In today’s briefing:
- Nifty IT Index Rebalance: Oracle Financial Services Takes a Beating but Replaces L&T Tech
- Hang Seng Internet & IT Index Rebalance: Five Changes with First De-SPAC Listing In
- Last Week in Event SPACE: Shinko Electric, REA Group, Macromill, CNBM, Prosus/Tencent
- TSMC (2330.TT; TSM.US): Will TSMC Work on Intel Foundry Services? There Are Three Paradoxes…
- Domain Holdings (DHG AU): CoStar Raids the Register and Launches a NBIO at A$4.20
- (Mostly) Asia-Pac M&A: Domain Holdings, Mayne Pharma, Tam Jai, PEC Ltd, Canvest, Fuji Soft, Proto
- HSCI Index Rebalance: 29 Adds, 41 Deletes & Changes to Southbound Stock Connect
- [Bilibili Inc. (BILI US, BUY, TP US$24) Target Price Change]: C3Q24 Review: Game Slowdown from C2Q25
- AppLovin Corporation: Will Its Mid-Market Direct-to-Consumer Focus Pay Off?
- Pegasystems Inc.: Can its Focus On Cloud Migration Position It As A Leader In Driving Digital Evolution?
Nifty IT Index Rebalance: Oracle Financial Services Takes a Beating but Replaces L&T Tech
- In line with our forecast, Oracle Financial Services (OFSS IN) replaces L&T Technology Services Limited (LTTS IN) in the Nifty IT Index (NSEIT INDEX) at the March rebalance.
- L&T Technology Services (LTTS IN) is also being excluded from the F&O segment at the close on 27 March. Open interest is ~900k shares and there will be unwinding.
- Passive trackers will need to trade between 0.5-0.6x ADV in the stocks. Impact increases to 1-2 days of delivery volume.
Hang Seng Internet & IT Index Rebalance: Five Changes with First De-SPAC Listing In
- There will be 5 changes for the Hang Seng Internet & Information Technology Index (HSIII Index) at the March rebalance. There is one surprise for us with Synagistics being added.
- Estimated one-way turnover at the rebalance is 6.5% resulting in a round-trip trade of HK$3.74bn (US$482m). 4 stocks will have over 1x ADV to trade.
- Horizon Robotics (9660 HK) is an add to the HSIII, Hang Seng TECH Index and HSCI. Inclusion in Southbound Stock Connect will take place in May.
Last Week in Event SPACE: Shinko Electric, REA Group, Macromill, CNBM, Prosus/Tencent
- Shinko Electric Industries (6967 JP). Done. Finally. Look at whether you could borrow shares just before the close of the tender and short tender and buy back post ex-date
- REA Group Ltd (REA AU) rolls over as Costar Group (CSGP US) bets big on key rival Domain Domain Holdings Australia (DHG AU).
- Macromill (3978 JP)‘s tender extended. Still not a done deal. Look to buy shares at terms with the goal of NOT tendering and owning the back end.
TSMC (2330.TT; TSM.US): Will TSMC Work on Intel Foundry Services? There Are Three Paradoxes…
- It is a paradox US President wanted to make the US the number one semiconductor manufacturing country but is very likely unable to change the existing environment in the US.
- Another paradox is that a foreign company must obtain approval from the relevant US authorities before transferring control of the specific US company, which may not be feasible.
- It raises the third paradox that a Taiwanese company would need to operate an existing US entity with their company’s expertise under different cost conditions.
Domain Holdings (DHG AU): CoStar Raids the Register and Launches a NBIO at A$4.20
- Domain Holdings Australia (DHG AU) announced a non-binding proposal from Costar Group (CSGP US) at A$4.20, a 34.6% premium to the undisturbed price of A$3.12 (20 February).
- The bid follows CoStar’s acquisition of a 16.9% stake in Domain on 20 February. Nine Entertainment Co Holdings (NEC AU)‘s support is crucial for its success.
- While attractive to precedent transaction multiples, the offer is light compared to peer multiples. Nine is evaluating the offer and will likely push for improved terms.
(Mostly) Asia-Pac M&A: Domain Holdings, Mayne Pharma, Tam Jai, PEC Ltd, Canvest, Fuji Soft, Proto
- I tally 58 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma.
- Four new deals discussed this week: Domain Holdings Australia (DHG AU), Mayne Pharma (MYX AU), Tam Jai International (2217 HK), and PEC Ltd. (PEC SP).
- Key updates/news took place on: Canvest Environmental Protection Group (1381 HK),Fuji Soft Inc (9749 JP), and Proto Corp (4298 JP).
HSCI Index Rebalance: 29 Adds, 41 Deletes & Changes to Southbound Stock Connect
- There are 29 adds and 41 deletes for the Hang Seng Composite Index (HSCI) at the March rebalance to take the number of index constituents down to 505.
- We expect 27 of the 29 HSCI inclusions to be added to Stock Connect from the open on 10 March while Horizon Robotics (9660 HK) should be added in May.
- We expect 28 of the 41 HSCI deletions will be removed from Stock Connect and there has been increased Southbound holding in a lot of the stock this calendar year.
[Bilibili Inc. (BILI US, BUY, TP US$24) Target Price Change]: C3Q24 Review: Game Slowdown from C2Q25
- Bilibili (BILI) reported C4Q24 revenue and GAAP operating profit in line, 87% vs. our estimates and in line, 130% vs. consensus.
- We see BILI’s content strategy to be working to drive higher and better traffic, benefiting the ads business.
- We BUY and raised our TP to US$24 awaiting further details on game pipeline. The stock trading at 2025 PE of 31x.
AppLovin Corporation: Will Its Mid-Market Direct-to-Consumer Focus Pay Off?
- AppLovin’s financial performance for the fourth quarter of 2024 indicates a pivotal shift in its operational focus and growth strategy.
- Over the quarter, total revenue increased by 44% year-over-year to $1.37 billion, fueled significantly by an expanded advertising business that brought in $999 million in revenue.
- The company’s adjusted EBITDA surged by 78% to $848 million, maintaining a healthy margin of 62%.
Pegasystems Inc.: Can its Focus On Cloud Migration Position It As A Leader In Driving Digital Evolution?
- Pegasystems, a leader in software solutions for customer engagement and operational efficiency, demonstrated a robust performance in its fiscal year 2024.
- The company reached its strategic milestone of becoming a “Rule of 40” company, reflecting balanced growth and profitability.
- This achievement highlights the successful execution of its transition strategy from a traditional sales model to a subscription-based cloud business.
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