In today’s briefing:
- Japan: Last Look at Potential Passive Selling in February
- China/HK: Passive Activity Expected Later This Month
- Hexaware Technologies IPO: The Bear Case
- Merger Arb Mondays (10 Feb) – Shibaura, Makino, Fuji Soft, Tecnos, Tohto Suisan, Proto, Pentamaster
- Appier (4180) | Q4 Preview; Valuation Re-Rating Likely
- PC Monitor: Latest Qualcomm & Mediatek Results Show ARM-Based Chips Disrupting the PC Market
- Mediatek: A Lot of Good Things Ahead but the Stock Is a Bit Expensive
- Qualcomm Q125. Firing On All Cylinders & An Ace Up Their Sleeve…
- HK Connect SOUTHBOUND Flows (To 7 Feb 2025); Busy Start Post CNY But Clear Selling of High Div SOEs
- EQD | HSI Index Options Weekly (Feb 02-07): 94th Percentile 1-Week Move
Japan: Last Look at Potential Passive Selling in February
- There are 14 Japanese stocks at risk of being deleted from global passive portfolios in February. The number will be smaller depending on the day of the review period chosen.
- Selling from passive trackers will range from US$176m-354m and the impact ranges from 3.1-18.4 days of ADV. Short interest has increased in nearly all stocks over the last 4 weeks.
- The forecast deletes have underperformed the TSE Tokyo Price Index TOPIX on average over the last 1-3 months, while there has been marginal outperformance over the last week or two.
China/HK: Passive Activity Expected Later This Month
- There could be up to 10 adds/ 29 deletes for the China global index in February. The actual number of changes will be smaller depending on the review date chosen.
- The flow on the forecast adds varies from US$17.5m-US$175m (0.05x-15x ADV) while the flow on the forecast deletes varies from US$14.4m-US$100.4m (0.25x-22.75x ADV).
- Bestechnic Shanghai (688608 CH) is a potential inclusion to multiple indices in June and there will be much larger passive flows to the stock then.
Hexaware Technologies IPO: The Bear Case
- Hexaware Technologies (HEXW IN), an Indian mid-sized global IT services company, aims to raise up to US$1.0 billion.
- In Hexaware Technologies IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The bear case rests on mid-tier revenue growth, bottom-tier margins, low offshore mix, rising unbilled receivables/contract assets and a large post-IPO share overhang.
Merger Arb Mondays (10 Feb) – Shibaura, Makino, Fuji Soft, Tecnos, Tohto Suisan, Proto, Pentamaster
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Lifestyle China (2136 HK), Seven & I Holdings (3382 JP), Dada Nexus (DADA US), Smart Share Global (EM US), ESR Group (1821 HK), Get Nice Financial.
- Lowest spreads: Makino Milling Machine Co (6135 JP), Shibaura Electronics (6957 JP), Avjennings Ltd (AVJ AU), Fuji Soft Inc (9749 JP), Macromill, Inc (3978 JP), Proto Corp (4298 JP).
Appier (4180) | Q4 Preview; Valuation Re-Rating Likely
- We forecast Q4 consolidated revenue of ¥9.7bn (+27% YoY); Operating profit (OP) is expected to grow +129% YoY to ¥1.0bn in Q4
- For FY25, we expect the company to guide for +25% revenue growth and OP +160% to ¥5.7bn, significantly ahead of the street estimate of ¥4.8bn.
- Appier’s AI-powered solutions operate on top of generative AI models, utilizing proprietary data and analytics to enhance corporate online advertising efficiency.
PC Monitor: Latest Qualcomm & Mediatek Results Show ARM-Based Chips Disrupting the PC Market
- Growing Signs That ARM-Based Chips Are Set to Disrupt the PC Market
- Qualcomm’s Earnings Call Insights — Snapdragon’s ARM-Based Push into PCs Successfully Taking Significant Market Share
- Mediatek Earnings Call Highlights — Reiterates ARM-Based Entry into PC Market with AI Supercomputer CPU in Collaboration with NVIDIA
Mediatek: A Lot of Good Things Ahead but the Stock Is a Bit Expensive
- Smartphone revenues increased by 31% in 2024 and will increase by 15-20% in 2025 in my view: small volume growth (5%), ASP increase (AI in chips), share gains in premium.
- MTK multiple bets in Automotive, AI, ARM CPU are starting to pay off. Nvidia GB100 revenues mid-25, AI Accelerator revenue start mid-26, Nvidia Auto revenue in 2H26 – my estimates.
- Consensus forecasts revenues increasing +35% from 2024 to 2026, Net Income +30%. That should be the low-end of the range. The stock is trading at 21.1x 2025 EPS, 17.6x 2026.
Qualcomm Q125. Firing On All Cylinders & An Ace Up Their Sleeve…
- Q125 revenues of $11.7 billion, up 18% YoY, up 15% QoQ and marginally above the high end of the guided range. This represented the company’s highest ever quarterly revenue
- In December, Snapdragon X Series had more than 10% share of the greater than $800 Windows laptops in U.S. retail.
- A recent hire suggests Qualcomm has an ace up their sleeve and that they are poised to launch yet another diversification gambit
HK Connect SOUTHBOUND Flows (To 7 Feb 2025); Busy Start Post CNY But Clear Selling of High Div SOEs
- In the post-CNY return, SOUTHBOUND gross trading activity was stronger per day than the previous several weeks, but SB Net Buying was not.
- Tech ended up being a big net buy, but Tencent (700 HK) a big net sell.
- Lower-Than-Expected tariff rates against China meant foreigners are back to buying Chinese stocks for the time being which may lower SB net buys near-term.
EQD | HSI Index Options Weekly (Feb 02-07): 94th Percentile 1-Week Move
- Powerful rally for HSI lands its 1-week price change in the 94th percentile of all weekly moves since 2000.
- Implied vols raising a caution flag, trading at the 78th percentile over the past year and 68th percentile since the start of 2001.
- Call volumes as a percentage of total option volumes has been dropping over the past three weeks.
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