In today’s briefing:
- SEA Ltd: The Prodigal Son (2Q deep-dive)
- STAR50 Index Rebalance: Two Changes; Pre-Positioning Appears Light
- ARM Holdings IPO: The Bear Case
- Is the Relief Rally Over?
- [NetEase (NTES US, BUY, TP US$105) TP Change]: Raise TP for and Upcoming Pipeline
SEA Ltd: The Prodigal Son (2Q deep-dive)
- Forrest Li: “Look How They Massacred My Boy” When CEO Forrest Li announced SEA Ltd’s Q2 results in mid-August, he was probably expecting a pat on the back.
- After all, the team at SEA Ltd had slogged through fire and brimstone over the past year trying to bring the company back to profitability.
- After all, the team at SEA Ltd had slogged through fire and brimstone over the past year trying to bring the company back to profitability.
STAR50 Index Rebalance: Two Changes; Pre-Positioning Appears Light
- As expected, the index committee has used a 6-month minimum listing history and that results in two changes to the SSE STAR50 (STAR50 INDEX) in September.
- Piotech (688072 CH) and Hwatsing Technology (688120 CH) will replace Suzhou Nanomicro Technology (688690 CH) and Zhuhai CosMX Battery (688772 CH) in the index.
- One-Way turnover is estimated at 2.83% and will result in a one-way trade of CNY 3,562m. There does not appear to be a lot of pre-positioning on the stocks.
ARM Holdings IPO: The Bear Case
- ARM Holdings (1822695D US) is the world’s most widely licensed and deployed processor. Softbank Group (9984 JP) seeks to raise about US$6-10 billion by listing ARM on Nasdaq.
- In ARM Holdings 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 the deteriorating annualized contract value trajectory, declining ARM-powered chip shipments and revenue, ARM China overhang and red flag transactions involving SoftBank.
Is the Relief Rally Over?
- Nvidia blew the doors off Street expectations last week, but the market reacted with semiconductor stocks turning red on the day. Is the relief rally over?
- We conclude from our review of technical conditions that while breadth indicators argue for a deeper correction, that day may not have arrived just yet.
- Sentiment is too bearish and should put a floor on stock prices in the short term. The relief rally probably has further room to run.
[NetEase (NTES US, BUY, TP US$105) TP Change]: Raise TP for and Upcoming Pipeline
- NetEase’s 2Q rev. miss cons. by (3.08%) and non-GAAP net income beat cons by 50.6%.
- We anticipate that former legacies will continue to be under pressure. However, the 3Q23 is expected to show strong performance with new titles like “Justice Mobile” and “Racing Master.”
- We have raised our annual revenue expectations for “Justice Mobile” and maintain an optimistic view of NetEase’s upcoming pipeline. We increased to TP US$ 105, implying 17x PE in 2023
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