TMT/Internet

• There are a bunch of implementations in the coming week, the largest being the Nikkei 225 (NKY INDEX) March rebalance.
• There are some ad hoc changes to the KOSPI2 INDEX and KOSDAQ 150 Index following constituent stocks being designated as Administrative Issues and Investment Attention Issues.
• Inflows to the iShares MSCI Emerging Markets ex China ETF (EMXC US) have continued and has taken AUM to a new high.

• 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.
• Japan and Indonesia appear to be the hubs of APAC ECM activity with Rakuten Bank (5838 JP) and PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) going live
• On the placements front, this week was comparatively quiet, given the market volatility. There are a few lockup expiries coming up next week.

• It is virtually certain that KT’s foreign rooms will exceed 15% today or tomorrow. This month, foreign net sales of 200-300k are continuing almost every day.
• Assuming the Cutoff of the MSCI Korea Standard to be 2.7 trillion won and setting the float rate to 25%, KT beats the hurdles quite comfortably.
• If KT achieves re-inclusion with a 25% float rate, a passive inflow worth 140 billion won is expected to occur. This is a 3.55x ADTV.

• MTN Group Limited (‘MTN’) is a Johannesburg (South Africa)-headquartered multinational mobile telecommunications company with a presence in 22 countries in Africa and the Middle East.
• Apart from offering traditional voice and data services MTN also provides mobile financial services, business enterprise solutions and digital services.
• MTN’s largest markets are Nigeria and South Africa which collectively contributed 63% and 68% to FY16 group revenues and EBITDA, respectively. 

• Qualcomm has appeared on the radar for attractive dividend plays.
• The current yield is among the highest in the sector and also appears safe based on historical data.
• There are a number of important risks that overshadow Qualcomm’s ability to consistently increase its dividend.

• UI is coming off a strong performance in the December quarter but should continue to show improving margins as the Company maintains products in stock and at higher prices
• The March quarter can be seasonally challenging. For Ubiquiti, it could end up being a period where customers are able to find the products they are looking for in stock 
• In the March quarter Ubiquiti has maintained a higher level of product availability than what we had been observing in the prior year

• Samsung SDS and Meritz Financial will welcome a 6%p and 30%p increase, respectively, in the upcoming rebalancing in June.
• Assuming a K200 tracking fund size of 65 trillion won, they are expected to receive 2.69x and 5.47x ADTVs, respectively. This is enough for us to consider a preemptive position.
• However, in the case of Samsung SDS, we need to consider potential price correction by the scheduled block deal (1.95%) and develop a multi-phased approach to minimize timing conflicts.

• Following Nanos Co Ltd (151910 KS)‘s designation as an Investment Attention Issue, the stock will be deleted from the KOSDAQ150 Index and replaced with Em Tech Co Ltd (091120 KS).
• Passive trackers are estimated to buy 1.3 days of ADV on Em Tech Co (091120 KS) while they will need to sell 1.1 days of ADV on Nanos (151910 KS).
• Em Tech Co Ltd (091120 KS) was up yesterday but the stock is still way off its highs. The stock should trade higher over the next few days.

• The Korea Exchange announced special changes in KOSDAQ 150 after the market close today.
• Effective 28 March, SBW Life Science (151910 KS) will be excluded from KOSDAQ 150 index and Em Tech Co Ltd (091120 KS) will replace it.
• We expect 20-30% additional upside for EM-Tech from the KOSDAQ 150 inclusion and further downside risk for SBW Life Science from the index exclusion.

• Established in 2020, Rebellions is a leading AI based fabless startup in Korea. In February 2023, Rebellions launched a new artificial intelligence chip, challenging the global leader NVIDIA. 
• According to the company, its ATOM chip targets specific tasks, allowing the chip to consume only about 20% of the power of an Nvidia A100 chip on those tasks. 
• Since the company’s inception, Rebellions raised 122 billion won in funding including 30 billion won from KT. The company was last valued at 350 billion won in June 2022.

