Brief TMT & Internet: Does COVID-19 Imply A Bonanza for Micron? and more

In this briefing:

  1. Does COVID-19 Imply A Bonanza for Micron?
  2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower
  3. Simmtech Rights Offer: Small Size but Higher Price Volatility May Ensure Fun for Arb Hunters
  4. Naver, SoftBank’s Savior Again? This Time with Coupang?

1. Does COVID-19 Imply A Bonanza for Micron?

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The COVID-19 virus has undertaken a significant upturn in Korea.  Since Samsung and SK hynix dominate two of the markets that Micron is in, one would naturally anticipate that the outbreak could benefit Micron, a US-based firm.  In this SmartKarma Insight we will examine that line of thought and see why it misses key facts that must be considered.

2. COVID-19 Won’t Solve Weibo’s Core Problems; Company Guides 1Q20 Revenue 15-20% Lower

Weibo guided 1Q20 revenue guidance 15-20% lower as businesses cut back on ad spend due to the coronavirus. While management indicated that user traffic has grown significantly on the platform due to the virus, we don’t believe that it will solve the fundamental problems of the business given that both revenue & earnings were already stagnating even prior to COVID-19.

In previous notes, we’ve discussed extensively our preference for digital companies that are accelerating adoption vs. traditional brick & mortar services. Weibo is not one of them. 

3. Simmtech Rights Offer: Small Size but Higher Price Volatility May Ensure Fun for Arb Hunters

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Simmtech, a small-cap PCB maker (<₩300bil), announced a 92bil rights offering yesterday. It carries a usual 20% oversubscription privilege, and Mirae will serve as a banker. There is no cancellation risk since it is a standby offer. The capital increase rate sits at 40%. 20% of the offering will go to the ESOP, so the per share allocation for the stockholders remains at 0.32. March 17 is the first round pricing, followed by March 19 for the ex-rights date. The subscription rights will get traded starting April 7. Then, the pricing deadline is April 20.

4. Naver, SoftBank’s Savior Again? This Time with Coupang?

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Elliott left Korea, but it didn’t go very far. It chose Korea’s closest neighbor, Japan, as its next stop. It is now sitting on SoftBank Group with about a 3% stake. Elliott reportedly wants to see a vast improvement in SoftBank’s venture investment, the so-called Vision Fund. Well, it is quite understandable and no surprise. Then, what would be an immediate target? Again, unsurprisingly, it is Coupang that is in the limelight at this point. Korea’s local street is speculating that Elliott may single out Coupang as an exemplary target of its activism efforts.

Of course, we can not know what Elliott demands and how it will exercise its activism muscle on SoftBank and Coupang. It may or may not force SoftBank to completely get out of Coupang by selling off all of its stakes. But what at least seems inevitable is that Elliott will demand a quick and viable liquidation strategy. That is, SoftBank will likely find it extremely difficult to provide another massive capital injection into Coupang. Then, where does Coupang stand in terms of the money situation? Well, it is pretty bad and urgent. Last year again, it reportedly put up a ₩1.4tril operating loss.

It got about ₩2.3tril in 2018 from the Vision Fund, but out of that ₩2.3tril, it has already consumed nearly ₩1.4tril. The street estimation is, at the current pace of operating loss, Coupang will completely deplete its capital pool by the third quarter of this year. So, like it or not, SoftBank will have two options left, either say farewell or have it go public. Of course, neither option would be a walk in the park. Finding a buyer in the short-term for a company that is losing like US$1bil a year would be one hell of a job (although the local street speculates about Amazon being as a potential buyer). For a similar reason, IPO on either KOSPI or NASDAQ should also be a very challenging job.

So, SoftBank and Coupang need someone from outside for a makeup purpose. Realistically, that makeup would be for IPO. Then, who would that be? Well, the local street has been heavily speculating that Naver would take the role, yes again. We have seen at least three local news reports on the possibility since last December. Lately, a couple of the local brokerages have jumped in to argue on the likelihood of another SoftBank and Naver marriage.

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