Daily Brief TMT/Internet: Tencent, Douzone Bizon, Communication Services Select, Automatic Data Processing, On Semiconductor, WANdisco plc, Qualys Inc, Schrole Group Ltd, Twilio Inc, Appian Corp and more

• Recent developments highlighted the strategic significance of Wechat Channels (微信视频号) that Tencent’s management attached to the company’s future.
• Counter-Intuitively, while backing of the social giant saves Wechat Channels’ efforts for traffic acquisition, it also limits the product’s potential to develop into a content ecosystem rivaling Douyin.
• Our base case values the product at $29 billion, or 6% of Tencent’s market cap as of January 20th.

• The review period for the March rebalance ends on 31 January, the changes will be announced towards end February and implemented at the close of trading on 9 March.
• We forecast one add/delete for the Game Index, and a couple of adds/deletes for the BBIG Index. There will be a lot of capping changes.
• The largest inflows are expected on Posco Chemical (003670 KS) and Douzone Bizon (012510 KS); the largest outflows are expected on SK Innovation (096770 KS) and KMW (032500 KS).

• In our January 10th Compass, we discussed a break above 3910 on SPX would signal a tradable rally, with 4100-4165 our target, the top-end of our expected 2023 trading range.
• We believe equities are still in the midst of a rally/short squeeze, but that the rally is likely to fizzle in the 4100-4165 area.
• After being underweight Communications (XLC) since Nov 2021, sidestepping 20% underperformance vs. SPX, we now see signs of price and RS bottoms, and we are upgrading to market weight. Buy.

• ADP had a great start to fiscal 2023 and delivered an all-around beat in its last result.
• The company overcame elevated expense growth over the first quarter of last year and ongoing investments in the business by delivering 30 basis points of adjusted EBIT margin expansion.
• In contrast, the start of bookings growth in the foreign business was slower than the management had anticipated.

• ON Semiconductor Corporation delivered another all-around beat in its last result.
• The company is a well-known provider of intelligent sensing and power solutions and has established a good market position within its niche in the semiconductor market.
• More and more companies are considering ON Semiconductors as their long-term strategic partners as the company walks according to an amazing foresight.

WANdisco’s deal flow momentum continues, with a $9m contract with a European consumer goods and manufacturing company. This win is notable in that it is the company’s first deployment for migrating a manufacturing company’s process data to the cloud. The manufacturing sector is increasingly producing large sets of data and has therefore been identified as a strategic target market for WANdisco. The deal provides early support to our recently upgraded 2023 estimates.

• Qualys delivered a strong set of results for the previous quarter, surpassing Wall Street expectations in terms of revenues as well as earnings.
• It was another quarter of steady VMDR (Vulnerability, Management, Detection, Response) adoption that has developed 45% of the company’s customers worldwide.
• VMDR applications of the company saw an increasing number of vendors and Qualys managed to build a high positioning in the recent market.

• Schrole Group Ltd (ASX:SCL) is an Australian software company focused on providing human resource technology solutions to the international education and training sector.
• Schrole has developed a suite of five HR Software-as-a-Service (SaaS) offerings including the core product, Schrole Connect, a SaaS-based staff recruitment platform.
• Schrole Group has reported its best- ever quarterly cash receipts and operating cashflow which respectively increased 38% and 138% over the same period in CY21.

• Like most of its tech peers, Twilio has also taken a beating in the markets even though its last results were not too bad.
• In fact, the company delivered an all-around beat in the previous quarter and has had some interesting developments.
• Given the current macro-economic climate, we are neutral on Twilio and give it a ‘Hold’ rating with a revised target price.

• Appian Corp delivered a mixed result in the last quarter with revenues exceeding Wall Street expectations largely driven by the growth in cloud subscription revenue.
• In every category, the revenue growth is healthy and setting records in the quarter.
• While a large part of the tech industry has been retrenching, Appian went ahead and hired 221 employees in the last quarter.