• Headlines for GoTo 4Q2022 and FY2022 headlines do not tell the whole story, given large one-off charges for goodwill write-downs, without which significant progress has been made towards profitability. 
• GoTo significantly reduced incentive&product marketing spending in 4Q but also posted decent growth, albeit at a slower pace, with an increasing emphasis on building foundational products to drive future profitability.
• 1H2023 will see slower headline growth from a COVID base but 1Q2023 should see improving take rates and CM breakeven. This is the transient stage of the long-term GoTo story.

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the T50 and T100 Indices for the June 2023 Rebalance.
• As things stand, there do not seem to be any ADDs/DELs for the T50 index or the T100 index.
• However, with multiple names close to the border and with two more months to the base date a lot of ranks could change.

• There’s been a major disconnect between performance of the Philly Semiconductor Index and the Taiwan market recently.
• Semi optimism has picked up substantially in U.S. markets and institutional favor towards the Taiwan market could improve as a result.
• We indentify US$1bn+  market cap stocks most under-held by institutions, as well as those who may be most at risk of a short squeeze.

• Tencent reported 4Q22 top line/ bottom line of 0.3%/(3.7%) vs cons. Online ads is stronger, while gaming and G&A slightly missed our est. 
• We expect that ads will be the main driver, thanks to video accounts. Gaming will have better performance after more approved game codes.
• We raise 2023 ads growth from 12% YoY to 15% YoY. Raise TP to HK$ 433. Maintain Tencent as one of the top picks in China Internet

• WOM is the fastest growing mobile telecommunications provider in Chile in terms of total subscribers and revenues. 
• They are a consumer-focused mobile network operator offering mobile voice, data, and broadband services to individuals and small and medium enterprises in Chile.
• They have grown their market share by positioning themselves as the “value-for-money” provider and are focused on continued growth and profitability in the Chilean mobile telecommunications market.

• qlub, a payment solution that splits restaurant bills between customers, has raised US$25 million in a new funding round, bringing its total fundraising to US$42 million.

• The startup plans to use the new capital to accelerate growth, expand to new markets, and build new value-added services for restaurants and customers on the qlub platform.

• qlub enables customers to pay their restaurant bills in various options — as a group, splitting, or tipping — without needing an app or registration.

• Our Tencent sell from 385 has formed a flat range with a bias to pressure the 331 pivot support to reach our 300-305 buy (cover) target.
• The descending wedge or channel is the dominant chart pattern that will drive the medium term trend. Global and HK bear pressure will influence Tencent near term.
• From the 300 support zone we see a better macro set up that will see the bull wedge mature and break higher once summer turbulence subsides.

• We believe both 4Q22 and 1Q23 can be weak quarters.
• However, we believe operating losses will shrink significantly in 4Q22 and 2023.
• We believe the stock has an upside of 77% for year end 2023.

• As we expected in the preview, total revenue stopped decreasing in 4Q22.
• WeChat advertising recovered in 4Q22 earlier than we expected in the preview.
• We believe game-related revenues will grow by 8% in 2023 and 19% in 2024.

• LG CNS provides various IT consulting services in the key digital growth areas including cloud, artificial intelligence (AI), big data, smart factory, and smart logistics.
• LG CNS’s core strength in the AI sector is to capitalize on all the major AI based technologies and providing consulting services to business customers to improve their operations. 
• LG Corp (003550 KS) owns 49.95% stake in LG CNS, which is expected to complete its IPO sometime in 2023/2024.

