Daily Brief Equity Bottom-Up: China Internet Weekly (23Jan2023): Tencent and more

• The authorities approved three of Tencent’s games in January 2023 after five in December 2022.
• Tencent closed its XR business and terminated a property rental contract.
• NetEase refused to extend service for Activision Blizzard for additional six months.

• The long, tortured legal mess between Universal and its ousted founder over control of its lucrative Manila integrated casino resort now has a clear path to its spin off IPO.
• The Okada Manila resort is among the sector leaders in the burgeoning Philippines gaming market now ramping rapidly toward full GGR recovery.
• At UE’s current price of 2,347jpy, the stock bears a built in premium of a Spac IPO now appearing to be pointed to debut this year.

• Takeda announced Monday that it has entered into an exclusive licensing agreement with HUTCHMED (China) for further development and commercialisation of Fruquintinib outside of Mainland China, Macau and Hong Kong.
• Takeda will pay HUTCHMED $400m upfront and up to $730m in additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales.
• Fruquintinib was approved in China in 2018, is a highly selective, oral VEGFR1/2/3 Tyrosine Kinase Inhibitor and offers potential new treatment option for patients with refractory metastatic colorectal cancer (CRC).

• Zadaxin has been the biggest performance driver of SciClone, but it would face the risk of losing market share and increased pricing pressures after generic drugs were included in VBP.
• SciClone is primarily a pharmaceutical development/sales company, rather than a research-based innovative drug company.The increasingly low cost performance of in-licensed products has made the capital “reconsider” and be more rational.
• SciClone is a good stock for short-term trade, especially by taking advantage of the positive momentum after it reaches licensing deals/launches new products, but we’re concerned about its long-term prospects.

• New China semiconductor restrictions could be announced by the Netherlands and Japan by end-January.
• Realtek 4Q22 results — Signals weakness for companies serving the PC market, and could get worse in 1Q23E.
• Western Digital & Kioxia could merge NAND flash units to create a rival to Samsung.

As Medlab Clinical moves into 2023, the expected commencement of a Phase III trial for NanaBis (the company’s cannabinoid based analgesic therapy) in cancer-induced bone pain will be the focus for investors. Management made considerable progress towards Phase III in 2022, by switching to a purely synthetic cannabinoid formulation and gathering encouraging real-world data on NanaBis use. We believe these actions should maximise the potential for NanaBis in both a regulatory and a commercial setting. We note that successful progression of the company’s programmes will be contingent on Medlab’s ability to raise capital, given the short cash runway (funded into March 2023) and recent setback with the Nasdaq listing plans. We update our estimates to reflect the financing risk and macro uncertainty, resulting in our valuation decreasing to A$183.5m or A$80.4/share, from A$236.1m or A$103.5/share.

• Naspers’ South African ventures exhibit solid growth, but an inflection point awaits, according to the company.
• The company’s exposure to China’s reopening is a roll of the dice, says Naspers.
• Naspers’ (OTCPK:NPSNY) stock has climbed by more than 20% in the past month, subsequently luring investors’ attention.