an AI company with a focus on generative AI and voice interaction technologies.
• As per CIC, the firm is the largest revenue-generating AI company focusing on AI-generated content (AIGC) technologies in terms of 2022 revenue from AIGC solutions.

• Airbnb delivered a mixed result in the recent quarter, with revenues above market expectations, but it failed to surpass the analyst consensus in terms of earnings.
• The company experienced significantly high bookings, with over 120 million Nights and Experiences Booked in Q1.
• Revenue grew significantly year-over-year, and the quarter was the most profitable GAAP-based.

• Electronic Arts managed to surpass the revenue expectations as well as the earnings expectations of Wall Street in its recent quarterly result.
• The fiscal year 2023 saw EA SPORTS FIFA thrive, with double-digit growth in net bookings and FIFA 23 becoming the best-selling title in franchise history.
• We give Electronic Arts Inc. a ‘Hold’ rating with a revised target price.

• Global Blue is the leader in tax refunds for tourism shopping.
• The company provides the backend for refund processing, which includes software installed at merchants and service locations like kiosks and counters at airports, among other services.
• Global Blue helps to streamline the refund process, reducing the burden for merchants and shoppers.

• Palantir Technologies delivered an all-around beat in the most recent quarterly result with solid revenue growth driven by the U.S. commercial business and disciplined spending management.
• Their commercial segment saw significant revenue growth, while the government showed strength.
• Their expanding adjusted operating margins and strong cash flow generation highlight their ability to manage costs while driving revenue growth effectively.

• It was a decent second quarter for Skyworks as the results were on par with the analyst consensus estimates.
• The market trends, such as the growth of WiFi and electric vehicles, present significant growth potential for Skyworks.
• With its successful second-quarter performance, Skyworks’ expanding customer relationships, global scale, and efficient cash flow engine position them well for future growth opportunities in the rapidly evolving connectivity landscape.

Vection Technologies (VR1) recently announced that its ChatGPT-powered mixed reality solution, 3D Frame, will now be available on Apple’s macOS. The release further highlights the interoperability of VR1’s technology with global powerhouses in the virtual (VR) and augmented (AR) reality space, positioning it well to capitalise on the latest breakthrough advancements, such as Apple’s Vision Pro AR headset. 3D Frame’s cross-platform compatibility with Windows and macOS should ensure wider availability across devices and reaffirms VR1’s position as a major player in the field. Management also announced the proposed acquisition of Invrsion, which it expects to be immediately earnings accretive and brings with it a portfolio of tier 1 customers, including Walgreens, Coca-Cola and Diageo.

• Chindata Group (CD US) disclosed a preliminary non-binding proposal from Bain Capital at US$8.00 per ADS, a 27.4% premium to the undisturbed price of US$6.28 per ADS.
• For privatisation to succeed, shareholders representing two-thirds of the shares present and voting need to approve the deal. The offeror represents 87.39% of the total voting power. 
• While the offer is unattractive, Bain Capital’s voting rights ensure that the vote will pass. The key risks are regulatory approvals and timing. 

• In this insight, we provided the most recent ranking of the top 100 most popular YouTube channels in Korea (according to Socialblade website).
• The top 100 YouTube channels in Korea have received 390.7 billion in total views as of June 2023. Of these total views, K-Pop channels views accounted for 46.4% share.
• YouTube has been meaningfully taking away market share from Kakao and Naver in the past three years. KakaoTalk’s MAU was 41.5 million in May 2023. YouTube was a close second.

• The review period for the September rebalance ends on 31 July, the changes will be announced towards end August and implemented at the close of trading on 7 September.
• There is one change currently for each of the Secondary Battery, Bio, Internet and Game indices. Large stock price moves mean no changes for the BBIG Index currently.
• Douzone Bizon (012510 KS) has flipped from a passive sell to a passive buy over the last month and the stock could move higher from here.

• Further evidence of BILI’s user base peaking reinforces our bearish view on its growth outlook.
• BILI’s business model is broken and we believe significant downsizing is unavoidable in the next 12- 18 months to achieve profitability.
• The company will survive as a leaner and slightly profitable business valued at high single-digit P/E. We still see tremendous downside from here and advise investors to avoid the stock.

• Chinese data centre outfit Chindata (CD US) has no end of alleged suitors, rumoured to include SOE-backed China Merchants, GDS (GDS US), PE outfit PAG, and EQT (EQT SS)-backed EdgeConneX.
• Now Bain Capital, Chindata’s largest shareholder with 42.17% (and 87.39% of the voting power) has made a non-binding proposal of $8/share per ADS, a 33% premium to last close.
• Chindata’s board has made no decision on the proposal. It’s hardly a knockout Offer. But the key question is whether Bain will get regular approval to take Chindata private. 

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Vincent Fernando, CFA. Vincent will be sharing with us his top picks in the Taiwanese Tech space. From trends in the industry, its opportunities, and insights into his top picks, join us as we hear more from Vincent.

The webinar will be hosted on Wednesday, 21 June 2023, 17:00 SGT/HKT.

Vincent Fernando, CFA has 20 years of experience researching capital markets in Asia and the USA. He is currently the Managing Director and founder of Zero One Partners. He has more than 15 years of investment research & capital raising experience working at both boutique firms and larger investment banks such as Citi and Macquarie. He has traveled extensively during his career, having been based in New York, Hong Kong, Thailand, and finally Singapore where he was Director of Equity Research covering Southeast Asia where he originated and marketed multiple investment banking deals.