• Despite the topline growth of 20%, Kingsoft Corp (3888 HK) recorded a loss in FY22 after a large impairment for its holding in Kingsoft Cloud (KC US).
• Preceding my comments on Kingsoft are the weekly setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Tencent (700 HK) reported 4Q2022 results yesterday. Revenue increased 0.5% YoY to RMB145bn (vs consensus RMB)143.5bn while adjusted OP increased 30.1% YoY to RMB28.4bn (vs consensus RMB37.2bn).
• Online advertising revenues saw a 14.8% YoY increase during 4Q2022 after 4-consecutive quarters of decline with January and February showing sustained recovery.
• Though Domestic gaming revenues declined in 4Q2022, with new gaming licenses and international expansion, we expect gaming revenues to start growing from 1Q2023.

• While adjusted net profit of Tongcheng Travel Holdings Ltd (780 HK) plummeted in 4Q22, the positive momentum in 1Q23 as revealed supports a sharp recovery in FY23.
• Its huge exposure to lower-tier cities will fuel outlook while increase in monetisation will support profitability rebound. Success at Blackwhale membership program is another growth engine.  
• Management is confident that revenue growth and better efficiency will lead the return of FY23 margin to pre-pandemic levels. Net cash position (12% of share price) is an added strength. 

• Rover is the world’s largest network of pet sitters and dog walkers.
• Rover connects pet parents with pet care providers who offer overnight services, including boarding and in-home pet sitting, as well as daytime services, including doggy daycare, dog walking, and drop-in visits.
• The marketplace has more than 500,000 pet care providers across North America and Europe.

• 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.

Boku’s FY22 results reflect a return to pre-COVID customer behaviour and company spending, investment in its platform to support local payment methods (LPMs) and the negative effect of the strong dollar on reported results. Growth in LPM users accelerated in the year and is likely to be boosted further as the Amazon relationship develops. With plans to double revenue and grow EBITDA margins by c 18pp in the medium term, Boku looks well positioned for earnings growth over the forecast period.

• Nvidia CEO to unveil new developments at the company’s GTC developer conference tonight Asia time. TSMC and ASML could have read-throughs from the event given their key roles.
• AUO’s chairman said that he expects PC panel demand to return to normal levels later this year; indicating another sign of potential improvement in the PC and display space.
• PC maker Asustek was a top loser in the past week; we highlight it as a potential Long/Short opportunity.

• GoTo (GOTO IJ) reported 4Q2022 and full-year 2022 results yesterday. Gross revenue increased 18.0% YoY to IDR6.3trn while adjusted EBITDA losses declined to IDR3.1trn vs IDR6.5trn in 4Q2021.
• However, adjusted EBITDA as % of net revenues has increased considerably compared to 3Q2022 due to increase in variable costs.
• GoTo’s ambitious profitability target would prevent the company from fully exploiting growth opportunities which will lead to further decline in growth rates.

• Nearly halfway through the review period, we see 10 stocks moving from MidCap to LargeCap and vice versa, and 9 stocks moving from SmallCap to MidCap and vice versa.
• Financials are poised to be the biggest gainers in the reshuffle with 6 stocks moving from MidCap to LargeCap and 5 stocks moving from SmallCap to MidCap.
• Over the last 6 months, stocks expected to migrate upward have outperformed stocks that are expected to migrate downward., though there has been a downward drift this year.

• Vantage Towers and Oak Holdings have concluded a delisting agreement after all takeover conditions were met. Oak Holdings intends to offer a cash consideration of €32/share to holdouts.
• The stock is trading 4.25% above the delisting offer price, thus it seems difficult that a lot more shares will be tendered.
• Elliot has a 5.61% stake in Vantage Towers, enough to prevent a squeeze-out and can exert pressure to obtain the DPLTA to include favorable terms (higher interest).

• JOYY reported 4Q22 top line of US$ 605 mn, beat our est. by 3.2%, and GAAP net income turned negative mostly due to investment loss. 
• With limited catalyst for top line, increasing operating expense and content cost to cope with competition would put pressure on bottom line. 
• Maintain SELL rating and cut TP to US$ 23.7, implying 12.6X PE in 2023.

• Macro trend remains challenging for Meituan over the summer. We see a tactical short out of triangulation and view a new low as a turn and buy signal.
• RSI bull divergence support a series of tactical rally sequences off of a new low, but macro headwinds will cap over the summer.
• Bull set up at lower expanding wedge support with wedge resistance coming in near 140. 

• We believe total revenue grew 18% in 4Q22 and 22% in 2023.
• We believe operating losses decreased YoY in 4Q22 and the company will report an operating profit in 2023.
• We expect the stock has an upside of 47% for year end 2023.

• Baidu launched a beta test of a ChatGTP-like function, WXYY.
• Tencent announced it will close its digital collection platform, Huanhe, in June.
• KE’s revenue decreased by 25% and new losses were RMB1.4 billion.

• Megvii is a leading artificial intelligence company in China focusing on IoT scenarios for mainly three fields including Consumer IoT, City IoT and Supply Chain IoT. 
• In June 2022, Megvii’s chief scientist Sun Jian passed away due to a sudden illness. His death was one of the key reasons why the company has postponed the IPO.
• Major investors in Megvii include Ant Group, Alibaba Group (9988 HK), Lenovo (992 HK), and Abu Dhabi Investment Authority.

• In this insight, we discuss the potential inclusions and exclusions of the upcoming KOSDAQ 150 rebalance in May 2023.
• The next round of KOSDAQ 150 rebalance will be announced in May and it will be effective as of end of May 2023.
• Typically, the potential inclusions and exclusions to KOSDAQ 150 make their biggest moves in the one to three months prior to the rebalance announcements.

• Established in 2019 and headquartered in Hong Kong, Smartmore is a technology company that focuses on the use of artificial intelligence to implement smart manufacturing and ultra-high definition videos.
• The company’s intelligent manufacturing technology helps detect malfunction at manufacturing lines in numerous industries such as autos and semiconductors.
• Since the inception of the company, Smartmore has raised nearly $300 million in funding. Its major investors include Hermitage Capital, IDG Capital, Sequoia Capital China, and Lenovo Capital.

• Asustek, Acer, and HP’s recent quarterly results indicate decreases in inventory days, highlighting potential improvement happening at the leading edge of the PC industry chain.
• Asustek (Asus) has substantially underperformed Acer YTD with one factor likely being Asus reporting worse margin performance. Asus is flat YTD after its post-results drop vs. +15% YTD for Acer.
• Long/Short: One can explore Long Asustek vs. Short Acer based on expectations of normalization of relative operational performance.

• The company ranks very high in terms of capital allocation prudence and this is going to serve long-term shareholders well.
• Cisco’s stock appears conservatively priced given the company’s strategic positioning and the ability to improve margins.
• Cisco appears increasingly attractive as market liquidity conditions normalize, says analyst.

• In early 2022, Tencent (700 HK) made clear it was on a divestment path – disposing of investments able to support themselves – possibly “obliged” after 2021’s China internet mess.
• In August, Reuters suggested Meituan (3690 HK) was next. Tencent denied it, but in November with Q3 earnings, announced a January 2023 distribution with March 2023 settlement. 
• US$16bn of Meituan shares get delivered on 24 March 2023 – this Friday. That’s a lot. But this time is different than last time.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• IPO activity continues to pick up momentum, although the recent market volatility will likely make a few companies reconsider their near term plans.
• On the placements front, Japan Post Bank (7182 JP) hasn’t been playing ball, as has been the case with most of the other past deals which offered a trivial discount.

• In recent days, the Korean government announced that it is reviewing foreign ownership limit rules.  
• The main reasons are to align South Korea’s financial policies in line with the global standards and improve the chances of South Korea becoming included in MSCI Developed country status.
• Key companies that could benefit from potential raise of foreign ownership limit include SK Telecom, KT Corp, and SBS. 

• Nearly 90% through the review period, we see 6 potential adds and 5 potential deletes in June. However, there can be a maximum of 5 changes at a rebalance.
• We estimate a one-way turnover of 5.07% at the June rebalance leading to a one-way trade of CNY 3.97bn. Index arb activity could add to the impact on the stocks.
• The potential adds have outperformed the potential deletes by 17% over the last month and by 21% over the last two months.

• Three quarters of the way through the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. On average, the impact on the potential deletions is higher.
• The potential adds have outperformed the potential deletes over the last six months, and there has been a sharp widening of the gap over the last few weeks.

• BEKE (Beike) reported 4Q22 revenue in-line/4.9% vs our est./cons. Non-GAAP operating income 65% higher than our estimate and non-GAAP net income 59%/122% higher than our est./cons. 
• We estimate 1Q23/2023 revenue to rise 46%/24% YoY. We think Beike’s strategy on focusing quality above scale is suitable under current real estate market trend, bode well for profitability.
• We maintain BUY rating and raise the TP by US$2 to US$23 to reflect 1) the gross margin improvement, 2)narrower loss-making in new initiatives.

• We suggest that the recent strong performance of <Eggy Party> could be sustainable because of the absence of competitive games…
• …an emerging user-generated-content (UGC) ecosystem with much potential, social connections among players, and popularity on social media. 
• We maintain our previous estimation that <Eggy Party> could at least contribute RMB 4-5 bn this year. NetEase is one of our top picks in China internet.

• Comms Group Ltd (ASX:CCG) operates in the broad IT and communication space both domestically and offshore.
• Domestically, CCG provides a full range of IT and communication services in the highly fragmented MSP/ICT market, a sector expected to grow on the back of digitalisation, an increasingly remote workforce, the need for cyber security, and increasing complexity.
• Internationally, CCG is a niche player in the provision of corporate voice solutions for enterprises with an established, capital-light network particularly strong in the Asia Pacific. 

• Sixth Street/BGH have come back for Pushpay Holdings (PPH NZ) with a revised offer of NZ$1.42 per share, a 6.0% premium to the previous failed offer of NZ$1.34 per share.
• Sixth Street/BGH have secured total commitments to accept the offer from 28.9% of outstanding shares, including all the shareholders that publicly voted against the previous scheme. 
• The offer is around the mid-point of the IE’s valuation range. At the last close and for the end-May payment, the gross and annualised spread is 2.2% and 7.4%, respectively.

• We believe revenue will grow by 2.5% YoY in 4Q22 and 9% in 2023.
• We believe EPS will decrease by 62% YoY in 4Q22 and increase by 16% in 2023.
• We expect the stock has an upside of 42% for yearend 2023. Buy.

• In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in June 2023.
• According to our estimation, there could be one ADD/DEL for the HSTECH in June 2023 triggering total one-way index flows of US$238mn.
• The final index changes along with indicative capping and index weights will be published in Mid/Late-May 2023.

• We provide a fundamental analysis of Cosmo AM&T (005070 KS) (Cosmo Advanced Materials & Technology), which is increasingly likely to become included in MSCI Korea Standard index in 2023.
• Cosmo AM&T is a borderline inclusion candidate for MSCI Korea Standard in May 2023. If it does not get included in May, it could get included in 2H 2023.
• All in all, the increasing possibility of MSCI Korea Standard inclusion combined with strong sales and profit momentum could result in a further positive momentum on its share price.

• ChatGPT-4 is here and OpenAI is betting that it’s the smartest version so far.

• GPT-4 has a broader general knowledge and problem solving abilities, the company said in a research paper that was released alongside the chatbot.

• The paper showed that the latest model beat 90% of bar exam takers.

• I was complaining recently that I couldn’t find any cheap stocks, but I will take that back!
• I got another one, Pagseguro (PAGS). A Brazilian payment processor and online bank and potential compounder. 
• PAGS trades at about 8x through earnings, has been growing quite rapidly and could see explosive short term earnings growth if they can bring down their financing costs.

• Chinese solar wafer giant LONGi Green Energy Technology Co. Ltd. will partner with U.S. solar developer Invenergy to build a $600 million, 5-gigawatt solar panel assembly factory in Ohio
• The project will be LONGi’s first entrance into the U.S. manufacturing market.
• What will eventually be the largest crystalline silicon solar panel factory in the U.S. will create 850 jobs, and operations are expected to start by the end of 2023

• Final funding for Project Dorothy is now secured, with energization scheduled for the first week of April, pending approval from ERCOT. 
• Soluna recently announced $7.5 million in funding from existing project investor Spring Lane Capital (SLC) that will be used to complete the final energization of Dorothy and support corporate expenses.
• SLC’s stake in the 25 MW Dorothy 1A increases to ~85% from 32%, but Soluna retains the right to 50% of 1A’s profits after SLC achieves an 18% IRR hurdle.

• Broom, an all-in-one automotive SME solutions startup in Indonesia, has secured US$10 million in a pre-Series A funding round

• Jakarta-headquartered Broom will use the money to diversify its product offerings and further accelerate dealer inventory turnover.

• Established in 2021, Broom provides an end-to-end financial solution for auto dealer inventories.

• SVB Financial’s (SVBF) liquidity risk sparked by high interest rate is unlikely to happen on Futu, as the two have different asset structures and business models. 
• Futu is benefits under the rising interest rate environment, as its interest income generated from clients’ idle cash goes up, 
• With also help from the floating rate of margin financing and mortgage lending business. We maintain BUY rating and the TP at US$51.

• Samco is a beneficiary of rising power semiconductor investment for electric vehicles
• The company is focused on SPE equipment for the growing silicon carbide power chip market
• New investment from the likes of Mitsubishi Electric should drive structural growth for SiC equipment

For our next Corporate Webinar we are glad to welcome Comba Telecom’s Executive Director and Group CFO, Ken Chang Fei Fu.

In the upcoming webinar, Mr Chang will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Osbert Tang. The Corporate Webinar will include a live Q&A session.

About Comba Telecom

Established in 1997 and listed on the Main Board of the Hong Kong Stock Exchange in 2003 and the Main Board of the Singapore Stock Exchange in 2013, Comba Telecom is a global leading wireless solutions provider with its own R&D facilities, manufacturing base, and sales and service teams. The Company offers a comprehensive suite of products and services including base station antennas and subsystems, wireless access, wireless enhancement, and wireless transmission to its global customers. Headquartered in Hong Kong, with manufacturing bases and R&D centres in China, Comba Telecom provides wireless communication solutions and information application services to customers in more than 100 countries and regions around the world.

• Hon Hai results slightly beat on revenue and slightly missed on EPS, but overall the result was decent since China COVID margin impact was well managed.
• The company has reiterated its 2025 target for gross margin to rise to 10% and over NT$1 trillion of revenue by 2025 from its new Electric Vehicle platform business. 
• While 2023E revenue was guided to be flat YoY, this was already roughly expected. We maintain our structural Long view on the shares.

• Aussie PE outfit BGH Capital and consortium partner Sixth Street have increased their offer for NZ church donations group Pushpay Holdings (PPH NZ), gaining the support of its major shareholders.
• The consortium, Pegasus Bidco, will pay $NZ1.42/share, an 6% increase over the previous Offer which failed to muster investor support at the 3 March Scheme Meeting. 
• The revised Offer is around the mid-point of the independent expert’s assessed valuation range of $NZ1.33 to $NZ1.53/share.

• Apple & Hon Hai are lobbying for easier labor laws in India, setting the ground for a major shift of production to the country.
• TSMC is being heavily courted by Singapore to set up a manufacturing facility in the city state.
• Hon Hai will report earnings this week. We are structurally long the company despite potential for weak 4Q numbers.